Washington and Lee Law Review

Volume 52 | Issue 3 Article 5

Summer 6-1-1995

Policy Issues Concerning the Contingent Work

Force
Jonathan P. Hiatt

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Jonathan P. Hiatt, Policy Issues Concerning the Contingent Work Force, 52 Wash. & Lee L. Rev. 739
(1995), https://scholarlycommons.law.wlu.edu/wlulr/vol52/iss3/5

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 Policy Issues Concerning the
Contingent Work Force

Jonathan P. Hiatt*

The growing problem of abuse and marginalization of what has become

known as the "contingent work force" is no longer a secret. More and
more, conferences like this one are addressing the issue. An increasing
number of popular press and academic articles are also bringing the topic
into the mainstream. Representative Patricia Schroeder's persistence in
introducing legislation and holding hearings on the subject has played a
major role in increasing the understanding of the plight of contingent
workers, as well as the social and economic implications of this trend.
Indeed, it is a measure of Representative Schroeder's success that within
the last year the contingent work force issue has been at the forefront in four
other governmental arenas. First, Senator Howard Metzenbaum introduced
a Contingent Workforce Equity Act' that not only addressed the part-time
and temporary categories of contingent workers covered in Representative
Schroeder's bill, 2 but also covered other contingent work force categories
such as independent contractors, contract employees, and leased employees?
Second, the Presidential Commission on the Future of Worker-Management
Relations (Dunlop Commission) developed a strong interest in the problems
of the contingent work force. The Dunlop Commission devoted several days
of hearings to the subject and issued various related recommendations in its
final report, issued last December.4 Third, Labor Secretary Robert Reich
announced a series of surveys and other projects designed to investigate and

* General Counsel, Service Employees International Union.

1. S. 2504, 103d Cong., 2d Sess. (1994) [hereinafter Senate Bill].
2. See H.R. 2188, 103d Cong., ist Sess. (1993) [hereinafter House Bill] (giving
protection to part-time and temporary workers).
3. See Senate Bill, supra note 1 (extending federal labor and civil rights protections
to independent contractors, part-time, temporary and leased employees, and other contingent
workers).
4. CoMMssON ON ThE UTURE OF WORKER-MANAGrEMENT REATIONS, U.S. DEP'T
OF LABOR, REPORT AND RECOMMENDATIONS 35-42, 67 (Dec. 1994).

739
 52 WASH. & LEE L. REV 739 (1995)

develop more concrete information about contingent employment trends. He

also reaffirmed the U.S. Department of Labor's (DOL) commitment to
increased enforcement of worker classification guidelines.' The DOL's
Bureau of Labor Statistics and Women's Bureau continue to focus seriously
on these concerns. Finally, Bill Gould, Chairman of the National Labor
Relations Board (NLRB), issued several public statements about the need for
new NLRB policies with regard to the application of the National Labor
Relations Act (NLRA)6 to contingent workers.7
Thus, the contingent work force's major role in our economy is a secret
no more. Discussing the root of the problem in its interin Fact Finding
Report last May, the Dunlop Commission stated:
The growing number of "contingent" and other non-standard workers
poses the problem of how to balance employers' needs for flexibility with
workers' needs for adequate income protections, job security, and the
application of public laws that these arrangements often preclude,
including labor protection and labor-relations statutes. 8
The Commission highlighted the fact that the current legal framework of
collective bargaining is "somewhat ill-suited" to the task of protecting the
economic and personal rights of contingent workers. 9 Presently, collective
bargaining is based on the nonanalogous model of "a group of employees
who work together for a single employer."' 0
Making the problem more complex is the fact, also recognized by the
Dunlop Commission, that "these contingent work relationships now
encompass many more workers and take ever more forms."" Although
Representative Schroeder focuses on two of the most prevalent forms of
contingent employment - part-time and temporary work 2 - the term

5. See, e.g., Reich Suggests New Law To Protect Contingent Workers, 21 Pens. &
Ben. Rep. (BNA) 372 (1994) (reporting administrative response to problems of contingent
work force).
6. 29 U.S.C. §§ 151-169 (1988).
7 See, e.g., Laurence E.Gold, Revitalized NLRB Ready To Take Action, CONN. L.
TRIB., Nov 21, 1994, at 24 (reporting Gould's views for future of NLRB).
8. COMMISSION ON THE FUTURE OF WoRK-R-MANAGEMENT RELATIONS, U.S. DEP'T
OF LABOR, FACT FINDING REPORT 22 (May 1994) [hereinafter FACT FNDING REPORT].
9 Id. at94.
10. Id.
11. Id. at 93 (citing Frangoise J. Carr6, Virginia duRivage & Chris Tilly, Piecing
Togetherthe FragmentedWorlgorce, in UNIoNS AND PuBLic POLICY ON FLEXIBLE EMPLOY-
MENT (Lawrence G. Flood ed., forthcoming) and Dorothy Sue Cobble, Malang Postindusinal
Unionism Possible, RUTGERS, Oct. 1993).
12. See House Bill, supra note 2 (encompassing part-time and temporary workers).
POLICY ISSUES

generally is understood also to encompass independent contractors, leased

employees, seasonal or casual employees, and contract employees.
Before discussing these other forms of contingent work, I will address
Edward Lenz's analysis of part-time and temporary contingent work. 3 Mr.
Lenz disputes the growth of the contingentwork force in recent years.' 4 He
also questions whether there is any reason to assume that the
15
percentage of
involuntary part-tne or temporary workers has increased.
The DOL's .surveys provide powerful evidence on both points.
Consider the following: As of 1992, more than 20 million U.S. workers
worked part tune.' 6 Involuntary part-time work increased by 178 % between
1970 and 1992, while voluntary part-time employment increased by 53 %
during the same period.' In 1992, more than 6 million workers involun-
tarily worked part time for economic reasons," a 26 % increase since 1990.'
Similarly, temporary work has grown ten times faster than overall employ-
ment since 1982.20
More significantly, whether workers voluntarily or involuntarily choose
to work on a part-time or temporary basis, surely few of them voluntarily
opt to forego health insurance, unemployment compensation eligibility, and
hourly wage rates commensurate with full-time hourly rates. Representative
Schroeder's legislation would address these inequities.
The Service Employees International Union (SEIU) has over 1.1 million
members and represents primarily low-wage workers in a variety of service
industries throughout the United States and Canada. SEIU is continually dis-
covering new forms of "contingent work" that creative, but often unscrupu-

13. See generally Edward A. Lenz, "Contingent Work" - Dispelling the Myth, 52
WASH. &LEEL. REV 755 (1995) (addressing misconceptions that surround contingent work
and questioning need for government regulation).
14. See id. at 755-58 (discussing growth of contingent work force).
15. See rd. at 758-59 (discussing reported decrease of full-time jobs).
16. BUREAu OF LABOR STATISTICS, U.S. DEP'T OF LABOR, EMPLOYMENT & EARNINGS,
Jan. 1993, at211, tbl. 32.
17 BUREAU OF LABOR STATISTICS, U.S. DEP'T OF LABOR, HANDBOOK OF LABOR
STATISTCS 121 (1989); BUREAU OF LABOR STATISTICS, U.S. DEP'T OF LABOR, EMPLOYMENT
& EARNhNGS, Jan. 1993, at 211.
18. Id.
19. BURIAU OF LABOR STATITICS, U.S. DEP'T OF LABOR, EMPLOYMENT & EARNINGS,
Jan. 1991, at 201.
20. BUREAU OF LABOR STATISTICS, U.S. DEP'T oF LABOR, EMPLOYMENT, HOURS &
EARNINGS, US, 1909-90, VOL. H 848 (1991);-BUREAU OF LABOR STATISTICS, U.S. DEP'T OF
LABOR, EMPLOYMENT AND EARNINGS, Mar. 1993, at 17 The work force as a whole grew
by 21% while employment in "help supply services" grew by 246%.
 52 WASH. & LEE L. REV 739 (1995)

lous, employers devise to suit their particular short-term needs. For

example, the SEIU discovered one Seattle cleaning contractor who
established himself as the lowest bidder on commercial office building
cleaning contracts. That contractor then "sold" francluses for the right to
clean floors of downtown office buildings for $4,000 to $7,000 a floor -
mostly to Central American and Asian immigrants. As a franchisor, the
contractor disclaimed responsibility for Social Security and unemployment
compensation payments, minimum wages and overtime premiums, and tax
withholdings of any kind.
Contingent work arrangements have not been limited to the private
sector. For instance, 50,000 California Homecare workers in Los Angeles
County sought to unionize with SEIU a -few years ago. Initially, they
assumed their employer was the State, which gave them their paychecks each
week. The State said, "not us, perhaps the County " So the homecare
workers looked to the County which assigned them to clients and set their
hours. The County said, "not us, perhaps the clients themselves." Three
years of litigation later, with no entity willing to admit to being their em-
ployer, these minmum-wage Los Angeles homecare workers were told by
the court that they were all "independent contractors" having no one to
bargain with.2 '
Whatever the contingent work arrangement, responsibility does not lie
solely with the entities who fail to pay proportionate wages and benefits, fail
to remit unemployment compensation premiums, and fail to withhold taxes,
thereby abusing their part-time, seasonal, and casual employees. Responsi-
bility also rests with entities who, under traditional right-of-control
standards, are not the contingent workers' juridical employers, but who
certainly would be viewed as their employers under a more realistic
"economic realities" test. Under an economic realities test, the label of
"employer" would attach to the clients of organizations that supply labor,
including the clients of contract employers, employee leasing companies,
temporary agencies, and other entities that supply the labor but possess very
little ability to affect actual working conditions.
The SEIU's experience with janitors who cleaned Toyota's facilities in
Los Angeles last year represents a case in point. Initially, the janitors were
employed by, and received paychecks bearing the name of, Advance
Building Maintenance, the contractor retained by Toyota. As the janitors
tried to organize and improve wages and benefits, the name on their pay-

21. See Service Employees Int'l Unon, Local 434 v County of Los Angeles, 225 Cal.
App. 3d 761, 773 (Cal. App. 2 Dist. 1990), review denied (1991).
POLICY ISSUES

checks changed to Stafcor, an employee leasing company based in Texas.

The Advance principals claimed to be only contract brokers. Toyota claimed
to be unaware that Stafcor was even on its premises. By the end of the
campaign, the janitors did not know for whom they were working.
Although they were always considered someone's employees, the entity in
true control - Toyota - continued to disclaim any responsibility for their
conditions.
The use of contract, leased, and temporary agency employees is, in
many instances, a labor relations strategy rather than a matter of economic
efficiency Certainly there are instances where a contractor, for reasons of
economies of scale or expertise, can do a better or cheaper job. However,
there are many other instances where contracting or leasing is used primarily
to evade either the letter or the spirit of labor laws and employment con-
tracts.2 2 A number of serious policy concerns are implicated by this
problem.

I. Policy Implications
A. InadequateEnforcement of Federal and State Protective Laws
Typically contractors, leasing compaies, and temporary agencies are
less visible, smaller, and less capitalized operators than their clients. Often,
these operators go in and out of business and are difficult to find. This is
true, for example, in agriculture, building services, the garment trades, and
landscaping. Contractors in these industries are much more likely than their
clients to incur liability under federal labor and employment laws or fail to
pay mmunu-wage and then disappear.'

B. Splinterng of InternalLaborMarkets
Contracting work splinters internal labor markets, exposing workers to
the harshest features of the external market. The more benign aspects of an
internal labor market - internal bidding and advancement according to
semority - are replaced with full-scale competition. Particularly in the

22. See COMMISSION ON THE FUTuRE OF WORKER-MANAGEMENT RELATIONS, U.S.

DEP'T OF LABOR, REPORT AND RECOMMENDATIONs 35-36 (Dec. 1994) (discussing how
contractors use contingent work relationships to evade federal and state law mandates).
23. Evidence of this fact can be garnered from the DOL's recent decision to utilize "hot
goods" provisions of the Fair Labor Standards Act to convince garment manufacturers to
police their contractors. See Stuart Silverstem, Fashion Firms Told to 'Police Contractors,
L.A. TiMES, June 11, 1993, at Dl (describing crackdown on Southern California apparel
industry).
 52 WASH. & LEE L. REV 739 (1995)

service sector where contracts typically can be cancelled on short notice and
labor costs are the predominant cost of performance, competitive bidding
forces contractors to reduce wages and benefits, often to the point of
violating protective standards legislation.'

C. Segmentation of the Work Force

Additionally, contracting allows employers to segment the work force.
The economic realities of employment are more and more becoming a tale
of two cities. Employers are increasingly employing higher wage, higher
skilled employees while using the labor of lower skilled, lower wage
workers through contracting, leasing, or temporary agency arrangements.25
As a result, low-wage workers are kept out of internal labor markets where
they would gain benefits, such as health insurance, that they are unable to
obtain in the external labor market. Furthermore, these arrangements allow
publicly visible employers to distance themselves from the exploitation of
low-wage workers while still benefitting from their exploitation.26 Thus, the
use of contractors is creating two labor markets - one in which workers are
motivated by prospects of advancement, participation, and job security, and
the other in which workers are motivated by insecurity and fear.
Disturbingly, this segmentation is often along racial, ethmc, and gender
lines. For example, minority workers make up the majority of building
service work
8
forces.' Similarly, two-thirds of temporary workers are
women. 2

D Frustrationof Labor-Management Cooperation

Contracting, leasing, and temporary agency arrangements frustrate
labor-management cooperation. The high-performance, cooperative work-

24. See The Economy and the Labor Movement, Report #1 (SEIU/Comm. on the
Future, Washington, D.C.), 1994, at 12 (describing expansion of contingent work force).
25. See FACT FINDING REPORT, supra note 8, at 14-23 (explaining dual tiering of labor
market).
26. For example, the City of Los Angeles includes its janitors m the wage scale and
benefit plans proyided to other city workers and could not justify paying them minimum
wages and no benefits. However, it is willing and able to contract with cleaning contractors
who pay only nmmum wages and provide no benefits.
27 BUREAU OF THE CENSUS, U.S. DEP'T OF COMMERCE, 1990 Census of Population
Supplementary Reports: Detailed Occupation and Other Characteristicsfrom the EEO File
for the U.S. 6 (1990).
28. CONTINGENT WORKFORCE WORKING GROUP, REGIONAL ECON. JUST. NETWORK,
Contingent Worlforce 69 (1992) (on file with author).
POLICY ISSUES

places currently envisioned for our society are not consistent with the
realities of the contract work force. In low-wage, labor-mtensive contract
industries, workers and employers are in a highly adversarial relationship
because contractors must drive wages and benefits down to win contracts."
The workers, who often earn the bare minimum wage and have no benefits,
do not have the economic or job security that is a prerequisite to meaningful
cooperation. Moreover, the client, who has the economic power to assist
workers and the greatest interest m the quality of their work, does not deal
directly with the workers.
E. Frustrationof Collective Bargaining
These buffer contracting arrangements frustrate collective bargaining.
If contract employees win a union election, the result effectively can be
nullified by the cancellation of their employer's contract. Even if the
contract is not canceled, because only the employees' direct employer has an
obligation to bargain, the system of competitive bidding effectively bars the
newly unionized contractor from making any economic concessions. In
3
many industries, labor constitutes at least 80 % to 90 % of a contract's cost. "
Capital requirements are virtually nonexistent. Contractors, therefore, lack
the effective capacity to improve their employees' wages unless their clients
are willing to bear the increased labor costs.
Few barriers exist to impede new contractors from entering the market.
Moreover, union contractors can easily transform themselves into nonunion
contractors. Thus, clients can usually find alternative, cheaper contractors.
Unless the contractor's clients are willing to refrain from terminating a
contractor who has unionized and are also willing to accept the higher costs
that result from collective bargaining agreements, the processes of bargain-
ing and organizing are seriously frustrated.
ff. Solutions
To address fully the problems of the contingent work force, then, it
would seem necessary to go beyond the proposals contained in Representa-
tive Schroeder's bill. 3 Certainly, pay and benefit equity for part-time and

29 See Memorandum from the ILGWU Legal Department submitted to the Comms-
sion on the Future of Worker-Management Relations 4 (Apr. 29, 1994) (on file with author)
(stating that contractors must compete by offenng lower pnees).
30. See Statement of the SEIU before the Commission on the Future of Worker-
Management Relations 7 (July 25, 1994) (on file with author) (stating that labor constitutes
at least 80-90% of cost of contract).
31. See House Bill, supra note 2 (proposing protections for temporary and part-time
 52 WASH. & LEE L. REV 739 (1995)

temporary workers should be mandated, but the solutions cannot stop there.
Rather, we must redefine and broaden our notions of the employer/employee
relationship so that accountability is more properly apportioned among those
entities that effectively dictate the terms of, and that most clearly benefit
from, the labor of the contingent worker. Such a process should include the
following measures.
A. Hold Client CompaniesResponsible as Joint Employers of
Contract,Leased, and Temporary Agency Employees
A joint-employer test based on economic realities should be applied
across all relevant statutes and agency enforcement guidelines. In some
cases, statutory change may be necessary In others, the laws as presently
drafted are susceptible to an appropriate agency interpretation and enforce-
ment policy 32
At present, agencies apply varying definitions to determine responsibil-
ity under the joint-employer principle.3 3 As a result, employees have no true

workers).
32. See, e.g., National Labor Relations Act, 29 U.S.C. §§ 151-169 (1988); Fair Labor
Standards Act, 29 U.S.C. §§ 201-219 (1988 & Supp. V 1993).
33. For example, the NLRB purports to use the following standard for determining
joint-employer status:
[W]here two separate entities share or codetermine those matters governing the
essential terms and conditions of employment, they are to be considered joint
employers for purposes of the Act. [T]o establish such status there must be
a showing that the employer meaningfully affects matters relating to the
employment relationship such as hiring, firing, discipline, supervision and
direction.
TLI, Inc., 271 N.L.R.B. 798 (1984) (citing NLRB v Browning-Ferns Industries, 691 F.2d
1117 (3d Cir. 1982)). Accord Lee Hospital, 300 N.L.R.B. 947, 948 (1990). Yet, in reality,
the NLRB often places principal importance on whether the client has direct supervisory
control over the employees in question or has enmeshed itself in the collective bargaining
process. See, e.g., Executive Cleaning Servs., Inc., 315 N.L.R.B. 227 (1994) (discussing
client intervention in collective bargaining); International Transfer of Florida, Inc., 305
N.L.R.B. 150 (1991) (discussing supervisory control). By contrast, when the DOL considers
joint employer status under the FLSA or the Migrant and Seasonal Agricultural Worker
Protection Act (MSPA), it looks to the extent that employment by one entity is "disassoci-
ated" from employment by the other. See 29 C.F.R. § 791.2(a) (1995) and 29 C.F.R.
§ 500.20 (1995), respectively. DOL's FLSA regulations identify a joint employment
relationship to exist when two or more employers (1) either are under common control or
have an arrangement to share an employee's services and (2) simultaneously benefit from the
work performed by the employee. 29 C.F.R. § 791.2(b) (1995). See Bonnette v California
Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983); EEOC v Blast Intermediate Unit
17, 677 F Supp. 790 (M.D. Pa. 1987). The MSPA regulations reference the FLSA
POLICY ISSUES

measure to determine whether the entity for whom they perform services is
responsible to them under the various employment laws. The NLRB, for
example, uses a constrained right-of-control test.34 This test, however,
essentially allows the client company to set the terms and conditions of
employment for the contract workers (via the agreement with the contractor),
but the test also allows the client company to shield itself from legal
responsibility for those terms of employment by having the contractor
maintain a thin level of supervisory oversight.35
A revised definition of "joint-employer" should mandate joint and
several liability against both the client and the contractor, at least for those
contracted employees who perform work that is an ongoing component of
the client's enterprise and where one or more of the following situations
exists:
(1) the contractor's employees are required to follow the client's
instructions concerning the specifics of how and when the services are
to be performed;
(2) the contractor's employees perform the services on a regular
basis on premises owned or managed by the client; or

regulations but more narrowly identify a set of five, nonexclusive, factors that may be
considered in arriving at the determination of whether an entity is a joint employer: (1) the
nature and degree of control, (2) the degree of supervision, (3) the power to determine pay
rates or payment methods, (4) the right to hire, fire or modify employment conditions and
(5) the preparation of payroll or payment of wages. 29 C.F.R. § 500.20 (1995). Under
current OSHA policy, employers who exercise a certain level of control over the workplace
are deemed liable both to their own employees and those of subcontractors for hazards created
by a subcontractor. See OSHA FELD OPERATIONS MANUAL, ch. V, § F(2) (6th ed. 1994).
34. See, e.g., SEILL, Local 87, 312 N.L.R.B. 715 (1993). Moreover, even when
joint-employer status is found, the NLRB will not automatically impose liability on both
employers without a further finding of culpability with respect to the unlawful act. See
Capitol-EMI, 311 N.L.R.B. 997 (1993).
35. See, e.g., Southern Cal. Gas Co., 302 N.L.R.B. 456 (1991); International Bhd. of
Teamsters v. Cotter & Co., 691 F Supp. 875, 880-83 (E.D. Pa. 1988); TLI, Inc., 271
N.L.R.B. 798 (1984), enforced, 772 F.2d 894 (3rd Cir. 1985). In these cases, the client had
extensive involvement in work assignments, supervision, and other aspects of employment,
but the NLRB or court did not find joint employment. The joint-employer issue is less of a
problem for temporary employees because of the NLRB's willingness to find both the
temporary agency and the host employer liable for violations of the NLRA. See, e.g., NLRB
v Western Temporary Servs., Inc., 821 F.2d 1258, 1266-67 (7th Cir. 1987) (finding that
where temporary agency lires and fires employees, but host employer controls day-to-day
activities of workers, parties are joint employers); Continental Winding Co., 305 N.L.R.B.
122 (1991) (finding joint-employer status but holding that temporary employees should be
excluded from bargaining unit because of insufficient evidence that temporary employees
were "regular" employees who shared community of interest with other employees).
 52 WASH. & LEE L. REV 739 (1995)

(3) the capital goods used by the contractor's employees in perform-

mg the services in question are provided, or substantially financed,
directly or indirectly by the client.
Acknowledging the close contractual nature of client/contractor
relationships and imposing joint-employer liability likely would result
immediately in practices that would relieve some of the administrative
burdens currently carried by agencies. For example, it can be expected that
client companies -would require contractors to provide wage bonds. These
wage bonds would obviate the need for employees of fly-by-night contractors
to seek.recourse from the DOL. The threat of liability would also provide
an economic incentive for clients to ensure that contractors comply with the
law, mirroring the way that the threat of mechanics' liens encourage general
contractors in the construction industry to monitor compliance by their
subcontractors.

B. Mandate DisplacementLaws Requinng ContractEmployees to

Be Given a Right of FirstRefusal to Jobs When a ContractorChanges
Absent some right to maintain a steady employment relationship, con-
tract employees will never be in a position to avail themselves of statutory
protections. Indeed, the SEIU is continuously witness to a single, disheart-
ening pattern in the American workplace: Voicing employment concerns
today often results in contract employees being "fired" by the client tomor-
row Even more troubling is the problem that job security for employees of
contractors is always tenuous. Even if the employees come together to
organize a union or to establish better working conditions, the workers can
have all of their achievements nullified by the arrival of a new contractor.
The simplest and, in truth, the only effective way of correcting tlus
problem is to mandate a right of priority hiring for such employees. The
right of priority would give employers the flexibility they seek in contracting
for services while providing the affected work force with the job security
needed to access national workplace rights and protections. The Canadian
province of Ontario has enacted a law ensuring priority hiring for contract
employees in the janitorial, security guard, and food service industries.36
In the United States, President Clinton last year signed an Executive Order
that extends a right of first refusal to Service Contract Act37 building service

36. Ontario Labour Relations and Employment Statute Law, R.S.O. §§ 56.6, 56.7,
56.9, 64.2 (1992) (amending Labour Relations Act, R.S.O. §§ 56, 63 (1990)).
37 41 U.S.C. §§ 351-358 (1988).
POLICY ISSUES

employees who wish to retain their employment in the event of contrac-

tor turnover.3" The District of Columbia also approved such an ordi-
nance, 39 which was recently upheld by the D C. Circuit Court of Appeals.4"

C. NarrowLoopholes Allowmng Misclassificationof

Employees as Independent Contractors
The misclassification of employees who are not m a position to function
as entrepreneurs or "independent contractors," but rather have a dependent
employment relationship with the entity for whom they perform services, is
another problem that flows directly from a constrained definition of
employee. At present, the Internal Revenue Service employs a twenty factor
common-law test to determine whether an individual is an "employee," for
whom the employer must make FICA and other contributions, or an
"independent contractor," for whom it has no such obligations. 41 Limita-
tions imposed by Section 530 of the 1978 Revenue Act prohibit the IRS from
issuing guidelines to clarify the defimtion of employee. What makes matters
worse is that Section 530 also bars the IRS from collecting back taxes from
employers who misclassified employees as independent contractors. 42 Thus,
m addition to the financial incentives employers enjoy for misclassifying
employees through avoidance of benefit and worker compensation premi-
ums, employers are also given a financial incentive by the tax system to
engage in such unlawful misclassification.
Fake independent contractor scams are rampant throughout the low-
wage work force sectors.43 They exist in agriculture, building services,
clerical and support services, food services and catering, the garment

38. Exec. Order No. 12,933, 59 Fed. Reg. 53,559 (1994).

39 D.C. CODE ANN. §§ 36-1501 to 36-1503 (Supp. 1995).
40. See Washington Serv Contractors Coalition v District of Columbia, Nos. 94-7143
& 94-7144, 1995 WL 275952 (D.C. Cir., May 12, 1995), vacating and remanding, 858 F
Supp. 1219 (D.D.C. 1994).
41. Rev Rul. 87-41, 1987-1 C.B. 296.
42. Section 530, scheduled to terminate at the end of 1979, was extended through 1980
by P.L. 96-167 and through June 30, 1982, by P.L. 96-541. The Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA) (P.L. 97-248) extended section 530 indefinitely.
43. One gauge of the extent of tis problem is the Coopers & Lybrand Report
commissioned by the Coalition for Fair Worker Classification, which projects that the federal
government will lose $3.3 billion in revenues because of misclassification of employees. See
Testimony of Terry G. Bumpers, given before the Commission on the Future of Worker-
Management Relations on July 25, 1994, at 3-4 (on file with author) (discussing results of
Coopers & Lybrand Report).
 52 WASH. & LEE L. REV 739 (1995)

industry, and health care, to name just a few The worker in these low-skill,
high-turnover jobs rarely enters the scam voluntarily Signing on to work
as a "contractor" is often the only choice if a worker wants a paying job in
the industry Regulating such contractor relationships for what they are
should not be lost in the rhetoric that this regulation will dampen entrepre-
neurial enterprise. Such regulation is crucial to forcing client companies to
own up to their responsibilities as employers of the work force on which
they depend.
Minimally, there should be a coordinated agency interpretation of the
term "independent contractor" for labor and employment laws that employs
the economic-realities test used by courts in Fair Labor Standards Act
(FLSA) suits." Under this test, the dominant question is whether the
individual is economically dependent on the party for whom the work is
performed. 5 Courts have considered a variety of factors to determine
"economic dependence," including the degree of control exercised over the
individual, the skill required to perform the job, the location of the work,
and the control over compensation.46
Ideally, there should be a single definition applicable in all employment
and labor law contexts that would recognize the distinction between an
employee and an independent contractor in a more direct, less manipulable
manner. SEIU has proposed a definition that more appropriately recognizes
the voluntary and entrepreneurial nature of a true independent contractor:
An individual shall be deemed an independent contractor if he or she
(1)bears the economic risk of loss concerning the business in wich he or
she is engaged, (2) performs work that is not an integral component of the
client's enterprise, (3) schedules or otherwise controls the time during
which such services are to be performed and the manner of payment, and
(4) holds hImself or herself out to the public as available to render services
by means of an established business presence. 7

44. See, e.g., Goldberg v Whitaker House Cooperative, Inc., 366 U.S. 28, 33
(1961) (noting that economic reality governs whether entity is considered employer); Bonnette
v California Health & Welfare Agency, 704 F.2d 1465, 1469 (9th Cir. 1983) (same).
45. Id.
46. Bonnette, 704 F.2d at 1470; Hodgson v Griffin & Brand of McAllen, Inc., 471
F.2d 235, 237-38 (5th Cir.), reh'g denied, 472 F.2d 1405 (5th Cir.), cert. denied, 414 U.S.
819 (1973).
47 See Statement on Changesto CurrentLaborLaws Necessary to Address the Critical
Needs of the Contingent Worlgforce, submitted to the Commission on the Future of Worker-
Management Relations, at 6-7 (Oct. 7, 1994) (on file with author) (proposing definition of
independent contractors).
POLICY ISSUES

Further, agencies should presume that individuals who are employed in

certain low-wage, low-skilled sectors of the economy, such as agriculture,
building services, clerical services, and the garment industry are "employ-
ees." The employer should have a heavy burden to prove otherwise.

D Regulate the Misuse of "Temporary" Employees in

Long-Term Positions
Without limitation, employers have every incentive to continually
classify positions as temporary with the full expectation that individuals will
perform the tasks on a long-term basis. Representative Schroeder and others
have recommended a maximum length of time for "temporary" status, noting
that the U.S. government's current practice of employing temps for years at
a time has been clearly recognized by the public as an abuse.4"
The use of temporary employees should be limited to true "temporary"
needs - the replacement of employees who are on temporary leave or
assignment to certifiably short-term work projects. Otherwise, the employee
filling the position should be deemed "permanent" with the same benefits
and protections afforded other permanent employees.

E. Require Clients to Invest in the Training of Temporary and

Other Contingent Workers
Work site safety training is as important for temporary, leased, and
contract workers as it is for those who have more traditional employment
relationships with client employers. However, current law does not obligate
clients or contractors to provide mimmum safety training to these workers. 49
The entity in charge of the physical plant and equipment that a
contingent work force uses should be responsible for training. That entity
should also be held accountable under OSHA and other applicable health and
safety statutes for injuries suffered by the workers. The burden of ensuring
safe working conditions would then fall on the parties who directly benefit
from the work done by these employees and who are in a position to control,
directly or by contract terms, conditions at the work site. The burden would
also fall on the temporary agencies and other contract employers who send
workers out to unsafe employment sites.

48. See House Bill, supra note 2.

49. See Polly Callaghan & Heidi Hartmann, A ChartBook on Part-Time and Tempor-
ary Employment, 1991 ECON. POL'Y INsT. 13 (finding that OSHA has not issued regulations
to cover contingent work arrangements).
 52 WASH. &LEE L. REV 739 (1995)

F Register and Regulate IntermediariesSuch as Temporary Agencies,

Day Labor Pools, Employee Leasing Companies, and Contractors
At present, very few regulations apply to temporary help agencies and
employee leasing companies. As a result, many have been permitted - in
the SEIU's experience - to engage in questionable, and often abusive,
payroll and employment practices. Accordingly, state governments or the
federal government should require the registration and regulation of
employment intermediaries in a manner similar to existing state and federal
law treatment of farm labor contractors. Such regulation should include
recordkeeping requirements, a speedy complaint procedure, some form of
financial security, and a licensing fee or bonding requirements to ensure
payment of amounts to which employees are entitled under the various
employment laws."
Another possibility is a mandated "bill of rights" for temporary
employees. Tius bill of rights could require the temporary agency to apprise
temporary employees, in writing, of their status as employees of the
intermediary, the job requirements of the client, the identity of the client and
the intermediary, the hourly fee paid by the client for their services, the
wages and benefits which they will be paid, the duration of the employment
arrangement, the full nature of any hazardous materials with which they will
be expected to work, their rights under labor and employment laws, and
legal channels for reporting violations of such laws.
Both the client and the temporary or leasing agency should be held
jointly liable for violations of civil rights, anti-discrimination, safety, and
other employment laws. Further, temporaries and other leased employees
should be paid a minimum percentage of the hourly rate paid by the client
company to the referring agency Finally, state and federal agencies that
oversee civil rights and employment laws should target these industries for
heightened enforcement.

III Conclusion
The problems -of the contingent work force are numerous and varied.
Any one fix, standing alone, will simply encourage the development of new
forms of contingent work. Reform must be comprehensive in nature to have
any effect on low-wage working conditions. Mandating fair treatment for

50. See, e.g., ARK. CODE ANN. §§ 23-92-301 to 23-93-315 (Miclne 1992 & Supp.
1993); FLA. STAT. ANN. §§ 468.520-468.535 (West Supp. 1995); ME. REV STAT. ANN. tit.
32, §§ 14051-14058 (West Supp. 1994); TENN. CODE ANN. §§62-31-101 to 62-31-209 (1990
& Supp. 1994); UTAH CODE ANN. §§ 58-59-101 to 58-59-601 (1994 & Supp. 1995).
POLICY ISSUES

employees - whether full or part-tine, seasonal or casual - by way of

equal wage and benefit opportunities gives employers a reason not to directly
hire "employees," but instead to hre "temps," lease workers, or engage
"independent contractors" for whom they deny any responsibility
Limiting the use of independent contractors encourages the use of
intermediary entities who serve as the contract employers but who truly do
not control the principal employment relationship. Contract employment
means that a large number of workers have no employer with whom they can
engage m collective bargaining negotiations designed to improve wages and
working conditions. Further, the workers are subject to arbitrary dismissal
based solely on client whin and have no recourse under the law
Policymakers must recogmze the inexorable synergy of the issues facing
contingent workers. To address these problems successfully, a holistic
approach is called for, one that would combine the solutions contained in the
Schroeder and Metzenbaum bills. We must design and implement measures
that will preclude unscrupulous employers from simply turning to new forms
of contingent employment m the false name of flexibility and efficiency m
order to evade fundamental labor protections for a substantial portion of our
work force.