Blog Posts: Worker Classification
Wage-and-hour class-action lawsuits have taken the lead in workplace litigation, according to the latest trends report issued by the U.S. Chamber Institute for Legal Reform. Between 2007 and 2012, wage-and-hour settlements reached almost $2.7 billion, with $467 million in settlements in 2012 alone. Statistics released by the Federal Judicial Center show the trend continuing into 2013 with a 10% increase in wage-and-hour litigation over a 12-month period ending in March 2013.
Worker misclassification — that is, when an employer improperly classifies a worker as an independent contractor instead of an employee — is a major priority for the US Department of Labor (DOL). Recently, DOL indicated that it most often sees misclassifications of workers as independent contractors in certain industries and jobs, including janitorial, restaurant, delivery drivers, gas station attendants, nurse temps, security guards and cable installers. Worker misclassification implicates a broad range of laws, including the Fair Labor Standards Act, and a variety of agencies.
In 2011, the US Department of Labor (DOL) instituted Misclassification Initiative to pursue employers who misclassify employees as independent contractors. Recently, the new head of the Department, Thomas E. Perez, has vowed to continue this effort and make such misclassifications a top enforcement priority, asserting that they constitute “workplace fraud.”
When an organization hires a worker, it must classify him or her as either an employee or an independent contractor. Proper classification is critical for the organization because employers have certain legal obligations toward employees that they don't have toward independent contractors, such as payroll taxes and overtime pay.
Unpaid internships traditionally allow new and inexperienced workers to get the hands-on knowledge needed to gain entry into their field. The number of unpaid internships offered in recent years has mushroomed as employers attempt to minimize costs in a slow economy. Such cost-cutting tactics, however, are starting to turn against employers. Many unpaid internship programs require long hours or offer non-educational menial work lacking in any practical experience. Former interns instituted legal action against large employers like the Charlie Rose Show, Fox Searchlight Pictures and the Hearst Corporation in response to such programs. They also attracted the attention of the Department of Labor (DOL) and similar governmental agencies.
The United States Department of Labor (DOL) appears to be reviving the “Right to Know” initiative first proposed in 2010. This initiative is aimed at reducing worker misclassification by requiring employers to reveal more information about how they classify employees. The DOL recently announced its intention to collect information about “employers' experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification.” The DOL may ultimately use this information in crafting and implementing a new Right-to-Know rule.
A company that deliberately misclassified employees as independent contractors to avoid paying minimum wage and overtime recently was ordered to pay over $570,000 in damages for the misclassification.
The U.S. Supreme Court is currently deciding a case on the question of whether pharmaceutical sales reps are exempt from the requirements of the Fair Labor Standards Act (FLSA) for overtime pay. In Susan Schaefer-LaRose v. Eli Lilly & Co., the Seventh Circuit ruled on the same question, approaching it from a different angle.
The U.S. Supreme Court recently heard oral arguments in a case involving overtime pay for pharmaceutical sales representatives (PSRs). Under the Fair Labor Standards Act (FLSA), outside sales representatives are exempt and are thus not entitled to overtime pay. The question the Court is considering is whether PSRs qualify for that outside-sales exemption — specifically, whether they are engaged in making sales.
The Department of Labor reached an agreement with Wal-Mart – and issued a stern warning to other companies -- after finding that Wal-Mart violated the overtime provisions of the Fair Labor Standards Act (FLSA) by misclassifying more than 4,500 employees as exempt from overtime pay.