On April 22, 2010, HR 5107/S 3254, the “Employee Misclassification Prevention Act”, identical bills, were introduced in the House and Senate. The bills’ intent is to address the issue of misclassification of employees as independent contractors.

The House bill was introduced by Rep. Lynn Woolsey, (D-CA-6) and Senate bill by Sen. Sherrod Brown, (D-OH). The bills, H.R. 5107 and S. 3254, would amend the federal Fair Labor Standards Act to impose strict record keeping and notice requirements on businesses with respect to workers treated as independent contractors, exposing such businesses to fines up to $1,100 or up to $5,000 per employee for each violation of the law if repeatedly or willfully committed. Employers would have to provide new hires with a notice explaining their rights. Furthermore, should the EMPA be passed, it is thought that non-compliance may lead to criminal penalties, as the federal government is planning on going after companies in an aggressive fashion and is hiring increased staff already for this purpose. The Department of Labor will audit employers subject to the Fair Labor Standards Act of 1938 that are conducted by the Wage and Hour Division, targeting those industries with known frequent incidence of misclassifying employees as non-employees.

The EMPA does not prohibit businesses from continuing to use independent contractors, provided they are properly classified as such. The bill only prohibits companies from misclassifying workers as independent contractors when such workers are not really independent contractors, but employees.

All businesses would, nonetheless, be affected by EMPA, because it imposes upon every company that uses either employees or independent contractors a recordkeeping and a notice requirement. In addition, any business that fails to provide the required notice under EMPA would be subject to fines, even if its independent contractors are properly classified.

I recommend you take a look at recent well researched article authored by three attorneys with the Pepper Hamilton, LLP firm - Richard J. Reibstein, Lisa B. Perkins and Jonathan A. Clark titled Independent Contractor Misclassification: How Companies Can Manage Their Risks:

http://www.pepperlaw.com/publications_article.aspx?ArticleKey=1769

Independent contractors are referred to as freelancers, consultants, per diems, contractors, project workers, temps, specialists and are found in virtually every industry. Some companies used temporary employment agencies to supply long-term temps. Some companies use independent contractors to augment their workforce, while other businesses, such as transportation companies, often have more independent contractors than employees. And, some contract security and investigative firms are also known to use such independent contractors to perform bodyguard, security, surveillance and outside investigative services.

States have often classified workers and brought actions against employers for labor and tax violations in reference to improperly classifying independent contractors. Now the federal government appears poised to do the same should this legislation be enacted.

ISPLA will initially be consulting with our member firms that might be at risk and will work closely with our other association partners concerned with this legislation.

Please visit www.ISPLA.org for future updates on this and other important issues.  ISPLA is singularly focused on addressing ill-conceived legislation and over burdensome regulation through our lobbying efforts and ISPLA-PAC activity.

Bruce Hulme

ISPLA Director of Government Affairs

Tel: (212) 962 4054