The Louisiana Workforce Commission (LWC) is on track for a second consecutive record-setting year in identifying workers misclassified by employers as independent contractors, according to a recent announcement by the LWC. In 2014, Louisiana led the nation with the LWC finding an average of 11 misclassified workers per audit and identifying a grand total of 12,782 misclassified workers. The LWC is on pace to exceed that number by the end of 2015. The current yearly tally stands at 9,400 misclassified workers.

By contrast, in 2010, fewer than 300 misclassified employees were identified in Louisiana. One reason for the sharp increase in misclassified employees was a change in the selection process for unemployment insurance audits under federal policy. Prior to 2010, the federal government required that audits be conducted randomly. After 2010, the LWC was permitted to conduct “risk-based” audits using tips, complaints, and information from “partner agencies” (i.e., the federal government), and focusing on industries in which worker misclassification is particularly prevalent. The LWC has formally agreed to share and receive information on worker misclassification with several federal agencies, including the U.S. Department of Labor (DOL).

In addition, Louisiana’s Fair Play Act of 2012 requires that employers provide notice of the difference between an employee and an independent contractor in a conspicuous location in the workplace. The notice must state the following:

The law says that you are an employee unless:

  • You are free from direction and control in performing your job, AND
  • You perform work that is not part of the usual work done by the business that hired you OR is not performed on the business’s premises, AND
  • You are customarily engaged in an independently established trade, occupation, profession or business.

Your employer cannot consider you to be an independent contractor unless all three of these facts apply to your work.

The notice must also include contact information for the employees to file complaints or obtain information regarding employment classification. La.R.S. 23:1711(G).

The combination of the Fair Play Act’s notice requirement and the LWC’s practice of conducting risk-based audits has already led to a significantly larger number of misclassified employees being identified through audits—and the LWC shows no signs of backing down from its efforts moving forward. The penalties for misclassification are substantial: employers must correct the classification, pay any back taxes due on unemployment insurance, and pay any employee benefits and overtime wages due—and may be subject to additional penalties for unpaid income tax withholding and consequences such as retroactive liability for workers’ compensation premiums. In addition, the LWC may share information about an employer with federal agencies with workplace oversight, including the Internal Revenue Service or the DOL.

Employers in industries in which misclassification has historically been prevalent (e.g., hospitality, construction, and personal services) and in the booming on-demand economy, in which consumers directly reach out to individuals to provide services through mobile applications, should be especially cautious moving forward in Louisiana.