Employers are Reclassifying Employees

In order to avoid tax repercussions, and to get around labor statutes, more and more businesses are reclassifying employees, either labeling them as independent contractors or setting them up as “franchisees” with extremely limited ownership. It has become a common enough occurrence that state and federal agencies are now getting heavily involved in an effort to put an end to the deliberate “misclassification” of workers. This method may save the company money, but it is the workers who ultimately suffer.

According to labor experts, companies are getting very creative in their misclassification methods. A recent example of a company that faced disciplinary action was a home building company that had “employees” working on a house one day, and the same workers, now “owners of LLCs,” working on the house the next day. By classifying the same employees as two different things, the company avoided paying hundreds of thousands of dollars in payroll taxes- until they were busted, of course.

The Labor Department’s Wage and Hour Division is particularly interested in companies that sell “franchises” to lower paid workers such as janitors and delivery drivers. These franchises are not the legitimate franchise model of a small business owner running one or more fast food restaurants. These “franchises” are really workers paying a franchise fee to work for the company. In these situations, the workers generally miss out on benefits such as overtime pay, minimum wage requirements, and safety protections. An example of this is the story of Maria Jacobo, a housecleaner intrigued by the idea of being a small business owner with CleanNet USA, a janitorial company. She paid the $10,000 franchise fee after being promised that she would be given accounts worth thousands of dollars per month. Sadly, she found out the hard way that she was not actually a small business owner at all; CleanNet USA controlled every aspect of her “franchise.” Jacobo was essentially just a paid employee for CleanNet USA, but an employee that was now out $10,000. CleanNet USA is definitely not the only janitorial company doing this, and the lawsuits for these types of companies are starting to pile up around the country.

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