Know Your Rights Training: Worker Misclassification

Presented by the People’s Parity Project and

the Emergency Workplace Organizing Committee

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November 10, 2024

Goal of Today’s Training

• Worker misclassification can be complex issue – today’s goal is to help you understand the issue and spot it, not become a legal expert.
• Disclaimer: Today’s training does not constitute legal representation. For specific legal advice, we recommend you speak to an attorney.

What is Misclassification?

• The law generally classifies workers in one of two ways: either (1) an independent contractor, or (2) an employee.
• Whether a worker is an independent contractor or an employee is governed by law – employers are not free to assign whichever label they want to their workers.
• Misclassification occurs where an employer designates and treats a worker as an independent contractor when the worker is, in practice, an employee.

What is Misclassification?

• Basic overview: Whether a worker is an independent contractor or an employee boils down to how much control the company has over the worker.
• Independent contractor: Generally is their own “boss: and decides if they want to take on specific jobs from other people and companies; typically have their own tools and certifications; sets their own schedule; may have their own LLC.
• Employee: Someone who is directly controlled by a company; the company largely decides when, where, and how an employee does their work.

Why Does Misclassification Matter?

• Many of the state and federal laws that protect workers apply only to employees, not independent contractors. Misclassification leads to fewer rights and lower pay.
• E.g., minimum wage; overtime pay; paid breaks and sick leave; right to join a union; unemployment; workers’ comp; family and medical leave; anti-discrimination laws; employer contributions to social security/Medicare.

Why Does Misclassification Matter?

• Misclassification is on the rise, becoming increasingly common in many industries:
• Rideshare and third-party delivery services (think Uber, Lyft, Grubhub); construction; truck drivers; landscapers; home care workers; salon workers; janitorial services; etc.
• Recently, misclassification is becoming more frequent even in uncommon areas.

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A Few Real-Life (DC-Based) Examples of Misclassification

• Power Design, a major construction firm, was misclassifying hundreds of construction works

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• DC Attorney General’s Office secured a $3.75 million settlement with the company

A Few Real-Life (DC-Based) Examples of Misclassification

Office of the Attorney General for the District of Columbia

Misclassification and Your Wages

• There are laws regulating workers’ wages and hours at the federal, state, and local level.
• Federal law: The Fair Labor Standards Act (FLSA)
• Sets a national floor for minimum wages, overtime requirements, and most other key worker protections
• Importantly, applies only to employees (not ICs)
• DC wage/hour law follows the FLSA’s test.

Misclassification and Your Wages

• In 2024, the Biden Administration finalized a new rule that clarified the standards for when a worker is an independent contractor under the FLSA with clearer and more worker-friendly standards.
• Although courts are no longer required to follow this regulation, it is still the most useful starting point for figuring out if you might be misclassified.

Misclassification and Your Wages

• Under federal (and DC) law, they key inquiry is whether, in “economic reality,” you are economically dependent on your employer for work (and thus an employee) or in business for yourself (and thus an independent contractor).
• The “economic reality” test has six core factors – no single factor is make or break, all are weighed together.

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Misclassification and Your Wages

• (1) First “economic reality” factor: opportunity for profit or loss

Key question is whether worker has an opportunity to earn profits or incur losses based on either:

• (1) exercise of initiative (managerial skill, business judgment), or
• (2) management of investment in or spending money on, for example, helpers or equipment or material for the work

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Misclassification and Your Wages

• (2) Second “economic reality” factor: investments by worker and company
• If a worker invests in things that could be considered entrepreneurial -- things that increase the worker’s ability to do different types of work or more work, reduce their costs, or extend their market reach – this indicates IC status

Misclassification and Your Wages

• (3) Third “economic reality” factor: degree of permanence of work relationship
• Weighs in favor of employee status where the work relationship is indefinite in duration, continuous, or exclusive of work for other employers
• IC jobs, in contrast, are typically project-specific and time-limited

Misclassification and Your Wages

• (4) Fourth “economic reality” factor: nature and degree of control over work
• Factors that weigh in favor of IC status:
• Setting own schedule, selecting projects, ability to work for others
• IC jobs, in contrast, are typically project-specific and time-limited

Misclassification and Your Wages

• (5) Fifth “economic reality” factor: Extent to which work performed is key part of company’s business
• Weighs in favor of employee status where work performed is critical, necessary, or central to company’s principal business
• ICs, in contract, usually perform more discrete tasks

Misclassification and Your Wages

• (6) Sixth “economic reality” factor: Skill and initiative
• ICs usually have some specialized skill necessary to perform their work, and that skill has to contribute to their having a business-like initiative
• This factor indicates employee status where the worker does not use specialized skills in performing the work or the worker is dependent on training from the potential employer to perform the work.

Misclassification and Your Wages

• Six core wage & hour factors:
• (1) opportunity for profit or loss
• (2) investments by worker and company
• (3) degree of permanence of work relationship
• (4) nature and degree of control over work
• (5) extent to which work is key part of company’s business
• (6) skill and initiative

Misclassification and Your Wages

• Note that although DC law follows federal law for determining worker classification, DC has other laws that provide additional protection:
• In the construction services industry, misclassification violates DC’s Workplace Fraud Law
• DC’s anti-discrimination law is applicable to independent contractors

Misclassification and Labor Organizing Rights

• Federal law grants employees the right to join and form unions, to bargain collectively with their employer over wages and working conditions, and to engage in collective action in the workplace for mutual aid or protection (e.g., strike, picket, group protest).
• This law is called the National Labor Relations Act (NLRA). It is enforced by the National Labor Relations Board (NLRB).

Misclassification and Labor Organizing Rights

• With or without a union, workers covered by the NLRA have a right to:
• Talk to their coworkers about wages, working conditions, and unionization;
• Become a member of a union;
• Wear union pins or insignia in the workplace, start a union organizing campaign, and vote to join a union;
• Go on strike or engage in a walkout or other collective work stoppage to protest working conditions;
• And many other things!

Misclassification and Labor Organizing Rights

• Companies may not interfere with these rights. That is, if a worker is covered by the NLRA, their boss CANNOT discipline, discharge, or retaliate against them for exercising their labor organizing rights.
• If their boss does so, the worker can file a charge with the National Labor Relations Board (NLRB), the federal agency that enforces the NLRA. The NLRB can issue an order to remedy the violation (e.g., reinstatement, backpay, nullifying rules or policies).

Misclassification and Labor Organizing Rights

• The NLRA applies to most private sector employees. It does not apply to ANY public workers, whether at the federal, state, or local level.
• If a worker is employed by the govt, they are not covered by the NLRA. However, many states have laws that provide these same rights to govt workers.
• But the NLRA also excludes certain private sector workers:
• Agricultural workers; domestic workers; supervisors/managers.

Misclassification and Labor Organizing Rights

• Like most workplace laws, the NLRA does not apply to independent contractors; it covers only employees. In other words, ICs do not have a right to join unions or engage in collective workplace protest activity.
• The NLRB is responsible for determining whether a worker is an employee or independent contractor under the NLRA.
• The NLRA test is slightly different from the FLSA test, but both consider similar factors, such as extent of control, length of time, whether work is regular part of company’s business, degree of skill involved, etc.

Misclassification and Labor Organizing Rights

• The NLRA independent contractor test considers eleven (11) factors – no single factor is decisive:
• 1) extent of control by company over details of the work
• 2) whether individual is engaged in distinct occupation or business
• 3) kind of occupation; whether work is usually done under direction of employer or by specialist without supervision
• 4) skill required in occupation
• 5) whether worker or company supplies instrumentalities, tools, and place of work

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Misclassification and Labor Organizing Rights

• 6) length of time for which individual is employed
• 7) method of payment (by job or by time)
• 8) whether work is part of the regular business of company
• 9) whether parties believe they are creating an employment relationship
• 10) whether the principal is or is not in business
• Realistic ability to work for other companies; ownership interest in their work; control over important business decisions (scheduling, hiring, purchase of equipment, etc.)
• 11) whether the individual is, in fact, rendering services as independent business

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Misclassification and Labor Organizing Rights

• In summary, the NLRA grants employees the right to organize a union and engage in collective workplace protest. You can’t be disciplined or discharged for exercising these rights.
• However, ICs are excluded from NLRA’s protections.
• The NLRA IC test is fact-specific. But, generally, if the company controls your work, sets your schedule, supervises you, provides your materials, pays you hourly/weekly, makes all business decisions, and your work is part of its regular business, you are an employee under the NLRA.

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What Kind of Evidence Helps Prove Misclassification?

• Evidence related to your control (or lack thereof) over your schedule
• Company disciplining you or directing you when/how to do your job
• Restrictions on your ability to work for other companies
• Engagement agreements showing your work is indefinite in duration

What To Do if You Are Misclassified

• 1) Private litigation
• Many private firms will take misclassification cases on a contingency or pro bono basis
• MWELA
• 2) Report to DC AG
• workers@dc.gov; trabajadores@dc.gov; (202) 724-7730
• 3) Anti-Retaliation
• Document protected activity (caution when recording conversations or downloading documents)
• 4) Remedies
• 5) Organize

Questions?

Contact Us

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• Kevin Vazquez, Teamsters Staff Attorney
• kvazquez@teamster.org
• Jason Vazquez, Teamsters Staff Attorney
• jvazquez@teamster.org