DOL Decision Could Mean the End of Wage Theft Through “Independent Contractor” Misclassification

David Moberg

Companies like Federal Express and Uber might soon feel the heat over independent contractor regulations that were recently released by the Department of Labor's Wage and Hour Division. (Thomas Hawk / Flickr)

Are you an employee?

It seems like a sim­ple ques­tion that must have a sim­ple answer for most peo­ple. But def­i­n­i­tions in dif­fer­ent laws and rul­ings enforc­ing the laws vary. And that vari­a­tion pro­vides an open­ing for a grow­ing num­ber of employ­ers to cheat gov­ern­ments of tax­es and work­ers of income, ben­e­fits and pro­tec­tions by mis­clas­si­fy­ing their employ­ees, espe­cial­ly as inde­pen­dent contractors.”

Last week, the admin­is­tra­tor of the Depart­ment of Labor’s Wage and Hour Divi­sion, David Weil, released a let­ter of guid­ance” that clar­i­fies who is an employ­ee and who is an inde­pen­dent con­trac­tor” — that is, essen­tial­ly an indi­vid­ual run­ning his or her own busi­ness. He argues that the most defin­i­tive state­ment from Con­gress comes from the Fair Labor Stan­dards Act, which says that to employ” means to suf­fer or per­mit to work.” And, he con­cludes, under the Act, most work­ers are employees.”

The deci­sion is incred­i­bly impor­tant,” says Cather­ine Ruck­elshaus, gen­er­al coun­sel and pro­gram direc­tor of the Nation­al Employ­ment Law Project (NELP), a pro-work­er non­prof­it orga­ni­za­tion, and may help to clear up con­fu­sion in the courts and encour­age more enforce­ment of the law.

In recent years, many com­pa­nies — from 10 per­cent to 30 per­cent or more of employ­ers — employ at least sev­er­al mil­lion peo­ple who are mis­clas­si­fied as inde­pen­dent con­trac­tors, accord­ing to a recent NELP report. They even go so far as to require work­ers to form a lim­it­ed lia­bil­i­ty cor­po­ra­tion or fran­chise (with them­selves as the one and only par­tic­i­pant) or to sign con­tracts declar­ing that they are inde­pen­dent con­trac­tors. Accord­ing to anoth­er study from econ­o­mist Jef­frey Eise­nach of George Mason Uni­ver­si­ty, the num­ber of inde­pen­dent con­trac­tors rose by one mil­lion from 2005 to 2010, includ­ing both fake and real con­trac­tors (often unem­ployed work­ers who re-label them­selves as con­sul­tants”).

One high-pro­file exam­ple is the Fed­er­al Express deliv­ery dri­ver — who wears a FedEx uni­form, dri­ves a com­pa­ny truck, fol­lows a route set by the com­pa­ny and still is treat­ed as a con­trac­tor. Weil’s rul­ing may also tip the judg­ment against com­pa­nies like the Uber taxi ser­vice, increas­ing­ly tar­get­ed in law­suits as improp­er­ly treat­ing its dri­vers as inde­pen­dent contractors. 

When employ­ers mis­clas­si­fy work­ers, they often pay less for con­trac­tors, but most impor­tant, the work­ers lose a wide range of pro­tec­tions and ben­e­fits under the law such as unem­ploy­ment com­pen­sa­tion, work­ers’ com­pen­sa­tion, min­i­mum wage and over­time reg­u­la­tions, and gov­ern­ments lose bil­lions of dol­lars a year in tax­es that sup­port those programs.

In his recent book The Fis­sured Work­place, Weil argues that work­place phe­nom­e­na like sub­con­tract­ing, using inde­pen­dent con­trac­tors, fran­chis­ing and oth­er ways to make employ­ers less respon­si­ble for their employ­ees is not just a result of com­pe­ti­tion dri­ving down costs, whether as a result of glob­al­iza­tion, weak­en­ing of unions, new tech­nolo­gies or new work process­es, but also pres­sure from pub­lic and pri­vate cap­i­tal mar­kets to improve returns.”

Unlike the com­mon law” test for who is an employ­er, which empha­sizes the degree of con­trol over one’s work, the FLSA stan­dard usu­al­ly relies on an eco­nom­ic real­i­ties” test, which exam­ines many dif­fer­ent dimen­sions of work with­out favor­ing one above all oth­ers. But in his guid­ance let­ter, Weil writes, the ulti­mate inquiry under the FLSA is whether the work­er is eco­nom­i­cal­ly depen­dent on the employ­er or tru­ly in busi­ness for him or her­self.” But the var­ied eco­nom­ic real­i­ties test­ed include such ques­tions as how inte­gral the work­er is to the busi­ness, how much does man­age­r­i­al skill affect pos­si­ble prof­it or loss, how big is the worker’s rel­a­tive invest­ment, does the worker’s suc­cess rely on spe­cial busi­ness skills in addi­tion to any tech­ni­cal skills, what kind of con­trol does the employ­er exer­cise, or how per­ma­nent is the rela­tion of the work­er to the employer.

The impact of this guid­ance let­ter may first be felt in court­rooms and in var­i­ous fed­er­al or state agen­cies, but Ruck­elshaus hopes that employ­ers will vol­un­tar­i­ly take it seri­ous­ly. More like­ly, it will only be quite mean­ing­ful if there are sys­tem­at­ic state and fed­er­al efforts to audit employ­er behav­ior, espe­cial­ly in indus­tries where abus­es are com­mon, such as low­er-skill con­struc­tion, home care and jan­i­to­r­i­al work. Unions are also in a posi­tion to push for more vig­or­ous enforce­ment, as Ruck­elshaus said the Car­pen­ters have been.

And when it is clear that the work­ers are not con­trac­tors but employ­ees, the unions can do the work­ers a favor and invite them to join the union. 

David Moberg, a senior edi­tor of In These Times, has been on the staff of the mag­a­zine since it began pub­lish­ing in 1976. Before join­ing In These Times, he com­plet­ed his work for a Ph.D. in anthro­pol­o­gy at the Uni­ver­si­ty of Chica­go and worked for Newsweek. He has received fel­low­ships from the John D. and Cather­ine T. MacArthur Foun­da­tion and the Nation Insti­tute for research on the new glob­al economy.

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