The U.S. Department of Labor continues its “misclassification initiative” by adding Alabama to its list of state partners. On October 2, 2014, Alabama Labor Commissioner Fitzgerald Washington and DOL regional director Wayne Kotowski signed a memorandum of understanding designed to coordinate enforcement and facilitate information sharing in an effort to reduce misclassification of workers. The memorandum enables the agencies to coordinate and cooperate in administrative and criminal investigations, refer complaints or potential violations to one another, notify each other of requests for information affecting shared data, provide testimony, and exchange statistical data (among other things). The exchange of information between the agencies is not considered public disclosure, and the agencies agree to maintain mutual confidentiality. The agreement, which is set to expire in three years, specifically states:

The U.S. Department of Labor agrees to make referrals to the Alabama Department of Labor regarding alleged violations where there are misclassifications of independent contractors, and any other relevant information that may be needed.

According to Commissioner Washington, Alabama employers misclassified more than 1,500 employees as independent contractors in 2013. According to the U.S. DOL’s press release on the signing of the memorandum, although legitimate independent contractors are critical to our economy, misclassification is an issue that state and federal officials appear ready to tackle with force.

The DOL has added more than 300 new investigators, and continues to reach out to other states to coordinate enforcement efforts. The DOL has focused its efforts in the past on industries such as janitorial, food, construction, day care, hospitality, and garment. The increased attention of state labor officials and the DOL on compliance measures is likely to result in an increase in legal enforcement actions in federal courts.

Misclassifying employees as independent contractors often comes with a high price tag. In fiscal year 2013, Wage and Hour Division investigations resulted in more than $83 million in back wages for more than 108,000 workers. Wage and hour litigation has increased at least partially due to the misclassification initiative, which began in 2011. Federal wage and hour lawsuits have doubled over a seven-year period, from less than 4,000 per year in 2005 to approximately 8,000 in 2012.

Any financial savings an employer hopes to accomplish by classifying an employee as an independent contractor quickly evaporates when faced with litigation, penalties for violations, and back wages. Employers should consult legal counsel and consider a self-audit to ensure compliance with federal employment laws.

Note: This article was published in the October 13, 2014 issue of the Alabama eAuthority.