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Government Scrutiny of Classification is Increasing
Federal and state government enforcement focus on misclassification of employees as contract workers– DOL estimates that 30% of businesses misclassify
employees– IRS estimates $3.5B in annual lost tax revenue due
to contingent worker misclassification DOL “misclassification initiative” with state agencies– In 2014, federal government provided $10.2M to finance state
agency investigations of misclassification claims– In 2014, New York Labor Department conducted 12,000 contract
worker audits and assessed $40M+ in penalties– August 2016 Memorandum of Cooperation with Pennsylvania DLI
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Since 2007, 26 states have enacted legislation addressing employee misclassification– These state laws create significant civil
and criminal penalties for employers thatmisclassify employees as contract workers
California Independent Contractor Lawimposes fines of up to $25,000 for eachwillfully misclassified employee– “Scarlet Letter”: Employers who violate law are also required to
publish a “prominent” notice on their public website acknowledging “serious violation of the law”
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Misclassification: Contractor or Employee?
DOL, IRS, and most courts use a complex “economic reality” balancingtest to determine whether a worker isa contractor or an employee
Fact-specific analysis that does nothave clear lines– Who has the right to control the contingent worker?
– Is the work an integral part of the company’s business?
– Does the work require specialized skills?
– How long is the relationship between the worker and the company?
In 2015, DOL issued new guidance that test should be applied with view that “most workers are employees”
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Consequences of Misclassification
• Harassment and discrimination claims• Unpaid wages, overtime, and business expenses• Payroll taxes• Affirmative Care Act “Pay or Play” Penalties• Workers’ Compensation• Unemployment insurance• FMLA and paid sick leave• Union organizing and collective bargaining• And more . . .
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The Joint Employment Trap
Joint employment occurs when two or more entities share “significant control” over a traditional employer-employee relationship
Most common when contractworkers work on-site and areintegrated with traditional employees
May be a joint employer even thougha contract worker is properly classified as an employee of an agency or contract services organization
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The traditional test: “actual control”– Who has actual authority to hire and fire?
– Who has actual authority to set work rules, assign work, and establish conditions of employment?
– Who is actually involved in day-to-day supervision?
– Who actually maintains employment records (i.e. payroll, insurance, taxes)?
Joint employment requires two or more entities to share actual control over a contract worker
But, the rules are changing . . .
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The Browning-Ferris Decision and its Progeny
Adopted a much broader “right to control” standard for joint employment– “Actual control” standard is “without foundation”– Reversed 30 years of NLRB precedent– D.C. Circuit appeal argued March 9, 2017
Miller & Anderson – July 2016 decision allows “mixed unit” organizing– Joint employees may be organized in same
bargaining unit as direct employees– Can be done without joint employer consent
California Labor Code § 2810.3 – joint liability for wage claims against agencies that supply contract workers
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Consequences of Joint Employment
• Joint liability for wage claims• Joint liability for harassment and discrimination
claims• Joint liability for Workers’ Compensation• Joint liability Unemployment insurance• Affirmative Care Act “Pay or Play” Penalties• FMLA and paid sick leave• Union organizing and collective bargaining• And more . . .
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Light at the End of the Tunnel?
Now some good news: the law may be (slowly) evolving New Administration = New Priorities
– “June 7, 2017 DOL immediate withdrawal of recentFLSA guidance on misclassification and joint employment
AI 2016-1 – “Expansive” definition of joint employment
AI 2015-1 – Narrowed definition of independent contractor
Arizona “Declaration of Independent Business Status” Law– Companies may obtain declarations from
non-employee workers that create a rebuttablepresumption of independent contractor status
– But, does not affect test under federal law
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