Politician claims firm denying hundreds of employees 'full suite of employment and social safety net benefits and labor protections they are entitled to'
A human resources firm is denying a senator’s allegation that it misclassified workers.
In a letter sent to California Secretary of Labor Stewart Knox in late June, Senator Steve Padilla (D-San Diego) requested that the California Labor and Workforce Development Agency investigate the business practices of San Francisco-based Human Resources company Deel.
The senator claimed that Deel hired hundreds of employees, but classified them as independent contractors, “effectively denying them the full suite of employment and social safety net benefits and labor protections they are entitled to”. These entitlements include healthcare, retirement, unemployment insurance, worker’s compensation, collective bargaining, and overtime pay, he said.
Deel also appears to be advising clients to misclassify employees and evade taxes in California, said Padilla.
The CEO is encouraging companies to leverage “the different ways of employing someone or assigning them as an independent contractor… and therefore don't put as much tax liability into your company,” he said.
“No company is above the law. Deel has been openly flaunting their violation of California labor laws, intentionally misclassifying their employees as independent contractors and denying them critical benefits,” said Padilla. “California is clear on this issue; employees are entitled to benefits and protections. Corporations engaging in malicious employment schemes like this need to be held accountable and these employees need to see their rights restored.”
Senator Dave Cortese (D-San Jose), chair of the Senate Labor, Public Employment and Retirement Committee, and Senator María Elena Durazo (D-Los Angeles), member of the Senate Committee on Labor, Public Employment and Retirement, also joined Senator Padilla in condemning Deel’s actions.
Independent contractor laws in U.S.
California law generally accepts that the basic test to distinguish an employee from an independent contractor is whether the company has the right to control the manner and means by which an employee performs their work, said Padilla.
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“An independent contractor is a specific designation for self-employed people or businesses engaged in contract work. It’s not a gimmick for organizations to avoid paying for employee healthcare and other benefits or reducing their tax liability,” said Cortese. “Any company found breaking the law will be brought to justice, and they would certainly have no business advising other companies on labor law.”
Employment lawyers believe the recently proposed Employee Rights Act could significantly shape the future of labor in areas ranging from the use of independent contractors and managing franchisees to the way unions operate.
Deel denies allegations of misclassifying employees
Deel denied all the senators’ allegations in a statement cited in a CTech report.
“These allegations are completely made up and regurgitated from old news, most likely based on competitor hearsay.”
The company said that it has over 50 compliance experts in house and an external network of country advisors ensuring compliance in over 120 countries where it has presence.
“Compliance is literally what we do… To advise clients on how to misclassify their workers would be at complete odds with our business model.”
Recently, a California appeals court ruling scored a victory for Uber, Lyft, and other gig economy companies by preserving their independent contractor model in the state. The ruling could also bolster their efforts to maintain this model elsewhere.
Deel also said it created a consortium with external academics called the Deel Lab for Global Employment to study and help prevent misclassification practices, according to the report.
The company said that in California, specifically, it engages “a handful of contractors for services”. And in the US overall, contractors represent less than 1% of Deel’s workforce.
“Claims of misclassification there are ridiculous. Unfortunately Senator Padilla did not reach out to us for comment or facts prior to publishing his letter. We welcome speaking with him directly to provide factual information.”