Same desk different deal
More full-time employees call themselves 'misclassified' in an age of contract workers. Behind the New Economy's big workplace conflict.
Anita Verschoth wants her benefits back.
The former Sports Illustrated writer and editor earned an international reputation for her Olympic coverage in the 1960s, 70s, and 80s. But her fortunes took a turn for the worse in 1988, when she was asked to relinquish her employee status - with its health and pension benefits - and become an independent contractor. She eventually accepted, fearing she would no longer be allowed to cover Olympic sports if she refused.
Her status remained that way until 1996, when Ms. Verschoth says the IRS deemed her as a full-time employee and ordered her put back on staff. Her employer did so, but it balked at her request to recoup benefits she lost during her contractor days.
Verschoth's story, while complicated, is not unusual.
Hiring people as independent contractors, or reclassifying full-time workers under that title, is a common practice in today's corporate world, leaving many workers not only bereft of health insurance and pension benefits, but unprotected by most labor and employment laws.
The precise percentage of independent contractors in the workforce varies with definition. But the Department of Labor estimates 30 percent of workers are in some sort of independent contractor, temporary, part-time, or other contingent work status (chart, page 12).
Unlike Verschoth, many don't realize they're being classified as such until they apply for benefits.
"We started getting calls, all with the same problem," says Francine Moccio, Director of the Institute for Women and Work at Cornell University's School of Industrial and Labor Relations. "Women went to apply for unemployment insurance, disability or sue for sexual harassment, and they found out they couldn't. They found out they were independent contractors."
The trend spans all rungs of the economy, from construction workers, janitors, and newspaper deliverers to white-collar professionals. John McGucken, legal counsel for Maryland's Office of Unemployment Insurance, says his agency recently found a home healthcare agency had misclassified up to 500 attendants as independent contractors. The employer has appealed.
"It's in almost all industries," says Mr. McGucken. "The problem of misclassification is growing."
Of course, the ability to hire or reclassify workers as independent contractors helps companies be more cost efficient. In today's fast-paced world, companies have to be able to design their workforce more than they used to, says Lynn Dudley, vice president and senior counsel of the Association of Private Pension and Welfare Plans, which represents major employers.
"Back in the olden days, you would go hire X number of people and produce your product. Now, a lot of times companies are not in a position to commit to a long-term investment," she explains. "So they hire people with no commitment to them. When you do away with that flexibility, you decrease job growth and you decrease economic growth in the long run."
And many workers like the freedom that being an independent contractor provides.
Problems arise, however, when companies classify as independent contractors those who would, in the past, have been considered employees.
Two behemoths of the new economy - AOL-Time Warner and Microsoft - have been taken to court over the issue.
Both stand accused of bilking hundreds of workers of basic health and pension benefits, illegally classifying them as independent contractors although they did the same work under the same conditions as full-fledged employees.
The case against Time-Warner, brought by the Department of Labor, is still making its way through the federal court.
"Time-Warner continues to believe that this lawsuit is entirely without merit," says a company spokesman.
As for the case against Microsoft, the Ninth Circuit Court of Appeals ruled in 1997 that the company misclassified workers as independent contractors. They are now entitled to valuable stock options, and may be owed medical and pension benefits as well.
"In no way are those isolated incidents," says Tom Juravich, director of the Labor Relations and Research Center at the University of Massachusetts at Amherst. "It's a very large problem. It's part of where the whole economy is moving. Employers are trying to cut their losses. They want to have only a very indirect connection to their employees."
Jeremy Rifkin, president of the Foundation on Economic Trends and a professor at the Wharton School of Business, says reliance on a "just-in-time workforce" works for management in the short run, and is in part responsible for today's low unemployment rate.
But he is concerned that if the economy takes a downturn, large numbers of people will find themselves without work.
"It destabilizes the economy," says Mr. Rifkin. "Some workers in the professional fields like it, but most workers want some predictability because they have families to feed. Most people can't live on the edge like that, not knowing if there's a paycheck week to week."
Mr. Juravich is similarly concerned. "This seems to be a world of opportunity. But what are the long-term consequences?" he asks. "The company is simply purchasing human capital the way it purchases goods or services."
Catherine Ruckelshaus, litigation director of the National Employment Law Project, points to what she sees as the resulting problems.
Last month, she sued a group of New York City supermarkets and delivery services, claiming the stores subcontracted with delivery companies, which illegally made the delivery workers independent contractors.
The class-action lawsuit claims they were paid below minimum wage and no overtime. New York Attorney General Elliot Spitzer has filed a similar case against a Food Emporium, and is investigating other stores and delivery companies.
The companies claim the delivery workers are independent contractors, and therefore not entitled to minimum wage. Food Emporium's parent company, the Atlantic and Pacific Tea Company, did not return phone calls.
Siaka Diakite is one of about 500 delivery workers involved. A small, intense man who goes by the name Jack, he came to the United States from the Ivory Coast two years ago, and eventually landed a job delivering groceries for Food Emporium in Manhattan.
First paid $1 per delivery, even a 60-hour week frequently earned him less than $50, he says, flipping through pay stubs that show weekly earnings as low as $14. He and his fellow workers relied on tips to supplement their income. If customers were not home or didn't realize a tip was expected, they got nothing.
The workers staged a strike last October, seeking minimum wage and overtime. They were told they were independent contractors, and the minimum-wage laws did not apply.
"That was the first time I hear about 'independent contractor,' " Mr. Diakite says.
As for Verschoth, she was reinstated as a Sports Illustrated employee in 1996, but was only given a two-year contract. When it was over, so was her tenure at Sports Illustrated.
"I think they were really trying to have the choice of getting rid of me after two years," says Verschoth, now in her late 60s. She has been unable to find another full-time journalism job.
She continues to seek her back-benefits from the company, and filed a claim with the EEOC charging age and gender discrimination. Last week, she filed a lawsuit in federal district court.
The company would not discuss her discrimination case, and said her benefits claim is under review.
(c) Copyright 2000. The Christian Science Publishing Society