Who’s the boss is key issue
When Houston lawyer Scott McLaughlin was just starting out in his career two decades ago, he found himself doing a lot of head scratching.
His clients were companies that were relying increasingly on independent contractors for their work force. But to McLaughlin, they didn’t seem too independent.
“I wondered, ‘Aren’t they really employees?’ ” McLaughlin recalled.
He figures he wasn’t the only employment lawyer on the management side with doubts when clients wanted to shift employees into contract labor arrangements that avoid the costs of payroll taxes, employee benefits and workers’ compensation insurance.
It’s taken a long time for government agencies to gain momentum toward more aggressive enforcement but the “federal eye is turning,” said McLaughlin of the Jackson Walker firm. He pointed to the recent independent contractor crackdown by the U.S. Department of Labor and the decision by the National Labor Relations Board on joint employment, which has shaken the temporary staffing industry and the companies
that use personnel agencies. The board broadened their shared responsibility for complying with rules.
McLaughlin said regulators are looking at practices arising from the growing use of outsourcing, and saying “We don’t think it’s legitimate.”
Many companies probably will be unpleasantly surprised to learn they have liability for unpaid overtime and other employment claims even when they don’t control the workplace, said Joe Ahmad, a lawyer with AZA who primarily represents executives in employment disputes.
As an example, Ahmad said, a company contracting with a staffing firm might dismiss the personnel firm’s employee because it believes the worker is too old.
“Well guess what? The payroll company may be as liable for the employers’ decision,” he said. “I can’t tell you how many times the payroll-staffing company didn’t see it coming.”
Conversely, the staffing company might make a “bone-headed” employment decision, Ahmad said. The client company might not be able to argue that the responsibility lay fully with the staffing company. Epic decision
Legislation such as the Americans with Disabilities Act and the Family and Medical Leave Act were “obviously epic,” said McLaughlin, referring to the expansion of civil rights for the disabled and guaranteed time off to care for family illnesses and newborns. But they may not prove as big as what’s likely coming down the pike on joint employment.
“I don’t remember anything more significant than this,” he said.
The issue has attracted so much attention because so many businesses, including the energy industry, now rely upon contractors, either through staffing firms or by using Internal Revenue Service 1099 forms for reporting the work of independent contractors.
About half of all commercial and residential construction work in Texas is done by independent contractors, estimates Stan Marek, CEO of Marek Cos., an interior construction company with 1,000 employees.
The industry relies heavily on undocumented immigrants who, in exchange for a job, sign up as contractors and sign away rights to workers’ compensation, he said. And they seldom complain if they don’t earn minimum wage or overtime. ‘It’s killing me’
Marek estimates his competitors can trim 30 percent of their costs by classifying workers as independent contractors to avoid payroll taxes, overtime and workers’ compensation. “It’s killing me,” he said.
Marek welcomes the new scrutiny.
While the issue has been a hot topic in construction circles for some time, other employers haven’t put it on the front burner. At least not yet.
“It’s so new,” said Mike Kahn, director for Texas SHRM, an association of 19,000 human resource officials. “People are trying to understand it.”
A bigger concern among HR managers is the change in federal wage law that will make more managers eligible for overtime, he said.
McLaughlin said that if he were running a company, he’d make sure any contractors weren’t just working for him but for many companies, so they wouldn’t be economically dependent on one job for their livelihood.
He’d also make sure that company supervisors didn’t tell them when and where to work. That’s part of what makes a contractor independent. Someone who comes to work every day, sits at a company desk and is told by the boss what to do is an employee, not a contractor.