FedEx Ground has agreed to pay the state more than $3
million to settle claims that the company misclassified its drivers as independent contractors, Attorney General Martha Coakley’s office announced Thursday.
Coakley’s office had alleged that Pittsburgh-based FedEx Ground had made insufficient payments to the state for payroll taxes, worker’s compensation and unemployment assistance as a result of the misclassification.
In the announcement of the settlement, Coakley called it a “step to level the playing field for businesses.”
The settlement followed a joint investigation by Coakley’s office, the Executive Office of Labor and Workforce Development and the Department of Revenue. The investigation revealed that FedEx Ground’s misclassification of employees had resulted in “significant underpayments” to the Department of Revenue, Division of Industrial Accidents and Department of Unemployment Assistance, according to Coakley’s office.
The settlement also provides for a payment for the 13 drivers named in the attorney general’s citation, according to Coakley’s office.
FedEx Ground drivers in the state have also brought their own lawsuit against FedEx Ground - which is pending and not affected by the settlement with Coakley’s office - and FedEx Ground denies liability in the settlement, according to Coakley’s office.
By Lindsay Beyerstein, In These Times
O
ver 10 million American workers are classified as independent contractors. But how many of them are really self-employed and how many are falsely labeled as such by unscrupulous employers?
That's one of the questions the Senate Committee on Health, Education, Labor and Pensions (HELP) set out to answer in a hearing on employee misclassification last week.
Employers mislabel their employees as contractors in order to avoid paying Medicare, UI and Social Security taxes. Amazingly there are no legal consequences for misclassifying workers, even if the employer does it on purpose. Committee Chair Tom Harkin (D-Iowa) pointed out this kind of tax evasion is costing cash-strapped state unemployment insurance funds billions of dollars a year.
A 2000 study commissioned by the Department of Labor found that up to 30% of employers misclassify at least some of their employees. The practice is rampant in the construction industry and in low-wage and gray market sectors of the economy.
By breaking the law, employers can cut their labor costs by up to a third. Frank Battaglino, who owns a sheet metal company in Maryland, testified about how hard it is for law abiding employers to compete with companies who cut corners.
"Increasingly we were being beat out of competitive bids by unusually low bids," Battaglino said. "We know this is a direct result of companies deliberately misclassifying their workers as independent contractors."
Who counts as an employee? The law takes a pretty commonsense view of the question. Basically, if you work for wages with the employer's tools at the employer's workplace under the employer's supervision, you're an employee. True independent contractors are literally in business for themselves. They invest capital in their own ventures and share in the profits or losses of their enterprises.
Deputy Secretary of Labor Seth Harris told the committee about one Wisconsin family restaurant that tried to evade minimum wage laws by classifying the dishwashers in their kitchen as "independent contractors."
Most workers don't realize that most of the rights they take for granted in the workplace derive from their legal status as employees. For example, most anti-discrimination laws are written in terms of what employers can do to their employees. Contractors may not be protected.
Help may be on the way for misclassified workers. In January of 2010, the DOL hired more inspectors to combat misclassification. The President's 2011 budget calls for an additional $25 million to help the DOL, IRS and other agencies address the problem.
Finally, Harkin and Sen. Sherrod Brown (D-OH) have introduced the Employee Misclassification Prevention Act, which would impose penalties for misclassifying employees as contractors and require employers to keep records on non-employees who work for them.
Last week the American Teamster's union announced that they are in favor of the Obama administrations crack down on misclassified workers. You can read more 
about the announcement in our news section. Teamsters Support Senate Efforts to Protect Misclassified Workers.
No real surprise here as the unions continue to try and remain stable in light of the trouble economy. They are going to be behind any efforts to corral jobs from both misclassified union and non-union work locations to help bolster their declining ranks. According to the Bureau of Labor Statistics, "The number of wage and salary workers belonging to unions declined by 771,000 to 15.3 million in 2009, largely reflecting the overall drop in employment due to the recession." In 1983, the first year for which comparable union data are available, there were 17.7 million union workers.
Certainly many union shops have been impacted by the down economy that has hit hard in the manufacturing areas like Autoworkers, etc. As the unions can enlist the government to help them identify what would or should be union positions will continue to bolster their ranks and dues.
Let us know how your company has been effected by unions and contract workers. Share information that might help another company challenged with this area of employment processing.
FIRST SUMMARY JUDGMENT RULING FROM THE FEDERAL MDL COURT HOLDS THAT ILLINOIS FEDEX DRIVERS ARE EMPLOYEES, NOT INDEPENDENT CONTRACTORS
In PSC's ongoing coverage of the Federal Express Cases on Employee Misclassification, we bring you the latest update from Illinois District Court.
June, 2010. Source: http://www.fedexdriverslawsuit.com/
FedEx Ground and Home Delivery drivers have been found to be employees under the Illinois Wage Act. The decision was issued by U.S. District Court Judge Robert Miller in the multi-district litigation that Judge Miller has been presiding over for the past five years. (In re: FedEx Ground Package System, Inc. Employment Practices Litigation, Cause No. 3:05-MD-527 RM) This holding came in a May 28, 2010 Opinion and Order granting summary judgment to the Illinois drivers under the Wage Act. The Court did not rule on other claims made by the Illinois drivers, but indicated it will address those claims separately. The decision is important in that it is one of a growing number of decisions in the past few years holding that the FedEx Ground drivers are employees and not, as FedEx claims, independent contractors. The essence of the cases consolidated before Judge Miller is that FedEx Ground has intentionally and consistently misclassified drivers as independent contractors, when they are in reality employees. Judge Miller specifically found that the Illinois drivers were employees under the Wage Act because their work was an essential and a necessary part of FedEx's business. As former CEO Dan Sullivan testified, the drivers are the "centerpiece" of FedEx's "workforce" and they are an "essential component" of the company's business. The Court noted the fact that drivers must wear FedEx uniforms and maintain a personal appearance satisfactory to FedEx. Contractors supply their own vehicles, but they must bear FedEx's logos and advertising. Further, FedEx structures the routes so that the trucks are in use 9 to 11 hours a day. Contractors can hire replacement drivers, but only with FedEx's approval. Finally, the Court noted that FedEx managers were obligated to have business discussions and customer service rides each year in order to maintain FedEx's image and reputation. Drivers' motions for Summary Judgment in 40 other states are pending. Currently, there are 63 lawsuits consolidated in the multi-district litigation. Motions for Summary Judgment have been filed, briefed and are awaiting decisions in almost all of these cases.
As our readers know by now, that the IRS is continuing to look at alternative means of revenue generation. Attacking the area of misclassified work
ers was one that we have focused on and now this is possibly the next.
IRS may not only use this to to generate revenue, but find a way to solve for the growing Social Security shortages. Many of us hear varying numbers describing the shortfall in Social Security funds for retiring baby-boomers. Several plans have been submitted to the Obama administration that would put more government control over 401(K) plans as a means to help support those shortfalls.
IRS Employee Plans Compliance Unit has launched its 401(k) Compliance
Check Questionnaire Project. The will be sending instruction letters to 1,200 random sponsors of 401(k) plans that filed an Annual Report for the 2007 plan year.
IRS intends to use the information to identify key compliance issues for future guidance on, and enforcement of, these issues. The questionnaire is not an IRS audit or investigation, however,failure to respond will result in IRS enforcement action, which may include an examination of the 401(k) plan.
The Questionnaire seeks detailed information on a wide range of topics. Topics include: demographics,participation, employer and employee contributions, top-heavy and nondiscrimination testing, distributions (including plan loans), automatic contribution arrangements, designated Roth features, plan operations
and administration, and IRS voluntary compliance programs.
The Questionnaire can be seen on the IRS website at 401(K) Questionnaire (Click on "View/Print the Guide to Completion of the 401(k) Questionnaire").
If you receive the instruction letter, the Questionnaire must be completed and submitted to the IRS within 90 days of the date on the letter. While the Questionnaire is publicly available on the IRS website, plan sponsors completing the Questionnaire must do so through a secure on line system on the IRS website.
Most of us are aware of the past actions to Microsoft and more recently UPS and FedEx in the IRS's pursuit of tax revenue via misclassified worker investigations. 
But if misery loves company, these firms have lots of friends.
Here are some that have line up as their closest "friends":
- Hewlett-Packard (Marks v. Hewlett Packard Company)
- Time Warner Inc. (Herman v. Time Warner Inc.)
- Allstate Insurance Company (Equal Opportunity Employment Commission v. Allstate Insurance Company/Romero v. Allstate Insurance Company)
- S.G. Borello & Sons, Inc. (S.G. Borello & Sons, Inc. v Department of Industrial Relations)
- ...and many more have suffered the consequences of worker misclassification.
Perhaps FedEx Corporation’s legal battle will become the newest landmark case, with approximately 30 state class action suits and an Employee Retirement Income Security Act (ERISA) class action filed against the company; settlements are estimated by some to be $1 billion.
Already a California appeals court decision in August 2007 ruled in favor of the plaintiff and FedEx lost its appeal of a $5.3 million verdict. The verdict resulted from a class action that claimed FedEx treated its independent contractors as if they were employees but did not provide them with payment and benefits that full-time employees would receive. The ruling proved that the workers in question, delivery drivers for FedEx Ground, were in fact employees of FedEx and not independent contractors due to the level of control that the company exercised over them.
And if all of the recent legislative action, lawsuits and case studies aren’t eye-opening enough, employers now have more to be concerned with, as current data analysis tools on the market, already in use by several State Unemployment Insurance agencies, allow users to easily analyze the IRS 1099 abstract file with technology that searches and identifies triggers for an audit.
With this technology, a user can establish criteria for queries and can target employers for an audit if, for example, a worker received only one IRS Form 1099 within one year but is paid what the agency views as high-level income. In this case, the agency might suspect that the employer was concealing full-time employment in order to avoid paying unemployment taxes. In the event that an independent contractor is reclassified to employee status during an audit, the employer is responsible for all back taxes, including employer and employee contributions and of course, applicable penalties and fines.
In an ongoing effort to continue to provide superior customer satisfaction, Payment Services is proud to announce the release of their 2010 Contractor Satisfaction Survey.
PSC recognizes that within the PEO industry, competitive differentiation is ultimately limited to the provision of superior services. Therefore, we take the process of the survey and looking at the results very seriously. The data provided enables our team to refine our programs and processes and ensure that we continue to strive to be the company within the PEO industry by which all other like companies are measured.
To gain access to the survey results, readers can click the 2010 Contractor Satisfaction Survey Cover to gain access to the report.
Click Here
The survey will reveal to the reader...
- Employment Classification Demographics of the contractor community
- Graphically represent what areas of service have been exemplary and those that can be improved upon.
- See first-hand what the contractor community thinks of PSC's services
We trust that the data provided will demonstrate to our readers why PSC is rapidly becoming the leading Professional Employment Organization in North America. We are very pleased with the results revealed in the report and applaud our team's commitment to excellence. However, as the report will teach readers, PSC operates in the Japanese spirit of Kaizen. Continuous Improvement.
Please jump on the PSC Train Blog, and let us know what you think about contractor satisfaction.
To learn more about a PEO, click here to learn more and read our popular Blog WHAT IS A PEO, HOW IS IT DIFFERENT FROM AN ASO?
The Department of Labor (DOL) will find employers in violation of the law an
d will take legal action against them if they do not have an effective plan in place to protect workers from violations of their workplace rights. Companies without such a plan are breaking the law.
The DOL Spring 2010 publication, issued this week, specifically says, “Employers and others must ‘find and fix’ violations — that is, assure compliance — before a Labor Department investigator arrives at the workplace. Employers and others in the Department’s regulated communities must understand that the burden is on them to obey the law, not on the Labor Department to catch them violating the law. This is the heart of the Labor Department’s new strategy. We are going to replace ‘catch me if you can’ with ‘Plan/Prevent/Protect.’”
This means that companies must have a plan to prevent the misclassification of workers as independent contractors. The DOL investigates violations of the Fair Labor Standards Act (FLSA), which includes misclassifying workers as independent contractors. The DOL applies its own test (the Economic Realities Test, which has a different emphasis than the IRS’ 3 Areas of Control Test) for determining whether a company has misclassified an employee as an independent contractor. If the DOL determines that the worker was misclassified, and otherwise would have been entitled to minimum wage and overtime pay under the FLSA, the company may be required to pay the employee back wages and prospectively re-classify the worker as an employee entitled to minimum wage and overtime. These expenses can be cost-prohibitive.
This aggressive new policy exposes employers to investigations by the DOL – investigations in which employers will need to prove their innocence by showing that they have an effective plan in place to protect workers from violations – including violations of the FLSA.
Does your company have a plan?
PSC can help create and prevent. Contact us or take our Free Risk/Reward Assessment.
In our continuing coverage of the government's stepped up efforts to reign in misclassified workers, the US Department of Labor (DOL) in the Obama 
administration, is now softening and trying to change the predatory approach and is trying to help employers with an internet resource designed to assist employers in navigating the legal changes of federal employment regulations.
The new DOL Web site features a series of interactive online Advisors, which, the DOL claims, “help users determine if they are in compliance with federal employment laws by asking questions, providing information and directing the individual to appropriate resolutions.”
Topics covered include:
- payroll and overtime
- workplace poster requirements
- health benefits
- re-employment rights for returning uniformed service members
- federal contractor compliance
To see the site and learn more, the link is http://www.dol.gov/elaws/
CHECK OUT OUR NEXT BLOG WHICH WILL TALK MORE ABOUT THE D.O.L.'s GUIDANCE ON PREVENTION.
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As we continue to report on the impending changes regarding the misclassification of workers, it is obvious that the changes being implemented will have long 
reaching effects on much of the Human Resource Related Services. As the article below shows, these changes will have an effect on the Fair Labor Standards Act (FLSA). Share with us where you're seeing impact.
Employee Misclassification Bill Proposes Changes to FLSA [Compensation.BLR.com]
Employers who misclassify their employees as non-employees are the target of a bill brought before Congress earlier this month. The bill would require organizations to keep accurate records of non-employees, such as independent contractors. Employers would also face new penalties for misclassifying employees.
The bill, referred to as the Employee Misclassification Prevention Act, proposes to make amendments to the record keeping and notice requirements section of the FLSA.
The bill would require employers who are subject to FLSA to keep accurate records of all workers, employees and non employees (e.g. independent contractors). Records would include the hours worked, payment, and classification of each worker.
Employers would have to give notices to all of their workers, employees and non-employees, upon hire or if there was any change of the employee's classification status. Written notices would need to:
- Inform the worker of their classification
- Direct them to the appropriate Department of Labor (DOL) website for further information
- Provide contact information to the local DOL office
- Include a special paragraph for non-employees regarding their rights
The bill would prohibit organizations from firing or discriminating against any worker, employee or non-employee, for filing a complaint, testifying in a hearing, or serving on an industry committee regarding misclassification practices.
The language of the Special Penalty for Certain Misclassification, record keeping, and Notice Violations-Section 16 of the FLSA would be changed to include "individuals" in addition to employees. In addition, civil penalties for misclassification practices would be increased to up to $1,100 per worker, and up to $5,000 per worker for willful repeat violations.
The bill also includes a provision for the Secretary of Labor to establish an employees' rights website.
In addition to the amendments proposed to the FLSA, the bill aims to make changes to the Social Security Act (42 U.S.C. 503(a)). The changes are intended to increase enforcement by:
- Improving auditing and investigative procedures
- Issuing quarterly report s to the Secretary of Labor on findings
- Establishing administrative penalties for misclassification practices
To increase effective enforcement of misclassification, the bill seeks to promote inter-department communication. The bill proposes that if any section of the DOL has evidence of an employer participating in misclassification, they should report the information to the Wage and Hour Division (WHD), who then can choose to refer it to the Internal Revenue Service (IRS).
The act would also allow the WHD to target employers for auditing purposes if they are in industry with a history of misclassifying employees.
The bill was referred to the Committee on Education and Labor and the Committee on Ways and Means for review.
The entire bill, H.R. 5107, is available online at the Library of Congress website.
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