The Department of Labor (”DOL”) has announced that it is planning to put the onus on employers to demonstrate compliance with wage and hour, safety and health, and other laws overseen by DOL. It is not clear whether or when the initiative will come to fruition, or the form the initiative will ultimately take. However, it is clear that the Department is laying the groundwork for changes that may impose substantial new compliance burdens on employers.
In remarks on April 29, 2010 to the Center for American Progress, Deputy Labor Secretary Seth Harris noted that the DOL’s spring regulatory agenda, released on April 26, was the first step in a new strategy to ensure the burden of compliance with labor laws is on the employer. This strategy, dubbed by Harris as the “Plan, Prevent, Protect” strategy, seeks especially to target those employers that DOL believes employ a cost-benefit analysis before deciding to comply with the labor laws. Specifically, “Plan, Prevent, Protect” would require employers to: (1) formulate a plan to comply with specific labor laws; (2) enhance prevention by executing the plan and performing an analysis on its effectiveness; and (3) protect workers by making sure employers follow through by requiring disclosure of the plan to both workers and the government.
While Harris anticipated applying these principles in a number of contexts including safety regulations under OSHA and MSHA, he repeatedly discussed their application in the context of independent contractor misclassification issues. Driven in large part by a desire to rein in what it sees as calculated non-compliance by employers in the area of classifying workers as independent contractors, DOL intends to require employers to prepare a written plan for why certain workers are classified as independent contractors. Employers would have to disclose this plan to their workers. Harris further noted that DOL plans to implement a misclassification initiative aggressively, including working with the IRS and state labor agencies to target employers who are not classifying workers properly.
Independent contractor classification has been an area of increased interest for legislators and regulators in recent years. In addition to the DOL initiative, several states have recently passed laws that seek to tighten the definition of independent contractor, including Connecticut, Nebraska, New Jersey, Maryland, Minnesota, and Illinois. Other states, such as Vermont, have recently launched initiatives targeting employers who misclassify employees as independent contractors.
Federal legislation has been also introduced recently in Congress aimed at addressing these issues. On April 22, 2010, the Employee Misclassification Prevention Act (S. 3254, H.R. 5107) was introduced in both the House and the Senate. In addition to imposing civil penalties for misclassification and directing the DOL and state unemployment insurance agencies to perform misclassification audits, this bill would require employers to keep records concerning their classification of individuals as independent contractors and notify those individuals of their classification, along with information on what to do if they feel they have been incorrectly classified. Additional pending legislation, such as the Taxpayer Responsibility, Accountability, and Consistency Act of 2009 (S.2882), which proposes amending the tax code to make classifying workers as independent contractors more arduous, also seeks to address this issue.
A rule implementing the use of “Plan, Prevent, Protect” has yet to be proposed, so any official implementation of DOL’s initiative is likely at least a year in the future. Nevertheless, Harris signaled that “Plan, Prevent, Protect” is an important component of DOL’s enforcement strategy.