The U.S. Department of Labor (“U.S. DOL”) and the New Hampshire Department of Labor recently signed a memorandum of understanding to share information regarding independent contractor misclassification. The agreement is part of the U.S. DOL’s Misclassification Initiative, with the goal of preventing, detecting, and remedying employee misclassification. Just last month Alabama’s Department of Labor entered into a similar agreement. California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington state agencies have also signed such memoranda.
The coordinated effort between the U.S. DOL and participating states raises the stakes for companies who utilize independent contractors. In the past, a company might pay a single fine to a state agency for not making proper unemployment insurance payments due to misclassification of its workers. Under the new agreements, a participating state will now share this information with the U.S. DOL, which may opt to seek additional penalties and fines for federal wage violations. Thus, companies found to have misclassified their workers could find themselves the subject of multiple attacks.
This continued focus on misclassification comes as no surprise, especially in light of Solicitor of Labor M. Patricia Smith’s comments earlier this month at the ABA Labor and Employment Law Conference. There she stated that the U.S. DOL intends to continue working closely with state agencies, as well as the IRS, to address independent contractor misclassification, making it a top priority for the Department. All this makes clear that businesses that utilize independent contractors should be prepared for continued regulatory scrutiny.