The Labor Department says the "contractors" actually were more like common-law employees, based on factors such as whether the workers' comings and goings were controlled and whether they used company business cards.
Some workers hired as temporary were actually functioning as regular employees, the department added in the suit, saying the company should have provided health and pension benefits. The department filed the case in federal court in Manhattan against Time Warner, Time Inc. and its subsidiaries.
"The Department of Labor's action has no basis in law or in fact, and is beyond the scope of its authority," said Time Warner President Richard D. Parsons. "We will move quickly to dismiss and expect to be fully vindicated."
In addition, Time Inc. has filed three separate Freedom of Information Act lawsuits saying the Labor Department has withheld information which would show that the action is unprecedented.
The lawsuit seeks a court order to appoint an independent body to audit the company and locate all misclassified workers. Under such a court order, Time Warner and Time Inc. would have to compensate workers by allowing them to retroactively apply for benefits to which they were entitled.
"We were hopeful we could settle this issue with Time Warner without suing," Labor Secretary Alexis Herman said. "However, employers must deliver promised benefits to all eligible employees, and we believe some misclassified Time Inc. employees did not receive benefits they were entitled to."
Time Warner defended the hiring of outside contractors, saying they act truly as independent workers. Calling the relationship "symbiotic," Time Warner said that having independent status allows the workers to enjoy flexible hours and control how they perform their services.
One critical factor distinguishing independent contractors and temporary workers from regular employees is "who has the right to control the worker," said Robert Moberly, a professor of law at the University of Florida in Gainesville. "There is often a question about who is the employer and employee."
Key considerations include whether the temporary agency or the company leasing the workers pays the wages, assigns the tasks and supervises the work, Moberly said.
Independent contractors who must sign in or out, who have their hours fixed or who have the pace of their work controlled could make them more akin to regular employees, said Edie Rasell, an economist with the liberal Economic Policy Institute.
"Whether or not they are independent contractors should be fairly straightforward," she said. "When firms intentionaly miscategorize workers to save money, it's a pretty serious violation."
Time Inc. employs 40,000 people nationwide. Its subsidiaries include Time Magazine, Sports Illustrated, Fortune, Life, Money, People, Entertainment Weekly, Time Life, Inc., Book-of-the-Month Club and Time Distribution Services.