The increasing reliance on subcontractors is eroding the traditional employment relationship, severing the ties between employers and their workforce and shielding employers from legal liability for abuses and offenses committed by their intermediaries. Labor laws generally do not apply to contingent workers such as subcontractors. Employers like UPS sometimes engage independent contractors to avoid the legal obligations offered to unionized company employees.
The Fair Labor Standards Act establishes minimum wage, overtime pay, record-keeping and child labor standards, but it only applies to employees, leaving subcontractors to arbitrary compensation practices. The act defines employees as any individual employed by an employer, which does not make reference to those hired by contractors. As a result, subcontractors are paid strictly on the basis of their contractual agreements and have no recourse to the protections offered by the FLSA.
While labor law generally provides for the protection of workers, subcontractors tends to be excluded from those protections. Independent contractors are differentiated from employees in terms of the nature of their relationship with the business, behavior and finances. They have control over the way they work, do not rely on the business for steady income, invest in the business and have an opportunity to make a profit or loss.
As a result, labor laws provide that employers have no obligation to provide health insurance, retirement assistance and other employee benefits. They also do not have the same freedom as employees to unionize under the National Labor Relations Board Law. Subcontractors are in the same class as contractors since, in most cases, their relationship with their hirers is not permanent and is wholly governed through contract law rather than employment law.