Employee Buyouts Limited by Worker Mischaracterization Legislation Proposed by Senator Obama

In an advisory letter to his column's clients, David Broder, the dean of Washington political columnists, last week announced that he was taking a "buyout" offered by The Washington Post. Indicating that he will stay on as a "contract employee" and that his twice-weekly column would continue essentially unchanged, Broder, 78, and long-time writer for the Post, indicated that his column "will not change at all," that he would "continue to write from the same office in the Post newsroom," and that he would "continue to travel the country to wherever politics is happening."

Broder added that "[t]his change will allow me to focus entirely on the column, while freeing up the Post to use its budget for other news-section salaries and expenses."  See http://www.politico.com/blogs/michaelcalderone/0508/WaPos_Broder_taking_buyout_becomes_contract_writer_in_09.html

The Broder announcement, accompanied as it was by a similar declaration from popular Post sports writer, Tony Kornheiser, is the latest in a series of business contractions announced by prominent newspapers.  Times are tough.  Efforts to cut employee-related expenses at many of the nation's daily fish wrappers is no longer news.  While I'm not privy to the details of the Post-Broder scenario, if federal legislation proposed last fall by Senator Barack Obama ever becomes law, newspaper publishers and other employers may find it much more difficult to buy off employees and then construct arrangements whereby those former-employees continue their work.   

Senator Obama's Federal Proposal [S. 2044]

The Obama bill [S. 2044: Independent Contractor Proper Classification Act of 2007- see http://www.govtrack.us/congress/bill.xpd?bill=s110-2044], introduced last September, doesn't actually target the newspaper industry.  In the senator's cross-hairs are companies in commercial construction and transportation.  In the construction business, for example, carpenters, drywall installers, roofers, and other tradespersons are often characterized as independent contractors, instead of employees.  In the commercial freight world, many truck drivers are hired on as independent contractors in spite of the fact that they wear company uniforms, drive company trucks, and are subjected to strict scheduling requirements.

Consider the following: You run a company specializing in the delivery of freight.  Base pay for truckers in your area is, say, is $30 per hour.   Additional mandatory employee hourly expenses such as workers’ compensation insurance, federal employment taxes, and state unemployment insurance taxes could easily add another $7.65 to per hour costs for each of your drivers. The resulting hourly rate ($37.65) is 17.57 percent higher than your cost if the drivers could be classified as independent contractors (these figures are illustrative only).  For a trucking business trying to trim expenses, the temptation to designate drivers as contractors is certainly present. 

Use of "Independent Contractors" by FedEx®

Apply this “what-if” analogy to a large freight mover like FedEx® and one can quickly see that millions of dollars are at stake.  Indeed, in late December, 2007, the Internal Revenue Service announced that, for the tax year 2002, it would impose a $319 million fine upon FedEx for misclassifying some 13,000 FedEx Ground® drivers as independent contractors, rather than as employees.  Earlier that same week, FedEx announced that lawsuits filed against it in 24 states by drivers in the ground-shipments unit could have a detrimental effect on the entire company’s earnings going forward.  See http://unionreview.com/fedex-slapped-$319-million-misclassification-fines

General Accounting Office Study

A study by the federal government’s General Accounting Office estimates that some 15% of all employers misclassify 3.4 million workers as independent contractors annually and that in inflation-adjusted figures, misclassification annually costs $2.72 billion in Social Security, unemployment tax, and income tax revenues [see “Employee Misclassification—Improved Outreach Could Help Ensure Worker Classification: Statement of Sigurd R. Nilsen, Director, Education, Workforce and Income Security,” May 8, 2007, www.gao.gov/new.items/d07858t.pdf]. 

Other "Benefits" of Mischaracterization of Employee Status

The potential benefits inuring to the benefit of the “general contractor” in these instances is not limited to the financial savings described above.  For example, the National Labor Relations Act generally does not apply to independent contractors.  Only employees, therefore, may organize themselves into a collective bargaining unit.  The protections afforded employees under federal employment discrimination laws, such as the Age Discrimination in Employment Act of 1967 (ADEA), Title VII of the Civil Rights Act of 1964, and the Americans With Disabilities Act of 1990 (ADA) generally do not apply to those who are independent contractors.
  
Obama's Bill Follows Lead Established in Some States

Senator Obama's proposal follows on the heels of local legislation in such states as New Mexico, Illinois, and New Jersey, as well as proposals for legislation in a number of other states, including California and New York.  The bill, which has been referred to the Committee on Finance, would not only remove many of the economic incentives to use so-called "independent contractors", it would ensconce the Department of Treasury as a formal arbiter of employee/independent contractor status—at least for federal tax purposes. 

The Department of Treasury would be saddled with the responsibility of determining if the "independent" status of a worker was real or whether that new status had been constructed primarily to save money.  Under this proposed federal system, one wonders whether a newspaper publisher could construct a scenario whereby its former writer "employees" were designated as "contract" workers—thus saving the paper its associated employees expenses—in spite of the fact that the contractors sat at the same desks, utilized the same word processors and software, and were subjected to the same sorts of deadlines as before.  If the practice won't fly for FedEx®, it is difficult to see how it would fly at the Post. 

For further insight into the Obama Bill and the issue of employee misclassification, see an excerpt of my expert commentary article at http://law.lexisnexis.com/commentary/Insurance/Thomas-A-Robinson-on-Misclassification-of-Employees-as-Independent-Contractors-and-Deliberate-Avoidance-of-Employment-Relationships. Note that lexis.com subscribers may purchase the full text of the article.

 

Comments

Thomas A. Robinson
  • 05-28-2008

Could you tell me where I can find discussion of this topic in Larson's Workers' Compensation Law?

Thomas A. Robinson
  • 06-11-2008

What is McCain's position on the Obama Bill?

Thomas A. Robinson
  • 06-11-2008

Sorry for the delay in responding.  There was some difficulty posting my response, but I understand it''s been worked out.  Larson''s discussion generally can be found in Ch. 61, 62, 63, and Section 111.04.  Not all the discussion is couched in terms of "misclassification," as such, but the issues are discussed in a host of different contexts.

Let me know if this isn't responsive.  Thanks for your interest.

Thomas A. Robinson
  • 06-11-2008

As far as I have been able to determine, Senator McCain has not indicated support or opposition for Senator Obama's bill.

Thomas A. Robinson
  • 06-11-2008

What we do know is that McCain doesn't support worker and union rights. McCain voted against prohibiting the overseas outsourcing of government contracts. He also voted to contract out federal jobs. He voted against the extension of federal unemployment insurance benefits. He supports NAFTA and CAFTA. He voted against raising the minimum wage. He voted to block the Employee Free Choice Act and instead supported a national right to work for less law. So it's highly doubtful he would vote for the Obama bill.