November 20, 2006

Not-so-Independent Contractors in the News

A couple of recent stories in the news highlight the problem that never seems to go away, the status of independent contractors. One story deals with union in-roads at FedEx, the giant delivery company. In the other story, the pervasive use of "independent contractors" (often undocumented workers) in construction keeps the cost of building down and keeps the profits high. Misclassifying people as "independent contractors" is a problem that is not about to go away anytime soon.

The Duck Begins to Quack
Let's begin with FedEx. (And no, we are not referring to Kevin Federline, tossed out by bride Brittany Spears, and now referred to as "FedEx.") A number of times, the Insider has blogged the FedEx strategy of calling their drivers "independent contractors." The drivers wear FedEx uniforms. They drive (leased) trucks with the FedEx logo. But the company stands by its assertion that they are not FedEx employees.

After 20 years of failures, the Teamsters appear to have won an election in Wilmington MA, where drivers voted 24 to 8 to affiliate with the union. (Previously they had lost 44 out of 46 votes.) The election was held on October 20, but votes could not be counted until the National Relations Labor Board (NLRB) determined that the drivers were indeed employees of the FedEx ground unit and not, as the company contends, independent contractors. Needless to add, FedEx is appealing. They believe that the union employed "unfair tactics" in the election.

Sean O'Brien, Local 25 president, said "we've finally infliltrated FedEx with a solid victory. Now it's a matter of getting a strong contract...We think this will inspire other locations around the country."
NOTE: In the interests of balance, the Insider is compelled to point out that Mr. O'Brien himself is not without controversy. His father, Billy O’Brien, used to head the Teamster's local movie unit when it was the target of federal probes earlier this decade over allegations of shakedowns and physical threats against movie-set employees in Boston. Nonetheless, Mr. O'Brien claims that his organizers did everything "by the book." (We will not attempt to figure out which book he is referring to...)

In the final analysis, the status of FedEx drivers will not be a matter of driver choice, of union vs. non-union, but a matter of interpretation of labor law. Bob Bedford, deputy regional attorney at the Boston NLRB, has concluded that FedEx asserts substantial control over the drivers and over the way they perform their jobs. The drivers work to FedEx schedules and follow FedEx driving and delivery guidelines. They walk like ducks. They quack like ducks. Eventually, once their many appeals have been exhausted, FedEx will have to accept the fact that their "independent contractor" drivers are really employees. And as far as the Insider is concerned, that will be just ducky.

Undocumented = Independent?
Robert Knox writes in the Boston Globe about the wide-spread tendency in the construction industry to avoid safety and insurance requirements by misclassifying undocumented workers as "independent contractors." This may be news, but it's certainly not new. There are a lot of incentives for calling workers "independent." It's a lot cheaper. You pay them less; you pay them in cash. You can hire undocumented workers who would otherwise fail to meet basic employment standards. You can avoid safety requirements mandated for regular employees. You don't have to pay benefits. You don't have to pay taxes (neither, for that matter, does the employee).

Why would a GC allow subs to function this way? Because it lowers the cost of doing business, which in turn leads directly to higher profits. For the most part, despite some efforts to tighten accountability for GCs, there are usually few if any consequences for tolerating undocumented workers on the jobsite.

Knox quotes a 2004 study by researchers at the University of Massachusetts and Harvard University, which concluded that one in every seven construction workers was misclassified as an independent contractor. The researchers estimated that the illegal practice costs the state $7 million a year in worker's compensation premiums, $4 million a year in payroll taxes, and $4 million a year in unemployment insurance payments. Specialists say the costs to taxpayers have continued to climb.

When you think about it, there are really very few true "independent contractors" in the workforce. Most of us seem to be under the control and direction of someone else. There are two major obstacles to owning up to this employer responsibility: money and accountability. It's cheaper and it's a lot easier to wash your hands of the employer's many responsibilities and expenses. We all benefit financially from the dubious practice of calling employees "independent contractors." For that reason alone, it's going to take a long, long time to fix the problem, if indeed, we have the collective willpower to fix it at all.


| 2 Comments

2 Comments

Your contention that we all prosper by having "independent contractors" as opposed to employees is open to question.

There are real costs to society posed by this. In Dallas we pay millions and millions for indigent care of working people because there is no way to tell if they are working or not. They are "independent contractors" or in many cases "independent contractors" and illegal aliens.

Health Care, Higher taxes because a fair share is not being paid, medicaid, subsidised housing on under paid "contractors". The list can be extended on and on.

Without a great deal of information and research I submitt that your assertion that "We all benefit financially from the dubious practice of calling employees "independent contractors."" is suspect at best.

Charles: I agree with you. When I say we all "benefit" from the independent contractor strategy, I mean that we pay less for goods and services. There is no question that the long term effects of this strategy are harmful and that the ultimate costs exceed the short term benefits.
Thanks for helping us clear up an ambiguity in the posting.

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This page contains a single entry by Jon Coppelman published on November 20, 2006 1:10 PM.

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