Companies looking to dodge labor law by outsourcing work to other companies are officially on notice.
On Wednesday, the Labor Department issued new guidance on "joint employers" in the U.S. economy. Officials are making it clear that corporations that employ workers through subcontractors should be on the hook when laws get broken, regardless of who signs the workers' paychecks.
The guidance comes at a time when employers are saving bundles of money by handing off work to outside temp agencies, which often pay low wages and offer no benefits. In many cases, the company at the top of the chain is directing the work, even though the workers are technically employed by the outside firm. The Labor Department has found that many workers end up shorted on their pay when the lines of accountability become blurred.
David Weil, the head of the Labor Department's Wage and Hour Division, said the guidance was part of the Obama administration's response to "decades of erosion" of bedrock workplace standards. The goal, he said, was to make it clear to employers when they're liable under the law.
"What we're trying to do is sort of rebuild -- particularly in industries that employ low-wage, vulnerable workers -- a foundation for basic labor standards by making people understand their fundamental responsibilities," Weil told The Huffington Post. "The real problems arise when people make business decisions hoping they can shift responsibilities to some other party."
Issuing such guidance does not change any laws. But it sends a strong message to businesses about how federal officials read the law, and how they plan to enforce it. The Labor Department is responsible for pursuing wage theft cases when workers aren't properly paid the minimum wage or overtime pay. In one joint employer case last year, DirecTV agreed to pay $395,000 in back pay and damages to workers even though they were employed by an outside contractor.
"It's really important guidance for employers and workers, and even courts that are struggling to draw the lines of where employment begins and ends," said Catherine Ruckelshaus, a lawyer with the National Employment Law Project, an advocacy group for low-wage workers.
Business groups are less enthused about the guidance. The National Federation of Independent Business, a trade lobby, issued a statement saying the agency's move encourages firms to "sever relationships with small contractors." “This is a warning shot aimed just over the heads of businesses that hire other businesses,” a lawyer for the group said.
Yet the American Staffing Association, a trade group representing staffing firms, says the guidance isn't anything to worry about. Stephen Dwyer, the group's general counsel, told The Huffington Post in an email that the courts had already established legal precedent for joint employment. Therefore, Dwyer said, the guidance "should have little practical effect for the staffing industry and should not be of concern to staffing clients."
Outsourcing is now a common practice in industries where employers used to hire workers directly. Amazon warehouses, for instance, are chock full of temporary workers hired by temp firms during the busy holiday season, then laid off once orders slow down. At big-name hotel chains like Hyatt, sometimes the housekeepers who make guests' beds aren't employed by the hotel, but instead by firms with names such as Hospitality Staffing Solutions. And even manufacturers -- long a bastion of well-paying career jobs -- now rely to some degree on temp workers, particularly in the South. The Labor Department says joint employment is now more common than ever.
The agency's focus on the issue isn't a big surprise. As a college professor before his appointment to the Labor Department, Weil penned a book called The Fissured Workplace, which explored the ways in which outsourcing had frayed at corporate responsibility in recent decades. Last year, he issued different guidance on the issue of misclassification, whereby employers deem workers "independent contractors," rather than employees, in order to skirt labor laws.
Weil is careful to note that, unlike misclassification, there's nothing illegal about being a joint employer, so long as the law is followed.
"There's nothing unlawful about joint employment, [but] you're also on the hook for making sure that this workforce is being treated responsibly," he said. "We're talking about doing what the law says you're supposed to be doing."
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