Testimony Highlights Growing Exposure of Businesses Misclassifying Workers; Businesses Should Act to Minimize Risks

Testimony by Deputy Secretary of Labor Seth Harris recently highlights the growing scrutiny by the U.S. Department of Labor on perceived abuses by employers in the misclassification as workers as independent contractors, exempt employees, or otherwise. This growing scrutiny makes it advisable that business review situations within their organizations where workers are treated as contractors, leased employees or exempt employees in light of existing labor, employment, tax and other regulations.

In his July 17, 2010 testimony to a Senate Committee on Health, Education, Labor and Pensions’ hearing on worker misclassification, Harris testified that the Labor Department worker misclassification has become an increasingly common problem.  According to Harris, employer misclassification of workers results in workers being denied benefits; gives an unfair advantage to employers who intentionally misclassify workers as independent contractors; and causes state and federal governments to lose tax revenue. In his testimony, Harris outlined the scope of the problem, as well as the Labor Department’s efforts to tackle the issue and its support of Congressional action to make misclassification illegal.  Read Harris’ Testimony.

Harris’ testimony highlights the significant expansion in governmental and private plaintiff awareness of worker classification practices as a weak point in many business operations.  The Congressional Hearing shows the increased interest by Congress in the adequacy of enforcement and regulation of worker classification relationships.  While Congress considers tighter regulation, federal and state agencies and private plaintiffs increasingly are using worker classification issues to strike out at businesses.  Since taking office, the Obama Administration has made review and enforcement of worker classification a priority in the Labor Department, Internal Revenue Service and other agencies.  Meanwhile, workers and others frequently are challenging the classification of workers as independent contractors, leased employees, salaried exempt employees or otherwise to recover valuable settlements or damages in wage and hour, worker’s compensation, employee benefit, employment discrimination, tort and other claims.

In light of the risks resulting from this growing scrutiny of worker classification practices, businesses should review situations within their organizations where workers are treated as independent contractors, leased employees, exempt employees or otherwise exempt from typical rules applicable to employees within the scope of attorney-client privilege.  When necessary, businesses should explore restructuring existing relationships if the review suggests the relationship might be difficult to defend against a government or other challenge.  When electing to continue to classify a worker as working in a capacity other than that of an employee, as an exempt employee, or both, organizations should carefully document the grounds under which the business.

For more information about worker classification rules and associated exposures under tax, employee benefit, labor and employment and certain other rules, concerned business leaders may want to listen to a recording of the June 29, 2010 Worker Classification: Employee Plans & Employment Tax teleconference sponsored by the American Bar Association Joint Committee on Employee Benefits.  Concerned business leaders also might be interested in other related articles by the author including:

If you need assistance with reviewing or defending your organization’s worker classification or other labor or other employment or employee benefit practices, please contact the author of this update, Board Certified Labor & Employment attorney Cynthia Marcotte Stamer at (469) 767-8872 or cstamer@solutionslawyer.net.

About the Author

Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, management attorney and consultant Ms. Stamer has more than 23 years experience working with employers, professional employment organizations, employee benefit plan sponsors and administrators and others on a wide range of labor and employment, employee benefits, and other management matters.  A featured speaker in the June 29 ABA JCEB Teleconference on Worker Classification, Ms. Stamer is The Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, the editor of Solutions Law Press HR & Benefits Update.  Ms. Stamer also is recognized for her lengthy resume of publications, industry leadership, workshops and presentations on worker classification, and other employment, employee benefits, and related workforce and human resources concerns. She regularly speaks and conducts training for the ABA, Institute of Internal Auditors, Society for Professional Benefits Administrators, Southwest Benefits Association and many other organizations.  Publishers of her many highly regarded writings on health industry and human resources matters include the Bureau of National Affairs, Aspen Publishers, ABA, AHLA, Aspen Publishers, Schneider Publications, Spencer Publications, World At Work, SHRM, HCCA, State Bar of Texas, Business Insurance, James Publishing and many others.  You can review other highlights of Ms. Stamer’s experience here. 

If you need help with human resources or other management, concerns, wish to ask about compliance, risk management or training, or need legal representation on other matters please contact Cynthia Marcotte Stamer here or (469)767-8872. 

Other Resources

If you found this information of interest, you also may be interested in reviewing other recent Solutions Law Press updates including:

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