U.S. Reps. Andrews, Woolsey Introduce Bill to Stop Practice of Defining Workers Out of Their Workplace Rights

May 22, 2008

WASHINGTON, DC -- U.S. House Democratic lawmakers introduced legislation to put a stop to the practice by some employers of taking away workers’ rights and benefits by classifying them improperly as “independent contractors” when they should be classified as regular employees.  

“Employers who misclassify their employees as independent contractors rob workers of needed pay and benefits and cost government at all levels substantial uncollected revenues,” said Rep. Lynn Woolsey (D-CA), chair of the Subcommittee on Workforce Protections. “Despite, this enormous problem, the Department of Labor has failed not only to crack down on this practice by enforcing current laws, but has failed to coordinate with other agencies to address the issue.”

“The egregious practice of misclassifying workers as independent contractors needs to end,” said Rep. Rob Andrews (D-NJ), chairman of the Subcommittee on Health, Employment, Labor and Pensions. “The Employee Misclassification Prevention Act is pro-employee, pro-employer and pro-taxpayer. The bill will protect employee benefits, remove incentives for employers to misclassify their workers, and ensure that bad employers don’t line their own pockets with unpaid payroll taxes.” 

Full-time employees whose employers misclassify them as independent contractors lose important rights, such as workers’ compensation coverage, minimum wage and overtime protections, family and medical leave, and the right to organize and collectively bargain.

According to the Government Accountability Office, more than 10 million workers in the U.S. are classified as independent contractors. Several studies in individual states have estimated that many of these workers are misclassified, deliberately or otherwise, as independent contractors when they are really employees.  For example, a Massachusetts study found that 11.4 percent of the state’s construction workers had been misclassified as independent contractors between 2001 and 2003.  And an Illinois study found that misclassification had increased by 55 percent between 2001 and 2005.

By improperly categorizing employees as independent contractors, employers are able to avoid payroll taxes. A Coopers & Lybrand study estimated that the federal government lost $34.7 billion in unpaid taxes between 1996 and 2004 as a result of the misclassification of workers.

The legislation introduced last night, the Employee Misclassification Prevention Act of 2008 (H.R. 6111), would increase penalties on employers who misclassify workers as independent contractors and would step up law enforcement efforts to catch employers who break the law.

The Employee Misclassification Prevention Act of 2008 would:

• Impose penalties on employers who misclassify employees as independent contractors;
• Require employers to keep records on and notify workers of their employment or independent contractor classification and their right to challenge that classification;
• Require state unemployment insurance agencies to conduct audits to identify employers who are misclassifying employees;  
• Track and monitor states’ effectiveness in identifying employers who misclassify employees;
• Allow the U.S. Department of Labor and the Internal Revenue Service to share information on cases where employers misclassify workers; and
• Mandate that the Department of Labor perform targeted audits focusing on employers in industries that frequently misclassify employees.

Two subcommittees of the House Education and Labor Committee held a joint hearing on the topic of the misclassification of workers as independent contractors last year. To view materials from the hearing, click here.

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