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Welcome to AccelPro Employment Law, where we provide expert interviews and coaching to accelerate your professional development. Today, we are featuring a discussion with Terri Gerstein about local enforcement of worker classification rules.
Gerstein is the director of the NYU Wagner Labor Initiative. She’s a Harvard Law School graduate who previously spent 17 years in New York government, mainly for the New York Attorney General enforcing labor laws. She describes her work there as like “Law And Order” but pursuing abusive employers.
We talk about the rise of independent contractors in recent years, the problems of misclassifying them when they should be employees and the increase in enforcement at the state and local level.
Misclassification has long been a major issue and has become even more prominent in the last few years. “It makes it really hard for the law-abiding businesses to compete with those who are misclassifying people and enjoying savings from an illegal manner of running their business,” Gerstein says. “And then it’s also really bad for the public coffers because there are unemployment taxes that need to be paid for the safety nets that are so important for everyone, and it ends up putting a burden on everyone.”
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Interview References:
Terri Gerstein’s NYU Wagner Labor Initiative profile and personal website.
8:31 | Illegal Worker Misclassification:Payroll Fraud in the District’s Construction Industry. (September 2019). Attorney General for the District of Columbia.
11:53 | Gerstein, Terri. How district attorneys and state attorneys general are fighting workplace abuses. (17 May, 2021). Economic Policy Institute.
12:14 | Rascoe, Ayesha (Host). (5 March, 2023). Hundreds of migrant children work long hours in jobs that violate child labor laws [audio podcast episode]. NPR.
14:08 | New York City Freelance Isn’t Free Act, N.Y.C. Admin. Code § 20-936 (2017).
18:49 | Gerstein, Terri. Are We Actually Arguing About Whether 14-Year-Olds Should Work in Meatpacking Plants?. (27 March, 2023). New York Times.
Supplemental Materials:
Gerstein, Terri. State attorneys general taking on protection of workers’ rights. (16 December, 2020). Economic Policy Institute.
Exploiting Children in the Workplace. (10 April, 2023). New York Times.
Chen, Natasha. Half a million California fast food workers will now earn $20 per hour. (1 April, 2024). CNN.
TRANSCRIPT
I. STATE AND LOCAL LAWMAKERS ARE BECOMING MORE ACTIVE
Matt Crossman, Host: You’ve studied and written extensively about worker misclassification. One trend you’ve identified is that state and local agencies have become more active in enforcement. What is happening there?
Terri Gerstein: Some of this I think is a response to a lack of action at the federal level and just the fact that, regardless of which administration is in office, there are real difficulties for Congress in advancing workers’ rights in a variety of ways.
And so, as we see, for example, with raising the minimum wage, in terms of policy setting, more and more localities and states have gotten involved in passing laws of all kinds, laws at the state level, such as enabling collective bargaining by groups of employees who can’t otherwise collectively bargain.
In many different ways, states and localities are from a legislative perspective starting to really take a leadership role. And a lot of this, obviously in terms of the legislation, it’s generally happening in more progressive, worker-friendly jurisdictions. And then similarly, enforcers are taking this up.
I think it's a little different when you talk about different kinds of enforcers. There is, as we all know, a huge rethinking about our criminal-justice system and movement for criminal-justice reform, and I think that there are some District Attorneys who are rethinking how they might use the powers of their office and realizing that, when employers are violating workers’ rights in really egregious ways, that is something that is an appropriate subject for criminal prosecution.
What I always say is, if a worker embezzles from an employer, no one questions whether that’s criminal. And so I think what people need to know, whether it’s attorneys or HR managers, is just to know that you cannot just look at the federal workplace laws and think “OK, I got it,” because there are these laws that are being passed at the state and local level, and there’s aggressive enforcement that’s being done in some places at the state and local level. And so you really need to be mindful of all of the different laws that apply. And again, I think this criminal angle is something that management lawyers are not used to having on their radar.
Employers don’t have on their radar the notion that cheating on your unemployment taxes by grossly under-reporting the number of workers or cheating on your worker’s comp or keeping fake payroll records in order to not pay overtime could be criminal. People are used to thinking of these as civil matters that will lead to a lawsuit.
What I always think is if my mom were running a business, what would I tell her? And I think I would want her to know that the stakes of this can be much more serious than people were accustomed to thinking historically over the last number of decades.
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II. THE RISE IN MISCLASSIFICATION
MC: You cite a couple of studies that show up to 20 percent of workers are misclassified as independent contractors when they should be employees. I’m guessing most of these independent contractors either don’t know or are afraid to speak up about it for fear of retaliation. What role do state and local regulators have in protecting them?
TG: So this phenomenon, as I think most people in this field know, has really been increasing. And just to start out this conversation, I want to be very clear that there are genuine independent contractors, and the classic example is, if a movie theater has a problem with their toilet, and they call in a plumber, that plumber doesn’t work for the movie theater. But if the plumber works for a plumbing company that is every day going and fixing people’s plumbing, that plumber is probably an employee and not an independent contractor. So I do want to start out by saying there are genuine independent contractors.
I’ve come to think that the term independent contractor is a little misleading. And if we started talking about independent businesses instead of the word contractor, it would make it a little more clear for everyone what we should be talking about. If someone’s really running their own independent business, they’re not an employee. But if someone’s really not running an independent business, they’re probably being misclassified, right?
All of our labor and employment laws cover employees, and they do not generally cover independent contractors. And the reasoning behind that is the concept that if you’re an independent business you have the ability to protect yourself in the marketplace.
So our labor and employment laws don’t cover independent contractors and so that means everything from minimum wage to overtime to anti-discrimination, right to organize, workplace safety, paid sick days, everything. And so a lot of employers try to evade responsibility of having employees and of complying with the laws by designating people as independent contractors who really should be employees.
You asked the question, how do regulators get involved in this? They can get involved in a couple of different ways. One is they can do their own affirmative investigation and their own enforcement. If they’re looking at whether an employer paid unemployment contributions, they might do an investigation that starts out with the agency or with a worker complaint at being underpaid, for example. Then they see that the employer says, “This isn’t my employee. It’s an independent contractor.” And then the whole case gets started that way.
Another way these cases end up getting litigated and that government agencies get involved is if workers actually file some kind of claim, like they apply for unemployment benefits or they apply for worker’s comp. And then there is an agency determination, and there might be hearings before administrative law judges or hearing officers about whether they are an employee entitled to unemployment benefits or are they an independent contractor and therefore not.
But this is an issue that a lot of government agencies are really concerned about because many, many workers are deprived of their rights because of misclassification. It’s also totally unfair to law-abiding businesses. I think the DC AG’s office did a study in the construction industry and found that by misclassifying workers, employers save between 17 and 48%. And so it makes it really hard for the law-abiding businesses to compete with those who are misclassifying people and enjoying savings by running their business in an illegal manner.
And then it’s also really bad for the public coffers because there are unemployment taxes that need to be paid for the safety nets that are so important for everyone, and it ends up putting a burden on everyone.
MC: What safeguards should employers and HR executives put in place to make sure they classify and treat workers correctly?
TG: I’ll answer this question from the perspective of if my mom were an employer, what would I tell her? This isn’t me giving legal advice as a lawyer in terms of how you can do the bare minimum and squeeze by and save a nickel. This is if you really care about complying with the laws, what is it that you would do?
So first of all, the laws vary. The federal laws and the state laws all have different tests for when someone is an employee versus independent contractor, and they look at a multitude of factors. They’re all a little different. But they generally look at similar factors. The test that has been adopted in a few places and that most worker advocates like is a test called the ABC test.
And that looks at three factors. And it basically says, unless these three factors are present, the person is an employee. So it creates a default presumption that you’re an employee unless you can prove these three things. And the three things are:
That the worker has to be free from the employer’s control or direction in performing the work. So they have to be working genuinely independently and not under a lot of control.
That the work is outside the usual course of business of the company. So that’s like my plumber example. A plumber is outside the usual course of business of a movie theater, but a plumber is not outside the usual course of business of a plumbing company.
And then the third factor is that the worker customarily, in an ongoing way, is engaged in an independent trade, occupation or profession.
That’s the test that is in place in New Jersey. It’s in place in Massachusetts. That is the test that was used in California that became such a hot-button issue. But it does exist in a number of other states. We have it in New York, where I live, in relation to the construction industry. And so I think that if employers really want to be careful, I would use the ABC test, even if that’s not the test in your jurisdiction.
If you apply that test genuinely, you’re never going to end up misclassifying someone. If you really distill it down, the question is, is this person really running their own business? Are they economically dependent?
And that’s why I think that, the notion with the gig economy employers like Uber and Lyft, the notion is that every single Uber driver is actually running their own remarkably, curiously identical, very small business that’s totally independent. It’s ludicrous. Right? And in terms of the ABC test, is this outside the usual course of business?
Uber and Lyft and these companies try to say well, our business isn’t transportation. Our business is just matching up people with drivers. Is an airline going to say, our business isn’t transportation, we just match pilots who own planes that they’ve bought with passengers who just want to go someplace?
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III. CLOSING THE GAP IN ENFORCEMENT
MC: You wrote that the shortcomings in enforcement occur at all levels starting at the top. While that’s discouraging, it also sounds like an opportunity. Is there good waiting to be done? If I’m an attorney looking to make a difference, where can I help?
TG: So I think there is a huge need for enforcement. At the federal level, the Department of Labor has been underfunded for years and years. The National Labor Relations Board, the Occupational Safety and Health Administration, all of these agencies have been really starved for funds and operated from a scarcity position for years. At the state level there are a number of states that don’t even have any wage-and-hour investigators. And so the resources for public enforcement, for government enforcement, are grossly insufficient relative to the scale of violations that we have been seeing for a number of years now.
What is there for lawyers to do? Wage-and-hour laws have a private right of action. They have attorneys’ fees provisions and anti-discrimination laws as well. So I think that there are so many workers who really need help and need representation. Not to diminish the intellectual challenge of the work to which I have devoted my life, but in these cases, it’s not like putting a person on the moon.
You have to be comfortable with math. How many hours did they work and how much did they get paid? People can learn this area. Obviously to master something takes some time. But to do a straightforward wage-theft or wage-and-hour case or misclassification case, these are things that people can really learn themselves and take on these cases.
The challenge they’ll have is that an increasing number of workers are covered by forced arbitration and class waivers. And so the economies of doing a case, given how low the minimum wage is, there may not be the economies for a private lawyer to bring a case if there’s a class waiver and they are having to do cases individually.
MC: Minneapolis, New York and Seattle have passed rules protecting independent contractors. Do you expect more local governments to adopt such rules? And what do employers and HR execs need to know about what’s coming?
TG: So the first law in that regard was New York’s Freelance Isn’t Free Act. It comes about in relation to situations where freelance workers or independent workers, generally sole proprietors, do work and just don’t get paid. The classic example I think in New York is someone who’s generally doing some kind of knowledge work, like say a graphic designer who does work for a large company.
Thirty days, 60 days, 90 days, and he or she just doesn’t get paid and doesn’t have any mechanism beyond filing a case in court. And so the Freelancers Union, which is an organization of independent workers in New York State, really fought for a number of years to get this law passed at the city level in New York.
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IV. BALANCING PASSION AND BURNOUT
MC: Now I want to talk about the path that led you to where you are now. Looking at your career thread, it looks intentional. From working for Americans for Immigrant Justice to clerking for a judge, working for the state AG and Department of Labor to what you’re doing now, the connecting thread is pretty obviously worker’s rights. Why that issue?
TG: It does look like a very intentional path, but it really didn’t feel that way as I was going down it. When I was in law school, I thought I would do human rights law or work for legal services. I certainly didn’t imagine myself really focusing on government specifically.
And fresh out of law school, I had a fellowship and represented low-wage workers in Miami. One thing that really turned me to working with the government, working in and around the government, was that I represented the workers in two labor trafficking cases in Miami.
And I saw the power of the government in being able to bring the perpetrators to justice. I started working in the New York Attorney General’s office enforcing workers’ rights laws, and it was really powerful to me, again, seeing how I was doing very similar cases like low-wage workers, minimum wage, overtime, immigrant workers, really exploitative employers. And it was very similar to the work that I had been doing as a nonprofit lawyer except with the power of the government behind me and the leverage of government, the ability to think about policy issues as well.
So why workers’ rights? My answer now would probably be different than when I started out. When I started out, I didn’t know if I was going to work on women’s rights or workers’ rights or a lot of different issues.
And I had an experience over one summer in law school where I did work on workers’ rights issues. And I really enjoyed it. It really spoke to me. Being in this field for a long time and seeing what workers’ experience, seeing the way that people are exploited, seeing the way that workers’ lives are just devalued and the gross power disparity between workers and employers really just helped deepen my commitment to the issues.
Now, as I get older and as I continue in my evolution of my thinking, I feel like I’ve come to understand much more the role of unions and worker organizations in our democracy, that we have massive corporate concentration, that money does play too big a role in politics and corrupts our democracy. And unions are one of the only major large national institutions that speak up for working people and poor people and that channel working people’s interests in a coordinated, institutionalized way. And there’s all kinds of really interesting research about unions and democratic participation.
There’s higher levels of voting when there’s higher union density, higher levels of political participation. There have been studies showing, for example, that there’s a reduction in racial resentment among white people when they are union members, which kind of makes sense because people are working side by side with people from different backgrounds and have a common interest.
As my thinking evolves, I see this issue of economic oppression, and it’s both something that’s so relevant to workers' everyday lives, but also relevant to the broader issue of, what are the major forces that underline a real democracy? And that can be any kind of counterbalance for the kind of moneyed corporate conservative interests that are really taking over.
I’m very concerned as I think a lot of people are about this state of democracy in our country, and I think that working people’s issues are something that has appeal across the board and resonates with almost everyone except the oligarchs.
And so I think that working people’s issues really resonate with everyone and focusing on these issues has real potential to bring us together and bring us to a better place.
MC: You used a phrase that leads right into my final question—“gross power disparity.” Your passion for this is obvious. I love the headline on a recent piece you wrote in the New York Times, which was, “Are we actually arguing about whether 14-year-olds should work in meat packing plants?”
So my question for you is, how do you balance your passion and your fervor to make wrongs right without getting burned out at the scope of the work to be done?
TG: I think that some of it is realizing that all of this is an ongoing, massive group effort and no one person is going to solve the problem. There’s a saying, I think it’s in Pirkei Avot, which is a Jewish text, that says the job is not ours to complete, but nor are we free to desist from starting it, and I think that’s a helpful way of thinking about it.
I think also one thing that has been really helpful for me is that I have carved out a really particular space in focusing on the role of states and localities in enforcing and protecting workers’ rights.
There are a lot of people who focus at the federal level. I feel like there’s a real vacuum and need in the particular space where I am. I don’t think that state and local involvement in these issues is going to be the silver bullet that solves the problem. I think obviously we need a multi-pronged approach, but I do think it can play a meaningful role in a lot of ways.
And so I think that’s something that has helped me keep going is being able to have a role that is sufficiently defined that I feel like I am actually accomplishing something.
This AccelPro audio transcript has been edited and organized for clarity. This interview was recorded on March 30, 2023.
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