Continuing a trend in Congress to limit employers’ use of independent contractors, on April 22, 2010, Rep. Lynn Woolsey (CA) and Senator Sherrod Williams (OH) introduced the Employee Misclassification Prevention Act (H.R. 5107, S. 3254) (“EMPA”) in the House and Senate respectively. The EMPA would amend the Fair Labor Standards Act (“FLSA”) and render worker misclassifications a violation of federal law. Employers would be required to maintain records reflecting hours worked and wages paid for employees and non-employee workers. They also would be required to provide workers a “notice” that identifies: the worker’s classification, a yet to be created Department of Labor website (containing an on-line complaint link), contact information for the applicable Department of Labor office, and other additional information as prescribed by regulation. For workers classified as non-employees, the Notice would be required to state: “Your rights to wage, hour, and other labor protections depend upon your proper classification as an employee or 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.”

Employers who violate the notice and/or recordkeeping requirements or misclassify a worker would be subject to a civil penalty of up to $1,100 per worker for a first offense and up to $5,000 per worker for willful or repeated violations. Employers who misclassify workers and violate the minimum wage and overtime requirements would be subject to treble damages. The proposed legislation also contains broad anti-retaliation/discrimination provisions.

To enforce the Act’s provisions, the Department of Labor would be directed to perform targeted audits focusing on employers in industries that frequently misclassify employees. The Department of Labor and Internal Revenue Service would be permitted to refer incidents of misclassification to each other. The states would be directed to increase their own penalties for worker misclassification, conduct audits for the purpose of identifying employers who misclassify workers, and report the results of the audits to the Department of Labor on a quarterly basis.

While the EMPA is in the earliest stages of consideration by both houses of Congress, its introduction is significant because it follows introduction of the Taxpayer Responsibility, Accountability, and Consistency Act of 2009 (“TRAC”) (H.R. 3408, S. 2882), which would revise the Revenue Act of 1978’s safe harbor provision (the safe harbor provision allows an employer to treat a worker as a contractor if certain requirements are met), make it more difficult for employers to classify workers as independent contractors, and significantly increase employer penalties in the event of misclassification. It also follows President Obama’s proposed budget for 2011, which includes significant funding for the U.S. Department of Labor’s Wage and Hour Division to increase the Division’s number of investigators, train investigators to detect misclassification of workers, and focus on industries where misclassification is most prevalent. In sum, the EMPA serves as a reminder that curtailing employers’ use of independent contractors remains a significant issue in Congress. Employers who have not yet done so would be well-advised to review their independent contractor relationships and ensure that they are on the up and up before the Department of Labor and/or a corresponding state agency does it for them.