The best labor contract has always been summarized by the saying: an honest day’s pay for an honest day’s work.
Yet that contract is being violated and tossed aside with a regularity that harks back to the days when children worked in factories, the work week covered six long days and workplace safety was an afterthought. Under pressure from a deep recession and its aftermath, employers are cutting corners by classifying their workers as independent contractors. That switch allows companies to dodge the costs of deducting payroll taxes, avoid paying Social Security and Medicare taxes and skip out on insuring their employees against injury and job loss.
The practice also is unfair to business competitors who bear the costs of identifying their workers as what they are: employees. Bypassing that requirement puts workers at risk, leaving them uninsured against injury and prone to accruing hefty tax bills, plus penalties and interest, when they don’t pay on time. It also costs the government millions of dollars in lost tax revenue.
Wrongly classifying workers to avoid tax and insurance costs is illegal. It’s also, to a bewildering extent, ignored.
A return to lawless labor
This modern-day return to Dickensian business owners who use dishonest and abusive practices was documented in last week’s exhaustive five-part series in The News & Observer titled: “Contract to Cheat.” The project was a joint effort involving The N&O, The Charlotte Observer, six other McClatchy newspapers, the McClatchy Washington bureau and ProPublica, a nonprofit group specializing in investigative reporting.
The project followed a 2012 series called “The Ghost Workers,” reported and written by Mandy Locke of The News & Observer. The first series prompted the formation of a state task force to look into the problem, but its recommendations prompted no new legislation or stepped-up enforcement of existing laws.
The further revelations in the “Contract to Cheat” series rightly spurred Gov. Pat McCrory to demand action. “It isn’t fair to the workers. It isn’t fair to those employers following the law. It’s not fair to the taxpayers,” McCrory said Thursday. “It must be fixed.”
N.C. Attorney General Roy Cooper, a likely Democratic challenger to Republican McCrory in the 2016 gubernatorial race, also is demanding changes. Cooper said he will commit lawyers to help state departments identify contractors who are misclassifying their employees.
Labor commissioner silent
Oddly, the one official who seems unmoved by labor law scofflaws is state Commissioner of Labor Cherie Berry. Berry, a Republican first elected in 2000, issued no comment on an illegal practice that is costing North Carolina millions of dollars in lost tax revenue. dollars. A Department of Labor spokeswoman declined to make Berry or anyone in the agency available for an interview, saying The News & Observer misunderstood Berry’s role in dealing with labor violations such as improper employee classification. Soon it may be time for a third series on the classification mess. Call it “The Ghost Commissioner.”
Glazier fights fraud
Rick Glazier, a Democratic state representative from Fayetteville, rightly slams Berry’s department for failing to act on a flagrant breaking of the law.
“The willful blindness and the woeful inadequacy of our North Carolina Department of Labor, and almost unwillingness to do any serious investigative work into employer misconduct, is giving (companies that break the law) the green light,” Glazier said. “It is a wink and a nod. ‘Don’t make it so obvious we have to do something – but, shy of that, just go for it.’ ”
Glazier, to his credit, has stayed on this issue as regulators and legislators dozed. He submitted two bills to make misclassification a crime with severe penalties, but the legislation drew little support. He pledges to submit similar legislation again if the governor and Republicans don’t propose tougher laws.
Apart from the specific practice of wrongly identifying employees and contractors, the series also exposed two broader issues. One is the changing labor environment in which benefits are disappearing, union protections are nonexistent, wages are depressed and workers are desperate for whatever work they can get under whatever conditions they must accept. This is the context in which worker abuse flourishes and goes largely unreported by its victims.
Fairness helps business
Some conservatives may think that a hungry and pliant workforce is good for business, but the series showed how practices that take advantage of needy workers actually hurt other businesses and distort the marketplace. The best environment for business is a fair and honest use of labor.
Secondly, the series demonstrates the cost of treating government agencies and their functions as impediments to business. Those who think fewer government workers and less “red tape” are the key to a thriving economy can see in this series where such thinking leads. Consistent and effective regulation is essential to keeping the marketplace from descending into thievery and deception.
One reason misclassification has spread is because the government lacks the resources to thoroughly investigate complaints, enforce the law and bar repeat offenders. Congress, for instance, has repeatly cut funding for the Internal Revenue Service. The IRS today has about 11 percent fewer employees than iin 2010.
Tax collection is an essential service . There must be enough examiners, auditors and investigators to catch holes in the system. When there are not enough, it invites cheating.
For years, unscrupulous or financially desperate contractors and other employers have interpreted the regulatory system’s inaction as a Contract to Cheat. It’s time that contract was exposed, its parties punished and the timeless agreement reasserted: an honest day’s pay for an honest day’s work.