Supreme Court Justice William O. Douglas instructed in United States v. Cardiff that "words which are vague and fluid...may be as much a trap for the innocent as the ancient laws of Caligula" which were posted high on walls to ensnare ordinary citizens. The Obama administration is bettering Caligula's instruction in the residential construction industry by heavy-handed enforcement tactics over the blurry demarcation line between independent contractors and employees. In the process, it is warring with its professed goal of job creation by diminishing regulatory vexations. If there are better examples of oppressive business-worker harassment, they do not readily come to mind.
On September 19, the same day President Obama delivered a speech from the White House Rose Garden touting his American Jobs Act - highlighting the need to create more construction jobs - his Secretary of Labor, Hilda Solis, was across town organizing a new regulatory army that would decimate the building industry. This business unfriendly Cyclops includes the Department of Labor, the Internal Revenue Service and as many as 11 state-based agencies. Its objective is to reclassify workers to punish American job creators to placate labor unions.
The elusive distinction between independent contractors and employees made by federal labor and tax laws is more to be marveled at than imitated. No single earmark is dispositive. The following questions are relevant, but routinely yield answers that point in opposite directions. Does the company control or have the right to control what the worker does and how the worker does his or her job? Are the business aspects of the worker's job controlled by the payer, for example, how a worker is paid, whether expenses are reimbursed, who provides tools or supplies, etc.? Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a cornerstone of the business?
Obama's regulatory army is fighting a phantom problem that has been exposed in prior futile investigations.
The residential construction industry regularly confronts the independent contractor-employee conundrum, but few if any workers complain about their categorization. In these depressed economic times in an economically depressed industry, they are happy to enjoy a source of income at market rates. Home building fell to a 50-year low in 2009. Each home built creates an average of three jobs for a year and approximately $90,000 in taxes. In a sane world, willing businesses and willing workers collaborating to build houses would be encouraged, not disturbed. Further, the Department is undertaking a pioneering effort to saddle liability on homebuilders for the practices of their subcontractors.
The world of politics, however, is economically zany. Labor unions are major elements of President Obama's political base, and the Department of Labor is their echo chamber. Labor unions clamor for characterizing all construction workers as "employees" to inflate compensation levels and to diminish their competitive disadvantage with non-union labor. Employees are subject to minimum wage, maximum hour, and overtime rules that independent contractors are not.
In response to the Obama regulatory army's far-flung investigation into hypothetical violations of minimum wage or overtime rules in residential construction, a spokesman for the Leading Builders of America, and industry trade group, complained that its information demands would squander thousands of hours of work. The only immediate beneficiaries would be lawyers, who are dead weights on the economy. The chief executive of the National Association of Homebuilders protested that the independent contractors and subcontractors were the "lifeblood of the industry," which would be crippled if they were re-characterized as employees of home builders by edict of the Department. It is collaborating with trial lawyers in hopes of initiating class action suits on behalf of ostensible employees to coerce financial settlements from the fragmented home building industry.
Contrary to Regulatory Tsar Cass Sunstein's boasting of slashing burdens on industry, the Obama administration has met the enemy of job creation in residential construction or otherwise, and it is them.