Protecting Workers Rights by Stopping Misclassification as Independent Contractors in Maryland

Earlier this month, the Maryland legislature joined a number of states in cracking down on worker misclassification by enacting the Maryland Workplace Fraud Act (S 909 / H 819 ) which has the support of Gov. O'Malley who is expected to sign the bill shortly.  The main focus of the bill was stopping the misclassification of workers as "independent contractors" used by employers to deny them a minimum wage, overtime and key workplace benefits:

  • Helping Workers Enforce their Own Rights:  A key provision in the bill is a private right of action where workers knowingly misclassified as independent contractors by their employer can enforce their own rights in court and receive treble damages and attorneys fees among other relief.  The law gives workers three years after a violation to file a case in court, although employees cannot sue on their own where an government agency has taken action and issued a final order against a company.  The prospect of triple damages and other financial relief makes it far more likely that minimum wage workers will be able to find lawyers willing to take their case and hold their employers accountable.  Since few states have such an explicit private right of action for independent contractors misclassified as independent contractors, the law is path-breaking in this area.
  • Expanded Powers for State Enforcement:  The Workplace Fraud Act grants the state Department of Labor, Licensing and Contracts the right to enforce worker misclassification in the construction and landscaping industries, and allows agencies the authority to give offending companies citations and fines. The law also steps up agency enforcement by enabling the Labor Commissioner to hold hearings and assess penalties for worker misclassification, and coordinate with other agencies that each independently assure employer compliance on workers' compensation, unemployment benefits, and other state regulations.  The law increases civil fines to $5000 for knowingly misclassifying a worker the first time, assessing double that amount the second time, and assesses a $20,000 fine for the third offense.  All civil fines would go into the General Fund.  The law also increases damages for workers and encourages quick resolution of complaints with a judgment required within 120 days of the Commissioner receiving a complaint.
  • Increased Agency Funding and Accountability: The law includes specific annual funding of $700,000 for upholding labor standards and the prevailing wage by the DoL. It also provides for an annual report on wage administration and enforcement by the state agency.
  • Increased Employer Transparency and Record Keeping:  To encourage record keeping by employers (who often seek to evade the law by not keeping records), the law authorizes fines of $500 per day if employers fail to provide documentation on independent contractors after a request by the Commissioner of Labor and Industry.  For at least 3 years employers must keep records of each worker's classification, their pay rate, hours worked, and the amount they were paid each pay period. If workers are classified as independent contractors or exempt individuals, the employer must provide them with written notice in English and Spanish of their classification and what the implications are for being a contractor versus being an employee.

Other States Taking Action on Misclassification:  State legislators introduced a large number of bills across the states addressing the problem of misclassification of workers this session, many of which include a private right of action for workers.  These include: CO H 1310, IN S385, IN SR 74, KS H 2175, KS H 2281/KS S 229, KY S 136/KY H 392, MA H17, MA H17, MA H1870/MA S 682, 2009 MA S 718NYA 403, NYA 403, OR H2890, PA H 400, RI H 5049, RI H 5178, RI SR 279, RI H5676/RI S 643, TX H2271, VT S 137, VT S 137.  Last year, the Governors of New Jersey (NJ EO 96), Massachusetts (MA EO 499), Michigan (EO 1) and Iowa (EO 8) signed Executive Orders creating task forces and commissions to address the problem of rampant worker misclassification.

The importance of cracking down on misclassification was emphasized by a Cornell University study found that about 10.3% of the private workforce in New York were wrongly classified as contractors and that this cost the state unemployment insurance payments of $175,674,161 from 2002-2005. So enforcing proper classification of employees can be a revenue generator for governments while ensuring a level playing field for workers and employers.

Wage Enforcement a National Trend:  On top of the misclassification issue, states have been debating and passing a number of other kinds of wage enforcement bills this session. In Maryland, both  chambers also approved SB 406 which would expand rights and remedies for private enforcement suits under the state prevailing wage law, but the House and Senate were unable to concur before the session ended.  Maryland also introduced SB 451 which would increase criminal penalties for violations of certain wage and hour laws and would allow each week to constitute a separate violation. 

Maryland SB 909 - The Workplace Fraud Act
Progressive States Network -Promoting Wage Enforcement Laws as an Alternative to Anti-Immigrant Proposals
Progressive States Network -New Mexico Enacts Wage Enforcement, Joins National Trend
Cornell University Institute for Labor Relations -The Cost of Worker Misclassification in New York State
California -2006 Fraud Deterrence and Detection Activities report
National Employment Law Project - Summary of Independent Contractor Reforms 2008