The Fair Labor Standards Act was passed in 1938 to establish a national minimum wage, and has been updated on numerous occasions since. However, according to a recent article by Huffington Post, employer abuse has increased during the recession. According to the article, one of the most common illegal practices is for employers to misclassify employees as independent contractors.
The article cited 2010 Senate testimony of the National Employment Law Project's Catherine K. Ruckelshaus, who detailed not only the abuses, but also the effects that employee misclassification can have on the broader economy.
The distinction between employees and independent contractors always has been, and probably always will be, one of the most hotly contested legal issues. Adding to the nuance, the distinction differs with respect to the particular area of law at issue: an independent contractor for tax purposes may not be an independet contractor for purposes of determining principle liability in a tort; an employee under the FLSA may be an independent contractor for tax purposes and for purposes of employer liability. I must say that much of the illegal activity on the part of the employers may be unwitting, or worse, the consequence of poor legal advice. Indeed, well-seasoned attorneys are often unfamiliar with the FLSA and its practical applications.
This behavior, whether intentional or accidental, is not only illegal, but it costs the economy billions of dollars every year. Governments at every level lose tax revenues, and workers lose wages resulting in consumers losing buying power. It's for this reason that FLSA and state wage litigation is so vital. We've come a long way in the 75 years since the FLSA was implemented, but free and cheap labor still continue to plague the economy.