Misclassification of workers – calling someone an “independent contractor” when they really are an employee – is unlawful, and it has made news recently. Among other things, it is famously at the core of class action lawsuits by Uber drivers in New York and across the country.

It is also the basis of workers’ lawsuits to obtain job benefits, including companies’ retroactive contributions to employee retirement and other plans.

Worker misclassification is not a new concept, but it has become a resurgent complaint as companies seek to distance themselves from the employment status of those they hire. Certain industries, such as high tech, habitually avoid hiring employees fearing issues of wage increases, unionization, taxation, costly worker benefits, and a host of other legal and financial “complications”. Sadly, companies can save a lot of money simply by evading the labeling of workers as employees. But where such labeling is fraudulent, it is a form of actionable wage theft.

Here is a good example. Pacific 9 Transportation, a California trucking company that works at the ports of Los Angeles and Long Beach, filed for U.S. bankruptcy protection earlier this year, facing a demand to pay close to $7 million to its truck drivers. Pacific 9’s bankruptcy filing shut down drivers’ collection efforts, after the drivers successfully proved the company improperly classified them as independent contractors.

The company owed some individual drivers $200,000 and $300,000.

Pacific 9’s lawyer said the company would continue operations during the bankruptcy, which would give it time to figure out a payment plan.

According to press reports, Pacific 9 was only the most recent trucking firm to declare bankruptcy, after losing a large back wages claim before the California Department of Labor.

Calling workers independent contractors allows companies to lower their overhead. In the trucking industry, that means it is less costly to move freight, which customers may love, but it cheats the workers. Also, importantly, independent contractors cannot unionize, so misclassifying workers guarantees a union-free labor force. This skirting of the law costs employees not only their pay and benefits, but also their rights to unionize. It is the unlawful exception that swallows the lawful rule.

This pattern has been shown in case after case across the country, especially in the transportation area.

Last year, Federal Express settled a lengthy federal court misclassification case. Their cost of doing business was close to $23 million.

More recently, Uber Technologies settled class action cases in Massachusetts and California that permitted Uber to classify drivers as independent contractors, instead of as employees. However, Uber will pay 385,000 drivers up to $100 million total.
In a very important legal development, last August, the National Labor Relations Board (NLRB) issued an on-point memorandum, involving the very same Pacific 9 company. The NLRB, which regulates and enforces the rights of American workers to unionize, also investigates claims of unfair labor practices, including interference with workers’ collective bargaining rights. Issued by its Consul General, the memo gives a heads up to employers, workers, and lawyers who represent them. Per the memo, the legal distinction between independent contractors and employees will have teeth if companies get it wrong – and they often do.

The NLRB unfair labor practice theory of worker misclassification hasn’t been tested before the NLRB or the courts, but the memo shows what is likely to happen when employers fraudulently misclassify their workers.

The NLRB said that by misinforming drivers they were independent contractors, Pacific 9 interfered with the drivers’ rights under the National Labor Relations Act to organize or engage in union activity. Pacific 9 supervisors repeatedly informed their drivers that they were independent contractors, even though the drivers had all the attributes of employees.

The IRS defines an independent contractor as follows:
The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

If you are an independent contractor, you are self-employed.

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

The NLRB found Pacific 9 in violation of the law when it prevented employees from engaging in protected activities, finding unlawful the company’s advising the drivers they were independent contractors and risked job loss if they engaged in union activities.

The NLRB memo said the appropriate remedy was to require the employer to stop informing drivers they were independent contractors and rescind any agreements that denied them employee status.

The NLRB said the evidence overwhelmingly showed that drivers were employees rather than independent contractors.
The memo found “treating the drivers as employees on a daily basis while continuing to insist… they are independent contractors…is without any legitimate business purpose other than to deny the drivers protections [as employees] and [it] operates to chill its drivers’ exercise of their [federal labor law] rights.”

If you need assistance regarding your employment rights, with or without a union, based on unfair labor practices, including misclassification, then speak to an experienced employment law attorney for workers. Schedule a near-term reduced fee initial consult in our convenient Central Jersey law offices in Kingston. Call 609-683-7400 or contact us online to speak to one of our attorneys. We will listen to your facts, advise you on the law, and suggest the best pathway to economic justice. Call today. You will be glad you did.