According to a News Release (9/1/9/11), the Department of Labor (the “DOL”) and the Internal Revenue Service (the “IRS”) have signed a memorandum of understanding that will improve joint departmental efforts to end the business practice of misclassifying employees as independent contractors in order to avoid providing employment protections and employee benefits. In addition, seven states signed memorandums of understanding-having the same goal of preventing employee misclassification- with the DOL’s Wage and Hour Division and, in some cases, other DOL divisions. The signatory states are Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington. Also, Hawaii, Illinois, Montana and New York are expected to enter into similar memorandums with the DOL. These memorandums will enable the DOL to share information and coordinate law enforcement with the IRS and signing states.
The News Release states that business models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal, unless they are used to evade compliance with federal labor laws — for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law. These memorandums of understanding among the DOL, the IRS and the states arose as part of the DOL’s Misclassification Initiative. This initiative was launched under the auspices of Vice President Biden’s Middle Class Task Force, with the goal of preventing, detecting and remedying employee misclassification.