Authored by Alex Passantino

Independent Contractors.  Subcontractors.  Franchises.  Employment Agencies.  According to the Wage & Hour Division, use of these relationships is an action that requires special scrutiny.  When WHD states that it is targeting “fissured industries,” it means those industries in which it is more likely that workers are performing under one of these relationships — anything where there is something less than a direct employee-employer relationship.

In recent weeks, WHD has brought the fissured industries back into the forefront.  In a lawsuit filed in federal court, WHD seeks to recover back wages for 800 workers who WHD alleges were misclassified.  See here.  The workers — who apparently performed construction work — were classified as members and owners of a limited liability company that provided workers to construction contractors.  WHD is using a full complement of enforcement tools, seeking back wages, liquidated damages, and a permanent injunction, and asserting joint employment among the companies that provided the workers and the companies that used the workers.

In a separate enforcement action [See here], WHD assessed back wages on behalf of four construction employees determined to have been misclassified as independent contractors.  

Why is WHD Pursuing this Fissured Industry Initiative?

WHD provides a pretty concise description in its press releases:

The misclassification of employees as something other than employees, such as independent contractors, presents a serious problem for affected employees, employers and to the economy. Misclassified employees are often denied access to critical benefits and protections, such as family and medical leave, overtime, minimum wage and unemployment insurance, to which they are entitled. Employee misclassification also generates substantial losses to the Treasury and the Social Security and Medicare funds, as well as to state unemployment insurance and workers’ compensation funds.  

With its recent agreements with state and federal taxing authorities, WHD’s efforts in the fissured industries often have the result of increasing depleted government coffers in addition to the pockets of workers for whom it recovers back wages.  It’s a win-win for WHD.  But for employers in the fissured industries — hotels, restaurants, construction, janitorial services, employment agencies — it’s a cause for concern:  the entire industry is targeted for enforcement actions, not simply the companies that use the relationships.

Well . . . What Should We Do?

For companies that use one or more of the relationships above, take time to ensure that you have properly classified workers as independent contractors.  In addition, if you use subcontracting, franchising, or employment agencies, make sure that the entities providing these services are compliant with state and federal laws, including the FLSA.  As is the case in the lawsuit described above, the users of the services may be subject to liability under a joint employment theory. 

Of course, all employers in the hotel, restaurant, construction, janitorial services, employment agency, or other fissured industries — regardless of whether they use one or more of the relationships — should ensure that their wage and hour practices are in compliance.  (And consider attending our upcoming webinar.)

W.H.D.? (“What Happened, Dude?”) is a weekly blog post in which we break down recent enforcement activity by the U.S. Department of Labor’s Wage & Hour Division (WHD), look at what went wrong for the employer, and share some lessons for other employers.