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The Ongoing Fight Over Misclassification as Independent Contractors

Business illustration showing the concept of misclassification of employees as independent contractors.

Federal lawmakers are seeking to repeal rule protecting workers

As we’ve previously covered, the U.S. Department of Labor has been seeking for years to reform the rules governing misclassification of employees as independent contractors. That rule went into effect last month, and federal lawmakers immediately fired back.

On March 21, the House Education and Workforce Committee voted 21-13 to approve a resolution that would overturn the new DOL rule. This resolution is now before the full House for consideration, although as Safety + Health reported, it is highly unlikely to pass the Senate.

For the time being, then, the Department of Labor rule has the force of law, which has significant implications for workers who may have been misclassified. However, the law in this area is constantly changing, and it’s important to have an advocate who knows the lay of the land.

What the DOL rule means for workers

The Department of Labor rule, which went into effect on March 11, guides the agency’s Wage and Hour Division in its determinations of whether a worker is misclassified as an independent contractor for purposes of the Fair Labor Standards Act. Factors that the Wage and Hour Division can consider under this rule include:

  • Whether a worker has the opportunity for profit or loss. Independent contractors are in business for themselves and should have the opportunity to profit from their work.
  • A worker’s financial stake and the nature of any resources they’ve invested in the job. Independent contractors typically obtain and use their own tools and resources.
  • The permanence of the employer-worker relationship. Independent contractors are usually hired for a project or fixed term, whereas employer-employee relationships are usually permanent or indefinite.
  • The amount of control an employer exerts over a worker. Independent contractors should be meaningfully “independent” in how they schedule and approach their work.
  • How essential the worker is to the business. Workers who perform essential, core business functions are more likely to be classified as employees instead of independent contractors.

According to the Department of Labor, these factors are more consistent with the ways federal judges are already applying the law, as well as the text and purpose of the Fair Labor Standards Act. Critics have argued that the new rule limits workers’ flexibility and ability to control their own work.

How misclassification can hurt workers

Workers who are classified as independent contractors lose important protections under the Fair Labor Standards Act and other employment laws. In particular, independent contractors are not protected by minimum wage laws. They are not eligible for overtime pay or for pay for certain types of breaks and travel time. Independent contractors also miss out on benefits such as health insurance and workers’ compensation.

In theory, this is the tradeoff independent contractors make in exchange for greater flexibility and autonomy over their work. However, when workers are misclassified, they get the worst of both worlds: the employer still exercises control over their work, but they don’t get the wage and hour protections and other benefits due to employees.

The cost for misclassified workers can be substantial. A 2022 Economic Policy Institute analysis of 11 commonly misclassified jobs found significant differences in pay between employees and contractors. For instance, the EPI found that construction workers misclassified as independent contractors would lose out on $16,729 per year in salary and benefits compared to employees, while home health aides would lose an average of $9,529 per year in income and job benefits due to misclassification.

Misclassification also has a huge impact on the broader economy. Employers that misclassify workers can cut their payrolls substantially, reducing their labor costs and gaining an unfair competitive advantage over companies that play by the rules. This dynamic drives down wages for everyone, not just misclassified workers.

If you think you have been misclassified, we can help

Being misclassified as an independent contractor can have a massive effect on your income and your rights as an employee. If you get a 1099 instead of a W-2, but your employer still controls your work and doesn’t treat you as meaningfully independent, then you may have a case for violations of the wage and hour laws. Our attorneys have extensive experience getting real results for misclassified workers. Contact Nilges Draher LLC today for a free case evaluation. We can help.

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