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WASHINGTON—The U.S. Department of Labor has entered into a memorandum of understanding under which it will work with the state of California to address the issue of misclassification of employees.
Wage-and-hour lawsuits are becoming a major concern for employers as more suits are filed, observers say.
According to last week's announcement, the Labor Department and California “will embark on new efforts” to protect employees rights “and level the playing field for responsible employers by reducing the practice conducted by some businesses of misclassifying employees.”
The statement said that in 2011, the Labor Department's Wage and Hour Division collected more than $5 million in back wages for minimum-wage and overtime violations under the Fair Labor Standards Act that resulted from employees being misclassified as independent contractors or otherwise not treated as employees.
“The misclassification of employees as something else, such as independent contractors, presents a serious problem, as these employees often are denied access to critical benefits and protections—such as family and medical leave, overtime compensation, minimum-wage pay and unemployment insurance—to which they are entitled,” the agency said in the statement. “In addition, misclassification can create economic pressure for law-abiding business owners who often struggle to compete with those who are skirting the law.”
Other states that have reached memos of understanding with the Labor Department as part of the agency's Misclassification Initiative, which was launched under the auspices of Vice President Joseph Biden's Middle Class Task Force, are Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington.