Government leaders at all levels — including President Barack Obama — are pushing to raise the floor on pay, and pundits are lining up on both sides: Will higher minimum wages put more money in workers' pockets? Or will they spark layoffs, as companies get by with fewer employees?
Actually, the most likely outcome is neither. Without extra safeguards, wage hikes will mainly give employers a huge new incentive to break the law by "misclassifying" more workers in order to stay competitive. Misclassification is already rampant among employers. It's illegal, and it cheats both employees and taxpayers, but it's also easy to implement and tough — too tough — for workers to fight.
What is misclassification, exactly? Well, most federal and local wage laws apply only to "employees" — and rules such as overtime pay apply only to "non-exempt employees." To avoid extra costs, about 30 percent of employers play brazen (and unlawful) games with these legal definitions.
Want to hire people without paying them the minimum wage — or unemployment insurance, or worker's compensation, or Medicare tax, or many other expenses? Just don't call your new hires "employees," even if that's what they are. Call them "independent contractors," and see if anyone notices.
Want to avoid paying your employees time-and-a-half after 40 hours of work? Just call them "exempt," even if they're not: They probably won't object.
Facing a tight economy, more companies have been shortchanging their workers — and depriving them of legal rights, and evading taxes — via such wrongdoing. Federal lawsuits for violation of the Fair Labor Standards Act have risen for six straight years now, to more than 8,100 in the year ended March 31.
Most employers never face any consequences for their law-breaking, however: They have their cake and eat it, too. Misclassification is a norm in industries such as construction; university researchers found last year that more than 40 percent of Texas construction workers, for instance, are misclassified as independent contractors — or paid entirely under the table.
In such an environment, even honest employers feel they must break the law simply to compete. Imagine what'll happen to Seattle's construction industry when the cost of honesty jumps by 60 percent — the amount that city plans to raise its minimum wage, to $15 per hour.
Of course, freezing the minimum wage is no solution. Quite the contrary: A living wage is a fundamental right for any worker, and $15 isn't a bad place to start.
No, we must raise the cost of dishonesty, so that more employers will follow the law. Luckily, such a safeguard is both available and easy to implement: the private right of action.
Under current federal law and the law of most states, workers can't just sue their employers for misclassification. Instead they must file complaints with understaffed government agencies and wait for justice or, perhaps, permission to file their own lawsuit.
Why so complicated? Labor laws are enacted for the benefit of employees, and employees should be free to sue for their enforcement. Government agencies have a role to play, for sure, but they've mostly reached their capacity.
The simplest way to fight today's plague of misclassification — and the acceleration that'll be triggered by hikes in the minimum wage — is to allow private lawsuits from the beginning. With an attorney in their corner, workers can take on powerful corporations.
The mechanics are simple, too. Any legislator who proposes a higher minimum wage should add a provision that allows employees to sue individually for harm caused by violation of labor laws — or, at an absolute minimum, of laws against misclassification.
Without such a measure, a higher minimum wage — a great idea on its face — will likely backfire. More employers will dodge the law via misclassification and start a downward spiral that could make the whole economy as lawless as a Texas construction site.
Nicholas Woodfield is a principal at The Employment Law Group, P.C., a law firm based in Washington, D.C. Recently named as one of Washingtonian Magazine's "Top Lawyers," he has represented workers in numerous misclassification lawsuits, both at his firm and in tandem with the Public Justice Center. His email is firstname.lastname@example.org.
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