Our Analysts' Insights

Note: This blog post is not intended to provide legal advice. For clarification of your legal obligations and rights, please consult with qualified legal counsel. 

Labor law is usually not the sexiest of topics, but once in a while something happens that has profound effects on the language industry. Following a series of state-level legal decisions about who counts as employees beginning in the 1990s, former U.S. President Obama’s administration issued “guidance statements” through the Department of Labor and National Labor Relations Board (NLRB) in 2015 and 2016 that: 1) force organizations to treat most contractors as employees, rather than as independent agents, and 2) make them legally liable for any legal violations by subcontractors who provide staff that report directly them (so-called “joint liability”). 

The situation is further complicated by a patchwork of legal definitions about what exactly constitutes employment. As Bill Rivers of the National Council for Languages and International Studies (NCLIS) tells us: 

The issue is that there are multiple regimes for employee classification: the IRS, the Fair Labor Standards Act, the NLRB, Unemployment Insurance, and Worker's Compensation. These all have different legal bases, and UI and worker's comp are implemented by state laws and regulations, which means there is no single national definition of employee.

The Obama administration’s guidance statements promote a more expansive definition of who counts as employees, one long supported by labor unions. Because such statements technically only clarify regulatory intent, they are not subject to public feedback periods or legislative oversight. Thus they could be issued with no channel for effective political opposition. Although the courts are not bound to follow such statements, they tend to defer to them, making them de facto regulation. 

The fundamental weakness of guidance statements became evident last week when President Trump’s administration began the process of unwinding them. In a three-sentence release, U.S. Secretary of Labor Alexander Acosta withdrew his Department’s guidance statements. 

However, the NLRB complicated matters by not withdrawing its own equivalent statements, which places the two bodies in contradictory stances and leaves companies uncertain which to follow. In early June, the NLRB initiated action against interpreting provide SOS International (SOSi) based on its position that the company was illegally treating employees as contractors, which shows the guidance statements are still very much active. 

Who Is Affected?

The Obama administration’s action reversed course on decades of prior Federal practice and were a bombshell for U.S.-based language service providers. They reduce labor pool flexibility and constrain the choices available to LSPs as they plan for capacity and scalability. The issue is particularly acute for interpreting-centric LSPs, which rely on a access to a cadre of domestic linguists to fulfill on-site or remote jobs. InterpretAmerica states that such reclassification has had “widespread negative effects on the ability to provide interpreting services in an appropriate and timely manner.” 

A second affected group are U.S.-based translators and interpreters who deal with inconsistent demand, such as those who work long hours during certain phases of projects or those who supply less common languages. Many of them rely on the flexibility of self-employment to find work. Re-classifying them as employees would increase administrative burdens for them and their clients and make it more difficult for them to plan their careers. Although they might gain employer-provided benefits – such as health insurance – they could face qualification issues when they do not maintain certain averages for hours worked. 

Challenges

Some freelance linguists who work primarily for one or two clients could benefit from becoming employees, but the situation is less clear for those who want to maintain independence or work with many LSPs. Employees often have to sign non-compete agreements that would cripple freelancers’ ability to work for multiple clients and decrease their bargaining power with respect to their clients. The changes also have the potential to make life difficult for reseller-LSPs who have only a few main clients if their customers decide that the risk of joint liability is too great and so move to build in-house capacity instead. For large LSPs, the cost of bringing hundreds or thousands of occasional or low-volume workers on as employees is often a substantial hit. 

Even if some individuals gain from the statements’ expansive definition of employee, the unseen cost to language workers is high. Some individuals would lose out on jobs they would otherwise have when LSPs – wary of running afoul of unclear thresholds for employment or claims by rogue linguists seeking to cash in through lawsuits – re-direct their spending overseas or shift to remote interpreting to manage risk. North American language workers are already the highest paid in the world and forcing LSPs to treat them as employees will only make them more expensive and less competitive, leading some buyers of translation to shift their contracts to lower-cost markets. 

The Outcome

The stakes are high for linguists and LSPs, particularly interpreting-centric ones. The U.S. Bureau of Labor Statistics estimated that there were 61,000 translators and interpreters in the country in 2014, and that the number would increase by about 17,500 jobs (2.6% CAGR) between 2014 and 2025. CSA Research pegged the value of the language services market for North America at roughly US$16 billion in 2016. An examination of these revenue figures shows that North American-based LSPs outsource most of their production work to freelancers and small LSPs outside the region, a trend that would be emphasized if U.S.-based freelancers become more expensive or risky. By contrast, withdrawing the statements would lower the cost to hire in the U.S., and help boost the sector overall. 

The Trump administration’s revocation of the guidance statements will be welcome to most LSPs. It has yet to nominate candidates for the two empty seats on the NLRB, so it seems likely – although not certain – that that body will also withdraw its guidance at some point – and possibly drop the sorts of complaints seen in the SOSi case. However, for now it still adheres to its Obama-era positions. In addition, Rivers tells us that, “regardless of the withdrawal of the Administrator's interpretation, the Wage and Hour Division (WHD) of the Department of Labor continues its ‘Employee Misclassification Initiative,’ and the President's 2018 budget keeps funding for the WHD at 2017 levels.” His organization sees better congressional oversight of WHD and curtailing the Misclassification Initiative as the most feasible mid-term solution. 

The result of these conflicting signals – and the patchwork of conflicting state-level policies – is what economists call regime uncertainty, a situation in which businesses delay economic decisions pending clarity about the legal and policy factors that will affect their operations. Given the importance of these issues to the U.S. labor market, it is not surprising that LSPs want certainty about their legal obligations. Ultimately these issues will need legislative attention if the policy is to be durable and clear and not subject to whiplash change with every new administration. 

Takeaway

This is an issue of profound importance for LSPs with a direct presence in the U.S. market. They should keep an eye on the situation and formulate plans to deal with both the case in which they can return to the pre-2015 national status quo that had loose definitions for who counted as employees and the one in which they have to treat most of their labor force as employees. Either way, they need to be absolutely clear about the legal requirements and document everything carefully. As we report in “Vendor Management at LSPs”: 

Misclassifying an employee as a freelancer can have severe repercussions for employers when governmental bodies audit their labor practices. LSPs usually either provide a form to fill out to verify the freelance status or expectations of what freelancers should do to maintain their status.

Providers also need to be careful not to guide their subcontractors in how they carry out their work, give them company resources, or engage in other activities that may count as evidence that they exercise substantial control over the employment status of their freelancers. 

Those that have strong opinions either way may wish to let their representatives in Congress know how the policies affect them in an effort to find a legislative solution that will provide clarity in the long run. LSPs may need to band together and work with lobbyists – such as NCLIS – to make their concerns heard. Unfortunately, even if Congress acts and provides clarity and stability at the national level, it will not address the patchwork of regulatory environments in the states that can gravely affect providers, nor will it help those in other countries facing similar issues. 

Have These Regulations Affected You?

Let us know how you have been affected by the shifting definition of who counts as employees or your thoughts on this matter. If you have a story you would like to share with us, please send it to Arle Lommel (alommel@csa-research.com).