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Workers of the Underground Economy


"The provisions of Labor Code Sections 551 and 552…shall not be construed to prevent an accumulation of days of rest when the nature of the employment reasonably requires the employee to work seven or more consecutive days; provided, however, that in each calendar month, the employee shall receive the equivalent of one day's rest in seven." (Industrial Welfare Commission Wage Order 12000)


Supreme Court decisions generally define an employee as "an individual in a service relationship who is dependent as a matter of economic reality upon the business to which he renders service and not upon his own business as an independent contractor," intending that workers who are economically dependent upon the entity for whom they perform services should be treated as employees. Congress intended the common-law rules to be applied realistically, not restrictively. By applying a broad interpretation, more borderline cases would be decided in favor of employment rather than self-employment and would be more consistent with the purpose of the Social Security Act. Businesses sometimes hire contingent workers to save the effort and expense of withholding (taxes) and to be relieved of responsibility to the worker under labor and employment laws. Unfortunately, this reduces the number of workers with access to protections and benefits such as pensions, disability insurance, unemployment insurance, and such.

Problems arise when a firm hires not another business but several individuals to do work, and then wishes to treat those individuals as independent contractors instead of employees.


Very few goods are delivered for less than the cost of one having to relocate oneself to acquire such. Delivery fees (often called “shipping and handing”) are invariably added to or included in the overall cost not only to ensure laborers of fair compensation but also for the business’ profit. Ordering a pizza to be home delivered generally costs more than a person going out to purchase one. Contrarily, ordering a newspaper to be home delivered is less costly than purchasing one at a stand. The following proposal contains examples of my actual experience. I encourage the reader to be discerning while considering my perspective and to thoroughly research my references for accuracy. I worked for a manufacturing company, engaged in printing and publishing, 7 days a week for almost 2 years straight, for which I provided the service of assembling and delivering products as per specifications. The business had already sold the products along with the promise of future delivery. Ultimately, the firm also took credit for my labor.

I received payment for performing recurring services in a continuing relationship with the business. I performed services that are an integral part of the firm's regular business. I was required to follow instructions about when, where, and how to work. I was required to comply with daily instructions about the way service was to be performed. I was required to follow established routines and schedules of the business. I received training from an experienced “employee” that does the same type work. I did not make my services available to the general public or have a business license. The business has a right to discharge an individual at will and without liability.


The firm has the right to control the manner by which services are performed, as an incident to the firm's right to protect its business interests. The factual relationship between the worker and the firm is different than in the written agreement.

In one example, Section 3 of the firm’s written agreement reads, "Upon the request of the Sentinel, Contractor shall deliver billing notices to subscribers in return for which Contractor shall receive payment in the amounts provided for in paragraph F of the appendix to this Agreement." However, their 'employment' ad in the classifieds states, "no collection or billing responsibilities." And, in practice, the manager in charge told me at the time of the signing of the agreement the Sentinel would never require me to deliver a billing notice. He summed up the contract very quickly and ended with, "Oh, it's all standard. Just sign here if you want the job!"

H E A LT H R I S K I N P O T E N T I A L ' 3 0 0 -TO - 1 ' D AY W O R K-T O - R E S T R AT I O

The most unusual work schedule is probably that of the commonly disregarded but ultimately imperative newspaper carrier working 7 days a week and most often well over 14, 28, and even 90 days in a row. These unique permanently fixed night shifts are 7 days per week on a yearly rotation schedule, and since there are only 3 or 4 days off per year (Thanksgiving, Christmas, and New Year's Day plus an optional Memorial or Veteran's Day) it's possible for a worker to go for over 10 months without even one day's rest. During the two-month period when the three separate days of rest occur, there is inevitably extra work to do for the winter holiday specials and/or weather hazards to be taken into consideration. How tired a worker is depends greatly on how many days in a row s/he works. Night workers usually get the least amount of quality sleep as they are forced to sleep during the day when their body (circadian) rhythm tells them to be awake. Day sleep is shorter, lighter, and less satisfying than night sleep. Over several days (need I add months or years) fatigue can accumulate to unsafe levels. Driving is a key concern. Sleepiness affects our ability to concentrate and driving requires our attention at all times. If a person is sleepy, it is easier to have an accident. It is possible for a person to have very brief periods of sleep that last only a few seconds and for them to not even realize that this is happening. During those few seconds when they are not paying attention at all, the worker could get seriously hurt.


Added to that anxiety, many errands and chores (like getting the car repaired) must be done during the day and many social events take place in the evening. Because shift workers are on the job in the evening or on weekends, and because they sleep much of the day, they often miss out on social and family activities. If this happens too often, it can be even more distressing.


Specifically regarding the right of the firm to control performance of the "timeliness of delivery," in this case meaning "delivery by a certain hour," in relationship to the actual time the publications are printed by the firm every day (significant because the time of printing determines the earliest time that carriers are able to pick up their materials in order to actually start the process of assembly and delivery). Each day is unique in that anything could (and I might add, many things usually do) go awry during the course of each 'press run' including, but not limited to, the malfunction of the firm's machinery, special "zoning" considerations (when certain advertisements go only to specific areas of the county and exclude other areas), the actual number of inserts in each edition, special bagging requirements from advertisers, the extra work involved in the assembly of the Sunday edition, the (often unpredictable and sometimes hazardous) weather conditions, etc. According to the firm's web page, "Motor route carriers can pick up their papers…between 1:30 and 2 a.m." From inquiry and experience, I know that the average motor route has approximately 250 to 350 subscribers, may be 20 to 30 miles, takes about 2-1/2 hours to complete (adding at least an extra hour on Sundays), and usually pays between $500 and $600 (plus "tips" and "bonuses") every two weeks. For various (usually economic) reasons carriers often take on the responsibility of an additional route, and, hence, twice the amount of work and twice the amount of time for completion (plus additional driving time for traveling in between routes). Considering the amount of time it takes to complete the average motor route safely yet efficiently from start to finish, and the firm's requirements for the conditions of service, it seems almost unbelievable that a person should be able to handle more than one. However, it is quite common and such was my case. As a person who managed to handle the responsibility of more than one route, I can testify that the average double-route/six-hour day is so concentrated in terms of physical and mental activity, it is at least comparable to the average eight-hour workday of a person who works a common day shift (with regularly allowed shift breaks plus a designated meal time), as time constraints are such that there is usually little or no time for


rest or meal breaks; only such minimal time as it may take to stop and re-fuel the delivery vehicle.


It is critical to keep in mind that during the actual course of delivery the specific bodily and mechanical actions involved in driving a motor vehicle safely are compromised by the fact that the driver must be concurrently and/or alternately gripping the steering wheel; grabbing for papers to fold (with the same set of hands that are supposed to be driving); rapidly and repetitively wrapping papers with rubber bands and/or plastic bags; tossing the final assembled products out of both sides of a moving vehicle; while maintaining proper speed by using repetitive foot and ankle movements for acceleration and deceleration; with the majority of the time spent driving on the "wrong" side of the road for ease of delivery to "boxes" or driveways on the left hand side of the route (which is generally a one-way course, with the exception of occasional side roads off the main route or in the case of long private driveways and such); with no safety belt requirement while on route (as per California Vehicle Code Section 27315); while driving during the earliest hours of the day when the sale of alcohol is temporarily prohibited (after local bars close for the “evening”) to further ensure public safety.


The Santa Cruz Sentinel's 'Circulation' web page is misleading and intentionally deceptive. Under 'Home Delivery' it states, "Delivery deadline is 6:30 a.m. weekdays and 7:00 am weekends." But under 'Route Delivery: Your Road to Riches' it says, "Delivery deadline is 5:30 am on motor routes, 6:30 am on bike routes." Lastly in this section, "Average route size is about 60 deliveries and delivery time about half hour." In actuality, delivery deadline on motor routes is 5:30 am daily except on Sundays it's 6:30 am. In actuality, the average motor route is 300 deliveries and delivery time takes about 2-1/2 hours. If the average bike route is 60 deliveries and takes about half an hour to deliver. Why are bike route carriers allowed 20% more time to deliver about 80% less papers? What does the Sentinel have to obfuscate? How many workers are being exploited? The Sentinel's 'Circulation Statement' is an "invoice" that better describes their accounting practices and avoidance of the responsibility owed to workers under employment, labor, and tax laws. The 'Motor Contractors' paycheck comes as a description of the firm's "charges" and included on the


invoice are the misleading phrases "We thank you for paying your bill promptly," "Accounts are due and payable upon receipt of statement," and "Please return top portion with your payment." 'Tips' (as advertised in their classifieds under 'Employment') given in exchange for service are disguised as 'Gratuities' in their accounts to avoid the responsibility of wage reporting and taxation. Any 'Bonus' paid, as expressed in contract, is listed as 'Promotions' on the circulation invoice. Additionally, almost every statement includes a 'Misc. Credit' of about a couple or a few handfuls of dollars. Could these few dollars be my state employment taxes inconspicuously routed back to me?


During the record rainy season of November and December of 2002 (of which the governor later declared a state of emergency to repair such extensive road damage among many counties, including that which encompassed my route territories), I had some trouble delivering the last dozen or so of my approximately seven hundred papers, along the oftenflooded (floods, by contract, supposedly disallow termination for incapacity to work under these conditions) rural back roads of Ben Lomond. Occasionally I would be half an hour to an hour late or so. One week during this period I had two minor car accidents (with none before ever in my life), fortunately with no injury to myself but unfortunately with much damage to my car. Unable able to fix a half-broken axle on the pay I received from the Sentinel, I was forced to borrow a friend's very old car for my driving; although it did not go much faster (than 35mph), it was at least safer.) Nevertheless, I began to receive regular customer complaints for the first time since I began delivering papers for the Sentinel in August of 2001. (In fact, I had received bonuses almost every single month up until that point.) I received a note from my manager, Sharon Rohrs, in mid-December stating, "If service doesn't improve immediately…I will be forced to terminate your contract…in order to insure satisfactory service to all of the Sentinel's customers." And although she also said that she would be monitoring my service results "over the next couple of weeks," I received no such courtesy and my route was "pulled" from me, without notice, just a few days later (described in the following section).


The first breach of contract occurred one day when the Sentinel, unbeknownst to me, completely failed to deliver my newspaper bundles for both routes to my usual pick up location. Instead of being financially penalized for being a little late a few weeks in a row (as allowed for in the contract), I was promptly terminated without 30 days notice (“in order to insure satisfactory service to all of the Sentinel's customers”).



A similar fate was to befall me when I filed for workers' compensation (in March 2003) for injuries including, but not limited to, both hands and wrists, neck and back, feet, etc. due to the cumulative trauma of repetitive maneuvering and the crooked posture obtained by assembling, tossing, and driving about 3 to 5 hours a day at length, 7 days a week. I received a doctor's off work order and, unexpectedly, two months later received a letter in the mail from the Sentinel indicating that my contract had already been terminated (retroactively; during my recovery period), contrary to the fact that my manager had informed me a month earlier, "As a courtesy, we will keep your contract in force while your long term prognosis is being developed." Again in this instance I never received 30 days, or any prior, notice. This is clearly an act of 'discrimination' and a violation of Labor Code.


The incompetent, inhumane and often careless decisions made by my manager, including three separate actions of immediate termination without notice (and due to my 'economic dependence' upon the business for which I performed services), effectively rendered my personal (and delivery) vehicle tentatively un-repairable and resulted in me being evicted from my home of almost 2 years. On top of these unfortunate incidents, I found that after filing for workers' compensation and its claim status in delay for several months, I was ineligible for almost every state and federal benefit to help assist me during my recovery including, but not limited to, State Disability Insurance (SDI), Unemployment Insurance (UI), and Social Security Disability Insurance (SSDI), because payments were reported on IRS forms 1099-MISC instead of forms W-2.


Many workers are blatantly misclassified as independent contractors for tax and liability purposes. Concern is being raised about the common misinterpretation of the term "newspaper carrier" leading to many workers being categorized as "self-employed" "direct sellers" (statutory nonemployees) when they should be considered "common law" or probably "statutory" employees.


Certain types of services are considered a "trade or business" even if performed by 'employees' (Social Security Handbook section 404.1068, 'Employees who are considered self-employed.').

A) "Newspaper vendors" described in Section 404.1030(b) of the Social Security Handbook refer to the 'Delivery and distribution or sale of newspapers, shopping news, and magazines' if there is an arrangement under which “services are performed in connection with and at the time of the sale of newspapers to consumers” and: 1) Selling is at a fixed price, and 2) Compensation for labor is the difference between the fixed selling price and the amount charged for the newspapers or magazines.

B) As a "Direct seller" one must meet three conditions (Social Security Handbook 404.1069): 1) Worker must be engaged in the trade or business of selling (or soliciting sales); and 2) Earnings are related to sales rather than the number of hours worked; and 3) Services are performed under a written contract that states the worker will not be treated as an employee with respect to these services for Federal tax purposes.

C) Some workers are employees even if the common-law test is not met. Social Security Handbook section 826 lists four types of 'statutory employees' along with three initial requirements: 1) The work contract states that the individual will do mostly all the work, and 2) The worker has no substantial investment in the facilities used to do the work, and 3) There is an on-going work relationship with the person for whom work is performed.

D) Social Security Handbook Section 830 lists four additional requirements in order to specifically be considered a 'Homeworker':


1) Work must be performed away from the employer's place of business, and 2) Work must be performed in accordance with employer's guidelines, and 3) Work must be performed on materials or goods provided by the employer, and 4) The finished product must be returned to the employer or to whom the employer designates.

ARGUMENT #1 'Carriers' effecting delivery of newspapers are not necessarily 'Newspaper Carriers' California Code of Regulations Title 22 Section 4304-6, "Application to Newspaper Distribution Industry," defines a 'Carrier' (pointedly not the term 'Newspaper Carrier') as "a person who effects physical delivery of the newspaper" and is an agent of a "publisher" or a "newspaper distributor" and "may be either an employee or an independent contractor." (CCR Title 22 Section 4304-6(b)(2), CCR Title 22 Section 4304-6(b)(3), CCR Title 22 Section 4304-6(b)(5)). For example:

I worked for a 'manufacturing company' engaged in 'printing and publishing.' I was not a "newspaper carrier or distributor" nor a "newspaper vendor." (Rather, I was an agent of a newspaper distributor (CCR Title 22 Section 4304-6(b)(5)). I did not perform services in and at the time of the sale of newspapers. I did not buy at fixed prices and retain receipts from sales (CUIC 634.5 and CUIC 649). I did not do any selling; I was not a "salesperson," nor a "direct seller" (CUIC 650). I was not a "self-employed" owner of a 'newspaper delivery service' business.


It’s important to note that CCR Title 22 Section 4304-6 does not define, nor even use, the specific term 'Newspaper carrier.' It is a term often used to describe the common newspaper delivery person, yet it means something very exclusive. A 'Newspaper carrier' performs services specifically in connection with and at the time of the sale of newspapers. However, this does not describe the duties of all newspaper 'Carriers.' A 'Carrier' of newspapers, on the other hand, performs services under the direction of a 'Principle' that has already sold the newspapers along with the promise of future delivery. The status of a worker of this nature is not necessarily that of a self-employed salesperson. In this instance, the 'Principle' has the right to control the manner by which services are performed to ensure satisfactory service to all of the firm's customers and in order to protect its own business interests.

ARGUMENT #2 ‘Homeworkers’ may include more than just 'home workers' Social Security policy was specifically designed to include workers who cannot qualify under common-law rules but work under conditions so similar to those who do that Congress provided for their coverage as employees rather than as self-employed persons (SSA POMS sections RS 02101.128, RS, 02101.300, RS 02101.310, RS 02101.450 and RS 02101.455).

Work is performed under a contract or service agreement. The contract states that the work is to be performed personally by the individual. The worker has no substantial investment in the facilities. Services are performed in a continuing relationship. Product assembly is away from the employer's place of business. Work is in accordance with specifications given by the employer. The employer furnished the materials on which the work was to be done. The finished product was returned to persons designated by the employer. (It is immaterial that the worker delivers the goods.)


The nature of the business makes fixed hours impractical. The business requires that service be accomplished by a certain time of day. Training is received from an experienced employee that does the same type of work. The employer gives renewed daily instructions to the worker. The workers' services are closely integrated into the business of that employs the worker. The worker is required to change work plans and the order of services when requested. The firm checks the finished product and has the right to direct the method of operation if the completed article is not satisfactory.

Notice that only examples, not specific indications, of the physical requirements for the materials upon which the work is to be performed are described in any state or federal code. In this example, a manufacturing business engaged in printing, publishing, and distributing newspapers and advertisements hires workers to pick up and assemble the firm's materials, then travel along a pre-assigned route delivering pre-sold products already promised to pre-designated customers. Workers perform services under the following conditions:

The worker performs services that are an integral part of regular business. The business hired the workers through advertisements in the newspaper's own classifieds "Employment" section. Requirements for the position include: a Social Security Number; a valid state driver's license; a reliable vehicle with proof of auto insurance; a signed service agreement. The workers pick up their materials and updates of daily instruction ("top sheets") at the firm's premises. The workers assemble the product away from the business, usually at a home or another type of 'workshop'. The worker performs substantially all of the services personally.


The workers must deliver finished product to customers in an assigned territory. The business may impose financially penalties (in the form of charges deducted from a final paycheck) for unsatisfactory or incomplete work. The worker is assigned a route, with customers pre-designated by the business, and required to cover it at regular intervals. The worker is expected to adjust complaints. The worker is not a salesperson, does not retain receipts, and does not sell merchandise for resale. The worker is covered by workers' compensation. The worker may be allowed to hire and pay helpers or use substitutes, upon approval of the business. The business has employees that do the same type of work. For instance, to handle an extra workload or replace a worker in the event of an emergency. The worker is given mandatory "orientation" training (including use of a company vehicle, under supervision); and further specific instructions, exclusive of training. The business requires that the worker be controlled in the performance of service. The worker performs recurring services in a continuing relationship with the business. The relationship is considered permanent, even if the person works only for a short time. The worker is paid on a piece rate basis; biweekly; with charges deducted for various types of complaints (wet delivery, failure to stop, etc.); bonuses for complaints not exceeding a certain amount based on number of customers; and tips for service obtained directly or indirectly from customers. The worker is required to comply with instructions when (generally no earlier than 12am to 2am), where (exclusive route territory), and how (according to customer specifications) to work. The worker was given instructions about the way service was to be performed.


The nature of the occupation makes fixed hours impractical. The business requires that accomplishment of the service be completed by a specific time of day. The worker must follow established routines and schedules of the business (daily time of printing; weekly "zoning" for advertisements, "four-part" Sunday issues or holiday promotions, etc.). The business furnishes equipment for convenience such as carts and flats, to be used on premises, to transport papers to vehicles. The business supplies materials such as rubber bands and plastic bags, "usually at cost" to the worker. The worker may contact the business (by telephone or in writing) as needed to go over complaints, missed papers, etc. Additionally, written reports ("manifests") may be required to be submitted for proof of work completed. The business has a right to discharge an individual at will and without liability. The work does not require a permit or license. The worker does not have a substantial investment in the facilities used, other than for transportation. The worker is not allowed to represent the firm directly (using the business' name); however, s/he is also not necessarily in business for him/herself ("self-employed"). The main, if not only, aspect of control the worker has during the course of the job is that of actual physical transportation. The final service accomplishment is still subject to approval of the business. The 'commissioner' (business) obtains 'ownership' 'specifically ordered work' (service and/or product). of the



It can be argued the common newspaper delivery person performs work more like that of a “homeworker” and not of a “salesperson” or “direct seller.” This type of worker should be classified as a “statutory employee” rather than a “statutory nonemployee.” Otherwise, the working relationship might come under the description of general common law employment.


1) CCR (California Code of Regulations) Title 22 Social Security, Sections 4304-1, 4304-6 2) LC (California Labor Code) Sections 551-553, 98.7, 200, 230, 516, 6300, 6425(e), 6409.1, 6410, 6431


3) CUIC (California Unemployment Insurance Code) Sections 306, 317, 323, 601, 621(b), 621(c)(1)(B), 621(c)(1)(C), 634.5(a), 634.5(h), 649(a), 649(b), 650, 926, 930, 1252, 1279, 13004, 13004.1, 13009, 13009(g)(2), 13009.5, 13029, 13055 4) EDD: "Independent Contractor Or Common Law Employee For Use By State Agencies" 5) EDD: "Employment Determination Guide" (DE 38) 6) EDD: "California Employer's Guide 2003" (DE 44) 7) EDD: "Request For Preliminary Worker Classification Assessment Or Audit Lead Referral" (Form DE 230) 8) EDD Information Sheets: DE 231 ("Employment"), DE 231H ("Manufacturing Industry"), DE 231N ("Salespersons"), DE 231SE ("Statutory Employees") 9) EDD: "Avoid Unplanned Tax Liabilities" (DE 573) 10) EDD: "Determination of Employment Work Status for Purposes of State California Employment Taxes and Personal Income Tax Withholding" (Form DE 1870) 11) Industrial Welfare Commission (IWC) Wage Order 1-2000 12) IRS Publication 15 Circular E, "Employer's Tax Guide" 13) IRS Publication 15-A, "Employer's Supplemental Tax Guide" 14) IRS Publication 533, "Self-Employment" 15) IRS Publication 911, "Direct Sellers" 16) IRS Form SS-8, "Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding" 17) National Institute for Occupational Safety and Health Publication No. 97-145, "Plain Language About Shiftwork," by Roger R. Rosa and Michael J. Colligan (July 1997), U.S. Dept. of Health and Human Services 18) Santa Cruz Sentinel Online @ 19) Social Security Administration Policy Information Operations Manual System @ 20) Social Security Handbook @ Site Program