By:  Ruth Kraft, Esq. 

In honor of Labor Day, the New York Times purveyor of all the news purportedly fit to print, published a lengthy piece about wage theft. It included claims by federal and state officials that employers are committing variations of wage theft—including violations of the minimum wage and overtime laws, falsification of work hours, misappropriation of tips, and misclassification of employees---more than ever. Rather, government is pursuing employers more than ever before. I found the allegation that employers are taking unprecedented steps in pursuit of higher profits to be ludicrous.

The director of the US Department of Labor’s Wage and Hour Division, David Weil, is on the record on the issue of franchisees, subcontractors and temporary agencies. The feds are going after all three because they are disturbed that companies can shift responsibility to them. Basically, notwithstanding the fact that the use of these business structures is perfectly legal, war has been declared! DOL has been on the offensive since 2010 (and it is no secret in my world that the evisceration of the unemployment insurance trust funds caused by the recession and desire to recoup the billions lent by the federal government to the states propelled this). I am frequently asked by clients how they came to be the subject of audits on both the federal and state levels. We have long known that certain industries are on the “hit list”.

We have entered the era of opportunistic lawsuits because the payoff from a wage theft case can be so large for employees, particularly in class actions. The latest salvo in the battle is seeking joint liability from franchisors and the ultimate beneficiaries of subcontractor or temp workers’ services.

MISCLASSIFICATION OF WORKERS, whether in terms of employee v. independent contractor or failure to pay overtime, creates enormous potential exposure for employers. Small businesses can literally find themselves paralyzed by the inability to defend, let alone pay, back wages together with statutory damages, interest and attorneys’ fees.

WHAT CAN YOU DO? Many employers adopt the ostrich technique, meaning that they bury their heads in the sand. This can be ruinous to your business. The costs of evaluation, reclassification and restructuring pale when compared to audit defense work. I have seen several examples this summer of companies trying to go it alone and creating immeasurable exposure for themselves in the process.

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