Authored by Carlos Lopez

Yesterday, New York became the latest state to partner with the U.S. Department of Labor to step up enforcement against employers suspected of misclassifying workers as independent contractors.  In a move designed to send a “clear message” to employers, officials from the U.S. DOL, the New York DOL, and the New York Attorney General’s Office signed memoranda of understanding that will enable the agencies to share information and coordinate enforcement efforts.  (See U.S. DOL/NY DOL MOU; U.S. DOL/NY AG MOU).  Fourteen other states, including California, Connecticut, Illinois and Massachusetts, have signed similar agreements.

This latest agreement is part of the U.S. DOL’s Misclassification Initiative, launched in 2011 as part of Vice President Biden’s Middle Class Task Force.  According to the agency, working with states to reduce worker misclassification serves two functions.  First, misclassified employees are denied access to benefits and protections such as family and medical leave, overtime, minimum wage and unemployment insurance.  Second, cracking down on worker misclassification helps level the playing field for law-abiding employers who otherwise face higher labor costs than competitors who seek to save money by labeling a worker an independent contractor.

Since 2011, the Misclassification Initiative has resulted in the collection of over $18.2 million in back wages for more than 19,000 workers who had been classified as non-employees and so treated as exempt from minimum wage or overtime.

Employers, especially those with operations in New York or any of the 14 other states partnering with the U.S. DOL, should expect more scrutiny as a result of this inter-agency cooperation.  Employers should also take action now to make sure their houses are in order instead of waiting for enforcement agents to come knocking on the door.  In addition, keep in mind that, although the rhetoric from government agencies casts employers with misclassified workers as bad actors, the difference between an employee and an independent contractor is not always clear.  Often an employer may genuinely, if mistakenly, believe that its workers are properly classified.  The best way to mitigate the risk of such genuine but costly mistakes is to be pro-active and ensure proper compliance.