#misclassification

Lisa Needham at Public Notice:

It’s been barely a week since conservatives on the US Supreme Court radically upended the balance of power between the branches of government, giving the federal courts the exclusive power to interpret statutes rather than deferring to agency experts. And we’re already seeing impacts on the ground. Right-wingers have been in the habit of running to their preferred courts to get regulations overturned, but the decision in Loper Bright v. Raimondo, which officially destroyed agency deference, will make it easier — even routine — to block every Biden administration rule they don’t like.  Lawsuits to invalidate specific rules had been proceeding through the federal courts before Loper Bright, generally arguing that agencies exceeded their authority in promulgating a rule. These lawsuits exist in no small part because the Supreme Court made it clear they would destroy Chevron deference for years now, with Justice Neil Gorsuch having led the way well before his appointment to the Court. 

Trump appointee Sean Jordan, who sits in the reliably hard-right Eastern District of Texas, was so eager to block a Biden administration’s overtime rule that he dropped his decision the same day Loper Bright came out. It runs 36 pages and mentions Loper Bright multiple times, which means either Jordan was so confident of the Supreme Court decision that he either wrote it in advance or he hurried to stuff Loper Bright into his already-written opinion. Jordan’s opinion also rests heavily on dictionary definitions rather than expertise from the Department of Labor, which issued the rule. So now, the rule that would have made 4 million more Texas workers eligible for overtime, and thus more pay, is blocked thanks to a hurried read of a SCOTUS opinion and Webster’s Dictionary. 

What this mean is that anytime a business doesn’t like a federal rule, it can just sue. It promises to be a free-for-all. Three hospitals in New Jersey sued HHS the day Loper Bright came down, saying the agency’s interpretation of a statute governing Medicare reimbursement is unlawful. In another case, filed before Loper Bright, a trucking company challenging the Biden administration’s rule that addressed misclassification of independent contractors filed a memorandum on July 2 arguing that Loper Bright means the court should not defer to the Department of Labor’s interpretation of the law. The next day, Trump appointee Ada Brown of the Northern District of Texas enjoined enforcement of the Biden administration’s rule prohibiting non-compete agreements but limited the injunction to the plaintiffs, which are various pro-business groups like the Chamber of Commerce. 

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Bigotry from the bench

Unsurprisingly, much of the assault on administration rules relates to any regulation that would protect transgender people. Four days after Loper Bright was handed down, another Trump appointee, Judge John W. Broomes in Kansas, enjoined the Department of Education from enforcing its Nondiscrimination on the Basis of Sex in Education Programs rule in Kansas, Alaska, Utah, and Wyoming. The Department of Education spent two years finalizing the rule, which would have prohibited discrimination based on gender identity under Title IX.  The unofficial text of the rule, which runs 1,577 pages with supporting material, is jam-packed with legal analysis. Hundreds of pages are spent explaining how the DOE considered and addressed public comments and the document details the mental health impact of discrimination against LGBTQ students. 

Broomes’s expertise is in natural resource law, a background that does not lend itself to a detailed understanding of Title IX, sex discrimination, or gender identity. But none of that matters. His opinion sneers about “self-professed and potentially ever-changing gender identity” and insists that things like using correct pronouns for students and allowing them to use the bathroom that conforms with their gender identity is an issue of “vast economic” significance. Given that the only costs of the rule are things like updated administrative guidance and perhaps hiring additional Title IX staff, the idea it is a vast economic question is, to put it politely, a reach. Instead, Broomes sided with the conservative plaintiffs, including Moms for Liberty and an Oklahoma student who asserted that using the correct pronouns for other students violated her religious beliefs. Because of this mix of conservative state litigants, private anti-trans groups, and an Oklahoma student, the extent of Broomes’s injunction is even weirder than the patchwork blocking of the HHS rule.

Besides blocking the rule entirely in four states, the rule is also blocked for the schools attended by the members of two private plaintiffs, Young America’s Foundation and Female Athletes United, and all schools attended by the children of members of Moms for Liberty. So now, if you are a transgender student unlucky enough to attend school anywhere in the country where a child of a Moms for Liberty student also attends, you’re out of luck. If your school is free of children of book-banners, you get the protection of the federal rule — unless you live in Kansas, Alaska, Utah, and Wyoming, in which case it doesn’t matter what school you go to.  Over at Law Dork, Chris Geidner has a good rundown of not just how the courts are sledgehammering LGBTQ rights, but also how having courts, rather than regulators, make these decisions results in an uneven patchwork of rulings over a Health and Human Services rule that prohibited health care providers from discriminating based on gender identity. Only five days after Loper Bright was issued, three separate federal courts issued rulings blocking parts of the HHS rule. There’s no chance that William Jung, a Trump appointee to the federal district court for the Middle District of Florida, hadn’t already written most of his decision before Loper Bright was issued, but the case gave him far more ammunition. Fung’s ruling in Florida v. Department of Health and Human Services blocked part of the Nondiscrimination in Health Programs and Activities rule from going into effect — but only in Florida. 

Imagine a world where workers have real power. In this world, workers are paid a living wage, are protected by a strong union, and wield enough political clout to ensure Congress passes pro-worker laws. Corporations can’t treat them like robots and abandon communities to find cheaper labor elsewhere. It is a world of low inequality, where workers have a bigger share of the fruits of their labor.

This world is America in the 1950s.

This world was far from perfect. Black people and women were still second-class citizens. Windows of opportunity were still small or shuttered. That’s why it’s not enough to just go back in time. We must build upon it and expand it. For the past 40 years, this world has been dismantled. The voice of workers has been steadily drowned out in both the workplace and on the national political stage by the voice of big corporations. 

This massive power shift wasn’t the result of “free market forces” but of political choices. Now, it’s time to make the political choice to strengthen the voice of all workers.

Start with one of the biggest sources of worker power: unions. Every worker in America has a legal right to join a union free from interference from their employer -- a hard-fought victory that workers shed blood to secure. But corporate America has been busting unions to prevent workers from organizing.

In Bessemer, Alabama, for instance, Amazon used every trick in the anti-union playbook to prevent its predominantly Black workforce from forming the first Amazon union.

Most union-busting tactics are illegal, but the punishment is so laughably small that it’s simply the cost of doing business for a multi-billion dollar company like Amazon.

In addition, 28 states now have so-called “right-to-work” laws on the books, thanks to decades of big business lobbying. These laws ban unions from requiring dues from non-union workers, although non-union workers still benefit from these union contracts. This obviously makes it much harder for workers to unionize.

Corporations are also misclassifying employees as independent contractors and part-time workers, so workers don’t qualify for unemployment insurance, worker’s compensation, or the minimum wage, and don’t have the right to form a union. 

And corporations are waging political fights to keep employees off the books: Uber, Lyft, and other gig companies shelled out $200 million to get Proposition 22 passed in California, exempting them from a state labor law cracking down on misclassification.

It’s a vicious cycle: corporations crush their workers to protect corporate bottom lines, then use their enlarged profits to lobby for policies that allow them to keep crushing their workers -- preventing workers from having a voice in the workplace and in our democracy.

This vicious cycle began in the 1980s, when corporate raiders ushered in the era of “shareholder capitalism” that prioritized shareholders above the interests of other stakeholders. 

They bought up enough shares of stock to gain control of the corporation, and then cut costs by slashing payrolls, busting unions, and abandoning their home communities for cheaper locales -- all to maximize share values. The CEO of General Electric at the time, Jack Welch, helped pioneer these moves: in just his first four years as CEO, a full quarter of GE’s workforce was fired. The Reagan administration helped block legislation to rein in these hostile takeovers, and refused to lift a finger to enforce antitrust laws that could have prevented some of them.

I wish I could report that the Clinton and Obama administrations reformed labor laws to make it harder for corporations to bust unions. But either because Bill Clinton and Barack Obama lacked the political clout to get this done or didn’t want to expend the political capital, the fact is neither president led the way. 

The result of these political choices? Corporate profits have soared and wages have stagnated.

But it doesn’t have to be this way. We can turn the tide by making new political choices that restore the voice and centrality of American workers.

The most important is now in front of us: It’s called the Protecting the Right to Organize Act. 

Passed in the House in March with bipartisan support, the PRO Act is the toughest labor law reform in a generation. 

It prevents misclassification of full-time workers, bans corporations from harassing or intimidating workers who want to form a union, prohibits employers from replacing striking workers with non-union workers, and beefs up penalties for breaking existing labor laws, among other provisions empowering workers.

Beyond the PRO Act, American businesses need to be restructured so workers have a say at every level. At the top, that means a voice on corporate boards. In many European countries, worker representation has been shown to boost wages, skills, and corporate investment in communities. 

At the local level, we should make it easier to establish worker-owned cooperatives, which have been shown to increase profits, wages, and worker satisfaction.

And our trade and foreign policy can center on American workers without falling into the kind of xenophobia and nativism Donald Trump promoted.

Direct payment looks cheaper on day one and gets more expensive as a team grows. An Agent of Record adds a service fee but absorbs the classification, tax, and IP risks that direct engagement leaves with the payer. The real comparison is not fee versus no fee. It is visible cost versus hidden liability.

What does paying contractors directly involve?

Direct payment means the company drafts its own contracts, coordinates payouts, and trusts the contractor to handle local tax. It feels simple because the only obvious cost is the payment itself.

The hidden costs show up in the gaps. Classification risk sits with the payer, IP ownership is often unclear, and India income tax compliance frequently gets skipped by the contractor entirely. Who counts as a contractor is set out in this explainer on independent contractor status.

Where does the cost gap really sit?

Most of the cost difference hides in currency, not the service fee. Direct international transfers lose money to bank spreads that commonly run 3 to 5 percent, on top of payment delays.

An Agent of Record consolidates payouts and applies a transparent FX markup of around 1 percent, which narrows the headline fee gap once the spread is counted. Funding one transfer instead of chasing many also cuts finance-team time.

What compliance risk does an AOR remove?

The AOR takes on the risks direct engagement leaves with the payer. It drafts and signs compliant agreements, builds in enforceable IP assignment, and handles the tax filings rather than hoping the contractor does.

Misclassification exposure is the big one. A contractor who behaves like an employee can trigger back-dated PF, ESI, and TDS demands, and the AOR structure keeps that line clean.

When should a company switch, and what comes next?

The switch usually makes sense as contractor count, payment volume, or IP sensitivity rises. Contractors are the lightest form of outsourcing to India, and as the relationship deepens many companies move toward offshoring full teams and eventually the EOR-to-GCC path.