CA Gets Cozy with DOL over Misclassification of Independent Contractors

California was one of the first states to enter into an information sharing agreement with the IRS regarding worker classification audits.  In fact, California is one of the only states to have two such agreements with the IRS – one is with the Franchise Tax Board and the other is with the Employment Development Department (which deals with unemployment benefits).

On February 9th, California entered into its third agreement, this time in the form of a Memorandum of Understanding with the Department of Labor (DOL).  This agreement goes beyond any agreement previously signed by the state and covers a variety of joint efforts to audit and penalize employers for misclassifying workers as independent contractors.

The DOL has already entered into similar agreements with Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington.  Further details of each agreement can be found on the DOL’s dedicated worker misclassification web page.

In 2011, the Wage and Hour Division of the DOL collected $5M in back wages alone – not including fines and penalties – that resulted from employees being misclassified as independent contractors.  Expect these efforts to multiply: this was before the DOL got a hefty budget and staff increase for 2012 and had state agencies join their enforcement army.

Is your company ready for a joint state-DOL attack?

Are you ready for your I-9 “Silent Raid”?

An I-9 audit, often called a “silent raid,” involves a thorough inspection of a business’s employee documents, principally I-9 forms and payroll information, by U.S. Immigrations and Customs Enforcement (ICE).  The goal is simple – to ensure that employees are legally authorized to work in the U.S. The cost however, is extensive. And it’s not limited to fines.  Class action lawyers are circling and an ICE audit is like blood in the water signaling the potential for a tasty multimillion-dollar lawsuit.

In June of 2011, Pacific Steel, the nation’s third largest steel foundry, was targeted in a silent raid by ICE. By December of 2011, the company was forced to shed one third of its workers (over 200), many of whom were highly skilled and had been with the company for decades.

Soon after on December 23rd, a former employee (employed by Pacific Steel for 45 years) and his Berkeley attorney filed a $31 Million class action lawsuit for California Labor Law Violations.  As if civil fines up to $16,000 and criminal penalties up to 6 months in prison
for Form I-9 violations were not enough.

Arizona dairy producer Ross Tappan might have met a similar fate last year, had it not been for two important steps which saved his farm. Last April, while attending a United Dairymen of Arizona Meeting in Tempe, Mr. Tappan was alerted to a silent raid by a text message from his office manager after agents showed up at his farm.  The ensuing audit would drag on for a month, but thanks to a voluntary self-audit and the implementing and use of E-Verify three years earlier, Mr. Tappan would lose only ten employees.

The number of these silent raids is on the rise, from 1,444 in 2009 to 2,496 in 2011. And last year, the Social Security Administration resumed sending “no-match” letters (which alert employers that information on an employee’s W-2 form does not match information on file with the Social Security Administration), a program that was halted in 2007.  These letters are used by ICE to show that an employer had reason to believe an employee might not have documentation, and subject employers to higher fines and criminal penalties.

If ICE were to knock on your door, how would your I-9’s match up?  And how will your company handle I-9 compliance in the future?

Non-Compliance: An Unstable Foundation for Connecticut Construction Companies

The Connecticut and Rhode Island construction industry faces a significant increase in government scrutiny of their labor and employment practices over the next several years.  The U.S. Department of Labor (DOL) and the Connecticut DOL have joined forces to combat “widespread noncompliance with minimum wage, overtime and record-keeping provisions of the Fair Labor Standards Act.”

Since 2008, the US DOL has conducted 183 investigations of construction industry employers throughout Connecticut and Rhode Island resulting in $3.3 million in back wages for 1,226 employees.  In the last fiscal year alone, the DOL has issued 159 crippling stop work orders and recovered $6 million in unpaid wages in Connecticut.  17 of those stop work orders were due to independent contractor misclassification during the period of October 27 through November 3 alone. Going forward, no warning, and no reasons will need to be given for these investigations.

If financial penalties and stop work orders are not enough, the Connecticut DOL arrested 75 contractors for nonpayment of wages last year.  And this was before the announcement of this U.S./Connecticut DOL task force in late November. A memorandum of understanding (MOU) signed in September, outlines the extensive collaboration between the two agencies.

Think you’re safe as a non-Connecticut non-construction employer? Think again.

The DOL has signed broad based MOUs with the Internal Revenue Service and 10 other states from Hawaii to Illinois to Maryland to “share information, to reduce the incidence of misclassification of employees, to help reduce the tax gap, and to improve compliance with federal [and state] labor laws” across all industries, not just construction.

Your IT folks can’t help you troubleshoot that multimillion dollar wage & hour violation

You may have paid them as exempt employees or independent contractors, but your IT support workers may be eligible for overtime pay under the Fair Labor Standards Act (FLSA) despite being salaried, very well paid, and highly educated.

Willful violators of the FLSA may be prosecuted criminally and fined up to $10,000. A second conviction may result in imprisonment. Civil penalties can amount to $1,100 per violation for willfully or repeatedly violating overtime pay requirements.

Still need a reason to rethink how your company classifies its IT professionals?

How about 137-million reasons? The plaintiffs firm of Lieff Cabraser Heimann & Bernstein netted $137.62 million dollars for thousands of IT employees seeking overtime pay that was wrongfully denied in just eight published settlements from 2006 through 2011.

Would your IT folks fixing a software bug afterhours or conducting weekend maintenance on your company website qualify?

Could they fall under the narrow computer-related occupations exemption of the FLSA?

Too often employers, both large and small, assume that IT folks are exempt employees or independent contractors, just because it seems like they should be or because everyone else is doing it that way.  But when it comes to independent contractor and FLSA compliance, there is no safety in numbers.

Go to ICon to learn more.