A company in Texas and another in Virginia owe more than $1 million combined for violations that include misclassifying workers as independent contractors (IC) when they should have been designated as employees under the Fair Labor Standards Act (FLSA), according to the U.S. Department of Labor.

Word on the judgements comes a little more than a month after controversial new Labor Department rules regarding independent contractor classification took effect.

While the cited companies are not in the promotional products industry, the prosecuting action by the Labor Department shows that the agency’s Wage and Hour Division (WHD) is serious about enforcing regulations on employee-vs.-independent contractor designations under FLSA. It’s something that promo, an industry where many sales professionals and certain others like graphic designers work as independent contractors, should take heed of.

“Misclassification denies employees access to critical benefits and protections, such as overtime, minimum wage, family and medical leave, and – in some cases – safe workplaces,” said WHD Administrator Jessica Looman. “The Wage and Hour Division will continue to make combatting misclassification a priority to protect some of the nation’s most vulnerable workers and their families from the harm it causes.”

The Cases in Texas & Virginia

In one case revealed this week, WHD obtained a consent judgement in federal court that orders Virginia-based Village Concrete Inc., a contractor serving residential and commercial customers in Maryland, Virginia and Washington, D.C., to pay almost $1.2 million in back wages, damages and penalties after an investigation determined the employer misclassified 29 employees as independent contractors and failed to pay proper overtime to others designated as employees.

“The division also found the company allegedly falsified records to make it appear they had paid workers overtime, wrongly categorized salaried employees as exempt from overtime, and denied employees pay for distances traveled related to work,” a statement read. “In addition, Village Concrete failed to keep accurate records of the hours employees worked and compensation the company paid them.”

This primer explains a just-enacted federal regulation regarding independent contractors and its possible implications for the #promoproducts industry. https://t.co/EsL7597zv9

— Chris Ruvo (@ChrisR_ASI) March 15, 2024

On Wednesday, WHD asserted that it’s recovering $84,740 in wages that Maxwell, TX-based Paredes Inc. owes laborers and drivers that the company had classified as independent contractors but who should have been designated as employees.

Investigators said that, through misclassification, Paredes eschewed paying what should have been required time and one-half its employees’ hourly wages for hours labored over a 40-hour workweek. The company, a mobile home transportation business that operates as Superior Service, also did not keep federally required records, investigators said.

One of the criteria for determining if a worker should be an employee instead of an independent contractor is that the person performs work that’s an integral part of the employer’s business.

Paredes drivers moved mobile homes from a local pickup location to destinations in Texas, while the laborers handled electrical, foundation, plumbing and other requirements to complete mobile home installations, WHD said.

“Misclassifying employees as independent contractors deprives workers of their full wages, benefits and employment protections, and allows their employers to gain an unfair advantage over law-abiding competitors,” said WHD Acting District Director Rosalinda Huffman. “Employers who wrongly believe they can abuse employees’ rights to be paid all of their hard-earned wages will find the consequences for violating the law can be costly.”

The Labor Department’s rules are facing multiple legal challenges. As of this writing, no judge has issued an injunction that would temporarily suspend the regulations, nor have the cases been adjudicated, meaning the Labor Department rules remain in effect and can be enforced.