Background

One common strategy used by companies to cut labor costs is to classify as much of its work force as “independent contractors” as possible. A company does not have to pay payroll taxes for independent contractors nor does it have to worry about pesky labor code requirements pertaining to minimum wages, overtime, meal and rest breaks, or expense reimbursement requirements. Additionally, a company does not have to cover independent contractors under workers’ compensation insurance, and is not liable for payments under unemployment insurance, disability insurance, or social security.

Given these cost savings, it should, perhaps, not be surprising that there has been a trend in companies classifying more of their workforce as independent contractors. A 2007 study by the General Accounting Office estimated that the number of workers classified as independent contractors rose by almost two million between 1995 and 2005 alone.

However, just calling someone an independent contractor does make it so and many companies do so without considering the legal distinctions between employees and independent contractors. Indeed, there is a presumption that workers are employees (Labor Code Section 3357) and a company that wishes to rebut this presumption will be required to undergo a multi-factor test which includes questions regarding whether the company has control, or the right to control, how the work is done and the manner and means by it is performed. See, S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341. If they are unable to do so, then the worker will be classified as an employee and the company will potentially be on the hook for four years of overtime wages, meal and rest premiums, etc.

The New Law

S.B. 459 was chaptered by California’s Secretary of State as Chapter 706, Statutes of 2011. It will appear as Sections 226.8 and 2753 of the California Labor Code. The new law:

• Prohibits the “willful misclassification” which is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”

• Prohibits charging a misclassified individual “a fee or making any deductions from their compensation for any purpose, including for goods, materials, space rental, services, government licenses, repairs, equipment maintenance, or fines arising from the individual’s employment where any of the acts… would have violated the law if the individual had not been misclassified.”

• Subjects violators to dramatic civil penalties of at least $5,000 and as much $15,000 per violation, in  addition to any other penalties or fines permitted by law. Violators who are determined to have engaged in a  pattern of violations are subject to a civil penalty of at least $10,000 and as much as $25,000 per violation.

• Gives the Labor and Workforce Development Agency authority to assess penalties and includes special requirements for licensed contractors subject to the Contractors’ State License Board.

• Subjects non-lawyers who advise an employer to misclassify a worker to joint and several liability with the employer.

Although independent contractor misclassification cases are nothing new, the new law will lead to an increase in such lawsuits. Perhaps the most significant change is the addition of the new penalties. To wit, a company engaged in 100 violations could be liable for $2,500,000 in penalties under the new statute, in addition to the existing remedies (such as attorney’s fees and costs under Labor Code Section 218.5, penalties under Labor Code Section 203 and 226, interest).

The bottom line– Companies should think twice before misclassifying their work force to avoid paying employees premium wages and avoid payroll taxes!

About the authors:Brad Yamauchi is a partner and Kevin Allen is a litigation associate at Minami Tamaki LLP in San Francisco, California.  The firm has litigated individual and class action wage and hour, civil rights and financial and consumer fraud cases for 35+ years. It is currently handling class action misclassification claims in the hi-tech, restaurant, retail, communications and trucking industries on behalf of thousands of employees.

Wrapping the wealthy in the term “job creator,” Republican lawmakers are hammering President Obama over the “Buffett rule,” a tax reform policy based on the simple and popular notion that millionaires should pay their fair share in taxes. To the GOP, this is a surefire way to ensure millionaires or “job creators” do not invest in the economy. “The reason we tax cigarettes in this country is to get people to stop smoking,” said House Budget Committee Chairman Paul Ryan (R-WI). “If you tax capital more, you get less capital. If you tax job creators more, you get fewer jobs.”

But a surprising group of people find that to be entirely untrue: the “job creators” themselves. As the billionaire behind the Buffett Rule, Warren Buffett, explained, “I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.”

Indeed, 200 millionaires created a group known as the Patriotic Millionaires to make this exact case. In a direct rebuttal of the GOP, members of the group like Ask.com founder Garrett Gruener noted that a higher tax rate makes “zero difference” in how he invests:

Ask.com founder and Oakland venture capitalist Garrett Gruener said that changes in the marginal tax rates make “zero difference” about where he is going to invest.

“The kind of investing I’ve done for the last 25 years isn’t based on how a few points of the income tax rates change,” said Gruener, a Democrat and member of the Patriotic Millionaires. But “somehow, the Republicans have managed to convince 98 percent of the people that they are affected by how 2 percent of the population is taxed.”[...]

Business owners also dismantled the other Republican talking point that higher tax rates will harm small businesses. “I’m not sure what the connection is” between raising tax rates and hiring, said Anchor Brewing CEO Keith Greggor. Anchor has added 26 full-time and 10 part-time employees since last year. Not a lot of “small-business owners I know are millionaires,” Greggor added. SF Made, an organization that represents 230 San Francisco manufacturers with 100 or fewer employees, said if there is a connection between raising taxes and inhibiting small-business investment, “we haven’t seen it.”

Patriotic Millionaires launched a video last month challenging Republican millionaires in Congress for their opposition to the Buffett Rule, stating that millionaire lawmakers’ “continued support of policies that advance their own economic self-interests is un-American.” But if Republican lawmakers are unwilling to listen to the “job creators” they say they speak for, then perhaps they will heed the advice of their figurehead President Ronald Reagan. After all, the Buffett rule is practically his idea.

Disclaimer: The thoughts and opinions of this post are the author’s alone and do not represent those of Workplace Fairness.

This blog originally appeared in ThinkProgress on October 3, 2011. Reprinted with permission.

About the Author: Tanya Somanader is a reporter/blogger for ThinkProgress.org at the Center for American Progress Action Fund. Tanya grew up in Pepper Pike, Ohio and holds a B.A. in international relations and history from Brown University. Prior to joining ThinkProgress, Tanya was a staff member in the Office of Senator Sherrod Brown, working on issues ranging from foreign policy and defense to civil rights and social policy.

When I wrote the “The Audacity of Greed” in 2008, I had a chapter called “Vodka and Penises” which detailed a rather unique birthday party thrown in Sardinia, Italy, in 2000 by Tyko CEO Dennis Kozlowski in honor of his wife–it featured vodka spraying from the penis of a replica of Michelangelo’s David. Kozlowski, who eventually went to jail for stealing lots of company money including the funds to pay for this little soiree, flew seventy-five guests to the Hotel Cala di Volpe where the privileged invitees played golf and tennis, ate fine food, listened to a performance by the singer Jimmy Buffett (who was paid a fee of $250,000 to appear) and enjoyed a birthday cake in the shape of a woman’s breasts festooned with sparklers on top.

It was a symbol of the greed and avarice coursing through American business.

And it ain’t over–as Leon Black is happy to demonstrate.

Let’s set the backdrop first: millions of Americans are without work, millions more can’t find decent paying work, we still are trying to dig out of a financial crisis caused largely by greed and avarice on Wall Street, we have the greatest divide between rich and poor in 100 years, and we are enduring a longer-term attack against the people by a bankrupt “free market” system that values a few CEOs over the rest of us.

No matter. The party must continue:

Last Saturday night, the financier Leon D. Black celebrated his 60th with a blowout at his oceanfront estate in Southampton, on Long Island. After a buffet dinner featuring a seared foie gras station, some 200 guests took in a show by Elton John. The pop music legend, who closed with “Crocodile Rock,” was paid at least $1 million for the hour-and-a-half performance.

And:

Mr. Black had his backyard transformed into a faux nightclub setting, constructing a wooden deck over his swimming pool and building a tent for Mr. John’s concert. After a buffet of crab cakes and steak, partygoers sat on couches with big puffy pillows.

Who was there?

The stars of music and fashion collided with a who’s who of Wall Street. Revelers included Michael R. Milken, the junk-bond pioneer and Mr. Black’s boss at Drexel Burnham Lambert in the 1980s; Julian H. Robertson Jr. , the hedge fund investor; Lloyd C. Blankfein, the chief executive of Goldman Sachs; and Mr. Schwarzman, head of Blackstone Group.Rounding out the guest list were politicians including Mayor Michael R. Bloomberg and Senator Charles E. Schumer of New York, who rubbed elbows with the media celebrities Martha Stewart and Howard Stern.[emphasis added]

And:

On Saturday night, to be sure, there was little talk of carried interest at the Blacks’ home on Meadow Lane, one of the Hamptons most desirable addresses for its panoramic views of the Atlantic Ocean and Shinnecock Bay. He counts among his neighbors Calvin Klein and David H. Koch, the billionaire industrialist.[emphasis added]

So, here is what is important to glean from this obscene affair, which underscores how we have been robbed–and how we will continue to be robbed in the future.

In my most recent book, “It’s Not Raining, We’re Being Peed On,” I wrote about “carried interest”. Private equity firms get a special tax break—it’s called “carried interest”, Rather than being taxed at the top rate of 35 percent, the private equity fund managers like Black only pay 15 percent through a loophole called “carried interest.” To understand carried interest, you have to first understand how money managers get paid in the yacht-sailing, mansion-buying world of private equity.

First, they receive a fee, which is a percentage of the funds they invest. This fee is usually in the range of two percent, and is taxed like your run-of-the-mill wage income.

Second, and far more lucratively, money managers get a fee based on the performance of their fund—a fee in the range of 20 percent. It’s the second fee that is the so-called “carried interest”—and it’s how the money managers of private equity really rake in the big bucks that pay for their Picassos, yachts and mansions.

In the normal world of taxable income (and let me say that nothing in the tax code is simple when it comes to schemes that allow people like Black to shelter their money), carried interest is taxed as investment income—at the capital gains level of 15 percent (much lower than the top wage income rate), even though most of these managers invest very little, if any, of their own money.

So, a private equity big shot honcho hauling down millions of dollars in “incentive” is taxed at a 15 percent rate, while the receptionist who works in his office, or the police officer who guards the equity baron’s property, probably earn $50,000 or so if they’re lucky—and those average working people pay a 25 percent tax rate on that income (not to mention payroll taxes), a far larger share of their income than the fellow who banks “carried interest.”

Which is how Black can afford to throw obscene birthday parties.

How “carried interest” continue to remain in place can be summed up, in large part, with two words: Chuck Schumer. Schumer has been one of Wall Street’s greatest defenders. And, while there have been calls to eliminate the “carried interest” bonanza, Schumer has blocked that effort time and again, and has also, most recently, flip-flopped on the absurd proposal to give corporate American a tax holiday on the profits companies have stashed over seas.

I understand the movtivation: Wall Street is a huge honeypot for campaign contributions. That is Schumer’s obsession.

But, keeping “carried interest” costs billions of dollars in money lost to our government’s treasury–money for schools, health care for seniors, research, and jobs.

One final point on the private equity world. Even if the “carried interest” is eliminated, we need to keep another point in mind: private equity firms make their huge profits by buying up companies and stripping them of hundreds of thousands of workers in the name of “efficiency”. The longer-term economic crisis is, at heart, a hammering down of wages–which has led to deep despair among the people who can’t make ends meet. Private equity firms have been at the leading edge of feeding that disastrous economic system.

Which is why we should care–and take notice–of the people who party and rub shoulders at these kinds of obscene events.

They just do not care.

Ultimately, for all the rhetoric, this is about the power and wealth of the business and political elite.

It is not about us. Until we torch this system.

*This blog originally appeared in Working Life on August 19, 2011.

While state and local governments and school districts across the country struggle with budget deficits, AFSCME members are standing up to tell their elected representatives that raising revenues is the best solution to a budget crisis instead of cutting critical public services just when they are needed the most.

State and local governments and school districts have a $178 billion budget shortfall this year alone.

In Illinois, more than 3,000 activists, including hundreds of members of AFSCME Council 31, rallied at the state Capitol rotunda in Springfield this month to demand that lawmakers pass legislation to increase the individual income tax rate and expand the state’s sales tax base.

AFSCME members in Washington State lobbied lawmakers to preserve state services.

Meanwhile, some 1,500 AFSCME members from throughout New York State demonstrated and met with legislators in Albany earlier this month to find a fair way to protect essential public services.

AFSCME President Gerald McEntee told the New York State workers:

Elected leaders are on the verge of destroying vital public services and putting more people out of work. They’re jeopardizing the health and safety of the people and our communities.

In Maryland, a delegation of AFSCME members carried boxes of “Budget Fight Back” cards to their lawmakers in January. Signed by more than 3,000 state employees, the cards propose a plan to generate more than $2 billion in revenue to close a budget gap, including drawing on the state’s rainy day fund, expanding the sales tax to more services and increasing gas and alcohol taxes.

You can read more about efforts by AFSCME members in other states to save public services on AFSCME’s website here.

*This article originally appeared in AFL-CIO blog on February 24, 2010. Reprinted with permission.

About the Author: James Parks had his first encounter with unions at Gannett’s newspaper in Cincinnati when his colleagues in the newsroom tried to organize a unit of The Newspaper Guild. He saw firsthand how companies pull out all the stops to prevent workers from forming a union. He is a journalist by trade, and worked for newspapers in five different states before joining the AFL-CIO staff in 1990. He has also been a seminary student, drug counselor, community organizer, event planner, adjunct college professor and county bureaucrat. His proudest career moment, though, was when he served, along with other union members and staff, as an official observer for South Africa’s first multiracial elections. Author photo by Joe Kekeris

I was asked today to post a diary to Daily Kos written by my boss, Teamsters General President James P. Hoffa – it is beneath the fold. In this piece we are looking into the fact that a tax hike on health benefits to pay for health care reform is a bitter, bitter pill for middle-class wage-earners to swallow.

James P. Hoffa – James P. Hoffa grew up on picket lines and in union meetings. He is the only son of James R. Hoffa, former General President of the International Brotherhood of Teamsters. On his 18th birthday, Hoffa received his own union card and was sworn in by his father. Prior to becoming Administrative Assistant to Michigan Joint Council 43, Hoffa was a labor lawyer in Detroit for 25 years.

Hoffa is recognized as one of the foremost authorities on Union issues. As the most visible and outspoken critic of government trade policies and anti-worker corporate agendas, Hoffa is recognized as a leader on issues that affect working people.

(bio taken from excerpts of http://www.teamster.org/content/leader-issues-affect-working-people with permission from the author)

This article originally appeared in Daily KOS on June 30th and is reprinted here with permission from the author.