Wage-and-hour claims against employers under the Fair Labor Standards Act are at an all-time high, according to data released by the Federal Judicial Center.
More than 7,000 cases were filed under the law in the latest 12-month reporting period. That’s a new record, and almost four times as many claims as were filed during a similar 12-month period a decade earlier.
The bulk of the new claims are for “misclassification” – where an employer wrongly calls an employee an “independent contractor” in order to avoid overtime rules, payroll taxes, employee benefits and medical leave requirements.
The remainder of the claims are for failure to pay overtime, wage miscalculation, and similar issues.
“Misclassification” claims are on the rise simply because so many employers have attempted to call workers contractors instead of employees in order to save money, particularly after the recent financial crisis.
But the penalties for misclassification can be serious. In addition to back wages and benefits, the IRS can issue fines of up to $5,000 per misclassified worker, and state governments can impose additional penalties on top of that.
Both the U.S. Department of Labor and the IRS have been cracking down more aggressively on businesses that misclassify their workers. So if you have any concerns about this issue, it’s a good idea to discuss them with an employment attorney.
An employee who is classified as a “contractor” might actually be an employee if certain criteria are met. While there’s no absolute test, a worker might be an “employee” if he or she has worked steadily for the business for a long time, doesn’t perform work for any other employer, performs “core” functions of the business rather than the sorts of functions that are typically outsourced, or does essentially the same work as other people who are treated as employees.
Misclassification can also get an employer into big trouble if a worker is injured on the job.
For example, a teenaged worker on a horse farm in Maryland recently suffered severe hand injuries when a horse kicked her. The teenager – who earned $8 an hour for cleaning stalls, training and feeding horses and assorted other responsibilities – seemed to fit the bill as an employee, but the farm had classified her as a contractor.
The teenager claimed that when she filed for workers’ compensation, she was told that she was ineligible because she wasn’t an employee. She also claimed that she was denied compensation for missed time after the injury.
The teenager sued the farm for “workplace fraud” stemming from the misclassification, as well as for failing to provide a safe workplace. A jury awarded a $275,000 verdict in her favor.
That’s presumably a lot more than it would have cost the employer simply to treat her as an employee and pay for her workers’ compensation insurance.