More Enforcement for Wage and Hour Violations

marykeating — Sat, 21 Nov 2009 02:54:42 +0000

As previously mentioned here, Maryland’s Workplace Fraud Act imposes new penalties on employers who misclassify employees as independent contractors. At a talk before the Maryland State Bar Association’s Labor and Employment Section’s annual meeting recently, representatives from the state’s Department of Labor, Licensing and Regulation explained the Department’s focus on the landscaping and construction industries. Because studies had indicated that these industries were particularly likely to misclassify employees, the new Maryland law gave additional teeth to the Department in pursuing employers found to engage in a willful pattern of classifying employees as independent contractors. The harm to employees include the lack of worker’s compensation protection, the lack of unemployment benefits, the burden of the self-employment tax on employees, and the inapplicability of anti-discrimination laws. According to the State, more investigators are on the job. Employers should expect more audits of their workforce, as well as site visits.

The federal Department of Labor recently made a similar pronouncement. Yesterday, Secretary of Labor Hilda Solis stated:

“There is no excuse for employers who disregard federal labor standards – especially those that are designed to protect the most vulnerable in the workplace. The failure to comply with these basic labor standards means that workers are not receiving the money they have earned. It is both an economic issue and a fairness issue. America’s workers should rest assured that protecting worker rights is a top priority at the Department of Labor. To make good on that promise, I have hired an additional 250 new wage and hour investigators, a staff increase of more than one third, to ensure that we promptly respond to complaints and can undertake more targeted enforcement.”

Both federal and state laws permit an employee to obtain additional damages from an employer who willfully withholds wages or misclassifies an employee. Employers now need to watch employees and the government watching their practices.

Maryland’s Workplace Fraud Act Targets Misclassification of Employees

marykeating — Sat, 08 Aug 2009 18:05:40 +0000

Maryland’s general assembly passed the Workplace Fraud Act this year, with an effective date of October 1, 2009. The law addresses the costs to the state and others of employers’ characterizing workers as independent contractors, when they are actually employees.
An employee, unlike an independent contractor, is covered by workers’ compensation insurance and unemployment insurance, as well as many laws forbidding discriminatory actions in the workplace. In addition, an employer pays FICA contributions based on 7.65% of the employee’s pay, while an independent contractor pays that amount to the federal government in the form of self-insurance tax. The additional direct financial effects, as well as the anti-discrimination protections, explain why some employers prefer to treat their employees as independent contractors. And certainly as the title of the law indicates, there has been abuse of the system. Governor O’Malley’s July 14 executive order states that audits show that about one out of five Maryland employers misclassifies employees as independent contractors. On the other hand, in certain arrangements, the line between employee and independent contractor is not easy to draw. Moreover, the line may be drawn differently depending on whether state or federal law applies. The new law attempts to clarify just when a worker is exempt, or may properly be classified as independent.

This new law specifically targets only the construction and landscape service industries. The misclassification of an employee as a contractor is still illegal and subject to enforcement activities in other industries; the Department of Labor, Licensing and Regulation has taken action to require employers to pay unemployment insurance contributions on its workforce if the Department finds that the workers were illegally categorized. Under this law, however, as well as the recently issued executive order from Governor O’Malley, the enforcement mechanisms are beefed up and backed up with some funding. The newly constituted task force will investigate and coordinate with the federal government and businesses, including suggesting ways to improve enforcement efforts.

The new law also imposes a civil penalty of up to $5,000 per misclassified employee, which amount is subject to doubling for a second offense and quadrupled for a fourth offense. In addition, all employees found entitled to restitution will be granted an award, which may be tripled, as for violations of wage and hour laws. Retaliation against employees for making complaints about violations of the law is prohibited.

If no state agency takes action, or if the action is pending, an individual who was harmed by a violation of the act can bring his or her own civil suit, and seek trebled damages and attorney’s fees. The lawsuit is unavailable if a final order or judgment of the Office of Administrative Hearings or a court has been entered on the same facts. The private right of action is important since, even with additional funding, if fully 20% of Maryland employers are misclassifying employees, then the executive branch cannot prosecute every violation.

Maryland Employment Law Developments » Workplace Fraud Act of 2009

More Enforcement for Wage and Hour Violations

Maryland’s Workplace Fraud Act Targets Misclassification of Employees