Employee misclassification causes headaches for both workers and employers, and the federal government and the states are joining hands to ease the pain.
Misclassification often has substantial consequences for all parties involved—employers and workers, as well as the federal government and the states. Misclassifying an employee as an independent contractor may result in denial of minimum wages, overtime compensation, family and medical leave, and unemployment and workplace safety protections. Employers may face costly lawsuits and be liable for unpaid overtime and minimum wages, as well as back pay, court costs and attorneys’ fees.
For these reasons, the Department of Labor is entering into enforcement partnerships with state agencies for “information sharing and coordinated enforcement” in support of its Misclassification Initiative, according to its website.
Joint federal-state efforts likely will continue to play a large role in the future of worker misclassification enforcement as more states enter into formal agreements with the DOL.
The DOL has signed formal partnership agreements with state agencies across the country as part of its Misclassification Initiative. This initiative is rooted in Vice President Joe Biden’s Middle Class Task Force, according to past DOL news briefs.
The department states that the purpose of these partnerships is for “providing clear, accurate and easy-to-access outreach to employers, employees and other stakeholders…sharing resources and enhancing enforcement by conducting joint investigations and sharing information consistent with applicable law.”
The DOL’s Wage and Hour Division most recently signed a three-year Memorandum of Understanding with the Oklahoma Employment Security Commission for its worker Misclassification Initiative. The DOL currently has partnerships with 34 other states, and there soon may be more on the horizon as additional states consider these types of joint agreements.
“The Wage and Hour Division continues to attack this problem head on through a combination of a robust education and outreach, and nationwide, data-driven strategic enforcement across industries,” Wage and Hour Division Administrator David Weil stated in the news brief announcing the Oklahoma partnership.
Chief of the Division of Labor Standards Enforcement Julie Su discussed the impact of California’s misclassification enforcement MOU with the DOL in a Sept. 16 interview with Bloomberg BNA. Below are edited excerpts from the interview.
[Editor’s Note: In December 2011, California was one of the first states to enter into an agreement for joint employee misclassification enforcement initiatives. According to the California Department of Industrial Relations’ website, the “misclassification of workers results in a loss of payroll tax revenue to the state, estimated at $7 billion per year.”
The California legislature in September 2011 passed SB 459, which greatly increased the civil penalties employers must pay if they misclassify workers as independent contractors. California’s Governor Jerry Brown signed this bill into law the following month.]
Bloomberg BNA: What does the MOU entail?
Commissioner Su: The MOU essentially provides for collaboration and information-sharing between the DOL and California's labor law enforcement agencies to tackle misclassification.
Bloomberg BNA: Why did California decide to enter into this agreement and why is it important?
Commissioner Su: In California, we take the fight against misclassification seriously, as it undermines both workers' rights and employers who play by the rules. The governor signed legislation providing penalties for willful misclassification.
Under this administration, we’ve investigated misclassification in industries ranging from construction to nail salons to airport shuttle drivers. Like the DOL, we’ve found misclassification of employees in the port trucking industry as well. This led to legislation which provided port trucking companies the ability to come forward, perform a self-audit, pay their drivers according to the law and properly classify their drivers as employees in exchange for a break from penalties owed.
We’ve communicated with the DOL about all of these industries in an effort to maximize our enforcement resources and work in partnership as much as possible to ensure all labor laws are respected in California.
Bloomberg BNA: How has this agreement facilitated California’s current employee misclassification enforcement efforts?
Commissioner Su: It is of paramount importance that our Labor Commissioner’s Office use enforcement resources wisely. In fact, the office has spent the last five years working methodically and purposefully on methods to work smarter, streamline our processes and work strategically on the biggest challenges to enforcement.
An enforcement challenge is employee misclassification, so collaborating with the DOL (which has also made this a priority) makes good sense. We don’t need to duplicate efforts. When we have information that would be useful to another agency, we need to communicate.
I believe very strongly that working people should enjoy the highest protections available to them when they work. The level of protection they receive shouldn’t be dependent on which government agency happens to investigate. Only by working together with the DOL can we make this happen.
Bloomberg BNA: Are there any advantages to a state entering a joint enforcement initiative with the DOL?
Commissioner Su: There are certainly advantages to government agencies working smarter together. Particularly when the challenges are great, good communication, joint strategizing and information sharing make sense.
For example, there are cases where the DOL begins an investigation but finds that the case is outside of its jurisdiction or that there’s no violation of federal law. However, there are state law violations. In these situations, we’re in communication to take those cases from the DOL and build on them to get the workers their due.
The state of California has modeled its MOUs with local entities on our MOU with the DOL. With the proliferation of local minimum wage ordinances across California, the Labor Commissioner's Office has taken the lead on collaborating with local entities to train, guide and support the growth in enforcement. In May 2016, our office held a Convening in Los Angeles with local entities. All jurisdictions but one attended. Also in attendance was the DOL, and we were proud to have them present.
If you think of enforcement as a hand and each entity as a finger, it’s much more powerful when all of the fingers can work collaboratively to pack the most powerful punch against scofflaw employers.
Since 2011, the DOL’s official collaboration with state agencies has produced big results.
The agency reported that in FY2015, approximately $74 million in back wages were paid for “more than 102,000 workers” as a result of joint efforts with states. This figure is an increase from the $5 million in back wages the DOL reported collecting as a result of FLSA worker misclassification in 2011.
In addition to partnering with states, the DOL also has existing partnerships with other federal agencies such as the Internal Revenue Service and the Department of Housing and Urban Development.
The data and feedback from state agencies indicates that the amount of DOL-state partnerships is expected to rise.
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