Is There Really a D.C. Crackdown on Independent Contractor Misclassification? January 2022 IC Legal Update

Independent Contractor Misclassification & Compliance Blog
February 16, 2022

Federal and local officials in Washington, D.C. took steps last month to gear up their counter-attacks against independent contractor misclassification, but companies that have taken meaningful steps to enhance their compliance with applicable federal, state, and local independent contractor laws remain unlikely to become a target for an enforcement action. Why?  Because governmental crackdowns like those described below by the U.S. Department of Labor and the Attorney General for the District of Columbia typically focus on companies that are relatively easy marks, such as those that have taken minimal measures to comply with independent contractor laws.  In contrast, government agencies are far less likely to use their limited resources to target companies that have developed state-of-the-art agreements for individuals engaged as independent contractors.  For that reason, a number of more sophisticated companies have utilized a compliance process such as IC Diagnostics (TM) to structure, document, and implement their independent contractor relationships in a customized and sustainable manner designed to minimize misclassification liability.

Unlike governmental agencies, plaintiffs’ class action lawyers typically conduct a less extensive investigation and due diligence before commencing lawsuits alleging independent contractor misclassification, willingly taking on some of the largest companies in the U.S. in addition to medium and smaller sized organizations.  Why?  Because so many of these cases are settled, often for a 7-figure amount or more.  However, class action lawyers are highly unlikely to prevail on the merits against companies that have an enhanced level of compliance with IC laws and more likely to settle for a far lower amount. This scenario is yet another reason prudent companies have resorted to a process like IC Diagnostics (TM).

Administrative and Regulatory Initiatives

LABOR DEPARTMENT AND NLRB ENTER INTO PARTNERSHIP TO PROMOTE CROSS-FILING OF IC MISCLASSIFICATION CLAIMS.  The Wage and Hour Division (WHD) of the U.S. Department of Labor and the National Labor Relations Board (NLRB) have signed a five-year partnership agreement to enhance their investigational capabilities and maximize the enforcement of federal ‎laws administered by the two agencies, including those involving independent contractor misclassifications. On January 6, 2022, the WHD made public a Memorandum of Understanding (MOU) with the NLRB “to strengthen the agencies’ partnership through greater coordination in information sharing, joint investigations and enforcement activity, training, education, and outreach.” Under the MOU, when either the WHD or the NLRB, during an investigation either is conducting, has reason to believe there may be unlawful conduct that falls within the jurisdiction of the other agency, the first agency will advise the complaining employee(s) that an opportunity may exist to file a charge or complaint with the other agency. They will also provide the employee(s) with informational materials prepared by the other agency, including rights and remedies, and contact information. According to the MOU, the agencies will explore ways to systematize procedures for information and data sharing, “particularly in the areas of unlawful compensation practices, such as … the identification and investigation of complex or fissured employment structures, including … business models designed to evade legal accountability, such as the misclassification of employees ….” This MOU is reminiscent of prior MOUs between the Labor Department and the IRS, on which we first reported in 2011.  We are unaware of any report indicating whether these types of MOUs, in practice, result in a meaningful increase in enforcement efforts.

LABOR DEPARTMENT TO ADD 100 INVESTIGATORS TO SUPPORT ENFORCEMENT INCLUDING IC MISCLASSIFICATION.  The Wage and Hour Division (WHD) of the U.S. Department of Labor will hire an additional 100 investigators to support its enforcement efforts, which include prevention and enforcement of independent contractor misclassification.‎  In its news release,  the WHD defined the investigators’ responsibilities as investigating whether employers are paying workers and affording them rights as the law requires; helping ensure that law-abiding employers are not undercut by other employers who violate the law; promoting compliance through outreach and public education initiatives; and supporting efforts to combat worker retaliation and worker misclassification as independent contractors. While a portion of the 100 investigators will focus on IC misclassification, the bulk will seek to protect workers under the laws governing minimum wages, prevailing wage requirements of federal contracts, migrant and seasonal workers, and family and medical leaves.  Acting Wage and Hour Administrator Jessica Looman stated: “Adding 100 investigators to our team is an important step in the right direction. We anticipate significantly more hiring activity later in fiscal year 2022.”  This increase in investigators is reminiscent of increased hiring of investigators by the Obama Administration’s Labor Department we reported on as far back as 2012, when the WHD was authorized to hire 35 new investigators dedicated solely to detecting and deterring IC misclassification.  With few exceptions, the WHD has generally sought to staff its investigators on cases where the companies’ defenses are not particularly strong, deferring to private class action lawyers to handle cases that require years of discovery and involve hotly contested legal issues.

In the Courts

U.S. LABOR DEPARTMENT TARGETS HOME HEALTH COMPANY FOR WAGE VIOLATIONS INCLUDING IC MISCLASSIFICATION.  The U.S. Department of Labor has filed a lawsuit against Pennsylvania home health company, Lady of Fatima Healthcare Services, for wage and hour violations of the Fair Labor Standards Act due to the alleged misclassification of direct care workers and caregivers as independent contractors. Following a prior investigation of the company by the Labor Department’s Wage and Hour Division, the company was advised that the FLSA required it to pay overtime premiums to employees who worked more than 40 hours in a workweek and that it was misclassifying some of the workers as independent contractors. The company, however, resisted. Additionally, the DOL’s complaint alleges that for workers who provided services to more than one client in a single workweek, the company failed to combine the total hours worked and, instead, considered each client’s hours separately, resulting in an alleged skirting of the 40-hour FLSA threshold requirement for the payment of overtime wages. The Labor Department seeks to enjoin the company from violating the FLSA and has demanded payment of unpaid overtime compensation and liquidated damages. Walsh v. Lady of Fatima Health Services, Inc., No. 2:22-cv-00278 (E.D. Pa. Jan. 21, 2022).

D.C. ATTORNEY GENERAL SUES CABLE AND OUTSOURCING COMPANIES FOR IC MISCLASSIFICATION.  The Washington, D.C. Attorney General has sued Comcast Cable Communications and an outsourcing provider for wage and hour and unpaid sick leave violations due to their alleged misclassification of customer service representatives as independent contractors. As reported in a news release issued on January 19, 2022 by the Office of the Attorney General for the District of Columbia, the complaint alleges that Comcast and the outsourcing company violated both the D.C. Minimum Wage Revision Act and the Sick and Safe Leave Act by failing to pay minimum wages, overtime compensation, and split shift fees as wells as paid sick leave, allegedly due to misclassification of the customer service representatives as independent contractors. According to the news release, the outsourcing company engaged a workforce of customer service representatives on behalf of clients like Comcast through an online platform that allows Comcast’s customer service calls to be routed to an outsourced representative. The Attorney General claims that the outsourcing company required representatives to meet with supervisors and managers and controls representatives with digital surveillance apparatus tracking their performance to the second. The Attorney General seeks to hold Comcast liable for the wage violations as a joint employer that allegedly exercised substantial control over the customer service representatives’ work conditions. District of Columbia v. Arise Virtual Solutions, Inc. and Comcast Cable Communications Mgt, LLC (Super. Ct. D.C. Jan. 19, 2022).                                                         

Other Noteworthy News

NEW JERSEY SUPREME COURT TO CONSIDER KEY INDEPENDENT CONTRACTOR TEST.  In a January 3, 2022 article for Law 360 Employment Authority entitled, “Top Wage and Hour Law Developments to Watch in 2022,” reporter Max Kutner discussed whether ABC tests for determining worker classification might undergo changes this year. Challenges have arisen in many states, including New Jersey, where the state Supreme Court plans to hear an appeal as to whether the exemptions under the ABC test used under the state’s unemployment compensation statute also apply to determining worker status under state wage laws that utilize the same ABC test under the unemployment compensation law.  The publisher of this blog was quoted in the article commenting that clarification from the New Jersey Supreme Court is “absolutely critical for those industries that have an exemption under the unemployment law.”

Written by Richard Reibstein

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