By Steve Weinberg
Language Line Services, LLC
As posted on Law 360
Steve Weinberg serves as general outside counsel to Language Line Services.
One of the pressing challenges facing the U.S., both domestically and from a global perspective, is how to integrate into our culture in an effective way the growing waves of limited English proficiency speakers moving into and being born in America. With over 170 languages being spoken in our culture, we have become a complex linguistic mosaic that requires attention because every day, in every city in every state, in every business, language has become a critical component.
The role of language interpretation companies, like Language Line Services, for which I serve as outside general counsel, is to facilitate the interface between limited English proficiency speakers (referred to in the business as LEPs) and the public and private sectors.
Nearly every hour of every day the needs of LEPs require interpretation. On the public side, interpreters are necessary, by way of example, for 911 calls, in hospital emergency rooms, in law enforcement, in homeland security, in the military, at airports, and in the business of federal and state agencies. The federal and state governments have declared the need for language interpretation for the equal protection due LEP citizens, and for those not citizens, for addressing their often pressing needs.
Similarly, language interpretation in the private sector has become critically important. Limited English proficiency speakers are customers of insurance and financial services companies, of pharmacies, of retail and wholesale businesses of every kind, and of course as users of the health care system.
Growing numbers of LEPs also are being added to our domestic work force, and they too, as well as their employers, require interpretation. We are a society and a member of a global community in which effective communication and potential liabilities play hand in hand. Effective language interpretation is thus not an option — it is a necessity.
Achieving truly effective language interpretation, and, from a business and legal perspective, liability risk management, requires that interpreters not only be proficient in their languages and English, but that they be trained, supervised, managed, tested, and subject to scheduling and quality control.
Many of the communications requiring language interpretation involve life-threatening situations for which there otherwise is little or no room for error. The examples are known to us all: emergencies handled by law enforcement, fire departments, and homeland security as well as those in physician’s offices and hospital emergency rooms; entrusting one’s life savings with a financial services company; reporting accidents to an insurance company.
Clearly, if we are to give any due to our tenets of constitutional equal protection, or just as good neighbors, we want to ensure that LEPs in these situations, and the public and private sector employees, agencies, governments and companies who serve and work with them, are provided with effective, well-trained, well-managed and supervised interpreters.
These interpreters are no less critical than the doctors, policemen, firemen, nurses, brokers and others who serve the needs of LEPs. Given the nature of the transactions and events involved, failure can mean both legal and ethical liability.
One would think that the companies comprising the language interpretation industry would subscribe to this statement of policy. Surprisingly, with only one exception of which I am aware, that being Language Line Services, interpretation companies have decided that it is more important for them not to pay employee benefits and taxes than to provide the training, management, supervision, quality control and scheduling critical to ensuring effective interpretation.
The practice in which they engage — employee misclassification — is a dangerous one with a two-sided edge. If, on the one hand, interpretation companies are providing training, supervision, management and quality control over their interpreters (as many purport to do in responses to RFPs), but are misclassifying these interpreters as independent contractors rather than as employees, not only are they depriving these employees of important, and in many cases government mandated benefits, but they also are depriving state and federal governments of desperately needed tax revenue.
On the other hand, if they are not exercising this kind of control and are appropriately classifying interpreters as contractors, they are creating a dangerous situation not just for the LEPs who are not getting the benefit of trained and fully qualified interpreters, but they also are creating a potential for significant liability to be suffered by the governments and businesses using their less than reliable services.
Employee misclassification is a massive problem depriving federal and state governments of millions of tax dollars. An August 2009 report from the GAO cited a Department of Labor study in 2000 in which 10 to 30 percent of firms audited in 9 states were found to have misclassified at least some employees.
The GAO reported that the number of improperly classified independent contractors has been on the upswing, reporting that in July 2008 over 1.6 million businesses owed over $58 billion in unpaid payroll taxes, including interest and penalties.
The report concluded that employee misclassification is a “significant problem” with “adverse consequences” because it reduces tax revenues flowing to the government.
Misclassification of employees as contractors is estimated to cost the Treasury Department over $7 billion in lost payroll tax revenue over the next ten years. Adding to this, the IRS has stated that misclassification contributes to 82 percent of uncollected taxes.
At the federal level, in response to the potential epidemic nature of independent contractor misclassification, the Obama Administration issued a new directive on Jan. 20, 2010, that will increase IRS scrutiny of federal contractor’s tax obligations.
It directs the IRS, along with Federal Contract Compliance Officers, to take steps to bar companies from receiving new government contracts if they are not tax compliant. Furthermore, the directive orders the IRS to review contractor filings to make sure companies are accurate in their reports about the taxes they have paid.
As a further response, the administration’s new budget has allocated $25 million to help the DOL combat employee misclassification.
The DOL has announced that it will, with the assistance of the IRS, investigate 6,000 companies suspected of misclassification and just announced that it will be investigating the health care system of the State of New York for minimum wage, overtime, recordkeeping, and coverage violations of the Fair Labor Standards Act.
State legislatures and attorneys general also have declared war on employee misclassification.
Legislation is being proposed and passed, and law enforcement campaigns have begun in one state after the next to crack down on misclassification using a range of both civil and criminal law remedies. The New York attorney general’s office has been particularly aggressive.
The potential financial liability tied to employee misclassification can be extreme. It has been estimated that the value of the top ten private wage-hour settlements in 2009 approached $360 million. This number is greatly increased if one adds settlements reached with federal or state labor departments.
And the danger to companies that hire interpretation companies engaged in misclassification is that, under solid legal theory, these hiring companies could be treated as co-employers, and thus share in, or be stuck entirely with, liability for the misclassification.
There is massive potential liability here that many companies have yet to understand or deal with — from federal and state overtime, vacation and other benefits that will be owed (and in some states, double or triple that amount and payment of attorney’s fees if litigated) as well as state and federal income and other taxes, and the affiliated penalties and fines.
Liability in the tens of millions of dollars, or more, may (and have been) the result of hiring the wrong company. And many interpretation companies are not financially prepared to take on this liability, which means that their customers could be left holding the bag.
The Solution
So far, with the exception of a private class action suit ending in a settlement that ultimately led to the closing down of one interpretation company, employee misclassification in the interpretation industry has escaped scrutiny.
Language Line Services, which has an employee-based business model, and which has taken the lead on many issues in the industry, particularly those related to setting standards and best practices for interpreter training and quality, also has taken the leadership role in raising the issue of misclassification in the industry.
One area that has been a particular focus for Language Line Services has been a campaign to educate federal and state purchasing agencies to understand the need for asking questions related to misclassification in their RFPs for interpretation services.
While such RFPs often require that the winning company train, schedule and monitor their interpreters, they rarely, if ever, inquire as to whether the company lawfully can engage in such activities by asking the simple, but critically important question: are the interpreters classified as employees or contractors?
Contractors who are trained, scheduled and monitored are legally employees under the applicable “control” test of federal and state tax and labor laws; thus, an interpretation company that in fact exercises such control is engaged in violations of all of the laws triggered by misclassification if its interpreters are not properly classified as employees.
The hiring entity, by awarding contracts to these companies, is thus walking into a civil and criminal liability trap that should cause nightmares to their compliance departments and CFOs.
This is not a hypothetical — because companies engaged in misclassification do not have the overhead of paying employment related benefits and taxes, they are able to bid lower prices and win the contracts because most public sector bidding is awarded to the “lowest responsible bidder” or its statutory equivalent.
This begs the question whether a company is “responsible” if it is violating federal and state law, depriving both federal and state governments of necessary tax revenue and employees of their benefits. We believe not.
We further believe that such companies are not “responsible” if they are placing the awarding entity into financial jeopardy with the added threat that should the liability move from potential to actual, the needs of those who are to be served by interpretation cannot be assisted because the service provider has filed bankruptcy, or has closed its doors in the face of overwhelming financial liability.
The situation is no different for the private sector. The plaintiffs’ bar is discovering the potential for large damage awards and settlements in both individual and class action suits against companies engaged in misclassification.
Companies hiring interpretation providers engaged in misclassification should not be surprised if they soon will be named in lawsuits grounded in co-employer theories of liability. No matter how strong the indemnities pledged by the interpretation providers, neither their insurance nor their pockets are nearly deep enough to cover the ensuing settlements or damage awards — and that even assumes that these providers have insurance.
How, then, can companies and government agencies best protect themselves from this rising tide? Language Line Services has been urging them to ask the right questions. These include:
–How many of your interpreters are classified for federal and state tax and labor law purposes as “employees”?
–Please provide copies of your last two years’ filed federal and state tax returns evidencing that classification.
–Please provide evidence of insurance that covers all of the indemnification and hold harmless obligations identified in the contract, including insurance that will cover any claims against us by your employees or contractors and government entities under tax or labor laws.
–Identify the specific procedures employed by you in training and monitoring your interpreters and ensuring that you will have interpreters available to us as required under the Contract.
By asking these basic questions, public and private sector hirers can greatly reduce their potential liability: interpretation providers engaged in misclassification will be weeded out, as will be those who do not in truth control their interpreters as required. Problem solved.
–By Steven M. Weinberg, Weinberg Legal Group PC
Founding shareholder of Los Angeles-based Weinberg Legal Group PC and outside general counsel to Language Line Services Inc., Steven Weinberg is a member of the bars of California, New York and Arizona and has been elected annually by peers and in-house counsel to many Who’s Who publications, including The International Who’s Who of Business Lawyers, as well as to Best Lawyers in America and California Super Lawyers.
The opinions expressed are those of the author and do not necessarily reflect the views of Portfolio Media, publisher of Law360.
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