Senators Introduce Legislation Targeting Worker Misclassification

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Jul 30, 2015

By Ilyse Wolens Schuman

Two weeks after the U.S. Department of Labor issued an Administrator’s Interpretation cautioning that “most workers are employees,” Senators Bob Casey, D-PA, and Al Franken, D-MN), introduced a bill targeting worker misclassification.

The Payroll Fraud Prevention Act of 2015 would make a number of amendments to the Fair Labor Standards Act to require employers to delineate employees from non-employee contractors, impose additional employer reporting requirements, and establish new penalties for misclassification violations.

The measure defines who is considered a “non-employee,” and requires employers to provide their workers with a written notice of their classification as an employee or non-employee.  This notice would need to include the following statement:

Your rights to wage, hour, and other labor protections depend upon your proper classification as an employee or a non-employee. If you have any questions or concerns about how you have been classified or suspect that you may have been misclassified, contact the U.S. Department of Labor.”

Stiff employer penalties for misclassification

Failure to provide such notice to any covered worker would automatically render the individual an employee, an assumption that could be rebutted only “through the presentation of clear and convincing evidence that a covered individual … is not an employee.”

  • The bill includes provisions preventing an employer from firing or otherwise retaliating against an individual who pursues his or her rights under the act.
  • Employers could face up to $1,100 in civil penalties for each misclassification, or up to $5,000 if such violation is deemed repeated or willful.
  • Finally, the bill directs the Labor Department’s Wage and Hour Division to conduct targeted audits of industries having a high rate of worker misclassification.

Given the divided Congress, this bill is not likely to advance this term. However, portions of the bill have emerged in other contexts.

Notably, the proposed rule seeking to implement the Fair Pay and Safe Workplaces Executive Order, otherwise known as the “blacklisting” rule, contains paycheck reporting requirements for federal contractor employers.

Specifically, the proposed rule would mandate that contractors holding federal contracts for goods and services worth more than $500,000 disclose in each of their employees’ paychecks the number of hours worked; the number of overtime hours worked; their pay; and any additions to or subtractions from pay.

If the federal contractor uses independent contractors and maintains wage records for them under the FLSA, it must provide a written disclosure informing the individual of his or her independent contractor status. Therefore, although the Payroll Fraud Prevention Act is not expected to advance this Congress, it is reflective of the heightened scrutiny of independent contractors by lawmakers and enforcement agencies alike.

Also a push for a “Right-to-Know” rule

The Wage and Hour Division also has on its long-term regulatory agenda the goal to develop and implement a “Right-to-Know” rule, which would “update the record keeping regulations under the Fair Labor Standards Act in order to enhance the transparency and disclosure to workers of their status as the employer’s employee or some other status, such as an independent contractor, and if an employee, how their pay is computed.”

This proposal has languished on the Department’s regulatory backburner for years now, so it is unlikely a proposed rule on this issue will materialize anytime soon.

That said, the Obama Administration has established a “middle-class economics” narrative that will serve as an election platform for many Congressional Democrats in the months ahead. The success of that narrative will likely influence whether the Payroll Fraud Prevention Act, or other employment status transparency measures similar to it, gain traction.

This was originally published on Littler Mendelson’s Workplace Policy Update blog© 2015 Littler Mendelson. All Rights Reserved. Littler®, Employment & Labor Law Solutions Worldwide® and ASAP® are registered trademarks of Littler Mendelson, P.C.