Federal judge rules against misclassifying workers as contractors

The U.S. Department of Labor won a major victory this month in its campaign against job misclassification, a growing problem where companies illegally label employees “independent contractors” to evade taxes, wage and hour laws, health, safety and anti-discrimination standards.

In a Nov. 3 decision Judge Thomas Rose of the U.S. District Court in Ohio ruled that Cascom, Inc. had illegally denied overtime pay, as required by the Fair Labor Standards Act, to 250 installers of cable TV, telephone and internet services in the Dayton area. The installation company, retained by Time Warner, had misclassified the workers as independent contractors and was sued by the Dept. of Labor, which is now seeking $1.6 million in back wages and damages.

“The misclassification of employees as independent contractors is an alarming trend,” said Labor Secretary Hilda Solis. “The practice is a serious threat to both workers, who are entitled to good, safe jobs, and to employers who obey the law and are undercut when others use illegal practices.”

The suit was brought as part of a coordinated effort of the Departments of Labor, Treasury and other agencies under auspices of the Middle Class Task Force set up by the White House shortly after President Obama took office and headed by Vice President Joe Biden.

In 2010 Ohio Attorney General Richard Cordray estimated there were over 90,000 misclassified workers in trucking, home health care, construction and other industries, costing the state over $350 million in lost unemployment insurance taxes, workers’ compensation premiums and income tax revenues. According to the Labor Department, as many as 30 per cent of companies nationally misclassify some 3.4 million workers as contractors.

In this way they avoid an estimated 20 to 30 percent extra cost per worker in Social Security, Medicare and unemployment insurance taxes as well as minimum wage, overtime and other costs. The crackdown on misclassification should increase revenues by $7 billion over the next decade according to Biden’s Chief Economic Advisor, Jared Bernstein.

Law abiding companies, undermined by the unfair competition, have praised the Labor Department’s offensive against misclassification, as have labor unions.

Communications Workers of America President Larry Cohen hailed the court decision as a victory against the “massive issue of job misclassification in the United States, particularly in the cable industry.” He added, “Misclassifying workers has made cable organizing harder because of the threat or the actual use of subcontractors.”

With thirteen years of experience in the field in telecommunications, I can speak first hand to the substandard conditions in the cable industry. Misclassified workers face deplorable safety standards, unreasonable productivity expectations, absence of adequate training and low wages. This results in high turnover and poor service to consumers. Injury rates are hard to calculate because many misclassified workers lack health care and access to workers’ compensation benefits. Those who seek more stable full-time work at broadband companies like Time Warner find few jobs available due to their use of contactors.

This ruling is a giant step in the right direction for protecting the welfare of the nation’s workforce. Enforcing proper classification and the Fair Labor Standards Act should stop the downward spiral of wages and compensation and support creation of full time jobs.

The ruling also raises questions about Time Warner, which hired Cascom to install its services and was certainly aware of the widespread misclassification practice in the industry.

Curt Hess is Organizer Coordinator for the Communications Workers of America in Cleveland.

Photo: Vice President Joe Biden and members of the Euclid Fire Department applaud as Labor Secretary Hilda Solis speaks during a campaign stop at a firehouse in Euclid, Ohio, Nov. 15. (Amy Sancetta/AP)