Last month, the DOL and NLRB announced that they signed a Memorandum of Understanding (MOU) that encourages inter-agency cooperation through information sharing and joint investigations with respect to companies that misclassify employees as independent contractors. Thus, if you are paying workers as independent contractors to save payroll taxes, overtime, benefit costs, or other expenses, you may be squarely in the crosshairs.
The new joint effort to crackdown on employee misclassification will likely result in broader investigation and enforcement of misclassification violations. Since the two agencies will be sharing information and will each be able to advise employees of the rights enforced by the other, it is expected that there will be an increase in routine wage and hour audits, employee complaints, minimum wage and/or overtime violations, and Family and Medical Leave Act violations. The MOU also allows one agency to conduct an investigation and enforcement action with respect to the statutes it is charged with enforcing (e.g., DOL and FSLA claims), while the other waits in the wings for it to be completed only to then pounce on the employer again for violations of the statutes it enforces (e.g., NLRB and unfair labor practice charges). As a result, it is expected that companies that do not properly classify their workers will face greater exposure to damage awards and penalties.
The MOU follows the DOL’s proposed new rule for classifying workers as independent contractors or employees. While the new rule has not been finally passed, it would make classifying workers as independent contractors more difficult. Under the proposed new rule the following factors would be applied:
Does the worker have an opportunity for profit or loss depending on managerial skill;
What are the relative investments by the worker and employer;
What is the permanency and exclusivity of the working relationship;
What is the nature and degree of control over the worker;
The extent to which the work performed is an integral part of the company’s business; and
The skill and business-like initiative of the worker.
All of the foregoing are part of the current administration’s effort to protect and provide better benefits to workers. But, they come with risks and potential costs to companies that pay workers as independent contractors. The bottom line is that now is probably a good time to be conservative with worker classifications.