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Nov
2014
17

NH Joins National Misclassification Crackdown; GA, Others Sit Out with Mixed Results

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The New Hampshire Department of Labor has announced a Memorandum of Understanding (MOU) with the U.S. Department of Labor, which aims to crack down on the misclassification of employees as independent contractors.  The agreement will allow the two parties to share information and coordinate law enforcement. 

Misclassification hurts both workers and businesses by creating an uneven playing field on which companies that cheat workers have an unfair advantage. For workers, misclassification can mean being denied access to family and medical leave, overtime compensation, unemployment insurance, personal protective equipment, and retirement benefits.

New Hampshire Labor Commissioner James W. Craig lauded the agreement:

“Misclassification of workers steals benefits and protections from employees, and allows unfair advantages to businesses that do it.  This agreement will help us grow our state and regional economy by leveling the playing field for honest and law-abiding employers.”

U.S. Secretary of Labor, Thomas Perez, also praised New Hampshire’s decision to sign the MOU:

“Misclassification of employees deprives workers of rightfully-earned wages and workplace protections and undercuts law-abiding businesses.  Which is why combating misclassification is one of several important strategies to promote shared prosperity to help ensure that our economy works for everyone.”

New Hampshire joins Alabama, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington in the Department of Labor’s new misclassification initiative.

Other states are fighting misclassification without signing the MOU and are experiencing varying levels of success.  Surprisingly, Texas is on the forefront of this movement because the construction industry there relies heavily on immigrant and undocumented worker labor.  When the U.S. Department of Labor announced $10 million in grants to help states fight misclassification, Texas received the largest share of the 19 qualifying states.  Also noteworthy is the surprisingly bipartisan tone the Texas legislature has taken in fighting misclassification.

Oregon has also found new ways to curb misclassification without signing into the MOU.  Late last year the Oregon Center for Public Policy released a study, “Employee Misclassification Harms All Oregonians,” which highlighted the “triple jeopardy” effect that improper independent contractor status has on states and workers. The issue has gained momentum in the Oregon legislature since the report.

Other states, sadly, have taken mostly ceremonial steps to combat misclassification and would benefit greatly from the resources that come with signing the MOU.  Take Pennsylvania, for example, which under the leadership of Republican Governor Tom Corbett signed Act 72 in 2011 to create more precisely defined standards regarding independent contractors.  As of May 2014, not a single prosecution had resulted from the law.

Georgia is in a similar situation. The state is looking to fight misclassification in order to recover lost tax revenue but does not wish to sign the MOU.  The state’s Department of Labor has announced that it will crack down on employee misclassification by making more defined standards:

In Georgia, there are typically two ways for an employer to establish that a worker is an independent contractor. One way to establish independent contractor status is to demonstrate that the worker (1) has been and will continue to be free from control or direction over the performance of his work and (2) is customarily engaged in an independently established trade, occupation, profession, or business. Alternatively, the employer can establish independent contractor status by showing that the IRS found that the worker wasn’t an employee through an SS-8 determination.

Because many Georgia employers haven’t received determinations from the IRS before a GDOL audit, you are often faced with demonstrating an independent contractor relationship through the two-factor test. For the first prong of the test, Georgia courts have traditionally found that the following factors demonstrate that an individual is free from significant control or direction:

1. There are no territorial or geographic restrictions placed on the worker.

2. The worker isn’t prohibited from working for other companies or holding other employment contemporaneously.

3. The worker has no prescribed minimum hours to work or orders to obtain.

4. The worker is free to accept or reject work without consequence.

5. The worker has the discretion to set his own schedule.

Your ability to demonstrate that you don’t control or direct the worker doesn’t end the inquiry into independent contractor status. You must also demonstrate that the worker was customarily engaged in an independently established trade (the second prong of the test).

With other traditionally anti-worker, Southern states like Alabama and Louisiana signing the Department of Labor’s MOU, it’s difficult to swallow Georgia’s hesitance. If Pennsylvania is any indication, national funding speaks louder than legislative words.

Read more about employee misclassifcation in our archives.

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