Congressional Passage of Misclassification Legislation Is Likely to End the Flood of State Laws Governing Independent Contractors

In the absence of federal legislation addressing the issue of misclassification of employees as independent contractors, no less than 16 states have passed their own laws seeking to curtail misclassification of employees as independent contractors, including five states so far in 2010: Connecticut, Nebraska, New York, Vermont, and Wisconsin.

Some of these state laws address misclassification generally by employers in all industries, while others are limited to specific industries. The most recent state law enacted focuses on one of the industries in which misclassification has been found to be most prevalent: the building and construction trade. The New York Construction Industry Fair Play Act, which was signed into law on August 27, 2010, virtually eliminates the permissible use of independent contractors in that industry by creating a presumption of employee status for any worker performing construction services in New York.

As noted in prior blog posts, Congress has now introduced two bills in 2010 to address misclassification:  the Employee Misclassification Prevention Act (EMPA) (H.R. 5107 and S. 3254), which would make misclassification a federal labor law violation, require businesses to keep records of their ICs’ hours and wages, obligate businesses to notify their ICs how they can formally challenge their classification, and impose substantial financial penalties for violations of the law; and the Fair Playing Field Act of 2010 H.R. 6128 and S. 3786), which would eliminate on a prospective basis the “safe harbor” enjoyed by businesses for the last 30 years if they had a reasonable basis for misclassifying employees as independent contractors, including reliance upon industry practice.   The White House has strongly endorsed the passage of both bills in Congress.

While these two federal laws, if enacted, would allow businesses to continue to use legitimate ICs, they are likely to have the intended effect of substantially curtailing the misuse of ICs.  Thus, once EMPA and/or the Fair Playing Field Act of 2010 is enacted, it is likely that few state legislatures will find it imperative to pass additional independent contractor legislation.

 

Written by Richard Reibstein.

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