|Labor Solicitor Presses on Misclassification, Warns Violators Face ‘Full Brunt of the Law’ Labor Solicitor M. Patricia Smith said Nov. 8 that the Labor Department is continuing to challenge the misclassification of employees as independent contractors or exempt employees under the Fair Labor Standards Act, and is using litigation, amicus briefs and cooperation with state agencies as effective tools to combat minimum wage and overtime violations. Speaking at the American Bar Association’s annual meeting of the Section of Labor and Employment Law in Los Angeles, Smith said misclassification litigation now includes not only independent contractor disputes but also questions about the FLSA rights of trainees, sales workers, and employees with ownership shares of a business, as well as issues about the applicability of the FLSA’s “white collar” exemptions.The DOL has been active in filing and prosecuting challenges to employer misclassification of workers, Smith said, and in making the department’s views known in amicus filings in private lawsuits. Employers that ignore or evade federal and state minimum wage and overtime obligations leave themselves exposed to the “full brunt of the law,” she warned. Smith spoke at a conference session, and was joined by attorneys Michele R. Fisher of Nichols Kaster PLLP in Minneapolis, who represents employees, and Lindbergh Porter, a management attorney at Littler Mendelson P.C. in San Francisco. Jason C. Marsili of Posner & Rosen LLP in Los Angeles moderated the session.A Range of Issues Smith wouldn’t predict when the DOL will issue a notice of proposed rulemaking on changes in its white-collar exemption regulations, but she said the department was charged by President Barack Obama in a March memorandum to consider how to simplify and update DOL regulations to address the changing nature of the American workplace (65 BTM 81, 3/18/14). The agency intends to do just that, Smith promised.She said the DOL, operating with limited resources, has itself filed lawsuits under the act, but that private lawsuits make up most of the FLSA cases filed each year.
Smith said that of approximately 15,000 cases recently filed under the FLSA, at least 2,000 were misclassification cases—48 percent of them individual cases, and 52 percent collective or collective-and-class actions.
Independent contractor disputes continue to proliferate, Smith said, listing exotic dancers, truck drivers, cable/satellite installers, couriers, security guards, delivery drivers (for retail stores and shipping companies) and construction workers as job categories where employers’ classification of workers as independent contractors has been challenged.
Smith said the DOL is asking that courts examining independent contractor claims and controversies consider not only the individual elements of multifactor tests distinguishing employees from independent contractors but also a larger question: “Are you in business for yourself or for another person?”
Substantial Jeopardy The solicitor, who was New York State Commissioner of Labor before coming to the DOL in 2010, pointed out that an employer that violates the FLSA by misclassifying an employee as an independent contractor is almost certainly violating employment obligations under state wage and hour, worker’s compensation and unemployment insurance laws, as well as federal and state payroll tax requirements.
Smith said the DOL has itself gone to trial in seven independent contractor cases in the past two years, but that the department has also entered memorandums of understanding that allow it to cooperate and share information with state agencies.
Both “red and blue states” are cooperating with the department, the solicitor said, citing recent DOL agreements with Alabama and Utah as examples. The DOL signed a cooperation agreement with New Hampshire Nov. 12. The department also shares information about misclassification with the IRS, she warned.
Under the New Hampshire agreement, the agencies will share information and coordinate law enforcement to prevent employees from being misclassified as independent contractors, the DOL said in a Nov. 12 statement.
The DOL has signed similar agreements with other states, including Alabama, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington.
Smith, Porter and Fisher also discussed the recent wave of litigation concerning the use of unpaid interns, and Porter reviewed the DOL’s guidance in a 2010 fact sheet on factors used in determining whether an intern is an employee entitled to minimum wage and overtime compensation under the FLSA (61 BTM 131, 4/27/10).
Smith said intern cases have been rising in several industries, including publishing and modeling, adding that the DOL is looking at another category of unpaid work: individuals performing concessions services at facilities such as sports stadiums.
Of about 15,000 cases recently filed under the FLSA, at least 2,000 were misclassification cases, Labor Solicitor M. Patricia Smith said.
In the concessions cases, Smith explained, individuals referred to as “volunteers” perform work for a concession operator in an arrangement often made by a charity or nonprofit organization.
In exchange for the nonprofit’s providing labor to the concession, Smith said, the concessionaire makes a contribution to the organization. The volunteers get no pay, but the organization that receives the benefit of their work also gets to enjoy a tax deduction.
Smith said no decision has been reached on the concessions arrangements, but the issue is under review. The solicitor also said that determinations of joint employer status under the FLSA are becoming “more and more important.” In the past, Smith said, the issue was only a concern if the nominal employer of workers in an FLSA dispute lacked the resources to pay a judgment for back pay and damages.
Now, she said, the DOL is looking at the phenomenon its new Wage and Hour administrator, David Weil, has referred to as the “fissured” American workplace.
The increased use of temporary agencies and staffing companies to supply employers with “contingent” workforces carries particular risks for workers, Smith said. Lots of temporary employees coming to new assignments in unfamiliar workplaces have been injured or killed on their first day on the job, she said, making the safety obligations of joint employers “very important.”
Smith was asked in reference to the National Labor Relations Board’s pending case involving Northwestern University whether she wanted to offer a DOL position on whether college athletes are employees under wage and hour laws. Smith said she was sure the DOL will have to enter the debate at some point but then laughed and said, “We’ve dodged it so far.” For More Information Text of the New Hampshire-DOL agreement is available at http://op.bna.com/dlrcases.nsf/r?Open=gcii-9qsr6m.