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Recently, the US Department of Labor (DOL) Wage and Hour Division filed a lawsuit against Arise Virtual Solutions Inc. (Arise), a customer service provider for several major national brands. Possibly the largest worker misclassification case in DOL history, the lawsuit highlights the damaging and costly effects of worker misclassification. It also serves as a grim reminder of what employers should do to avoid misclassification errors.
Background: A History of Alleged Worker Misclassifications
The Department of Labor alleges that Arise violated the Fair Labor Standards Act (FLSA) by misclassifying more than 22,000 workers as independent contractors instead of employees. Following an investigation into numerous alleged violations of FLSA minimum wage and overtime rules, the DOL’s suit seeks to recover back wages for the affected employees and additional unspecified damages. Though the lawsuit is currently awaiting a review and ruling by the Southern District Court of Florida, Arise could incur penalties in the millions of dollars if the DOL prevails. In 2022 alone, the Department of Labor recovered nearly $18 million in back wages for minimum wage violations and almost $135 million in back wages for overtime violations.
This lawsuit against Arise isn’t the first. In 2010, the DOL investigated Arise and found evidence of worker misclassification, but didn’t file a lawsuit. More recently, in 2022, the Washington DC Attorney General’s office filed a similar lawsuit against Arise for misclassifying customer service agents in violation of district wage and hour laws. This suit is ongoing.
How to Avoid A Worker Misclassification Lawsuit
Given the growing number of contingent workers in the labor force and the increasing likelihood they will become a significant part of your organization’s workforce (if they aren’t already), ensuring compliance with state and federal wage and hour laws is critical.
Here are three key actions that will help you properly classify all of your organization’s employees, freelancers, and contractors, and avoid the potentially disastrous outcome that awaits Arise Virtual Solutions:
1. Understand Worker Classification Requirements
Classifying workers isn’t about position titles, years of experience, or job duties. Instead, you must follow IRS rules for classifying workers as 1099 contractors or W-2 employees. For example, one of the criteria for determining if a worker is a contractor or employee is the amount of control the worker has over their work. In the Arise case, the DOL alleges that customer service workers classified as contractors were actually employees, as they had very little control over their job duties or work schedule. Understanding this and other criteria set by the IRS can help your organization avoid significant legal and financial non-compliance penalties.
2. Leverage a Comprehensive Worker Classification Solution
Worker classification can certainly add some complexity to your hiring process, especially if you have a lean HR department or external hiring is decentralized across several divisions and business entities. If you don’t possess in-house employee classification expertise or simply need some support, a worker classification solution can help. For example, Worksome Classify enables fast and compliant worker classification for employees in any location, whether they’re in the US, UK, or another country. In addition to supporting your classification needs, the solution also simplifies processes for identifying and engaging workers, so you can hire contingent workers more efficiently.
3. Be Prepared for a Department of Labor Audit
The DOL routinely performs investigations at random and in response to specific complaints. As in Arise’s case, DOL investigators can return for subsequent reviews of your hiring and employment practices. Additionally, investigations aren’t limited to the DOL Wage and Hour Division. They can include a review of your organization’s employee benefit plans, compliance with federal medical leave laws, and employee recordkeeping practices.
Since a DOL audit can happen at any time, it’s critical to be prepared for an investigator visit by keeping contracts and worker classification information organized and accessible. Worksome’s end-to-end contingent management solution not only offers a fully-documented classification process for your workers; it also indemnifies each classification, helping your organization minimize hiring and compliance risk.
Achieve Compliant and Accurate Worker Classifications
When your organization is busy hiring a mix of employees and contractors in today’s competitive talent environment, you can’t afford to make worker misclassification mistakes. For fast, compliant worker classifications that help you manage your contingent workforce more effectively, try Worksome Classify. Schedule a demo today, and see the US's only complete worker classification solution for yourself.