Last week, 4,000 Sacramento Bee newspaper carriers were awarded class certification according to a Sacramento Superior Court Judge. The ruling paves the way for the newspaper carriers’ class action lawsuit against the Sacramento Bee for being misclassified as independent contractors when they should have been employees.
No strangers to independent contractor misclassification
The law firm of Callahan & Blaine initially filed the lawsuit on February 5th of 2009 and it’s taken over two years to gain class certification. Callahan & Blaine are no strangers to the independent contractor misclassification headlines. They are currently awaiting class certification status on three other lawsuits that involve California newspapers: Fresno Bee, San Diego Union- Tribune and the Antelope Valley Press. Not to mention, the law firm was responsible for a $42 million dollar settlement for newspaper carriers during their 2009 trial versus the Orange County Register.
Worker Status Factors
The Sacramento Bee appears headed for a fate similar to that of the OC Register and Callahan & Blaine have found the proverbial pot of gold in what could be a sure win for newspaper carriers. It’s hard to believe that a potential trial verdict would favor the Sacramento Bee simply because the worker status factors and those of the OC Register are similar. For instance, 1) the Sac Bee controls the manner and means of how the services are performed, 2) the job carries little skill and 3) the delivery services performed by the carriers are an integral part of newspaper’s business.
Newspaper Carriers and Independent Contractors Debate
The only outcome I’m awaiting is whether the newspaper carriers are awarded the verdict or the Sacramento Bee settles out of court. The latter would leave the newspaper carriers as independent contractors debate to rage on until Callahan & Blaine’s next client steps to the podium against a different newspaper agency. The one thing I’m certain about is no matter what the outcome may be, I as a Sacramento Bee subscriber am bound for a fee increase.
Check back with us for more updates on this lawsuit.
A few former employees of XE (formerly Blackwater) have filed a $60M class action lawsuit claiming that the company withheld paying benefits to its employees. Over 3,000 people are involved in the suit as they claim that XE improperly classified them as independent contractors therefore skipping out on paying worker benefits and employer taxes. To make matters worse, the suit also states that one of the former employees had a determination from the IRS indicating that he was an employee, not an independent contractor for purpose of tax status.
Worker Misclassification Issues
This is not the first time that XE has come under fire for its worker misclassification issues. In 2007, the chairman of the House Committee on Oversight and Government Reform, Rep. Henry Waxman (D-CA) accused the private military company of engaging in an illegal tax scheme. Rep. Waxman indicated that Blackwater managed to avoid an estimated $31M in employment taxes.
Independent Contractors Performing Similar Services
Fast forward to today and where is XE? At the exact same place minus the name change. The Waxman interrogation of ’07 did nothing to change the company’s worker classification practices. How can a contractor who’s providing military services to a private military firm be classified as an independent contractor? Did XE not think that the worker was performing services that were similar to other W2 employees? Did they overlook the fact that independent contractors were performing services that were integral to their core business? Regardless of XE’s thinking (or lack thereof) they knew that they were untouchable. After all, they were doing business with the U.S. Government and there was a need for their services overseas.
Heads will turn if this lawsuit goes to trial. Any new legislation created for the purpose of curbing worker misclassification will never be taken seriously as long as there are parties who are exempt from playing by the rules.
Over the course of the last few months, more and more websites have been popping up with information regarding independent contractor misclassification. These are not your regular “Watch out, your company could be a target” websites. Instead, the sites are providing independent contractor misclassification information with the hope that a worker who is currently being engaged as an independent contractor will perform a self evaluation and report their working relationship to a third party.
Worker Classifications from a Third Party
Contacting a third party for a recommendation on your worker classification is not a foreign idea. The IRS has an SS-8 form that a worker can complete to obtain their worker status for Purposes of Federal Employment Taxes and Income Tax Withholding. While the IRS provides aid in determining status, I’d find it difficult to believe that the form is being utilized to its potential. Why? I can’t imagine that there are too many people willing to share additional tax information with Uncle Sam.
So where does that leave workers? It leads them to sites like USovertimelawyers.com and ehow.com. While these are just two examples of websites that target the worker audience, both contain different approaches. For example, USOvertimelawyers.com’s main focus is on overtime. Their site makes the transition to independent contractor misclassification on the notion that if you’re an independent contractor, you’re not collecting overtime. The potential reader begins to wonder if they’ve been improperly misclassified and before they can finish the paragraph; USOvertimelawers.com’s has conveniently placed their 800 number on their site with hope that it provides an opportunity for the worker and a potential payout for the law firm. This is the most common tactic utilized by many third party agencies looking to make a buck. ehow.com on the other hand presents their material in a different manner without being over the top. The ehow.com approach is as simple as their title “How to Sue Your Employer for Wrongful Misclassification”. In four easy steps, ehow.com advises the worker on how to initiate a lawsuit with steps that include contacting an employment law firm and gathering as much material (employee handbooks, training material, memo’s, etc.) that could potentially support a misclassification case. If you didn’t know of an employment lawyers, ehow.com conveniently offers sponsored links of which all happen to be law firms. Convenient, isn’t it?
Independent Contractor Misclassification Audience is Evolving
The audience for independent contractor misclassification is changing. In the past, a majority of the news coming from the government or third party outlets have been directed at companies who misclassify workers. The general tone of the news releases reminds me of my childhood years when the boogeyman was going to get me if I didn’t comply. Now it appears that this kind of scare tactic doesn’t work as most companies continue to go about their business without fear of penalty. The switch of targeting independent contractors as the audience is intriguing since it seems that we’re inching towards a whistleblower society. If companies cannot police themselves in their day to day business, why not engage a worker to police their own status. After all, the worker has much to gain and the potential employer, much to lose.
For the last few years, Kansas has been active in the battle against independent contractor misclassification. Last week, Kansas escalated its fight when Governor Sam Brownback signed Substitute House Bill 2135 into law. The law allows the Kansas Dept of Revenue to investigate and refer any potential misclassification occurrences to the Kansas Dept of Labor for review. In addition, the Kansas DOR would direct the Kansas Secretary of Labor in determining whether the independent contractor was properly classified for purposes of wage and unemployment under the Kansas Employment Security Law.
Bill 2135 expands penalties to businesses that intentionally misclassify workers to avoid paying taxes. No longer would guilty businesses be subject to only civil penalties. Instead, the guilty parties could be hit with misdemeanor penalties instead.
In an attempt to refrain from coming across as a correspondent for Fox News, this new piece of legislation does not come without a few negatives. First, the automatic penalties for first-time offenders have been wiped out. Second, the Kansas Secretary of Labor will have the final word on who will be penalized and the amounts of those penalties.
In the Hands of the Secretary of Labor
It appears that the success or failure of this law will be in the hands of the Secretary of Labor’s office. How does a state anoint an individual and leave it to their discretion to decide whether or not a worker is properly classified. The federal government and other states have agencies that handle these types of situations yet Kansas has decided to rest the verdict on an individual or his/her designee to make that decision. On the flip side, one could argue that the final determination in any form of audit or misclassification case comes from one individual…typically an auditor or a judge.
Another Blueprint for Fight Worker Misclassification
Kansas should be applauded for its effort in the battle against worker misclassification. Pairing the Kansas DOL and DOR has the potential for good things to be accomplished. After reading some of the commentary regarding this bill, most wish that the final verdict rested in the hands of the departments not the Secretary to avoid any personal agenda. Others hoped that the law would continue applying pressure on first time offenders to prevent them from doing it again. How the law is implemented and enforced will be watched by other states. It will provide another working example of what tactic does or does not work.
We’ll attempt to provide you with updates on the success of this law as it becomes available. Please check back with us in a few months.
Department of Labor (DOL) statistics show that more than 80% of employers are out of compliance with federal and state Wage & Hour laws.
Fighting ‘Wage Theft’ - a Key Dept of Labor Priority
Today, Wage & Hour class actions outnumber all other discrimination class actions combined, with huge settlements averaging $23.5 million at the federal level and $24.4 million at the state level. “It’s been a perfect storm for Wage & Hour class and collective actions against employers,” said Shanti Atkins, president and CEO of ELT. “Employers are being hit from two sides. On one, there is a better funded, more fully staffed Dept. of Labor (DOL) that has made fighting ‘wage theft’ one of its key priorities. On the other side are aggressive plaintiff law firms that literally salivate at these easy-to-identify and easy-to-win, lucrative class actions.”
- 83% of the class/collective action lawsuits filed in federal or state courts in 2009, were Wage & Hour related complaints.
- Non-government Wage & Hour settlements in 2009 grew 44% over 2008.
- Settlements for the top 10 federal Wage & Hour lawsuits increased from $253 million in 2008, to $364 million in 2009.
- Secretary of Labor, Hilda Solis: “Make no mistake, the DOL is back in the enforcement business.”
• DOL added 250 investigators in 2010 – increasing the total number of investigators by 1/3.
• DOL is adding 90 more investigators in 2011 with another $20 million increase in the enforcement budget.
DOL’s New Enforcement Strategy – Plan / Prevent / Protect
In addition to the Spring 2010 Regulatory Agenda, the DOL announced a new enforcement strategy; moving from “catch me if you can”, to “Plan/Prevent/Protect.” Employers are required to proactively “find and fix” violations — that is, assure compliance — before a Labor Department investigator arrives at the workplace. Employers should be aware that the burden is on them to obey the law, not on the Labor Department to catch them violating the law.
Requirements for employers include assembling plans, creating processes, and designating individuals who will be charged with achieving compliance. Additionally, employers must move forward with both implementing these plans and evaluating their effectiveness in achieving compliance. Those who fail to take these steps will be considered out of compliance with the law, and subject to remedial action.
Fifty-four percent of the respondents to a 2010 ELT survey of more than 1,800 senior legal and HR professionals, indicated that despite the troubled economy their organization has increased its 2010 spend on Wage & Hour compliance.
As you can see, it is increasingly imperative for employers to update their Wage & Hour Compliance programs to mitigate Wage & Hour risk in today’s business environment.
