Recently, news surfaced that a piece of legislation had been introduced entitled, the Fair Playing Field Act of 2012. My first thought was, I can’t believe Congress is going to try and put an end to the NY Yankee spending dominance. Unfortunately, for the purposes of my own baseball selfishness, the bill’s intent was not what I thought it would be. Instead, it was Capitol Hill targeting employers who misclassify workers as independent contractors.
Target: Safe Harbor
The Fair Playing Field Act of 2012 was introduced in the House (HR.4123) as well as the Senate (S. 2145) and their targets are the same…Section 530, Safe Harbor. Section 530 of the Revenue Act allows protection for an employer who misclassifies workers as independent contractors if the employer has a reasonable basis for doing so. By doing so doesn’t just mean that any employer can get away with misclassifying its workers as independent contractors. An employer must be able to reference an industry practice, court rulings or past IRS audit and never have treated the misclassified workers as employees in the past.
No More Hiding Behind Safe Harbor
The bills would permit the Secretary of Treasury to issue prospective guidance clarifying the employment status of individuals for purposes of employment taxes and to prevent retroactive assessments with respect to such clarifications. No longer would employers be able to hide behind 530 as a basis for misclassification. Also, the IRS would not be able to fine employers who classified their workers as independent contractor retroactively as long as the employer treated their workers as IC’s and filed 1099’s for the years, for the workers in question.
Same Legislation From 2010
Since the same legislation was introduced in 2010, I question why these two bills were introduced this far along in the congressional session. I understand that independent contractor misclassification is a hot topic right now but why not introduce it sooner? Would it have been overkill if they were introduced last year with other legislation (Payroll Fraud Prevention Act and Employee Misclassification Prevention Act of 2011) aimed at curbing worker misclassification? Or are politicians in the Senate and House just meeting their misclassification legislation quota to show that they really do care about leveling the playing field? Personally, I still think a bill aimed at curbing the NY Yankees payroll would have more appropriate for the title of the legislation.
Please check back with us as we offer updates on these bills.
Late last week the US Dept of Labor entered into a Memorandum of Understanding(MOU) with the State of California to stand side by side in the fight against worker misclassification. California’s Labor Secretary Marty Morgenstern and the deputy administrator for the U.S. Dept of Labor of Labor’s Wage and Hour Division, Nancy Leppink signed off on the agreement which now paves the way for the federal government and California to share information in an attempt to curb worker misclassification.
California Is On A Roll
The memorandum is just the latest effort from California to tap a potential revenue stream and cripple the underground economy that involves misclassifying workers as independent contractors for purposes of not having to pay minimum wage, workers compensation, benefits and employer taxes. On January 1stof this year, California introduced SB 459which prohibits the willful misclassification of individuals as independent contractors and allows the Labor and Workforce Development Agency to assess specified penalties (upwards of $25,000) to those employers who break the law.
CA Wants Their Money
California is the twelfth state to sign the MOU with the Department of Labor. If you’re an employer in California, you’ve just been put on notice that the state does not have any intention of letting up when it comes to audits…..they want their share of the revenue!
Supreme Court Case
The US Supreme Court is currently reviewing a misclassification suit by pharmaceutical sales representatives who claim they were denied overtime by being misclassified as Independent Contractors. This case could have far reaching implications as it will send a message out to many outside sales representatives that they also may be entitled to lost overtime wages and potentially other benefits they may now be retroactively entitled to. . . in the form of a healthy payout. One question before the United States Supreme Court is whether the Fair Labor Standards Act “outside salesman” exemption should apply to pharmaceutical sales representatives who promote but do not sell their company’s drugs to physicians.
FLSA May Soon Protect Non-Employees
On a related note, the Payroll Fraud Prevention Act (S.770) would amend and expand the Fair Labor Standards Act (“FLSA”) to include “non-employees” within the ambit of the FLSA minimum wage, hours and overtime protections. This bill is actively being reviewed but has not yet passed.
Staggering $8.1 M Payout to One Plaintiff
In 2009, a Sales Representative of Baby Trend, INC. alleged he was misclassified as an Independent Contractor of the company. An $8.1 million judgement was entered in favor or Robert Gardner(AKA Gardner Marketing Group), after Baby Trend terminated its relationship with Garnder in 2004. Several claims including breach of contract, fraud and others arose out of this termination. Read more about the case here.
Last year, numerous lawsuits were filed by exotic dancers who claim that they were treated like independent contractors when they should have been employees under FLSA guidelines. Most of the dancers are seeking overtime pay whenever they work more than 40hrs in a week however some wouldn’t mind the benefits.
An exotic dancer’s classification is a hot topic since it serves as a potential poster child for what should be an employee even though the “industry standard” dictates independent contractor status. So what’s right?
Relationship Details
Before we draw any conclusions, let’s examine some of the details of the relationship. Dancers earn their money per shift. A large majority of their income is derived from tips, of which the dancers have to pay a percentage back to the club to cover the dj, bartender, etc.. Gentlemen’s clubs typically control the hours that a dancer works. In addition, the dancers are required to dance on stage several times as part of their shift along with providing extra friendly mingling services to customers. Though it is possible to work for multiple clubs simultaneously, most clubs prohibit their dancers from doing so.
I’ve laid out a few factors involved in a dancer’s relationship with their club. For those that didn’t notice…control, control, control dominated the relationship between both parties. But what’s it going to take for their IC status to be overturned? That’s the million dollar question.
Will anyone listen to the dancer’s claim?
The dancers have an uphill battle in front of them. There have been instances in other industries where workers have called attention to themselves with the hope that either a state or federal government would pay attention. And in those instances, the response from the government has either been discouraging or non-existent. Whether these numerous cases make it to court depends on how aggressively the dancers and their lawyers are willing pursue employee status. After all, should the dancers be rewarded with employee status, changes are likely to occur with regards to income as well as the taxes they will now be responsible for.
We’ll continue to monitor whether the courts view exotic dancers as a labor group worthy of a legitimate employee occupation or whether they’ll continue to stay as industry standard independent contractors. Count me in as one person who is eagerly waiting for this legal dance to take center stage.
Last month, Representative Lynn Woolsey (D- CA) introduced H.R. 3178, The Employee Misclassification Prevention Act. The Act looks to amend the Fair Labor Standards Act of 1938 to require persons to keep records of non-employees who perform labor or services for remuneration and to provide a special penalty for persons who misclassify employees as non-employees, and for other purposes.
The bill is the latest effort from Congresswoman Woolsey aimed at tackling the worker misclassification problem. She had previously sponsored bills in the last two congressional sessions that were introduced but did not clear the committee stage. This latest action is the second congress sponsored misclassification bill to be unveiled this year. The first was S. 770, The Payroll Fraud Prevention Act which was introduced in April.
Previous Attempts Have Failed
Congress’ previous attempts at fighting worker misclassification have failed with bills that were created late in the sessions. In turn, the late start made it impossible to garner enough steam to make it through the legislative process. With H.R. 3178 and S. 770 being introduced earlier in the session, there is optimism that these bills will not follow the paths of their predecessors. Not only is the early introduction helpful in pushing these bills along but awareness around misclassifying workers has recently heightened with the IRS and various states taking action on the matter.
You have to credit Congresswoman Woolsey for being persistent in trying to properly classify independent contractors. In doing so, she’s made it known that she’s fighting for workers’ minimum wage, overtime and worker’s compensation rights. Not to mention tapping into a revenue stream with huge potential. Whether or not Congress views it in the same manner depends on whether the time is right to roll out legislation that could potentially hinder job progress in a struggling economy.
Unfortunately we won’t know the outcome of this latest bill until the end of the legislative session but please continue to check back with us as we post updates.
