A recent visit to Arizona by a federal official was made possible by attorneys and others concerned about employee misclassification. The result was a day of speaking events and community meetings for Dr. David Weil, Director of the Wage & Hour Division of the U.S. Department of Labor.
It’s hard to overestimate the economic and other problems that misclassification causes.
At an April 1 event, Wage and Hour Division Phoenix District Director Eric Murray said that fully one-half of his office’s time is taken up with the issue. It affects: individual workers who may be underpaid, state and other agencies that get artificially lower revenue because of the errors, and businesses that may be forced into difficult decisions regarding compliance.
That constellation of problems led lawyers like Matt Meaker to form the Employee Misclassification Compliance Assistance Program (EMCAP) Working Group. He is the group’s Chair, and he took the lead on bringing the issue to the attention of the federal agency.
The subject generates much passion, Meaker said at the April 1 event. But it is not an easy subject to confront.
“Good guys want to compete on a level playing field,” Meaker told a roomful of employment lawyers, contractors and their representatives, and others. “They want to be good stewards of industry.”
And so a working group created a pilot program that became EMCAP. It allows “candid talks about business decisions, not just legal issues.”
The keynote speaker at the University of Arizona auditorium in downtown Phoenix was Dr. David Weil. In public remarks and a half-hour interview afterward, he explored the landscape of misclassification, its roots and future possible solutions.
Highlighting the politically fraught nature of his position, Weil was the first Senate-confirmed Wage and Hour Administrator in a decade. As he did in his confirmation hearings (introduced by Sen. Elizabeth Warren), he spoke in Phoenix at length on misclassification.
A portion of his confirmation hearing is below; his remarks on misclassification begin at 2:40 (though Senator Warren’s intro is worth watching too):
Given that political landscape, it’s not surprising that Weil comes from a business school (at Boston University). In Phoenix, he described his business bona fides and said he was “proud of his decades in a business school.” And he described the mission of the Department of Labor as twofold: to understand that business is a fundamental part of our economy, and to protect workers.
But on the elevator-pitch version of the DOL’s mission, Weil is crystal-clear: “Our job is to make sure people get a fair day’s pay for a fair day’s work.”
The reality of the department’s resources complicates that vision considerably. Weil discussed the strategic thinking that must go into enforcement decisions. As DOL staffers gaze at a landscape with 7.3 million workplaces, they have become adept at reviewing data to identify red flags. They also look closely at industries that have had traditional problems with misclassification—construction, janitorial, hospitals, restaurants, and logistics, to name a few.
Weil used the title of his book The Fissured Workplace to explain more deeply the challenging predicaments presented by an evolving economy. As companies have decided to focus on “core competencies” and shed “ancillary” activities, efficiencies have increased, even as the number of people on the payroll has decreased.
But what happens to those ancillary functions and all the people who used to do them? Often, they remain, but are now employed by a third-party entity, ostensibly more adept at that particular function.
That kind of outsourcing and subcontracting is not new, Weil admits. But what is new is the stringent and detailed standards that the large brands impose on those third-party firms and their many employees. The larger companies need to ensure a consistent delivery of all their brand elements, and so they often control non-employees’ work lives down to the granular level. And they have new and developing technologies that allow the larger brands to monitor every moment in the lives of their products and the workers.
So … are those workers employees, or not? Often, the larger brands rely on a strategy that says “not.”
Weil and we may sympathize with the challenge faced by those companies. A branded cellphone must work exactly the same, wherever it was manufactured. A person checking into a chain hotel expects a nearly identical level of customer experience, whether they are in Dubuque or Dallas. But some companies may be crossing the misclassification line.
The challenge may be just as great for companies that are not in violation. As they view their industry’s landscape, what if they find they cannot compete without certain questionable strategies?
That, said Weil, is where groups like EMCAP come in. Yes, DOL enforcement must be vigorous, and collaborations with state departments of labor must be robust. But business buy-in and self-regulation are vital.
Via EMCAP and similar approaches nationwide, employers may gather and use dialogue and other methods to curtail bad practices.
“When you hear from a peer, a fellow employer,” said Weil, “that is incredibly powerful.”
He cites the Florida citrus industry as an example of successful self-policing. He said that when the DOL shared data about which subcontractors were regularly violative in misclassification and in regard to worker rights, larger producers asked for a copy of their maps. Pointing to the red dots indicating poor performers, some industry leaders said, “We don’t want to do business with the red bubbles.”
And that altered toolbox of strategies is just fine with the Wage & Hour Director.
“We’re not into a game of gotcha,” said Weil, “but compliance.”
Though enforcement is still a tool, he said, the primary focus must be “thinking creatively about changing business decisions.”
My unedited follow-up interview with Dr. David Weil is here: