The U.S. Department of Labor (“U.S. DOL”) and the Pennsylvania Department of Labor and Industry recently signed a memorandum of understanding to share information and conduct joint investigations regarding independent contractor misclassification. The agreement is part of the U.S. DOL’s Misclassification Initiative, the stated goal of which is to “combat employee misclassification and to ensure that workers get the wages, benefits, and protections to which they are entitled.” Pennsylvania is the 32nd state to sign a memorandum of understanding with the Department of Labor as part of its misclassification initiative. The others are Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Florida, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New Mexico, New York, Oregon, Rhode Island, South Dakota, Texas, Utah, Vermont, Virginia, Washington, Wisconsin and Wyoming.
The coordinated effort between the U.S. DOL and participating states raises the stakes for companies that utilize independent contractors. In the past, a company in Pennsylvania might pay a single fine to a state agency for not making proper unemployment insurance payments due to misclassification of its workers. Under the new agreement, Pennsylvania will now share this information with the U.S. DOL, which may opt to cooperate in the underlying investigation or conduct a separate investigation. As such, companies in Pennsylvania, like those in the 31 other states that have signed MOUs with the U.S. DOL, should expect that any misclassification inquiry will automatically expand to include both state and federal agencies, thereby increasing the scrutiny on such companies and the risks associated with a misclassification determination.