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Washington Labor & Employment Wire » Senate HELP Committee Holds Hearing on Independent Contractor Misclassification

Senate HELP Committee Holds Hearing on Independent Contractor Misclassification

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On Thursday, June 17, the Senate Health, Education, Labor and Pensions (HELP) Committee held a hearing on preventing employers from misclassifying employees as independent contractors. The hearing focused on the Employee Misclassification Prevention Act (EMPA), a recently introduced bill intended to reduce instances of worker misclassification through new record-keeping requirements, notice requirements, and the imposition of civil penalties for employer violations.

Chairman Harkin (D-IA) opened the hearing by arguing that independent contractors are not afforded sufficient protections under the labor law, such as those provided by minimum wage standards, overtime requirements, unemployment compensation, workers’ compensation, safety and health laws and antidiscrimination provisions. Harkin asserted that a few “unscrupulous” employers thus make economic challenges “even more difficult for their workers by intentionally misclassifying them as ‘independent contractors’ to gain an advantage over their law-abiding competitors.” Harkin also argued employee misclassification costs federal and state governments “billions of dollars in unpaid revenues.” For example, it deprives governments of the payments that support unemployment and workers’ compensation systems, as employers are only required to make these payments on behalf of employees and not independent contractors. Accordingly, Harkin posited that while employer misclassification laws are currently in place in several states, a federal legislative response is necessary.

The committee’s Ranking Member, Senator Enzi (R-WY), responded by calling EMPA an example of “what’s wrong with Washington today.” He argued that the bill would saddle small businesses with additional administrative work and needless costs. Enzi also expressed concerns that EMPA would punish honest business owners for accidental administrative mistakes, while allowing employers that intentionally misclassify workers to remain under the radar. Senator Sherrod Brown (D-OH), who introduced EMPA in the Senate, acknowledged Enzi’s concerns and stated he would work to ensure the bill’s provisions do not overly burden small businesses. He emphasized, however, his belief that employers cannot be left to “self-police,” as without any regulation employers will continue to avoid and manipulate misclassification laws in order to gain a competitive advantage. He further stated that hard economic times particularly call for labor law protections, as many individuals will “do anything” to get a job and are thus at the mercy of unscrupulous employers. Senator Isakson (R-GA) also weighed in, arguing that Congress should be “very careful” not to “demonize” those employers who are currently trying to comply with employee classification laws.

The committee first heard from Seth Harris, Deputy Secretary of the U.S. Department of Labor, who testified in support of EMPA. While Harris acknowledged some employee misclassification may be the “result of uncertainty or misapplication of often complicated laws,” he asserted that “much worker misclassification is intentional.” Harris detailed the Obama administration’s efforts to combat employee misclassification, noting that the president’s fiscal year 2011 budget proposes a $25 million enforcement initiative that includes “close cooperation” between the Department of Labor and the Internal Revenue Service on misclassification issues. Harris also cited a proposed rule currently under consideration by the DOL’s Wage and Hour Division, which mirrors EMPA by requiring employers to perform written analyses and to disclose those analyses to employees before classifying them as independent contractors. Harris underlined the DOL’s belief that federal legislation is important to support these agency efforts, citing three provisions of EMPA as particularly crucial: (1) codifying employee misclassification as a violation of the Fair Labor Standards Act, (2) creating civil monetary penalties for employer recordkeeping violations, and (3) creating a legal presumption that an individual is an employee if the employer fails to keep accurate records.

The committee also heard testimony in support of EMPA from New York State Department of Labor Commissioner Colleen C. Gardner, who detailed her own state’s efforts to combat the problem of employee misclassification, and Legal Co-Director of the National Employment Law Project, Catherine Ruckelshaus, who urged the members to pass the legislation in order to afford greater protection to low-income workers. Business owners Frank Battaglino, representing the Sheet Metal and Air Conditioning Contractors’ National Association and the Campaign for Quality Construction, and Gary Uber, on behalf of the Private Care Association, Inc., a member of the Coalition to Preserve Independent Contractor Status, also testified before the committee. Battaglino testified in support of the legislation, detailing the problems his own construction business faces with “unfair, low-wage competition,” resulting from competitors’ misclassification of workers. Uber, in contrast, cautioned the committee against passing EMPA, noting the difficulties his own business would have meeting the bill’s record-keeping requirements.

Senator Brown introduced EMPA in the Senate on April 22, 2010 (S. 3254). Rep. Lynn Woolsey (D-CA) introduced parallel legislation in the House on the same date (H.R. 5107). The House version of EMPA is currently before the House Committees on Education and Labor and Ways and Means.

A webcast of the hearing, as well as written witness testimony, is available on the HELP Committee’s website.