Lessons from the Arise Virtual Solutions Labor Law Case: A Call for Worker Compliance

The Consequences of Misclassifying Workers

You may have heard of the recent landmark case where the Department of Labor filed a huge lawsuit against Arise Virtual Solutions Inc. The case may be the largest misclassification case in the Department of Labor history, and it makes an excellent real life reminder of distinctions between independent contractors and employees.

Before we get into the nitty-gritty of the case, let’s get a full grasp of what worker classification is.

Understanding Worker Classification

Worker classification refers to the relationship between your business and the workers you hire. For example, your workers could be classified as either employees or independent contractors.

It’s important to note that the classification of your workers determines the nature of work they complete, the benefits they are entitled to, the tax filings you need to complete, and more.

If you want a deeper dive into worker classification, take a look at this post we’ve written.

The lawsuit that the US. Department of Labor filed against Arise Virtual Solutions Inc was a huge eye-opener for Barbara Business-Owner.

She even told me that she didn’t think that she had to stay so vigilant about standards between independent contractors and employees. She thought the distinction was more a matter of who had to pay the employment taxes than anything else. If a worker wanted to be an independent contractor and agreed to it .. that was pretty much the end of it, right?

When she heard about the case, the first question in her mind was:

”If the worker agreed to being an independent contractor – then what’s the problem here?”

You might be asking yourself the same thing– and let me tell you…there is so much more to it than that!

Let’s take a closer look at the case and point out the lessons that you should take for your business.

Misclassification and Wage Violations

Arise Virtual Solutions were found to have misclassified over 22,000 workers at their Florida offices.

Essentially they purposefully hired their workers as independent contractors instead of employees to side step paying for legally required minimum wage, time to take training required by the company, and overtime pay.

If workers wanted the job they had to take the risks and responsibilities  independent contractors typically assume, including risk of losing money as outlined in contractors financial control. However the nature of work and behavioral controls were aligned to what is expected out of employees, not contractors.

Had they correctly hired their workers as employees, Arise would not have to deal with the fallout of the investigation.

The Legal Consequences of Misclassifying Workers

In this case, the U.S. Department of Labor is seeking back all the wages and liquidated damages for the misclassified workers of Arise.

That’s huge!

Let’s put this into context. Imagine Barbara Business-Owner misclassified Frank Freelancer as an independent contractor instead of an employee.

She would have to pay back unpaid wages, overtime, employee benefits, damages, and any other costs associated with employees to the Department of Labor.

We’re talking about a huge payment in the tens-possibly hundreds of thousands.

And in the case of Arise, millions.

Scary as it is, this serves as a reminder of the financial implications of non-compliance with labor laws. Businesses -no matter how big or small- must  prioritize compliance to avoid such costly legal repercussions.

Worker Autonomy and Business Practices

The case highlights the importance of genuine worker autonomy for independent contractors.

Arise was found to have recruited workers with promises of being their “own bosses”. They would even go as far as to require their workers to create their own corporations or limited companies, all to reinforce their classification as independent contractors.

Come to find out, these workers had no real autonomy and were forced to comply with Arise’s stringent work scheduling policy. This is a standard typically held for employees of a company, not an independent contractor.

Needless to say…do not do this.

While this is an extreme example, and one could rightfully assume that the actions of the employer here were rather nefarious – it still serves as a crucial lesson for all business owners.

You must ensure that your hiring practices align with regulatory parameters around.

Worker Awareness and Business Responsibility

 The final takeaway from this case is the stress of workers being aware of their rights.

Sadly, the misclassified Arise workers were denied their full rights, protections, and benefits under federal law. By federal law, they should have been entitled to benefits such as sick pay, they should have been paid minimum wage, and they should have been covered by employee insurance. All of which Arise denied them due to misclassification.

Ensure that your workers are fully aware of their classification and the rights and benefits they’re entitled to.

That being said, businesses bear the responsibility to understand and comply with labor laws and standards.

The Arise case shows that failure to comply with labor laws and regulations can result in major financial penalties. Not to mention the damage to their company’s reputation.

Know Labor Standards and Follow Them

The Arise Virtual Solutions case should serve as a reminder of the need for businesses to strictly adhere to labor laws and standards. It also shows how crucial it is for workers to be aware of their rights and benefits.

Don’t fall into the trap of thinking that this can only apply to huge multinational corporations. This can and does commonly occur among small businesses as well.

As you can see it is more important than ever to prioritize compliance. Regulators are working to rectify a mess of misclassifications that went askew during the pandemic and they are looking for cases to set straight. If you would like expert help ensuring that you are fully compliant with labor laws and regulations between your workers, ClearPath is here to help.

ClearPath is a leading Human Resources Outsourcing company focusing on assisting employers to leverage the independent contractor labor market. We’re committed to helping business owners stay compliant and minimize the risks associated with their contingent labor requirements. Contact us today to make an appointment.

No Legal Advice Intended. This article includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.