Governor's Executive Order
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Maine to crack down on employee misclassification
E-newsletter
01.28.2009
On January 14, 2009, Governor John Baldacci signed an Executive Order creating a new Joint Enforcement Task Force, intended to coordinate the investigation and enforcement of employee misclassification matters within the State of Maine. The order makes Maine the latest state to establish a task force to study misclassification issues.
What constitutes an "employee misclassification"?
Misclassification most commonly occurs when an employer hires a worker and improperly classifies the worker as an "independent contractor," rather than as an "employee." The practice is harmful to employers, workers and taxpayers. State governments and the U.S. Department of Labor contend that misclassification creates an unfair competitive advantage for employers, prevents misclassified employees from receiving certain benefits, and reduces the amount of tax revenues that would otherwise be paid.
Employee misclassification is an expensive error
In New York, a task force estimated that at least 10 percent of employers audited practiced employee misclassification, costing that state over $550 million in the construction industry alone. At the federal level, in 2007, the IRS fined FedEx Corporation $319 million in back taxes as a result of misclassification practices.
Over the past 24 months, both Massachusetts and New Hampshire have tightened state laws and regulations that serve to classify workers as bona fide independent contractors. Many other states, including Michigan and New York, have recently convened task forces for the purpose of evaluating the scope and implications of misclassification by employers.
What does this order mean to Maine employers?
Given the Governor's action and current economic conditions, Maine employers can expect that:
- Enforcement efforts geared at the misclassification of workers will grow substantially.
- State agencies such as Maine Department of Labor and Maine Revenue Service will, at minimum, expand programs for systematically investigating employee misclassification within those industries in which misclassification is most common.
- We can expect those agencies to identify significant enforcement cases, aggressively investigate those cases, and, to the extent possible under existing Maine law, utilize the State's collective resources to punish violators.
Questions?
We welcome your questions on how to protect your business from employee misclassification violations. Feel free to contact attorney Matthew LaMourie at 207.791.3000 or mlamourie@preti.comwith questions on this topic or other employment-related legal issues.