Update: U.S. Department of Labor Increases Pressure to Reclassify Independent Contractor Workers

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In September 2011, the U.S. Department of Labor announced a joint initiative with the Internal Revenue Service (“IRS”) and 11 states1 to share information and “coordinate law enforcement” for the purpose of ending “the practice of misclassifying employees in order to avoid providing employment protections.” The joint enforcement program was almost immediately followed by the announcement by the IRS of its Voluntary Classification Settlement Program (“VCSP”). VCSP is a program that allows companies the IRS accepts for participation to reclassify workers as employees for employment tax purposes prospectively and to receive 90 percent amnesty on past due employment taxes, with no interest or penalties. We reported and commented on these developments in an Alert in October 2011. What has been the effect of the implementation of these programs over the last nine months?

Since September 2011, the U.S. Department of Labor, Wage and Hour Division (“DOL”) has stepped up the pressure on corporations to reclassify workers as employees, rather than independent contractors. Between December 2011 and February 2012, the DOL announced cooperation agreements with three more states: California, Colorado, and Louisiana.2 These states each have entered into a three year Memorandum of Understanding (“MOU”) with the DOL which specifies that broad categories of information, such as unemployment compensation information, identities and/or confidential “statements” of persons and internal opinions and recommendations by either the DOL or one of the state agencies, can be exchanged for purposes of enforcing laws within the purview of each agency.3 Both the DOL and these states also agreed to insert hyperlinks to the websites of the other agency on their own sites and to exchange statistical information on violations in specific industries and geographic areas. This expansion of state cooperation obviously increases the scope of the information available to the DOL to initiate investigations and pursue enforcement, particularly with the added cooperation of California.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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