On April 22, 2019, Michigan Attorney General Dana Nessel announced she will establish a Payroll Fraud Enforcement Unit to investigate wage theft. More specifically, this Unit will also investigate the misclassification of workers as independent contractors and the nonpayment of overtime.

The Detroit News reported the AG’s new unit will focus primarily on the misclassification of employees as self-employed independent contractors. Such misclassification allows an employer to avoid paying overtime, health benefits or worker’s compensation that may otherwise be due to an employee, but not an independent contractor. And such misclassification has a significant financial impact on Michigan businesses and taxpayers. For example, according to a Michigan State University study misclassifying employees as independent contractors deprives those workers and Michigan taxpayers of hundreds of millions of dollars in lost wages, benefits and tax revenues every year. Building on this loss, the Attorney General is promoting her Payroll Fraud Unit as a means to help honest employers; In playing by the rules, these honest employers are disadvantaged by companies who misclassify their workforce to obtain (unlawfully) lower labor costs.

In our experience, employers often mistakenly classify individuals as independent contractors without realizing the mistake. But equally as often, there are companies that intentionally try to get away by misclassifying individuals as contractors to save on labor.

Regardless of the reason for the misclassification, there is no “honest mistake” defense. Further, companies are not necessarily limiting their liability in making an independent contractor classification. For example, we recently reported on a Michigan Court of Appeals decision involving the extension of Michigan’s anti-discrimination employment statute to an independent contractor.

Each employee/independent contractor situation is unique. But if your “independent contractor” performs services that can be controlled by your company (e.g., what will be done and how it will be done), then you should carefully evaluate the relationship; You may have a misclassification issue waiting to happen. Bolstering this concern, Michigan’s AG is encouraging individuals who suspect payroll fraud and misclassification issues to report it to the new enforcement unit (here is the AG’s link) or by calling (833) 221-1099.

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article, or complying with Michigan or federal employment laws or litigating claims under both. Since 2001, Mr. Shinn has represented companies and individuals in employment discrimination claims under federal and Michigan employment laws.