Friday, May 30, 2014

The Misclassification Trend

Misclassification of workers seems to be at the top of news headlines lately.

WorkCompCentral reported this morning that Lowe's Home Centers in California agreed to a $6.5 million settlement of a class action brought by contractors the company hires out to customers to install products it sells.

Another story this morning is about an Arizona contractor that settled a misclassification action with the U.S. Department of Labor, agreeing to pay workers back wages and overtime, and penalties totaling about $600,000.

When I performed a search of the WorkCompCentral database for the word "misclassified" I get nearly 300 news stories returned, and a surprising amount of those stories are quite recent - seemingly every business day in this past year.

While most of these stories involve contractors, quite a few involve other industries.

Law360, a LexisNexis publication, has been replete with misclassification stories of late as well, reporting several class action suits against atypical industries for such activity, such as the banking industry.

What's going on here?

Are all of the businesses really trying to cheat their workers out of employment-based benefits?

Or are the management practices of these employers so flawed that workers get driven into employment relationships?

Or have the plaintiff's lawyers (generically of course) found a new source of revenue?

Misclassification of workers has always been an issue in workers' compensation - most of the time I believe that misclassification happens unintentionally; business just wants to get the job done for the most competitive price possible and whether a worker is called an employee or an independent contractor seems to be an after thought.

For instance, in the Lowe's action, workers in the class action thought they stood to get as much as $33 million in back wages, overtime and other employment related protections had the case gone to trial.

Lowe's disputes that it did anything wrong and says that it did not violate any classification laws or regulations, and to me the settlement of $6.5 million, compared with the plaintiff's estimated jury award, says that it had relatively good defenses.

The lead plaintiff in the Lowe's case was Ronald Shephard. He worked for a Lowe's store in Victorville installing garage doors between 1995 and 2009.

Shepard's complaint alleged that customers paid Lowe’s for the installation work, and the retailer later paid the contractors. Contractors were prohibited from performing any work for a Lowe’s customer that was not arranged and approved by Lowe’s. The store also set the amount of time contractors had to complete a job.

The contractors were also required to wear clothing bearing the Lowe’s logo and identify themselves as employees of Lowe’s, according to the allegations.

Lowe's says that it did not control any of the installers and argued that each installer operated as a separate business, and that the installer companies made all decisions relating to employment matters such that Lowe’s could not be deemed an employer under California law.

The Arizona case involved a drywall contracting firm, Paul Johnson Drywall Inc., which entered into a contract with Arizona Tract in April 2013 that resulted in some 445 employees being as reclassified members or owners.

The Department of Labor said its investigation also revealed that Paul Johnson Drywall, before entering into a contract with Arizona Tract, failed to pay employees who worked more than 40 hours in a week proper overtime at time-and-a-half, and failed to maintain complete and accurate records.

The story does not indicate how much the contractor's workers' compensation insurance companies are going to seek in retroactive premium, but based on the size of the worker population identified in the Department of Labor that amount is going to be quite significant.

Some of these stories appear to be plaintiff lawyer profit driven, others seem to reflect intentional egregious employer activity. There isn't a single state that seems worse than any other and while contractors in general seem to be the biggest offenders the range of industries is broadly represented in the news.

I can't say whether this is all part of an enforcement trend, a legal trend, a business trend, or whatever. And depending on your perspective this is either welcome or despised.

But there's no denying that classifying workers as either employee or contractor has significant implications to both business and workers.

1 comment:

  1. It makes me quite upset every time I read stories like this & have experienced it 1st hand, but for some reason, the Dept of Labor doesn't do anything about it when I try to make a report. Maybe because it's regarding a smaller co, but if they add up all of the employee's who worked for the employer, a class action would be worth their time & it would be 1 less employer committing a crime to other employer's & employee's.