Seventy-five years after the passage of a landmark federal law aimed at guaranteeing workers a minimum wage, a growing number of employers have forged a way to pay less: Many are classifying full-time workers as contractors to evade the law, employment experts say.
Catherine Ruckelshaus, the legal co-director of the National Employment Law Project, an advocacy group for workers, described it as the "go-to mechanism" for employers in a range of industries, including construction, trucking and janitorial services.
"It hurts workers and their families, it hurts law-abiding employers who can't compete against employers who misclassify, and it hurts the state and federal coffers, because we're losing billions of dollars in tax and insurance money," she said.
In the last decade, a number of states have found that the problem is growing. A recent report by the Ohio attorney general revealed that the percentage of the state's misclassified workers climbed by more than half between 2008 and 2009. Illinois, Massachusetts and California have also found evidence that misclassification is becoming more prevalent.
The Department of Labor set up its own task force to address the problem early in President Barack Obama's first term, and has since ramped up its actions against employers.
But advocates say the department needs more funding and a designated team of investigators to focus exclusively on abuse of the independent contractor classification. The department's investigators are currently charged with covering a wide range of violations, not just misclassification complaints. "There's just too many complaints about all the laws and they can't make any traction on the problem," said Ruckelshaus.
By treating employees as contractors, employers are able to dodge not only the minimum wage law, but all of the provisions of the Fair Labor Standard Act, including protections against retaliation and overtime rules.
Advocates have little information about which rules are most frequently violated, but workers often report abuse in sectors with high rates of misclassification. In a recent survey of workers in low-wage industries, 26 percent said that they were paid less than minimum wage and 76 percent said they were denied overtime pay.
Private lawsuits against employers are also increasingly common. From 2004 to 2011, the number of misclassification lawsuits filed in federal courts rose from 3,600 to almost 7,000, according to the Federal Judicial Center.
Arturo, a former dishwasher in Houston who declined to give his last name for fear of retaliation from employers, recently filed suit with several coworkers against a restaurant that paid him an average of $5.45 per hour in 2010 and 2011. The minimum wage in Texas is $7.25 an hour.
Arturo and his co-workers reached out to the Equal Justice Center, a Texas non-profit that takes on many cases involving misclassification. According to Kayvon Saborian, an attorney for the group, the restaurant said that Arturo was an "independent contractor," even though his job was washing dishes.
"This is the type of thinking we had in the United State before the FLSA was passed," Saborian said, "and the type of thinking that is seemingly creeping up more and more these days, from the parts of society where people think the free market means they can contract with any conditions that they want."
A lawyer for the restaurant declined to comment on the case.
Arturo lives with his brother and his brother's three children. He said his meager wages made it nearly impossible to put food on the table and pay the bills.
"Even when I worked more than the normal amount of hours, I would still get the same low pay," he said, through a translator. "I have no power over that, and I depend on this law being enforced."