On Local Enforcement of Worker Classification Rules

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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.

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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?