Recent U.S. Labor Department enforcement activities, along with its collaborations with other governments and agencies, demonstrate its continued emphasis upon rooting-out the erroneous classification of workers as independent contractors.  And if U.S. Labor Secretary nominee Thomas Perez is eventually confirmed, officials can be expected to pursue the matter at least as aggressively as they have up to now.

Our Forbes.com article summarizes some important points to keep in mind with respect to the federal Fair Labor Standards Act status of "contract laborers", "freelancers", "casual workers", "contract employees", or independent contractors by any other name.

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As we have been reporting, March 12 was the deadline for submitting comments regarding the U.S. Labor Department's proposal "to collect information about employment experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification."  Despite our having asked for a copy of the proposed survey in a letter to USDOL dated January 14, we never received one.  Those who responded to our February 20 straw poll said that neither had they received a copy.

We have now submitted a comment (link to reproduction below) taking the position that the proposed collection of information should not be cleared, approved, or undertaken.  As we said to USDOL:

[the] circumstances strongly suggest that the Labor Department has failed to provide an adequate opportunity for public comment on this proposed information collection.  The Labor Department has clearly failed to do so with respect to members of the public who have expressed their interest in commenting by requesting copies but to whom it has provided none.  This state of affairs does not comport with the requirements and purposes of the Paperwork Reduction Act of 1995.

If USDOL nevertheless proceeds with its proposal at this point, the design and content of the survey, as well as the results produced by it and the use to which that outcome is put, might well be tainted and subject to challenge in light of the inadequate opportunity afforded for public comment on the proposal.

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Worker Classification Survey Comment 03 12 13 .pdf (47.81 kb)

Readers will recall our January post concerning the U.S. Labor Department's announced intention to "to collect information about employment experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification."  As we said then, this is likely to be a precursor to a renewed "Right to Know" initiative.

USDOL did not publish the actual proposed survey along with its January 11 Federal Register entry.  On January 14, we requested a copy from the official to whom USDOL directed that these requests be sent (link to reproduction below).  As of this writing, 38 days later, and after appreciably more than half of the comment period has elapsed, we have received neither a copy nor any other response.

The end of the comment period is March 12, 2013, 21 days from now.  As matters stand, one may reasonably conclude that the public has had no adequate, fully-informed opportunity to evaluate the proposed survey or to formulate and submit substantive comments.

We are led to wonder whether our experience is representative of the public's at-large.  If you requested a copy of the proposed information collection also, please respond to our poll to let us know whether you received one.

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Request For Proposed Information Collection.pdf (62.35 kb)

As we speculated in November, the U.S. Labor Department apparently does intend to reinvigorate its so-called "Right to Know" initiative.  This vague and ambiguous proposal first surfaced in 2010 but was eventually shelved.  USDOL has now announced its intention to conduct a survey "to collect information about employment experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification."

"Right to Know" About What?

In 2010, USDOL said that such a rule would require among other things the "notification of workers' status as employees or some other status such as independent contractors, and whether that worker is entitled to the protections of the [federal Fair Labor Standards Act]."  Many wondered at the time whether the provision would extend to disclosures about management's decisions as to which employees are considered to be exempt from the FLSA's pay requirements, and Wage and Hour Division officials seemed to be avoiding the question.  USDOL's recent announcement says, "Worker misclassification can be understood as the practice, intended or unintended, of improperly treating a worker who is an employee under the applicable law as in a work status other than an employee (i.e., an independent contractor)."  For the moment, then, the focus appears to be upon erroneously deeming workers to be independent contractors or incorrectly considering them to be functioning in some other non-employee capacity.

The announcement also provides at least some hint of what a "Right to Know" regulation will entail.  USDOL notes that "federal labor laws" do not require an employer to:

♦   Inform workers of their status as employees or non-employees;

♦   Provide the basis for these status determinations; or

♦   Notify the workers of their hours worked, pay rates, and wages paid.

Presumably, any "Right to Know" rules will obligate employers to provide this information, although to whom, when, in what form, to what extent, and at what level of detail remain unknown.

What Happens Next?

USDOL seeks comments on its proposed information collection by March 12, 2013.  However, it did not publish the actual information request.  Instead, a copy of this document must be obtained separately, raising the question of whether USDOL's announcement complies with the notice requirements of the Paperwork Reduction Act.  In any event, we have asked for a copy and will post the document when we receive it.

The notice specifies 30 months as the evaluation timeframe but then says in the same sentence that the period ends in March 2014.  Perhaps USDOL will later clarify which of these is its intention.

Businesses and other organizations (particularly those whose operational models include the use of non-employee workers) would be wise to take the opportunity to weigh-in on this proposed survey, to participate in the survey when it occurs, and otherwise to follow these developments closely.  It is foreseeable that the actual information collection might be orchestrated so as to provide a predicate for unprecedented new requirements.

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Now that the election is behind us, employers should consider what they might anticipate in the field of wage-hour law, which is already one of the largest sources of employment-law claims.  While the nature and number of the possible developments are practically unlimited, some of the foreseeable ones include these:

♦   The push to increase the minimum wage under the federal Fair Labor Standards Act, which was at fever-pitch before going dormant as the election season approached, will now re-emerge.  There will be similar efforts under many analogous state and local laws and ordinances.

This will probably include proposals to increase the FLSA's cash-wage requirement for tipped employees for whom employers take that law's tip-credit.  The public-relations approach will be that this increases "the minimum wage for tipped workers", despite the fact that the FLSA minimum wage for tipped employees is already the same as it is for everyone else.

 ♦   Analogous moves might well seek to increase the salary amount required for some of the FLSA's exemptions from minimum-wage and overtime, as well as to impose paid-leave requirements.  Recall the March bill introduced by Iowa Senator Tom Harkin which proposed both, including requiring most employers of at least 15 employees to accrue an hour of paid "sick time" for every 30 hours an employee works, up to at least 56 hours each calendar year.

Another possible measure might involve an attempt to raise the FLSA overtime-pay multiple from its current 1.5 times the regular rate to 2.0 times that rate.  This might be joined with reducing the threshold number of hours for FLSA overtime from 40 hours in a workweek to, say, 35 hours.  Similar FLSA amendments were proposed in the late 70s and early 80s, during another period of high unemployment and persistent economic stagnation.  A further impetus this time around might be the already-burgeoning rates of part-time employment, taken in conjunction with what could be a further trend toward part-time work driven by looming Affordable Care Act requirements.

 ♦   Aggressive government enforcement at federal and state levels is likely to expand.  There will be an even-more-intensified focus upon whether workers treated as independent contractors should instead be viewed as employees.  Employers should expect further national or regional enforcement initiatives undertaken with respect to entire industries.  These initiatives will include (among others) those directed at what the U.S. Labor Department has called "low wage" sectors, such as hospitality businesses and food retailing, retailing in general, some healthcare segments, landscaping, some construction segments, temporary-help agencies, daycare/homecare, agriculture, janitorial services, garment manufacturing, and guard services.

 ♦   Following a noisy notice-and-comment period that ended in March, proposals that would essentially spell the end of the FLSA exemptions for companions and live-in domestic-service workers suddenly dropped from view as the election season commenced.  These provisions will probably be released in their final form in the not-too-distant future.

Another distinct possibility is the revival of the so-called "Right to Know" regulations, which USDOL said would require "notification of workers' status as employees or some other status such as independent contractors, and whether that worker is entitled to the protections of the FLSA."  USDOL further said that the proposal would "also explore requiring employers to provide a wage statement each pay period to their employees," apparently so as to convey to employees "how their pay is computed."  The reach of these provisions would likely be even broader than USDOL has so far disclosed.

 ♦   The "wage theft" movement toward increasingly-draconian penalties and punishments will move forward with renewed energy, especially at the state and local levels.  For proponents of these measures, wage-law violations are unrelated to the multi-jurisdiction, patchwork nature of differing, obscure, sometimes-conflicting, ambiguous and ill-defined, rapidly-changing requirements that are proliferating across the nation.  No, as this publication [Editor's Note:  Link Apparently Taken Down] illustrates, in their eyes employers are instead "dishonest", unscrupulous scofflaws who are "stealing" money from workers.  Employers who remain disengaged on this front and who acquiesce in these pejorative campaigns do so at their peril.

It has never been more important for employers to remain vigilant, informed, and assertive about all of these matters.  It is also essential that each employer ensure right now that it is in compliance with all applicable wage-hour requirements.

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In thinking-through and implementing their recovery plans in the wake of Hurricane Sandy, employers will want to review our August post summarizing a number of federal Fair Labor Standards Act issues that typically arise following a natural disaster.

Readers will recall our typical reminder that the requirements and limitations of other laws must also be taken into account.  This is especially important where Sandy's impact is concerned, because the laws and regulations of some jurisdictions in the hardest-hit areas are often different and/or much tougher on employers than the FLSA is.

As just one example, New Jersey law provides, "No employer shall terminate, dismiss or suspend an employee who fails to report for work at his or her place of employment because he or she is serving as a volunteer emergency responder during a state of emergency declared by the President of the United States or the Governor of this state or is actively engaged in responding to an emergency alarm . . .," subject to certain notices and verifications.  This law does not require an employer to pay for the time missed (although treating some such time as unpaid might create problems under other requirements, such as the "salary basis" principles applying to certain exemptions under the FLSA), but it does say that "a volunteer emergency responder may charge his or her absence as a vacation day or a sick day, if the volunteer has such days available."  N.J. Stat. Ann. § 40A:14-214 (link to reproduction below).

The important take-away is that employers should be sure to consider all of the relevant directives and prohibitions as they decide how to proceed.  Haste and conventional wisdom could lead to trouble down the road.

 N.J. Volunteer Responder Statute.pdf (17.01 kb)

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For at least three years now, the U.S. Labor Department and the U.S. Internal Revenue Service (along with a host of analogous state and local agencies) have been on the alert for instances in which workers are erroneously considered to be independent contractors rather than employees.  The popular euphemism for these situations is "misclassification" (although this term is also used to describe the different problem of incorrectly treating employees as being exempt from minimum-wage and/or overtime requirements).

What's The Big Deal?

In significant part, this increased attention began with a straightforward motivation:  Government revenue collections have steadily declined in the sluggish economy, so officials at all levels are keenly interested in plugging any leaks.  As USDOL recently put it in a press release, "misclassification generates substantial losses to the U.S. Treasury and the Social Security and Medicare funds, as well as to state Unemployment Insurance and workers' compensation funds."

For its own part, USDOL has been hard at work ferreting-out "misclassification" under the Fair Labor Standards Act and the similar federal wage laws it enforces.  In just the last few weeks, for example, it has announced:

♦   A $105,000 overtime assessment against a Texas employer that had considered workers to be independent contractors for their first 90 days with the company; and

♦   A $101,000 demand against a Virginia employer that had considered individuals performing work on a government-funded construction contract to be independent contractors or to be subcontractors.

Numerous other USDOL "misclassification" investigations, and many private FLSA lawsuits challenging independent-contractor status, are underway across the country.

As we have also highlighted, some states have joined forces with USDOL.  And while North Carolina has not yet signed-on as far as we know, Gov. Beverly Perdue's August 22 Executive Order creating a "Task Force on Employee Misclassification" suggests that it might soon do so.  Among other things, the Task Force is responsible for:

♦   Identifying sectors of the economy where this occurs most frequently,

♦   Encouraging communication and cooperation between relevant state agencies,

♦   Considering regulatory changes likely to enhance legal enforcement efforts, and (perhaps most significantly),

♦   Identifying "ways to increase the filing of complaints by employees and other members of the public against noncompliant employers . . .."  [Emphasis added].

It's Smart To Think Ahead

All of this demonstrates yet again that organizations whose operating models are built even in part upon "contract labor", "freelancers", the oxymoronic term "contract employees", or independent contractors by any other name simply cannot afford to ignore the current enforcement climate.  The wise course is to evaluate without delay what the prospects are that such workers can be shown to be true independent contractors under each legal test that might be applied.

Perhaps the very first question should be whether the circumstances of the arrangement lend themselves to independent-contractorship at all.  In some situations, it will be unlikely that this status could be successfully defended, taking into account such things as the organization's need to control the worker's activities and all the other operational and managerial considerations involved in meeting the organization's objectives.

Even if the chances seem more favorable, management will want to be sure that is has done everything it can to strengthen its position.

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Recurring wage-hour issues tend to arise during the recovery from a natural disaster.  We posted the following item last year in connection with Hurricane Irene, and the points are equally relevant this time around:

*     *     *

Affected employers will no doubt have a variety of wage-hour questions in the aftermath of Hurricane Irene.  The number and scope of the issues raised might well be practically endless.  In this post, we address in very general ways the federal Fair Labor Standards Act topics that experience suggests will be among the most-pressing.

◊   What do we do about lost time records for work already performed but not yet paid?

If the only records of hours worked are lost or unusable, then there is no perfect solution.  Re-create the most accurate accounting you can under the circumstances.  Perhaps the preferred approach is to ask each employee to make the best-possible estimate of his or her hours worked. You should obtain the employee's written acknowledgement of his or her best recollection and should include the employee's authorization allowing later corrections in worktime and pay should more accurate hours-worked information become available.

◊   How do we track employees' worktime without our electronic/computerized time clocks?

Employees may record all hours worked by using handwritten timesheets.  To ensure accuracy, each employee should enter his or her own time and should record the actual times when the employee's work starts and stops each workday.

◊   As we recover, must we keep paying overtime on top of our other burdens?

At this time, there is no FLSA "emergency" exception that relieves the obligation to pay FLSA-required wages.  Employees subject to the FLSA's overtime provision must receive overtime premium at a rate of at least 1.5 times their regular rates of pay for all hours worked over 40 in the designated seven-day workweek.

If employees are covered by a collective bargaining agreement, it might contain additional overtime provisions requiring more than the FLSA does.  Perhaps the terms of the agreement relax those requirements in emergencies.  However, a collective bargaining agreement cannot override the FLSA's requirements.

◊   Can an employee volunteer to perform recovery services for us without pay?

The FLSA does not permit employees to "volunteer" unpaid time to the employer under any but the narrowest of circumstances.  For example, if a manufacturing facility sets up a hotline or makes other arrangements to provide a clearinghouse for information about the status of the workplace and employee reporting times, non-exempt employees volunteering to perform such services are engaged in compensable hours worked for FLSA purposes.  Employers considering any kind of unpaid "volunteer" services by their employees should evaluate the legality of doing this carefully and in advance.

◊   Must we keep paying employees who are not working?

Under the FLSA, for the most part the answer is "no".  FLSA minimum-wage and overtime requirements attach to hours worked, so employees who are not working are typically not entitled to the wages the FLSA requires.

One possible FLSA-related exception is for employees treated as FLSA-exempt whose exempt status requires that they be paid on a "salary basis".  Generally speaking, if such an employee performs at least some work in the designated seven-day workweek, the "salary basis" rules require that he or she be paid the entire salary for that particular workweek.  There can be exceptions here, too, such as might sometimes be the case where the employer is open for business but the employee decides to stay home for the day.

Also, non-exempt employees paid on a "fluctuating-workweek" basis under the FLSA normally must be paid their full fluctuating-workweek salaries for every workweek in which they perform any work.  There are a few exceptions, but these are even more-limited than the ones for exempt "salary basis" employees.

Of course, an employer might have a legal obligation to keep paying employees because of, for instance, an employment contract, a collective bargaining contract, or some policy or practice that is enforceable as a contract or under a state wage law.

◊   What can we do about charging missed time to vacation and leave balances?

The FLSA generally does not regulate the accumulation and use of vacation and leave.  The "salary basis" requirements for certain FLSA-exempt employees can implicate time-off allotments under various circumstances, some guidance on which the U.S. Labor Department has provided in opinion letters accessible here and here.

Again, however, what an employer may, must, or cannot do where paid leave is concerned might be affected by an employment contract, a collective bargaining contract, or some policy or practice that is enforceable as a contract or under a state wage law.

◊   When is travel time "hours worked" for purposes of computing FLSA wages due?

FLSA travel-time "rules" are not seamless, up-to-date, or necessarily logical or consistent with common sense.  The best-known ones are that:

•   Normal commuting between home and work typically is not considered to be hours worked, and

•   Travel between one assignment and another during a workday typically is hours worked.

However, even these principles are subject to exceptions and elaboration.  The best starting point is to consider each scenario an employer faces under the U.S. Labor Department's basic interpretations on travel time.  They are compiled at 29 C.F.R. §§ 785.33-785.41 and may be accessed here.

Remember that other requirements, such as those applying to government contractors or subcontractors and those of states or other jurisdictions, can also be relevant to these questions.

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The U.S. Labor Department continues to expand the number of jurisdictions and agencies with which it is collaborating to end what it has called "the business practice of misclassifying employees [as independent contractors] in order to avoid providing employment protections."  The most recent additions are the Colorado Department of Labor and Employment and the Louisiana Workforce Commission.

The list of those with whom USDOL has memoranda of understanding also includes:

◊   California, Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, and Washington,

◊   State labor officials in Hawaii, Illinois, and Montana, and

◊   New York's Attorney General.

The Colorado memorandum (link to copy below) exemplifies the nature of this cooperation.  Among other things, the state's Labor Department and USDOL pledge to:

◊   Conduct joint investigations periodically,

◊   Coordinate enforcement activities and provide mutual assistance,

◊   Refer potential violations of statutes enforced by the other,

◊   Develop "methodologies" for exchanging investigative leads and complaints, and

◊   Otherwise share information "as appropriate".

Companies and other organizations might as well assume that any investigation of independent-contractor status by one of these participants will result in the disclosures and referrals the memoranda call for.  Keep in mind also that USDOL has entered into a similar arrangement with the U.S. Internal Revenue Service.

This attention to the "misclassification" issue is unlikely to subside anytime soon.  For instance, there is reason to believe that USDOL's focus upon large homebuilders last fall is now turning outward to many of those companies' subcontractors and vendors.

The wise move for every organization relying even in part upon a contingent of independent contractors continues to be this:  Evaluate right now whether there is any vulnerability to a successful claim that those workers are instead employees.

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USDOL-Colorado DOLE Agreement.pdf (79.04 kb)

We wrote previously about the announcement of a cooperative alliance between the U.S. Labor Department and the U.S. Internal Revenue Service aimed at ending what the Secretary of Labor called "the business practice of misclassifying employees [as independent contractors] in order to avoid providing employment protections."

If that news was not enough to get everyone's attention, the terms of the "Memorandum of Understanding" between these agencies (link to copy below; copy courtesy of CCH) should cause all employers to take notice.  DOL and IRS have agreed to implement their agreement "through enhanced information sharing and other collaboration" led by a "joint IRS-DOL team".

Some Of The Details

Among other things, DOL will "refer to the IRS .  .  . Wage and Hour Division investigation information and other data that DOL believes may raise Internal Revenue employment tax compliance issues related to misclassification."  DOL will also share "Wage and Hour Division training materials and opportunities with the IRS .  .  .."

For its part, IRS "will evaluate and classify employment tax referrals provided by the DOL and .  .  . [will] conduct examinations to determine compliance with employment tax laws."  And in at least some instances IRS is prepared to "share the employment tax referrals provided by the DOL with state and municipal taxing agencies .  .  .."

The two agencies have also committed to "coordinate national outreach activities."  This will include such steps as "joint national press releases" and "joint messages to national stakeholder organizations."  The Memorandum does not identify any of these "stakeholder organizations", but one may hazard an educated guess as to what the identities of at least some of them might be.

The administration's "transparency" mantra has been suspended where the Memorandum is concerned.  For example, the document asserts "a need for the government to provide information to other law enforcement bodies without making a public disclosure."  DOL and IRS say that they intend to preserve their "legal privileges or other legal protections against disclosure" to outsiders, and they contend that information exchanges between them will not be a "public disclosure" under the federal Freedom of Information Act.

Points To Consider

The many take-aways include these:

◊   Once again, every company or other organization relying even in part upon a contingent of independent contractors should immediately evaluate whether there is any vulnerability to a successful claim that those workers are instead employees.

◊   Every such company or other organization being investigated by DOL should assume that information provided about independent contractors will be given to IRS and, potentially at least, to analogous state or local agencies and officials.

◊   Employers must of course abide by their legal obligations in DOL and IRS investigations and audits.  But, within those parameters, management should be careful in deciding (i) what documents and other information to provide, and (ii) how, under what circumstances, and with what caveats to disclose them.  DOL and IRS say that they intend to protect certain confidential or private information and trade secrets that are covered by federal laws and regulations.  However, an employer cannot be sure whether DOL or IRS will agree with the employer (or even with one another) that each document or item of information is protected against disclosure to some other person or entity, or that a court will agree with DOL's or IRS's views in some later third-party legal action to compel disclosure.  And the best of intentions cannot preclude an erroneous, mistaken, or inadvertent release of information to the public.

◊   While the Memorandum's principal focus appears to be worker misclassification, it does not say that the collaboration is restricted to this topic.  For instance, the "joint outreach" is said also to encompass "other issues of mutual interest."

DOL IRS Memodandum of Understanding.pdf (216.50 kb)

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