Rep. Lynn Woolsey (D-CA) has reintroduced legislation that would create new record-keeping requirements for employers that hire independent contractors, and impose stricter penalties for misclassification. Notably, the Employee Misclassification Prevention Act (H.R. 3178) would amend the Fair Labor Standards Act (FLSA) to require employers to keep records on and notify workers of their employment or independent contractor classification and their right to challenge that classification. In addition, the measure would do the following:

  • Establish certain employer recordkeeping requirements for non-employee workers. If no records required under the bill are maintained and preserved for a worker, he or she would be presumed to be an employee, subject to clear and convincing evidence to the contrary;
  • Within six months of the bill’s enactment, require employers to notify their workers and independent contractors of their appropriate classification. Such notice must include a statement directing the worker to a Department of Labor (DOL) website established for the purpose of providing further information about the rights of employees under the law, in addition to the address and contact information for their local DOL office. Moreover, notices to non-employees must contain the following statement: “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.”
  • Prevent an employer from discriminating or retaliating against workers who exercise their rights under the bill;
  • Impose civil penalties under the FLSA (up to $1,100 per employee for first offenders; $5,000 per employee for repeat or willful violations) on employers that misclassify employees as independent contractors;
  • Allow the DOL and the Internal Revenue Service to share information on cases where employers misclassify workers;
  • Direct the DOL to perform targeted audits focusing on employers in industries that frequently misclassify employees;
  • Amend the Social Security Act to establish administrative penalties for misclassifying employees, or paying unreported wages to employees without proper recordkeeping, for unemployment compensation purposes;
  • Mandate state unemployment insurance agencies to conduct audits to identify employers who are misclassifying employees;
  • Track and monitor states’ effectiveness in identifying employers who misclassify employees.

According to a press release issued by Rep. Woolsey’s office, approximately 10 million U.S. workers are identified as independent contractors, and DOL estimates up to 30 percent of U.S. companies misclassify their employees. The bill was also included among recommendations sent by the Democratic Members of the House Committee on Education and the Workforce to the Joint Committee on Deficit Reduction, the “Super Committee”.

In a statement, bill co-sponsor Rep. George Miller (D-CA) added:

Misclassification is fundamentally unfair to our nation’s law-abiding employers, and unfair to the countless workers who are unlawfully stripped of basic protections like minimum wage, overtime, and the right to organize. Strengthening the law to prevent misclassification will level the playing field for those that follow the law and help to close an estimated $54 billion federal tax gap resulting from this illegal activity.

A similar bill – the Payroll Fraud Prevention Act (S. 770) – was introduced in the Senate in April. In addition, last July the House Subcommittee on Workforce Protections held a hearing on whether the FLSA needs to be revised to address worker misclassification, among other related issues. On the regulatory front, the DOL’s Wage and Hour Division (WHD) intends to develop a proposed rule that would update the recordkeeping regulation issued under the FLSA to “promote greater levels of compliance by employers, to enhance awareness among workers of their status as employees or independent contractors and employee rights and entitlements to minimum wage and overtime pay, and to facilitate DOL enforcement.” During a web chat to discuss the WHD’s regulatory agenda, WHD Deputy Administrator Nancy Leppink claimed that this proposal is still under development.