In The News
Will Driver Misclassification Issues Ease Under Trump Administration?
In "The End of Employees," the Wall Street Journal recently said, "Never before have American companies tried so hard to employ so few people."
It points out, for instance, that "the men and women who unload shipping containers at Wal-Mart Stores Inc. warehouses are provided by trucking company Schneider National Inc.'s logistics operation, which in turn subcontracts with temporary-staffing agencies."
In fact, the Journal reports, "the contractor model is so prevalent that Google parent Alphabet Inc., ranked by Fortune magazine as the best place to work for seven of the past 10 years, has roughly equal numbers of outsourced workers and full-time employees, according to people familiar with the matter."
For many companies, the idea of focusing on your "core business" and outsourcing other tasks is a path to better efficiency and profitability.
However, while American companies may want to use more independent contractors, governments and workers who feel they are being improperly misclassified are pushing back. And that's not likely to change too drastically under the new Trump administration.
The Obama Administration, through the Labor Department and the IRS, worked to crack down on workers who were believed to have been "misclassified" as independent contractors when they really were treated as employees.
Meanwhile, in the courts, private class action lawsuits have targeted companies such as Uber and FedEx. Just last month, a court found that Swift contract drivers should have been employees.
Richard J. Reibstein, Pepper Hamilton LLP, writing for Law360, points out that during the Obama administration, the U.S. Congress did not pass a single bill to address the issue of independent contractor classification.
However, since the DOL announced its "Misclassification Initiative" in September 2011, 35 state labor departments have signed a memorandum of understanding (MOU) with the DOL. Of those 35 states, 18 currently have Republican governors. "Thus, it is fair to say that at the state level, IC misclassification is viewed as a nonpartisan priority," Reibstein writes.
In addition, he notes, many state legislatures have passed bipartisan legislation designed to curtail IC misclassification. So while it's likely the Department of Labor will pull back somewhat on their enforcement efforts in this area at the federal level, he says, "there is no reason to expect that state labor departments will be any less aggressive in their efforts to crack down on IC misclassification.
"If anything, many state labor departments, especially those in states with Democratic party governors, are likely to double down on their enforcement efforts if they feel that the DOL is backing away from the joint enforcement initiatives begun under the Obama administration."
In another legal piece, attorneys at Holland & White point to California as one example of "the assertion of states' rights over the delivery of interstate trucking services."
In California, the state's Labor Commissioner has seen a surge of complaints from truck drivers challenging their classification as independent contractors. "The upshot of these claims is for the truckers to avoid paying expenses and insurance for their trucks, to impose meal and rest break obligations on the truckers, and to overturn long-standing compensation practices," note the attorneys.
In a press release last may, the Labor Commissioner noted that since 2011, port truck drivers have filed 799 of these misclassification claims and more than $35 million had been awarded at that point to misclassified port truck drivers in 302 cases.
On Dec. 16, the California Trucking Association filed a lawsuit asking for the court to freeze the holding of these administrative hearings, known as "Berman Hearings," noting that the state's actions interfere with the contractual relations established between the motor carrier and truck drivers under federal law.
In a press release, CTA CEO Shawn Yadon stated, "We believe the Labor Commissioner and Division of Labor Standards Enforcement (DLSE), for more than four years, have been intentionally ignoring their statutory obligations to be neutral and fair and are, instead, abusing their authority in order to drive a particular agenda – to undermine the many small business trucking companies that operate under the legal independent contractor relationship with other, larger companies – by forcing predetermined results from labor hearings."
So if you use independent contractor drivers, be aware this is still going to be an issue, at the state level and in the courts, even if the pressure eases at the federal level.