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Employee Or Contractor? New U.S. Guidelines Could Reclassify Workers

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Until this spring, California port truck driver Alex Paz was considered an independent contractor. He had paid for fuel and registration of a truck, but the truck itself was owned by the trucking company. Some months, after the company deducted his costs, he ended up owing the company money.

"I didn't feel like I was working for myself," he says.

Under pressure from Paz and the Teamsters Union, the company reclassified him as an employee.

"It's a lot better because now you get paid. You know you're an employee," Paz says.

This week, the U.S. Labor Department issued a memo that some say could mean big changes for some workers. It includes a set of standards for employers to follow to decide who is an employee and who is an independent contractor.

It's guidance that's designed to cut back on what the Labor Department calls worker misclassification.

When Labor Department officials issued the memo, they were thinking about the experiences of people like Paz.

"This is the bedrock on which all of our labor standards are built on, is the employment relationship," says David Weil, the administrator of the Labor Department's Wage and Hour Division and author of the memo.

Weil says misclassification is a top priority for the Labor Department because nonemployees aren't covered by various workplace regulations such as overtime, occupational safety, unemployment insurance and the like. The abuse of independent contractor status, he says, has been on the rise, and not just in industries like construction and janitorial work where it has long been an issue.

"But of particular concern, we find it spreading into other industries where in the past it hasn't been a problem," Weil says.

Those include hotels, distribution, restaurants and retailing.

Weil says he based the guidelines on precedent established by court decisions — looking at things like compensation structure, the length of the contract, and how much independence the worker has in setting schedules.

Most businesses don't take advantage of their contractors, and Weil says they will be helped by clearer guidelines. "I think it also benefits employers who are already doing the right thing, who are really undermined by employers who come in and do misclassification," he says.

Jeff Ruzal, an attorney representing employers, disagrees. "What is new, really, is the tag line. And that's what the DOL is pushing. And that tag line is, 'most workers are employees,' " he says.

Ruzal says he's advising clients to audit their contractor base and either make adjustments to payrolls or shorten contracts. Another concern is that labor activists and employees will use these new guidelines to go after deep-pocketed businesses.

"I think the plaintiffs' bar is going to seize on this interpretation, try to spin it as something new, and use it to try to gain traction with the courts to otherwise push a greater amount of lawsuits," Ruzal says.

Richard Alfred is another employment attorney representing employers. To him, the memo carries a larger message.

"The administrator has expressed the Wage and Hour Division's hostility to the use of independent contractors by employers," Alfred says.

He says many clients are still reviewing the memo and aren't yet clear on how they will react.

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