Progressive Democrat Lisa McCormick has expressed support for a U.S. Department of Labor (DOL) proposal to strengthen federal protections against worker misclassification as she called on Congress to make laws to explicitly clarify the obligations of employers.
Worker misclassification occurs when a company inappropriately treats its employees as independent contractors, in order to evade such legal obligations as minimum wage, overtime, payroll taxes, and workers’ compensation insurance.
McCormick said she wants DOL to act swiftly on its proposal to rescind and replace a Trump-era rule that puts American workers at greater risk of misclassification by unlawfully broadening the definition of an independent contractor and upending previous standards implemented under the federal Fair Labor Standards Act (FLSA).
During President Donald Trump’s administration, the DOL issued a rule that made it easier for employers to classify workers as independent contractors rather than employees.
The standard was slated to take effect in March 2021, before President Joe Biden’s DOL issued rules tried to withdraw it but Judge Marcia Crone of the U.S. District Court for the Eastern District of Texas reinstated the anti-worker rule in a March 14 order, finding that the Democratic administration’s actions violated the Administrative Procedure Act (APA).
Although the DOL is expected to appeal her decision, Crone —who was named to the bench in 2003 by President George W. Bush—sided with the Coalition for Workforce Innovation (CWI), a group that represents Uber, Lyft and other gig-economy businesses that treat employees as independent-contractors.
The CWI, launched in 2019, is a corporate lobby group that aims to pass federal laws and regulations that strip workers of fundamental labor rights and protections across a variety of occupations, industries, and work arrangements.
Under the Fair Labor Standards Act (FLSA), employees are entitled to minimum wage, overtime pay and other benefits. Independent contractors are not entitled to such benefits, because they generally have more flexibility to set their own schedules and work for multiple companies.
Retail stores, Big Tech, trucking, delivery, telecommunications, construction giants, digital labor platform corporations, multi-level marketing companies, plus temporary help and staffing agencies have made soaring profits by labeling workers as independent contractors when they should be employees.
The difference is whether a worker genuinely operates his or her own business or if the person is economically dependent on the hiring entity.
“It should be patently illegal to reap massive corporate profits by evading costs by pushing them onto workers through misclassification,” said McCormick. “Workers who are misclassified lose out on overtime, paid sick leave, and unemployment insurance. The false designation of employees as independent contractors is nothing more than wage theft and it should be prohibited and punished.”
McCormick said the Trump-era rule threatened the livelihoods of workers across the country,
The misclassification of employees as independent contractors is detrimental to workers, states, and law-abiding employers on several levels, according to McCormick.
First, misclassified workers are typically not entitled to basic protections such as minimum wage, overtime, timely payment of wages, timekeeping records, pay stubs, paid leave, and reimbursement for expenditures that primarily benefit the employer, e.g., uniforms or travel expenses.
In addition to the need for increased law enforcement actions, misclassification results in lost revenue and increased administrative burdens and costs to states.
Due to misclassification, states suffer from a loss of tax revenue they would otherwise receive from payroll taxes and a loss of funds to unemployment insurance, workers’ compensation, and paid leave programs.
States also incur additional costs, such as providing healthcare coverage and hospital costs for uninsured workers, as misclassified workers cannot access benefits like employer-provided health insurance, 401(k) plans, or unemployment insurance, and often lack appropriate workers’ compensation coverage.
Finally, misclassification hurts employers who play by the rules. Employers that properly classify employees and run their business in accordance with wage and hour laws often operate at a competitive disadvantage when competing for the same work with employers that skirt the law.