Today President Biden announced that he is nominating Dr. David Weil as his Wage and Hour Administrator, the same person who served in that capacity during the Obama presidency. During the Trump Administration, Dr. Weil returned to academia and published a book addressing the classification of workers in the U.S. as independent contractors. He is well known for issuing an Administrator’s Interpretation in July 2015 that set forth the test that the Obama Administration’s Labor Department used to determine if a worker had been misclassified as an independent contractor. The nomination of Dr. Weil comes within a week after the Biden Administration issued its Fiscal Year 2022 Budget, including an increase of $30 million for the Wage and Hour Division. Labor Secretary Marty Walsh explained that increase will “allow the division to aggressively combat worker misclassification” by adding 175 enforcement personnel. This increased financial commitment is reminiscent of the Obama Administration’s 2015 Fiscal Year Budget, where then-Labor Secretary Thomas Perez used similar language in describing a budget increase of “[n]early $14 million to combat the misclassification of workers as independent contractors.” This focus on increased enforcement, together with the nomination of Dr. Weil, sends a clear message that companies using independent contractors should enhance their compliance with applicable laws. We explain how that can be done below.
Dr. Weil’s Prior Approach and What to Expect Going Forward
While serving as the Wage and Hour Administrator, Dr. Weil focused his enforcement activities on industries where independent contractor misclassification was prevalent. The Wage and Hour Division, however, never published a formal list of priority industries. Those on the Labor Department’s informal list, which we determined by their inclusion in public statements, press releases, and Congressional testimony, include: construction, home health care, nursing, child care, cable companies, restaurants, catering services, hotels/motels, oil and gas businesses, landscapers, car and limousines services, and supermarkets.
In January 2015, during his prior service as Wage and Hour Administrator, Dr. Weil stated that business models that “attempt to change . . . the employment relationship through the use of independent contractors are not inherently illegal, . . . [and] legitimate independent contractors are an important part of our economy . . . .” The July 2015 Administrator’s Interpretation likewise indicated that while some businesses have “intentionally misclassified [workers] as a means to cut costs and avoid compliance with labor laws,” legitimate independent contractor relationships “can be advantageous for workers and businesses.” Presumably, during his confirmation hearing, Dr. Weil will be asked whether his focus as the new Wage and Hour Administrator will be on cracking down on intentional misclassification, not on unintentional misclassification, where the bulk of misclassification occurs, as noted in a prior blog post.
One area of inquiry during the confirmation process may address an apparent disconnect between government surveys and the title of Dr. Weil’s book, “The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done.” As we have previously reported in a commentary, according to a 2015 nonpartisan study by the Congressional General Accountability Office (GAO), an array of workers were asked the question “Would you prefer a different type of employment?” As reported on page 24 of the study, 85.2% of independent contractors responded “No”. Similarly, when independent contractors were asked if they were satisfied with their jobs, 92% responded that they were, with 56.8% saying they were “very satisfied”. In contrast, only 45.3% of full-time employees reported that they were “very satisfied” with their jobs.
Similarly, in 2018 the Bureau of Labor Statistics (BLS) issued a report entitled “Contingent and Alternative Employment Arrangements.” One question reported on page 15 of the report was whether ICs preferred their alternative work arrangement to traditional employment. Of those independent contractors who had an opinion, 89.9% said they preferred their alternative work arrangements, while only 10.1% said they would prefer a traditional job. A more recent Gallup Poll reached a similar conclusion.
What Should Companies Using Independent Contractors Do To Gear Up for Increased Enforcement?
Following the election of Joe Biden, a number of businesses have sought to enhance their level of compliance with federal and state independent contractor laws by restructuring, re-documenting, and re-implementing their independent contractor relationships using a process such as IC Diagnostics (TM). This type of process is designed to minimize independent contractor misclassification exposure in a customized and sustainable way without altering a company’s business model.
Businesses in those industries likely to be targeted by increased enforcement efforts at the Wage and Hour Division should move swiftly to distinguish themselves from others in the industry that may be vulnerable to enforcement actions by the U.S. Labor Department or a state workforce agency. In addition to elevating compliance using a process such as IC Diagnostics, companies should make sure they have in place arbitration agreements with class action waivers, drafted in an effective manner. While federal and state agencies are not bound by arbitration agreements, they often minimize the likelihood that a class or collective action alleging independent contractor misclassification can be maintained.