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Cocktail Fork: Using A Three-Pronged Approach to Combat Worker Misclassification

Cara R. Lewis

Crown Family School of Social Work, Policy, & Practice, University of Chicago

SSAD 300: Social Intervention: Programs and Policies I

Dr. Nicole Williams

December 9, 2022
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Cocktail Fork: Using A Three-Pronged Approach to Combat Worker Misclassification

Changes to the nature of the employer-employee relationship have resulted in what David

Weil, economist and former administrator of the Wage and Hour Division of the U.S.

Department of Labor, has termed “the fissured workplace.” One aspect of this fissured

workplace that causes poverty is the increasing difficulty in legally defining whether workers are

considered employees or independent contractors and the resulting pervasive problem of worker

misclassification. Because business enterprises commonly outsource aspects of the traditional

employment relationship to third party business units like payroll service providers, the worker

may not be paid by or receive benefits directly from the business to which they are providing

services, if receiving them at all (Weil, 2014). Misclassification of employment (due to the

murkiness of increasing distance between the employing enterprise and its workers) removes

workplace protections for and increases costs to workers, results in lost revenue for the

government (Worker Misclassification, 2021), and puts currently compliant businesses at a cost

disadvantage (Rhinehart et al., 2021, p. 1). To reduce worker misclassification and its poverty-

maintaining impact, the federal government should adopt a three-pronged strategy to address this

fissuring by: 1) implementing uniform and binding federal worker classification standard based

on the existing “ABC test,” 2) investing in education and outreach efforts to inform workers of

their rights and the impacts of classification decisions, and 3) allocating increased funding to

dramatically expand enforcement of labor laws across business enterprises, even in their now-

fissured forms. Workers (especially in low-wage labor-intensive fields), compliant business

enterprises, and governments at the state and federal levels will all benefit from action by

lawmakers and the U.S. Department of Labor (DOL) in the short and medium terms. Even
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businesses and industries that currently misclassify workers can expect to see increased

productivity and worker retention in the long term.

One recommended avenue for stakeholder engagement is to target recruitment efforts on

workers from industries where worker misclassification is rampant, usually those with low-wage,

labor-intensive work and in which women and people of color are overrepresented (Rhinehart et

al., 2021, p. 4, citing Alexander 2017) to fill the enforcement positions that would be created,

especially since these workers may be able to provide valuable insights into how business

enterprises function outside the scope of current regulations. Another opportunity could be for

labor enforcement agencies like the DOL to form voluntary partnerships with what Weil terms

“lead businesses,” meaning “large businesses with national and international reputations

operating at the top of their industries” (Weil, 2014, p.8). Such enterprises often set industry

standards that spread through and across industries; voluntary partnerships with lead businesses

could influence non-compliant enterprises to adhere to the new standard. By offering voluntary

partnerships, the DOL could advance a free-market approach alongside state intervention to

undercut any potential objections about government interference in the private sector. A third

possibility could be to engage enforcement agents (investigators at the federal level and

inspectors at the state level) in a dual role spanning enforcement and worker education on the

ground. By targeting policy to engage this diverse population of stakeholders, not only will this

intervention have more likelihood of being implemented effectively to target its poverty-

alleviation effects on groups (women and people of color) that live in the highest ratio of poverty

as compared to their share in the overall population (see Figure 1 in Appendix), but it will also

provide positive ripple effects to compliant business enterprises in the form of a more level
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playing field for competition with other enterprises and to governments in the form of bolstering

revenue.

Policy Recommendation

Under the current mismatch between the structure of regulatory policy and actual

business configurations and practices, businesses are incentivized to classify workers as

independent contractors rather than employees to avoid higher labor costs (see ADP Inc., 2021;

Pacific Crest Group, 2017; Worker Misclassification, 2021), even though some of the same

sources that put forth this perspective argue elsewhere that focusing on productivity is a better

solution for increasing profitability than lowering labor costs (Pacific Crest Group, 2015).

Though businesses criticize attempts to update regulations around worker classification by

arguing that independent contractor status allows worker flexibility and that changing the

business model to account for the increased payroll costs of (correctly) classifying workers as

employees would threaten their very existence (Weil, 2017); Weil also points out that “though

that designation would reduce their profits, it wouldn’t be a threat to their existence [as

businesses like Uber and Lyft claim]” (2017), it would simply dictate that they adjust their

business model to incorporate the real cost of services they pay for into their business model and

play by the same rules as other businesses. Aquent CEO John H. Chuang also points out that

offering flexibility is not exclusive to using workers with independent contractor status and that

businesses can voluntarily choose to provide benefits including flexible hours/schedules as an

investment in worker productivity and skilled-worker retention (2020).

Various worker protection policies that apply only to workers designated as employees

use different criteria established by courts to determine employment classification (GAO

Employment Arrangements Report, 2006). For example, the Fair Labor Standards Act (FLSA)
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that promulgates minimum wage, overtime, and child labor standards uses the economic realities

test, but Workers’ Compensation programs providing medical services and/or money to injured

employees typically rely on the common law test (GAO Employment Arrangements Report,

2006, pp. 53-54). By implementing a single, standardized, and binding definition at the federal

level, a higher degree of uniformity over who has legal standing to access to the multitude of

protections intended for employees can be assured. Following the example of the ABC test,

currently used to determine eligibility for unemployment insurance under the Social Security

Act, a federal definition should assume workers are employees unless they meet all criteria to

instead be considered an independent contractor (GAO Employment Arrangements Report, 2006,

p. 53), putting the burden to deny benefits and protections on the enterprise’s side rather than on

that of the workers.

A current barrier to effectively enforcing worker protections (as suggested in prong three)

is that the federal enforcement agency, the U.S. Department of Labor (DOL), relies in large part

on worker complaints to enforce relevant laws and to refer instances of possible violations of

other laws to the appropriate departments (GAO Employment Arrangements Report, 2006, p. 35).

Even the information that the DOL requires to be provided to employees or posted in workplaces

subject to laws such as the FLSA does not include relevant information about worker

classification (GAO Employment Arrangements Report, 2006). The second prong of the

proposed policy intervention, which is outreach to provide worker education on employment

classification criteria and implications, is essential to the success of the third prong. Measures as

simple as requiring one additional poster with information about employment classification to be

displayed in all work sites, just as sites subject to FLSA already must post or provide information

to workers about protections under that policy, could dramatically expand enforcement
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possibilities under the DOL’s existing complaint-based approach. If we use a sample cost of $20

for one poster’s production, allotting one-quarter of the $20 billion total budget to poster

production would fund one each for 250,000,000 different worksites (rather than just accounting

for the number of businesses, which as we know may fissure into multiple worksites), and the

Secretary of Labor could instruct the Wage and Hour Division of the DOL to require worksites

to display them.

For the third prong, recruitment and hiring efforts for new educator/enforcers should be

targeted at workers from industries commonly resorting to questionable or purposeful

misclassification, not only because it would directly lift thousands of workers above the poverty

line and make them subject to the wide range of protections to which they are entitled as DOL

employees, but because it would also incorporate the inside knowledge of how businesses

operate in practice that people most frequently subject to misclassification would have.

If the plan for implementation of the third prong were to allocate half of the total budget

to fund salaries for new enforcement staff within the DOL starting at the first grade and step of

the general salary schedule for federal employees, $20,172 (OPM Salary Table 2022, n.d.; listed

as Table 1 in the Appendix) which is above the weighted average poverty measure for a two-

person household (Creamer et al., 2022, p. 20), that $10 billion would fund one year of just under

500,000 new investigators. If we instead hired 5000 new federal investigation staff on top of the

existing 1000 (Weil, 2014, p. 22), that same proportion of the initial investment could fund the

new hires’ salaries at that rate for over 99 years. Even if new staff are hired at a higher pay (as

one might argue is appropriate for the knowledge and work required in such a role) or in greater

numbers (as one might suggest for greater enforcement efficacy), the broad range from these
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examples shows more than enough flexibility to accommodate changes in pay, number of

workers, and even length of funding from a one-time poverty-reduction investment.

The remaining $5 billion of the total budget could cover other employment costs incurred

by hiring new staff and costs of their training and travel in the new dual role. One final possible

investment from the overall budget could be for the DOL to fund the creation and maintenance

of a website and/or mobile application that could walk visitors/users through the classification

criteria put forth in the new unified standard as they input information about their employment.

Links to such a creation could be included on the educational posters, and workers who think

they may be misclassified could submit a complaint for the DOL to investigate.

Connection to Class Themes

In the U.S., there is strong political resistance to any construction of the government’s

responsibilities as inclusive of social welfare policies. Some people are inclined to suggest that

what keeps people in extreme poverty is simply a lack of a solid work ethic (Edin & Shaefer,

2015, p. 45). However, as the authors show through a case study of a worker living in $2-a-day

poverty, few families in such economic situations are chronically disconnected from the

workforce. The authors argue that:

laying the blame on a lack of personal responsibility obscures the fact that there are

powerful and ever-changing structural forces at play…. employers often engage in

practices that middle-class professionals would never accept. They adopt policies that…

ensure regular turnover among their low-wage workers, thus cutting the costs that come

with a more stable workforce, including guaranteed hours, benefits, raises, promotions,

and [other things like worker protections]. (Edin & Shaefer, 2015, p. 45)
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That same lack of consensus on the role of the state in alleviating poverty also restricts

possible interventions to more incremental and targeted approaches, as those are the only types

likely to overcome political objections to welfare programs or state interference on the whole.

The nature of at least two of the three prongs proposed here is relatively incremental—neither

changing a federal definition nor mandating display of one more poster at work sites seems

likely to raise the average person’s hackles, though it does seem likely to inspire immense

corporate resistance as state-level attempts have (see Bellan, 2022). However, the three-prongs

posed here could together produce a transformative effect on not just directly on the lives of

workers able to rise above poverty in result of their implementation but also on the ability of the

government to collect revenue—on the federal level, adding $1.6 billion in 1984 dollars

(Rhinehart et al., 2021, p.7)—and in turn to provide the benefits and protections due to workers.

Conclusion

By adopting a three-pronged approach that is adapted to the realities of modern fissured

workplaces and their employment configurations, this intervention could lift thousands of

workers out of poverty through direct employment. It could also extend labor protections to

workers who fall through the gaps of current employment criteria and are misclassified.

Investing in worker education about classification criteria and the impact of classification

decisions by mandating (and funding) new posters with relevant information at work sites would

expand opportunities for workers to either access the benefits and protections to which they are

entitled or to seek remedies through existing channels with their standing as employees more

clearly established. The proposed policy will also increase government revenue, create a more

level playing field for business competition, and ultimately even benefit companies that currently

misclassify employees by promoting worker productivity and retention in the long term.
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References

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Small Business Resources.

https://www.adp.com/resources/articles-and-insights/articles/i/independent-contractor-

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Alexander, C. S. (2017). Misclassification and Antidiscrimination: An Empirical Analysis.

Minnesota Law Review, 101, 907–962.

Bellan, R. (2022, May 9). Uber shareholders to vote on lobbying disclosure proposal |

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Chuang, J. H. (2020, January 15). I’m the CEO of a company that offers benefits to all

contingent workers. Elizabeth Warren is right to call out workplace inequality—And

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contractors-employees/

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Rhinehart, L., McNicholas, C., Poydock, M., & Mangundayo, I. (2021). Misclassification, the

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california-experience-and-its-relevance-to-current-policy-debates/
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tables/pdf/2022/GS.pdf

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R46765; pp. 1–28). Congressional Research Service.

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Appendix

Figure 1

“Distribution of Total Population and Poverty by Race Using the Official Poverty Measure:

2021” (labeled “Figure 3” in Creamer et al., 2022, p. 5)

Table 1

“Salary Table 2022” of the General Schedule Classification and Pay System of the Federal

Government as published by the U.S. Office of Personnel Management. (OPM Salary Table

2022, n.d.)