You may have noticed a lot of discussion recently about whether certain workers are employees or independent contractors. The Labor Department’s Wage and Hour Division is tackling the employee misclassification issue head-on because so much depends upon the answer to that question.
We need to ensure the fundamental principal behind work in America – that a fair day’s work deserves a fair day’s pay. When employers misclassify their employees as independent contractors, often to cut their own costs, those workers are denied basic protections such as minimum wage and overtime, not to mention necessary safety and health protections. Competitors lose out, too, when they can’t compete with employers getting ahead by avoiding the law. We know for many, the issue of worker misclassification can be a tricky one.
That’s why Secretary Perez took to Facebook to answer your questions about employee misclassification in a live chat hosted by Engadget.
Weren’t able to make it? Here’s a recap of the conversation:
Engadget: One of the potential solutions i’ve heard for this problem is the introduction of a third kind of employment — a hybrid between contractor and full-time — that offers more benefits than the usual 1099 contract but also doesn’t cost the employer as much re: taxes. any thoughts if this is possible, and what it would look like?
Secretary Perez: Many people have discussed the need for a third category of employment. Such a solution would require legislative action from Congress. Our current law provides a useful framework for understanding the rights and responsibilities of workers and employers. I am concerned that some observers have framed a false choice of protecting workers OR promoting innovation in today’s economy. I categorically reject this false choice. There are scores of innovative employers who reject this false choice as well, and are innovating, growing their business, and treating their workers fairly.
James Jones: Do you think of Uber as an innovator or as an entity that has essentially cheated the rules? It seems like their business model in some instances is to ignore existing regulations for taxi services by claiming that they aren’t a taxi service. Is that fair to other market participants? If not, should we rethink all of the existing regulations to reestablish competitive balance?
Secretary Perez: Every business situation is unique and fact dependent, so I cannot comment on a specific company without a detailed factual analysis. Regardless of the company, we use the same test to determine whether a worker is an employee or an independent contractor.
Engadget: How is the ‘gig’ economy different (other than the actual tech) from the traditional independent contractor relationships many companies use? I am an architectural sales rep and have seen mass age-discrimination of older reps. Corps choose to not have employees due to cost and treat reps like an underclass. Yet the only help we get from the labor dept is the normal Control/Repair/Tools/Pay analysis for Agent vs Contractor. Is any change inbound for further protections for independents?”
Secretary Perez: Regardless of the employment context, our department uses the same analysis to determine whether a worker is an employee or an independent contractor. Learn more: http://blog.dol.gov/2015/07/15/employee-or-independent-contractor/
Joe Evaristo: I wonder if he’s overwhelmed by the number of stories of misclassification abuse? As workers and job seekers, we’ve seen how invisible this problem is to authorities.
I’ve tried reporting employers that flaunt the law in their job listings (clearly seeking an employee, but claiming they want a freelancer) only to find that the government won’t act until they hire someone and misclassify them. We really need early intervention and education.
…So the optimist buried inside me hopes he’s distracted by that realization.
Secretary Perez: Tackling misclassification has been a priority since day one of this administration. We use a combination of strategic enforcement, outreach, education, and partnerships with federal and state governments to maximize our resources and combat this widespread problem. We focus on industries where wage violations are prevalent and workers are often afraid to speak up or don’t know their rights. If you want to speak to someone at the Department, call 866-4US-WAGE.
Mike Dehls: Let me make this short and sweet. When are we going to see real solutions to the rampant abuse of misclassifying workers as 1099? This comment page is already littered with employees that are basically helpless against industries that have stretched the definition of “independent contractor” way beyond the point of lunacy, all for the gain of employer and at the expense of employee.
Secretary Perez: The Department of Labor has an active docket of misclassification cases. Last year alone, our investigations resulted in more than 79 million dollars in back wages in a variety of industries. For more information: http://www.dol.gov/whd/workers/misclassification/
Katherine Berland: Someone else commented about the difficulties for employers to reconcile regulations from different agencies that do not always align with one another. How does the Department of Labor interact with other agencies to ensure that current and proposed regulations do not result in unintended consequences?
Secretary Perez: This is an important issue and we are in regular communication with sister agencies, including agencies at a state and local level, as we carry out our respective enforcement missions. In fact, we have memoranda of understanding with 23 states to deal with the common problem of misclassification. For more information: http://www.dol.gov/whd/workers/misclassification/
Danny Lima: I’m a Truck Driver at the Ports of Los Angeles and Long Beach & we are currently being misclassified as independent contractors. In the past 2 years- we’ve gone on strike (7x) and companies like Pacific 9 Transportation, XPO Logistics, Intermodal Bridge Transport, and other trucking companies through out the ports continue to steal our wages. We are required to pay for fuel, insurances, maintenance, wear & tear, tires, and tolls. How can the USDOL assist port drivers? Sec. Perez we urge you visit us at the Ports of Los Angeles and Long Beach and talk with us directly, hear our STORIES! Can you make this commitment?
Secretary Perez: I recently visited the ports of Los Angeles and Long Beach and have been involved in a number of labor issues relating to west coast ports in the past year. If you have specific information you would like to bring to our attention, please contact http://www.dol.gov/whd/
Jacquelyn: How are you going to determine who is a contractor versus an employee. I work at a career center and many employers are now hiring “contractors” instead of employees to avoid paying benefits and overtime. I had a case last week when an employer hires only contractors through a contract company to solicit for their cable services for their company and only their company and the employees are 1099. These employees are knocking on doors and if they get hurt on the job there is no workmen’s comp or insurance that would cover their injuries. Are there laws in place that would protect those 1099 employees or are there laws currently being written?
Secretary Perez: Many workers describe situations that are similar to yours, and many employers have reached out asking for guidance on this question. As a result, the head of our Wage and Hour office, Dr. David Weil, recently issued guidance regarding who is an employee and who is an independent contractor. The determination of whether you are an employee or an independent contractor is very fact specific. Just because someone may call you an independent contractor does not necessarily mean you are an independent contractor in fact. http://blog.dol.gov/…/employee-or-independent-contractor/
Jimmy Haun: Payroll fraud and wage theft are at epidemic levels in my industry, construction. After reading some of these comments, misclassification is rampant elsewhere. The new “Gig” economy is going to present more challenges in defining what is an employee and what is an independent contractor.
Secretary Perez: While the use of legitimate independent contractors has long been common in the construction industry, the deliberate misclassification of workers in construction is a an ongoing concern. In fact, we recently had a case where about 1,000 construction workers who were employees one day returned to work and found that they were now independent member owner LLCs and no longer protected by basic labor and safety nets. Our investigation resulted in $700,000 in back wages, penalties and damages for these misclassified workers and required the company to change its business model. You can read more about it here:http://www.dol.gov/opa/media/press/whd/WHD20150518.htm
Dave Mackersie: Our government should encourage a dynamic, innovative, competitive, and growing economy, rather than serving the entrenched business interests of the “old” economy. How do you solve the problem of “Regulatory Capture”, in which government agencies come to serve the interests of dominant industry players rather than the public at large? Would you agree that regulators should tread lightly to avoid killing off nascent industries with new business models?
Secretary Perez: I have met scores of employers from legacy industries and emerging industries who recognize that they can innovate and grow their business side by side with the workers. At the Department of Labor, we work regularly with many of these innovators. Some have expressed a concern that regulation will thwart innovation. I believe it is a false choice to suggest that complying with common sense consumer and worker protection laws creates a barrier to innovation. I applaud the many businesses who have rejected the false choice between regulation or innovation, and have grown their business in partnership with their workers and consumers. I also believe it is important for regulators to listen carefully to all stakeholders as we enforce laws that Congress has passed.
Secretary Perez: Thank you for your questions. I apologize that we could not answer all of them, and I apologize for my slow typing! Many of you had questions about specific circumstances around your workplace. If you believe you are a victim of misclassification, or want to learn more about this issue: http://blog.dol.gov/…/employee-or-independent-contractor/ or if you’d like to talk to a real person call 866-4US-WAGE
To learn more about employee misclassification read Wage and Hour Administrator Dr. David Weil’s blog post here.