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If It Looks Like Employment, It Probably Is

Research & Commentary
November 13, 2014

by David Bensman

The day is dawning when misclassified workers will regain the rights and privileges of employment.

By David Bensman

Misclassifying workers saves employers about 30 percent of their labor costs.

Misclassifying workers as independent contractors saves employers about 30 percent of their total labor costs.

For the past three decades, companies have been running away from their responsibilities as employers. In the process, they have made inequality worse. Employment, it seems, has become burdensome.

When you hire someone, you have to pay social security taxes, contribute to state unemployment and workers’ compensation funds, respect labor and employment laws, and ensure worker health and safety. It’s a lot to put up with. What if you could get people to do the same work without taking on these responsibilities?

As it turns out, you can. David Weil, the U.S. Department of Labor’s Director of the Wage and Hour Division, has documented in his book, The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done About It, the many ways employers have evaded their responsibilities. Misclassifying employees as “independent contractors” is one of the most popular routes to achieving this goal. It saves employers about 30 percent of their total labor costs. And it leaves their workers without health insurance, without pensions, and with all sorts of costs that employers customarily pay, such as the cost of tools, uniforms, and any vehicles used in the performance of work.

[pullquote] The majority of so-called independent contractors are misclassified. [/pullquote] Of course, some workers truly are independent contractors. If you go to Hollywood, you’ll find scriptwriters, film editors, costume designers, and dozens of other crafts where this has become the norm. In these instances, workers are highly paid and happy with their status. The same is true of some high-skilled technicians in Silicon Valley.

However, the majority of so-called independent contractors are misclassified in dozens of industries ranging from construction and janitorial services to nursing and home health care. No one knows exactly how many workers are misclassified these days, because the government didn’t start collecting the data until this year. Back in 2005, a study of the New York labor force found that misclassified workers made up more than ten per cent of the state’s labor force. In 2000, the Labor Department estimated that fully one-third of employers engaged in misclassification.

The California drayage industry, which trucks shipping containers to and from seaports of Los Angeles, Long Beach and Oakland, is a particularly interesting place to observe misclassification. The courts have been scrutinizing the contracting relationships in this industry ever since Congress deregulated trucking in 1980. In more than forty cases, judges have listened to the mostly immigrant truckers, who drive to and from the ports each day, describe their relationship with the mostly small companies who give them work. [pullquote] In more than forty cases, port truckers in California have won victories against misclassification. [/pullquote]

In every case that’s been decided, they’ve ruled that the port truckers, who net an average of $28,000 a year, are actually dependent on their employers. Why? Because the trucking companies tell them where and when to make deliveries, require them to place signs on their vehicles naming the firm for which they’re driving, and prohibit them from driving for other companies. In most cases, the truckers need the companies’ help to obtain their truck leases and insurance. Firms deduct insurance premiums, and often the cost of maintenance, from the drivers’ checks.

As a result of these court decisions, companies have been required to pay social security taxes, make contributions to unemployment and workers’ compensation funds, pay out disability and unemployment benefits and pay drivers for overtime worked and unlawful deductions. The courts have also required companies to re-hire drivers who were fired for protesting misclassification.

In March, the southern California regional office of the National Labor Relations Board announced a settlement between the Teamsters Union and a trucking company that required the company to treat its workers as employees rather than independent contractors. [pullquote] Emboldened by their legal victories, California port truckers are now on strike against misclassification. [/pullquote] Among other things, the decision meant that the company had to inform workers of their right to form a union. And on November 7, a federal Appeals Court ordered one firm not only to take back two drivers who had been illegally fired, but to take them back as employees, not as contractors. The court order upheld the first injunction issued by a federal court in American history to support the rights of so-called independent contractors.

Emboldened by their legal victories, southern California port truckers are now on strike against misclassification.   At America’s two largest seaports, drivers have mounted picket lines, demanding that companies not only compensate them for the wages they’ve stolen from them, but also to recognize their rights as employees under U.S. and California labor and employment laws.   The strikes come at a particularly sensitive time for the giant shipping companies – the Wal-Marts, Costcos and Targets who depend on the seaports and the drayage industry to bring their imported goods to warehouses and distribution centers.

Ever since last winter, port congestion has slowed down the unloading of ships, causing a backlog that threatens to leave retailers with empty shelves for the Christmas buying rush. The stalled labor negotiations between longshoremen and West Coast shippers have deepened the crisis. Now the port truckers are on strike, demanding that the shipping industry and the federal government recognize that America’s economy rests on the shaky foundation of an industry that systematically deprives workers of their rights. [pullquote] Today, momentum is on the side of misclassified workers. [/pullquote]

A few years ago, the conventional wisdom was that port truckers couldn’t be organized because the law was against them. They were stuck with low pay, no pensions or health care, and no legal protections. They were a permanent part of an American underclass. Today, momentum is on their side. The day is dawning when they will rejoin the ranks of the working class, and regain legal protections against discrimination and against unsafe working conditions. If current trends continue, they’ll soon be able to join a union – the Teamsters – if they choose to do so. In the big picture, they’ll push back against America’s transformation into a world of princes and paupers.

 David Bensman is Professor of Labor Studies and Employment Relations at Rutgers University. He is the author of The Practice of Solidarity: American Hatters in the Nineteenth Century, Graduates of Central Park East: Learning by Heart, and Rusted Dreams: Hard Times in a Steel Community (co-authored with Roberta Lynch). Professor Bensman has published articles in The American Prospect,The Nation, Dissent, The New York Times, and The New Labor Forum.

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