On Sept. 15, the Department of Labor awarded $10.2 million in grants to 19 states “to implement or improve worker misclassification detection.” Since the DOL launched its “Misclassification Initiative” in Sept. 2011, this is the first year the DOL awarded funding to individual states for this purpose.
BBNA: What kinds of activities will advance these efforts? Have any states proposed or enacted legislation imposing increased recordkeeping and notice obligations on employers or heftier penalties for noncompliance? Are there any new initiatives to educate employees on the legal process for appealing position classification and to prohibit retaliation against workers?
Doyle: I’m not aware of initiatives to educate employees on the classification issue. To actually reduce misclassification mistakes, states should educate employers who make the “mistakes” (intentional or inadvertent) on the law and the penalties for noncompliance. Audits are by far the most successful detection effort.
BBNA: What industries have frequent incidence of employee misclassification and are likely targets for audits and investigations by the Wage and Hour Division? What should companies in these industries do to diagnose their state of compliance or to minimize the risk of future misclassification liability?
Doyle: Information technology is an industry that frequently staffs with “contractors” or other temporary workers. Companies in this space should regularly perform self-audits to identify all personnel paid via a form 1099 (i.e., not treated as an employee). Classification decisions should be made only with approval of human resources or legal department personnel who understand the classification test.
BBNA: What are some risks and rewards of re-classification decisions on the verge of (and during) litigation?
Doyle: The risk of re-classification during pending or threatened litigation is that the conduct is viewed as an admission of a prior mistake in the classification. Such an admission can eliminate defenses in the lawsuit. The reward is that if there’s a mistake, correcting it will limit damages. Such action also may give the employer a defense against a “willful” finding, which will further reduce damages.
BBNA: FLSA lawsuits have skyrocketed in recent years. What makes wage-hour collective actions so attractive to the plaintiffs’ bar? What effect do you think federal and state regulators’ increased scrutiny and employer compliance assistance efforts will have on wage-hour collective and class actions?
Doyle: The FLSA is a fee-shifting statute. That is, plaintiffs’ lawyers almost always get their fees paid as part of an award. The award itself is subject to interest, penalties and liquidated damages and, thus, tends to be very high. Costs of litigation are awarded in addition to fees, providing great incentive for lawyers to pursue class actions. Regulatory scrutiny will increase the likelihood of litigation until that scrutiny heightens employers’ awareness of the issue and prompts them to change their practices.
BBNA: At a July 23 hearingto discuss the rise in FLSA lawsuits, members of the House Subcommittee on Workforce Protections noted the decline in the release of guidance documents (i.e., opinion letters) and the concomitant increase in litigation. Witnesses attributed employers’ legal uncertainty to an outdated regulatory structure and suggested additional guidance would help employers make employee classification determinations.
Based on your experience litigating misclassification claims and federal case law on independent contractors and the applicability of exemptions, where is FLSA guidance most needed?
Doyle: The regulations are woefully outdated. More education of employers is critical. Many employers assume that “temporary” means contractor or that there's no liability as long as the worker agrees to be classified as a contractor. Employers are constantly reminded of their obligations under Title VII, state anti-discrimination law and the like but receive little guidance on the contractor issue.
Guidance is also needed in applying the outdated FLSA regulations to the modern workforce. For example, most employees, including nonexempt employees, have work-issued technology and use it at home, on the road or on off-hours. Employers should be made aware that they must pay for this time, as it's compensable time worked, and should adopt policies to address this issue.
Employees also need guidance on the limits of FLSA exemptions, especially the professional and administrative exemptions. Many highly compensated employees, who view themselves as professionals (with degrees), are nonexempt. The administrative exemption is limited to those with a high degree of autonomy. The costs of mistakes in this area are high.
Linda M. Doyle is a partner in McDermott Will & Emery’s Chicago office and serves as national hiring partner. As a member of the firm’s employment practice, she litigates class-action and single plaintiff cases, negotiates labor contracts and represents employers in arbitration and in DOL and NLRB proceedings. Doyle provides counsel to employers and conducts employee and management training. She is admitted to practice in Pennsylvania and in Illinois.
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