Senate HELP Committee Examines Worker Misclassification

Brown Legislation Would Reduce the Number of Worker Misclassification Violations and Ensure Fairness to Workers

WASHINGTON, D.C. - Tens of thousands of employers misclassify their employees as independent contractors, and as a result, these workers are not eligible for benefits such as minimum wage and overtime, unemployment insurance, and workers' compensation. U.S. Sen. Sherrod Brown (D-OH) has introduced legislation to prevent worker misclassification and to ensure a level playing field for businesses that follow the rules. Brown's bill was discussed today at a hearing of the Health, Education, Labor and Pensions (HELP) Committee titled, "Leveling the Playing Field: Protecting Workers and Businesses Affected by Misclassification."

 "Unfortunately, there are currently no protections in place that effectively prevent worker misclassification, and we've got to do something about that," Brown said. "EMPA is designed to dramatically reduce the number of worker misclassification violations. It would increase federal and state penalties on employers who misclassify their employees and are found to have violated overtime or minimum wage rights."

The witnesses at today's hearing included: Seth Harris, Deputy Secretary of Labor; Colleen C. Gardner, Commissioner, New York State Department of Labor; Frank Battaglino, Owner, Metro Test and Balance, Catherine Ruckelshaus, Legal Co-Director, National Employment Law Project and Gary Uber, Co-Founder, Family Private Care.

In April 2010, U.S. Sen. Sherrod Brown (D-OH), a member of the HELP committee, introduced legislation that would protect workers from being misclassified as independent contractors and would provide for the protection and benefits which they have earned. The Employee Misclassification Prevention Act would ensure access to safeguards like fair labor standards, health and safety protections, and unemployment and workers' compensation benefits.

EMPA would reduce the number of misclassification violations by:

  • Ensuring that employers keep records that reflect the accurate status of each worker as an employee or non-employee and clarifying that employers violate the Fair Labor Standards Act when they misclassify workers.
  • Increasing penalties on employers who misclassify their employees and are found to have violated employees' overtime or minimum wage rights.
  • Requiring employers to notify workers of their classification as an employee or non-employee
  • Creating an "employee rights web site" to inform workers about their federal and state wage and hour rights.
  • Providing protections to workers who are discriminated against because they have sought to be accurately classified.

EMPA would improve federal and state efforts to detect and stop misclassification by:

  • Mandating that states conduct audits to identify employers who misclassify workers and by requiring that DOL monitor states' efforts to identify misclassification.
  • Directing states to strengthen their own penalties for worker misclassification.
  • Permitting DOL and IRS to refer incidents of misclassification to one another.
  • Directing DOL to perform targeted audits focusing on employers in industries that frequently misclassify employees.

Below is the statement Sen. Brown read at the hearing:

Fundamentally, worker misclassification is an issue of fairness.

Fairness to workers. Fairness to businesses.

Fairness is one of those principles that is subject to abuse, which is why there are so many laws and regulations explicitly designed to restore it.

Unfortunately, there are currently no protections in place that effectively prevent worker misclassification, and we've got to do something about that.

The Bureau of Labor Statistics has estimated that more than 10.3 million workers in the United States - 7.3 percent of the workforce - are treated by businesses as independent contractors.

Ohio Attorney General Richard Cordray published a study in 2009 finding that at least 459,000 Ohio employees could be misclassified this year.

One of these workers is Kevin Ennis, a carpenter from Parma, a suburb just south of Cleveland.

Kevin worked for companies that expected him to be onsite every day, more than 40 hours a week. These companies expected him to work just like any other employee.

But when he cut his thumb and needed stitches, his employer made clear that he was not really an employee and did not have health coverage or workers compensation.

These companies classified Kevin as an independent contractor - even though the company was as dependent on Kevin as Kevin was dependant on the company.

Misclassification cheats workers like Mr. Ennis.

It cheats businesses that do right by their employees - who pay for health insurance and workers compensation.

Yet when these honest businesses play by the rules, they are placed at a competitive disadvantage -- they pay dearly for the simple act of recognizing that an employee is, in fact, an employee.

And let's not forget that worker misclassification cheats citizens by robbing the state of critical revenue.

Ohio AG Corday estimates the state loses up to $800 million in local and state revenue.

As a result, public services - for all citizens - are short-changed because of unscrupulous business practices.

Earlier this spring, Chairman Harkin and I, along with Reps. Lynn Woolsey and Rob Andrews, introduced the Employee Misclassification Prevention (EMPA) Act of 2010.

EMPA is designed to dramatically reduce the number of worker misclassification violations.  

It would ensure employers keep records to reflect the accurate status of each worker.

It would increase federal and state penalties on employers who misclassify their employees and are found to have violated overtime or minimum wage rights.

And this bill would protect employees from discrimination if they seek to be accurately classified.

The bill would also improve efforts to detect and stop worker misclassification by requiring states to conduct audits to identify employers misclassifying workers.

The Labor Department would monitor these efforts, and work alongside the Internal Revenue Service to crackdown on repeat offenders.

Now, we may hear people in Washington say that a period of fragile economic recovery is not the time to focus on labor law reforms.

I couldn't disagree more.  Now is the time - with still fragile economic recovery with significant job loss - when workers are too often taken advantage of and lose out on the benefits they rightfully earned.

Now is the time to address misclassification, and I applaud the Administration for its attention to this timely issue.

                     

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