The Death of an Employer Scam

One of the most pervasive scams that employers use to lower their workers’ wages is misclassification—that is, turning their workers into independent contractors or temps when they are actually employees. Misclassification shouldn’t be mistaken for the whim of an errant employer. On the contrary, it’s a strategy that has been used to transform entire industries.

From an employer’s perspective, the benefits of misclassification are clear. Turning a worker into a temp or a free agent obviates any need to provide him with benefits. It shields the employer from legal liability for health and safety violations, for industrial accidents, or from wage and hour violations. It invariably lowers such workers wages as well. It makes it impossible for workers to form unions.

Over the past decade, misclassified workers have turned up in more and more industries. The Nissan employees who assemble cars at the company’s plants in Mississippi and Tennessee work alongside temps who do the same work as they but who make just a fraction of the employees’ pay. Misclassification is most widespread, however, in the supply chains of major retailers. The truck drivers who move imported goods from the nation’s harbors to the giant warehouses where they are sorted and packed for transporting to Wal-Marts and Targets have been labeled independent contractors for decades, though many of them do all their work for a particular trucking company. The warehouse workers who unload those trucks and assemble the pallets that go onto other trucks bound for major retail chains are almost universally employed by temporary employment agencies, though most of then have labored in the same warehouse, packing goods for just one retail chain, for years.

Over the past two years, however, governments have begun to crack down on misclassification. In California, state Labor Commissioner Julie Su has levied heavy fines on a major logistics company with which Wal-Mart contracts to run its warehouses for illegally underpaying its workers—rejecting the fiction that the workers are actually employed by the temp agencies. She has also responded to 30 complaints from port truckers that they are actually employees, and that their employers have illegally underpaid them, by ruling the employers must pay those drivers $3.5 million in back pay.

Last Friday, the National Labor Relations Board took action as well. Its Los Angeles region ruled that drivers who haul cargo for Pacific 9 Transportation from the ports of Los Angeles and Long Beach to the warehouses scattered around Southern California are actually employees, and therefore have the right to form a union. Like thousands of port truckers, the drivers for Pacific 9 could not drive for other companies. Their work and routes were scheduled by Pac 9; their payments to the company for equipment were prescribed by their employer; they were employees in everything but name. A recent study of port truckers by the National Employment Law Project, the Los Angeles Alliance for a New Economy, and Change to Win concluded that roughly 49,000 of the nation’s 75,000 port drivers are misclassified as independent contractors, and that in California alone, the industry’s wage and hour violations run to approximately $850 million every year. The study concluded that drivers misclassified as independent contractors made on average $28,800 a year, while employees made $35,000.

The decisions of the NLRB and the California Labor Commissioner signal that the days of industry-wide misclassification—at least, for port truckers—may be numbered. Even these rulings, limited though they may be, have been decades in the making. Since trucking was deregulated in the late 1970s, drivers at a range of American ports have sought in vain to form unions, but have consistently been thwarted by their legal status as independent contractors. Nearly 20 years ago, one Los Angeles-area union actually tried to help a local businessman create a company that could be the employer of record for the drivers, but the effort never came to fruition, in part because of the legal obstacle presented by the drivers’ ostensibly independent status. It took workers’ organizations, labor lawyers and Democratic administrations some time to home in on the strategy of combatting misclassification as the way to win adequate pay and benefits for the drivers. In the past year—and most particularly in the past week—that strategy has begun to yield tangible results. It will take many more such weeks, however, before the effects of this scam will be significantly diminished.