Tag Archives: minimum wage

economy

3 Questions About On-Demand Economy

Last year, as Airbnb’s $25.5 billion valuation surpassed Hilton Hotels’ and Uber became the world’s most valuable privately owned company, it became clear the on-demand economy is no passing fad but is, in fact, a force to be reckoned with.

The on-demand marketplace is growing at a dizzying pace as new companies emerge daily, helping connect a diverse workforce of tradespeople, licensed professionals and unskilled laborers to a market of willing buyers through the company’s platforms. Intuit projects the population of U.S. on-demand workers will more than double by 2020, which means that, if you can’t already summon a doctor, lawyer, babysitter or dog walker right now via an on-demand app, then sit tight—they’re coming soon to a smartphone near you.

But the scale and speed of the on-demand economy’s growth also means policymakers, regulators, insurers and on-demand companies will have to huddle quickly to resolve the issues that arise with this expanding marketplace and its workforce. Here are the three key questions we need to address immediately:

  1. When the safeguards of the traditional corporation no longer exist, how do we protect the on-demand workforce?

Uber is currently appealing a case it lost against the California Labor Commissioner last summer regarding whether a driver is an independent contractor or an employee. While establishing this distinction is a critical issue, we still need to address some big questions about the vast self-employed workforce in the on-demand economy.

A good primer question: How do we get the information we need to make informed policy decisions? Independent contractors in the on-demand economy are classified as part of a larger pool of temporary, seasonal, part-time and freelance workforce called “contingent” workers. A 2015 U.S. Government Accountability Office report cites this workforce as somewhere between less than 5% and more than one-third of the country’s overall labor pool. The big gap in this measurement is because it depends on how jobs are defined and on the data source; the broad definitions and lack of clear data on this workforce makes on-demand independent contractors and their needs tough to track and evaluate. How much of this workforce depends on this income for supplementary purposes as opposed to relying on this income as a full-time living?

According to Intuit’s study, contingent workers will make up 40% of the U.S. workforce by 2020. That’s a lot of people working without the safeguards provided by the traditional corporation—guaranteed minimum wage, steady income, unemployment insurance, healthcare, workers’ compensation and disability insurance. What kind of safety nets do we need to put in place to protect this workforce? And what does this growing workforce mean in terms of policy development? How does the social contract change?

  1. How should we regulate hybrid commercial/consumer activities?

A sticky issue surrounding the on-demand economy is how to regulate commercial activities that are conducted by individuals rather than by traditional businesses.

While some argue that an Airbnb property should be as heavily regulated as a hotel if a host is accepting payment for lodgings, drawing an apples-to-apples comparison between the two is a challenge. For example, treehouses, yurts, igloos and lighthouses were among the top-10 most desirable vacation destinations on Airbnb shopper’s wish lists last year, some fetching upward of $350 a night. Who exactly should you call about making sure the igloo is up to code before guests arrive?

Some of the services and products offered by the individual through on-demand platforms have never been available through traditional enterprises; they’re unique, intimate experiences and, before on-demand platforms made them accessible, were difficult to find. We’re entering a new frontier where many tourists covet a culinary experience they can book at a local’s house via apps such as Feastly or Kitchensurfing rather than a fine dining restaurant, or they prefer offbeat accommodations booked through Airbnb to a 5-star hotel. We can’t assess how to best regulate these individual commercial activities until we have more data and understand the risks. How do we collect that data? How do we ensure the safety and protection of the individuals operating and participating in these activities until we have the information necessary to adequately regulate them?

  1. How can a square peg workforce function in a round hole system?

Mortgages, loans, credit cards, leases … these are just a few of life’s niceties (or necessities) that are challenging for an on-demand independent contractor to secure. Our current financial services, systems and policies were built to work for employees who collect a regular paycheck as well as freelancers who have reliable cash flow through long-term contracts and monthly retainers. Independent contractors working through on-demand platforms tend to rely on short-term gigs often generated through multiple sources, and they have difficulty predicting their day-to-day income, never mind their annual net or gross.

This isn’t a niche workforce. If independent contractors represent 40% of the U.S. working population in 2020, they’re significant drivers of the economy. They generate income and pay taxes; they need homes, cars, work equipment and all the other stuff that keeps their businesses running and makes their lives worth living. We can’t dismiss their needs, because we are measuring their 21st century income with a 20th century yardstick. How do we retrofit our round-hole systems to include this square peg workforce?

If we want a thriving economy in which people enjoy the benefits of the on-demand economy, and doctors, lawyers, drivers, plumbers and everyone else serving the on-demand marketplace have equal opportunity to succeed, then the time to talk about these questions and issues is now.

Workers Fight. . . to Automate Their Jobs

The news out of Illinois tells us that as many as 2,000 people, including 325 uniformed employees, descended on McDonalds’ headquarters recently in advance of the company’s annual shareholders meeting to demand that the company pay workers’ “what they are worth.” I am not privy to the convoluted calculations involved, and have no idea how the employees arrived at the magic number, but the general feeling seems to be they are all worth $15 an hour.

This is part of a movement pushing back against a minimum wage that many feel is too low and does not provide a livable wage. The movement bears watching because it could lead to significantly more automation, reducing the need for workers in many industries and, thus, the amount of workers’ comp and other types of insurance that cover them.

Let’s look at the core argument for a moment.

The workers at the demonstration are correct that the federal minimum wage of $7.25 an hour does not provide a livable wage. I don’t think it was ever intended to.

Honestly, I believe many people have lost sight of what the minimum wage was supposed to be. It was an “entry level” wage designed for low-skilled workers or those just entering the workforce. It was never intended to be a family-supporting, bill-paying, life-creating wage. We were supposed to start there and work our way up. And by work our way up I mean develop skills and expertise and leave that minimum wage job forever behind us — to be filled by some other unskilled or inexperienced worker.

It doesn’t matter if that new skill was fixing engines or operating on the human brain; we were supposed to do something with our lives. Not any more. Today we define worth by the rate of our respiration and pulse. “I am,” therefore you owe me. My own brother-in-law subscribes to this belief and constantly references some poor sap he read about who has worked for a fast food restaurant for a bazillion years and only makes $8 an hour. My brother-in-law really does not have a response when I say, “Wow, he should quit and find someone who values him more.”

Whether or not you agree with me, the issue here is pure, unadulterated economics. Here is what is likely to happen if the push for an increase in the minimum wage to $15 an hour succeeds.

  1. My brother-in-law, who in addition to speaking for the little man constantly complains that a fast food soda costs $1.50 when the cup and ingredients only cost the restaurant “like a nickel,” will have to get used to paying $2.50 for that soda. He is diabetic, so he shouldn’t be drinking that swill anyway.
  2. Unions, many of whom have contracts tied to the minimum wage as a base, would see immediate raises for their workers’ across the board. (That, by the way, is the real key behind unions’ support for fast food workers)
  3. Finally — and this is the BIG finally — you will see automation in these low-end jobs like you’ve never witnessed before.

That, in the end, is what these workers are really fighting for. They are fighting to be replaced by machines. It is Economics 101. Automation is not feasible at $7.25 an hour. It is at $15 an hour. A visit to a McDonald’s of the very near future may find self-service kiosks similar to those in some retail stores or airports. Customers could place their orders and pay on their own. Some of the food may be produced by automation, as well. A large machine, half freezer and half deep fryer, might cook and dispense the French fries based on what the kiosk systems tell it to do. Fast food restaurants already have self-serve soda machines based on the same principle; the fast food industry merely will expand the use of automation to other jobs within the facility.

I should not need to add that machines don’t complain, don’t have personal issues, don’t call in sick, don’t require benefits and never file grievances or workers’ compensation claims.

This automation, of course, will not be limited to the fast food industry. This will happen throughout the service and retail sector.

If the fight for a $15-an-hour minimum wage succeeds, that will make some people quite happy. The unions will be ecstatic. The robotics industry will be elated.

Boston Furs Sued For $1M For Violations of Fair Labor Standards Act

Citing “knowing, deliberate and intentional” violations of federal wage and hour law, the Labor Department is suing Boston Hides and Furs Ltd. and company officials seeking at least $500,000 in back wages and an equal amount in liquidated damages for allegedly underpaying employees of the Chelsea wholesale animal hide business. See Solis v. Boston Hides & Furs Ltd., Anthony Andreottola, Angelo Andreottola and Antoinetta Andreottola Parisi, CV-1:12-CV-11997-MLW. The suit illustrates the significant liability that companies or their owners or management risk by failing to properly pay workers covered by the Fair Labor Standards Act and meet other Fair Labor Standards Act requirements.

Fair Labor Standards Act Wage & Hour Laws Big Business Responsibility
The Fair Labor Standards Act generally requires that an employer pay each covered employee at least the federal minimum wage of $7.25 per hour as well as time and one-half their regular rates for every hour they work beyond 40 per week. When the state minimum wage is higher than the federally mandated wage, and employees work more than 40 hours in a week calculated in accordance with applicable state laws, employees paid at the minimum permissible level are entitled to overtime compensation based on the higher state minimum wage. Time credited may be determined differently under state law versus the Fair Labor Standards Act. Employers must ensure proper crediting, recordkeeping and payment in time to meet both applicable requirements.

The Fair Labor Standards Act also requires employers to maintain accurate records of covered employees’ wages, hours and other conditions of employment and prohibits employers from retaliating against employees who exercise their rights under the law. Special rules also may apply to the employment of children or other special populations.

The rules generally establish a legal presumption that a worker performing services is working as a covered employee of the recipient. Unfortunately, many businesses that receive services often unintentionally incur liability because they ill-advisedly misclassify workers as performing services as independent contractors, salaried employees or otherwise exempt by failing to recognize the implications of this presumption. The presumption that a worker is a covered employee generally means that an employer that treats a worker as exempt bears the burden of proving that a worker is not a covered employee and of keeping accurate records to show that it has properly tracked the hours of and paid each covered employee.

The Fair Labor Standards Act provides that employers who violate the law are, as a general rule, liable to employees for back wages and an equal amount in liquidated damages. State wage and hour laws also typically provide for back pay and liquidated damage awards. Attorneys’ fees and other costs often also are recoverable. In certain instances where the violations are knowing, deliberate and intentional, violators often may risk criminal as well as civil liability.

Labor Department Sues Boston Hides and Furs Ltd For Knowing, Deliberate & Willful Fair Labor Standards Act Violations
The Labor Department lawsuit seeks to recover more than $1 million from Boston Hides and Furs Ltd and various company officials for allegedly engaging in knowing and deliberate violations of the Fair Labor Standards Act minimum wage, overtime and retaliation rules.

The Labor Department filed the lawsuit in federal court in the U.S. District Court for the District of Massachusetts after a Labor Department Wage & Hour Division investigation found the employer committed willful and repeated violations of the minimum wage, overtime and record-keeping provisions of the Fair Labor Standards Act including offering for shipment or sale “hot goods” produced in violation of the law during a period spanning at least three years. The suit also asserts that the company unlawfully retaliated against several workers by firing them after they cooperated with the federal investigation.

In its complaint, the Labor Department claims the investigation found that 14 Boston Hides & Furs employees worked approximately 10 hours per day, six days per week processing hides and furs for shipping to tanneries. These workers were paid a daily cash wage of $50 to $70, which amounted to an hourly pay rate far below the federal minimum wage of $7.25 per hour. The employees also were not paid time and one-half the required state minimum wage of $8 applicable for those hours worked above 40 in a week. Additionally, the defendants failed to keep adequate records of the workers’ employment, work hours and pay rates, and a representative of the defendants falsely told investigators that the company’s payroll records included all employees.

The lawsuit also charges that the defendants ordered employees to hide in a nearby house when Labor Department Wage and Hour Division investigators first arrived at Boston Hides & Furs so they could not be interviewed. Two days after investigators subsequently interviewed the workers, the defendants fired the workers. During their employment, Labor Department claims the workers were threatened and subjected to verbally abusive treatment on an ongoing basis, particularly when they asked about their pay rates.

In addition to back wages and liquidated damages, the Labor Department lawsuit seeks to permanently prohibit the defendants from future Fair Labor Standards Act violations — including a prohibition against shipping any goods handled by workers who were paid in violation of the law — and compensatory and punitive damages for the workers on account of their unlawful firing. The Wage and Hour Division also has assessed $100,000 in civil money penalties against Boston Hides & Furs Ltd. for willful violations of the Fair Labor Standards Act.

Overtime & Other Wage & Hour Enforcement Risks Rising
Employers increasingly risk triggering significant liability by failing to properly characterize, track and pay workers for compensable time in violation of the Fair Labor Standards Act or other laws. Unfortunately, many employers often are overly optimistic or otherwise fail to properly understand and apply Fair Labor Standards Act rules for characterizing on-call or other time, classifying workers as exempt versus non-exempt or making other key determinations.

Employers wearing rose tinted glasses when making wage and hour worker classification or compensable time determinations tend to overlook the significance of the burden of proof they can expect to bear should their classification be challenged. These mistakes can be very costly. Employers that fail to properly pay employees under Federal and state wage and hour regulations face substantial risk. In addition to liability for back pay awards, violation of wage and hour mandates carries substantial civil — and in the case of willful violations, even criminal — liability exposure. Civil awards commonly include back pay, punitive damages and attorneys’ fees.

The potential that noncompliant employers will incur these liabilities has risen significantly in recent years.

Under the Obama Administration, Labor Department officials have made it a priority to enforce overtime, recordkeeping, worker classification and other wage and hour law requirements. While all employers face heightened prosecution risks, federal officials specifically are targeting government contractors, health care, technology and certain other industry employers for special scrutiny. The Labor Department is also using smart phone applications, social media and a host of other new tools to educate and recruit workers in its effort to find and prosecute violators. See, e.g. New Employee Smart Phone App New Tool In Labor Department’s Aggressive Wage & Hour Law Enforcement Campaign Against Restaurant & Other Employers.

Meanwhile, private enforcement of these requirements has also soared following the highly-publicized implementation of updated Fair Labor Standards Act regulations regarding the classification of workers during the last Bush Administration. See Texas Landscaper’s $106,000 In Minimum Wage & Overtime Settlement Reminds Employers To Prepare For FLSA Enforcement, Minimum Wage, Overtime Risks Highlighted By Labor Department Strike Force Targeting Residential Care & Group Homes, Review & Strengthen Defensibility of Existing Worker Classification Practices In Light of Rising Congressional & Regulatory Scrutiny, 250 New Investigators, Renewed DOL Enforcement Emphasis Signal Rising Wage & Hour Risks For Employers, and Quest Diagnostics, Inc. To Pay $688,000 In Overtime Backpay.

Employers Should Strengthen Practices For Defensibility
To minimize exposure under the Fair Labor Standards Act, employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take appropriate steps to minimize their potential liability under applicable wages and hour laws. Steps advisable as part of this process include, but are not necessarily limited to:

  • Audit of each position currently classified as exempt to assess its continued sustainability and to develop documentation justifying that characterization;
  • Audit characterization of workers obtained from staffing, employee leasing, independent contractor and other arrangements and implement contractual and other oversight arrangements to minimize risks that these relationships could create if workers are recharacterized as employed by the employer receiving these services;
  • Review the characterization of on-call and other time demands placed on employees to confirm that all compensable time is properly identified, tracked, documented, compensated and reported;
  • Review of existing practices for tracking compensable hours and paying non-exempt employees for compliance with applicable regulations and to identify opportunities to minimize costs and liabilities arising out of the regulatory mandates;
  • If the audit raises questions about the appropriateness of the classification of an employee as exempt, self-initiation of appropriate corrective action after consultation with qualified legal counsel;
  • Review of existing documentation and recordkeeping practices for hourly employees;
  • Exploration of available options and alternatives for calculating required wage payments to non-exempt employees; and
  • Reengineering of work rules and other practices to minimize costs and liabilities as appropriate in light of the regulations.

Because of the potentially significant liability exposure, employers generally will want to consult with qualified legal counsel prior to the commencement of their assessment and to conduct the assessment within the scope of attorney-client privilege to minimize risks that might arise out of communications made in the course of conducting this sensitive investigation.

Record $2.3 Million+ Backpay Order

Shows Underpaying Or Violating Other Rules For Employing Foreign Workers Risky Business

Underpaying and failing to meet other H-2A visa program requirements for its employment of temporary foreign agricultural workers was an extremely costly mistake for Yerington, Nevada-based onion grower Peri & Sons.

Under a consent order entered by U.S. Department of Labor Administrative Law Judge Steven Berlin in San Francisco, Peri & Sons must pay a record total of $2,338,700 in back wages to 1,365 workers, plus a $500,000 civil money penalty to the Department of Labor for failing to properly pay foreign agricultural workers working under the H-2A visa program.

The consent order announced by the Labor Department Wage and Hour Division on July 10, 2012 reminds U.S. businesses of the need to meet compliance responsibilities when employing foreign workers and illustrates the significant risks that employers of foreign workers risk by failing to meet minimum wage and hour, overtime and other requirements for the employment of foreign workers.

The record back pay order stems from charges brought by the Labor Department’s Wage and Hour Division after it determined that Peri & Sons violated the Fair Labor Standards Act and the H-2A visa program requirements by underpaying H-2A employees involved in irrigation, harvesting, packing and shipping of onions sold in grocery stores nationwide.

All of the affected workers came to the U.S. from Mexico under the H-2A temporary agricultural worker visa program. In most cases, their earnings fell below the hourly wage required by the program, as well as below the federal minimum wage of $7.25 per hour for a brief period of time. Investigators also found that workers were not paid for time spent in mandatory pesticide training or reimbursed for subsistence expenses while traveling to and from the U.S. Additionally, Peri & Sons did not pay the worker’s return transportation costs at the end of the contract period.

The H-2A temporary agricultural worker program permits agricultural employers who expect a shortage of domestic workers to bring nonimmigrant foreign workers to the United States to perform temporary or seasonal agricultural work. The employer must file an application stating that a sufficient number of domestic workers are not available and the employment of these workers will not adversely affect the wages and working conditions of similarly employed workers in the U.S.

Employers using the H-2A program also must meet a number of specific conditions relating to recruitment, wages, housing, meals and transportation. See more on H-2A visa employment rules here.

Reflective of the Obama Administration’s heavy emphasis on the enforcement of wage and hour and other laws protective of workers, the Peri & Sons order shows the potential risks that employers run when violating these rules.

To minimize these exposures, employers of H-2A or other workers employed under special visa programs should carefully manage these programs to ensure their ability to demonstrate compliance with all requirements of the visa program, the Fair Labor Standards Act, and other relevant laws.

These programs should include careful and ongoing due diligence to maintain a current understanding of all applicable requirements for the legal employment of these workers and the establishment of systemized processes and documentation, both to maintain compliance and to preserve evidence necessary to demonstrate this compliance against possible investigations or charges.