seyfarth.jpgAuthored by Alex Passantino

A cable installation company recently entered into a consent judgment with the U.S. Department of Labor, agreeing to pay over $1 million in back wages and liquidated damages to nearly 200 workers. [here] The consent judgment also enjoins the company — and its former vice president — from future violations of the FLSA. 

The Wage & Hour Division’s investigation found 77 employees misclassified as independent contractors.  The company treated some of its cable installers as employees and others — who apparently were performing the same work — as independent contractors.   In addition, all non-exempt workers, regardless of whether they were classified as independent contractors or employees, were paid on a piece rate basis.  WHD found that no overtime premium was paid for hours worked in excess of 40 in a workweek. 

Under the FLSA, a non-exempt employee may be paid on a piece rate basis.  Employers sometimes mistakenly believe that payment on a piece rate basis eliminates the need to track hours and/or to pay overtime compensation.  Under the FLSA, however, overtime compensation must be paid for hours worked in excess of 40 by non-exempt employees, including those employees paid on a piece rate basis. 

We’ve Really Been Hearing More About Misclassification of Independent Contractors, Haven’t We?

Yes.  Although WHD has been targeting the misclassification issue for quite some time now, it really has started to renew its focus on independent contractors. [here and here] The Department of Labor has a “Misclassification Initiative,” which is focused on preventing, detecting, and remedying employee misclassification.  In addition to WHD’s efforts, the Misclassification Initiative has resulted in Departmental memoranda of understanding with the Internal Revenue Service and numerous state government agencies. 

As a result, it is increasingly likely not only that WHD will conduct an investigation into your use of independent contractors, but also that an investigation by WHD will result in subsequent investigations by other government agencies, and vice versa.  Thus, the misclassification of independent contractors can result in liability for minimum wage and overtime violations, as well as tax, unemployment, benefits, and workers’ compensation issues.

Well . . . What Should We Do?

If you use independent contractors as part of your business model, it is critical to ensure that those independent contractors are properly classified.  Remember that different laws may have different “tests” for determining independent contractor status; the wage and hour standard is generally regarded as the most difficult to meet.  Take some time to review your independent contractor agreements to ensure compliance before one — or more — government agencies reviews them for you. 

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.