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April 24, 2014

Department of Labor (DOL) Proposes Survey on Independent Contractor Misclassification

The survey will involve more than 10,000 workers and carry important implications for employers, including the potential implementation of "right to know" regulations.

As part of its ongoing Misclassification Initiative, on January 11, the U.S. Department of Labor (DOL) proposed commissioning a nearly $1.9 million survey intended to explore the extent and nature of independent contractor misclassification.[1] The proposed survey would involve interviews of more than 10,000 workers from various industries over the course of the next two years. It is expected that the results of the survey will inform the DOL's enforcement efforts and lead to new rulemaking, including the proposed rule that would require employers to provide notice to workers regarding their status as employees or independent contractors, the basis for those classifications, and a description of how their pay is computed. Comments on the proposed survey are due to the DOL by March 12, 2013.

Scope and Purpose of the Proposed Survey

The DOL intends to engage a survey contractor to select from across the country a "nationally representative sample" of 10,060 workers and 100 executives working in diverse industries. It is not clear how the "representative sample" will be determined. The contractor will design survey questions and conduct in-depth interviews of workers, employers, and employer groups to explore the knowledge, attitudes, and practices relating to the classification of workers as employees or independent contractors. The stated purpose of these interviews is to gauge workers' awareness of basic employment laws, their current job classifications, the rights and benefits associated with their job status, and the consequences of being misclassified as an independent contractor—including the absence of legal wage entitlements and programs like unemployment insurance and workers' compensation for contractors.

The DOL's latest worker misclassification survey proposal mirrors, in several respects, its ongoing nationwide study focused on the prevalence of independent contractor and exempt-status worker misclassifications. That two-year study has involved the collection of data concerning worker exempt-status classifications as well as independent contractor classifications. The final report from that survey is due in September 2013.

As with its prior study, in this latest proposal, the DOL highlights statistics suggesting that independent contractor misclassifications result in the loss of billions of dollars of revenue for federal and state governments. The DOL further notes that federal labor laws do not presently require employers to inform workers of their employment status (whether the worker is an employee or a contractor), the basis for their status determinations, or pay (including hours worked, pay rates, and wages paid). As a result, according to the DOL, "workers may not be prepared for the consequences of misclassification."

Implications for Employers

The DOL's statements in the survey proposal suggest that the survey may be the next step toward a federal requirement that employers provide notice to all workers on their classification and the reason for the classification—the so-called "right to know" regulations that were discussed in the DOL's 2010 regulatory agenda. Such regulations would have far-reaching implications for employers nationwide and could trigger many more misclassification lawsuits.

If the survey goes forward as proposed, employers should expect to receive inquiries from workers who are contacted as part of the survey and should be prepared to address questions pertaining to classification issues. Employers should consider taking steps now to potentially address workers who may be misclassified as independent contractors and prepare talking points for managers and others who interact with the workers to respond to questions. Employers should also expect that the process and results of the survey will engender additional independent contractor misclassification litigation and a spike in enforcement actions, including in industries that have not previously been the focus of DOL scrutiny on these issues. Employers that have not recently audited their independent contractor classifications, agreements, and practices for communications with contractors should consider doing so immediately.

Copyright © 2014 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

About the Author

The Morgan Lewis Labor and Employment Practice strives for excellence in client service. For more than half a century, our lawyers have helped clients negotiate the ever-changing landscape of federal, state, and local laws that govern the workplace. We get to know you, your business, and your industry, and assist you in devising solutions to employment problems that affect the efficiency and productivity of your workforce.

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