The Department of Labor (DOL) Solicitor, M. Patricia Smith, told an audience at the national meeting of the American Bar Association earlier this month that they will step up their focus on worker misclassification in an effort to probe into unfair labor practices. Included are the hiring of independent contractors and the designation of exempt versus non-exempt employee status, which affects an employer’s liability to pay overtime.
Adding juice to the initiative is DOL’s increased coordination between federal and state labor agencies. Ms. Smith announced that the DOL has established partnerships with various states, including approximately 13 memoranda of understanding that allow for the sharing of information between federal and state authorities. A determination at the state level could now bring an action by the DOL, significantly raising the stakes.
The DOL has also started to file amicus briefs supporting claims by individuals against employers over exempt classification and overtime payments. Plaintiff attorneys have been having a field day filing suits against unsuspecting employers.
The use of unpaid interns is also under scrutiny. The fragile economy has made the practice of using unpaid interns more common. Although not necessarily unlawful, the DOL considers a series of factors when assessing the legality of such arrangements. In particular, the criteria include whether the internship provides training similar to that provided at an academic or vocational school; displaces a regularly paid worker; and whether the employer derives any immediate advantage from the intern’s activities.
Nonprofits certainly could be subject to the DOL enforcement efforts and should therefore exercise caution about their employment and contracting practices. The DOL, along with State Labor commissions, have issued rules and guidelines for companies and organizations that employ unpaid interns. Organizations that offer unpaid internships to young workers should consider creating written policies incorporating the federal DOL criteria. In addition, the IRS has been running an amnesty program called the Voluntary Classification Settlement Program that provides partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat workers as employees. (see our post IRS Continues Amnesty Program for Misclassified Workers).