Business & Economy

House to vote soon on major labor law changes

Construction is one of the industries where workers are said to be frequently misclassified. Wikimedia photo
The Vermont House is due to vote this week on a bill that would drastically change the way the state defines who is an employee and who is an independent contractor.

The House decided Thursday to delay the vote on H.867 after intense resistance from pro-labor organizations and a request from the House Committee on General, Housing and Military Affairs — which oversees labor issues — to take a look at the bill.

The bill started out in the House Committee on Commerce and Economic Development, which generally handles business issues. Its members spent months writing the legislation and passed it out of committee 11-0.

At issue is the distinction between a self-employed independent contractor — responsible for things like payroll taxes and unemployment insurance — and an employee who enjoys a greater degree of protection under labor laws.

Supporters say the bill gives self-employed Vermonters clarity and helps them maintain independence. Opponents say it would open up Vermont to labor abuses in which large companies misclassify employees as independent contractors to avoid paying benefits.

“We have the responsibility to deal with a changing workplace both for employees and businesses,” said Rep. Bill Botzow, D-Bennington, the chair of House Commerce. “We have what I would call 20th- and 19th-century policies around the workforce, and we’re 16 years into a next century and a next way of working.”

Pushback from labor interests

The U.S. Department of Labor calls misclassification “one of the most serious problems facing affected workers, employers and the entire economy.” Construction companies and startup technology businesses in particular have been found to commonly bring on employees but illegally call them independent contractors.

While companies can face stiff penalties for misclassification, the labor laws protecting those workers are not always enforced. As a result, workers may end up paying extra Social Security and Medicare taxes and think they can’t apply for unemployment benefits if they lose their jobs.

Doug Hoffer, the state auditor, wrote in an Aug. 31 audit report that a misclassified worker making $44,000 a year could end up paying more than $3,000 in federal Social Security and Medicare taxes that the employer should have been paying. If the employer is not fined, the business would save another $3,000 on workers’ compensation and unemployment insurance.

Hoffer concluded that Vermont was not doing enough to enforce penalties against employers.

H.867 proposes 27 pages of complicated law changes. In the bill, employers would continue to face a $5,000 fine for each worker they misclassify.

The bill would change the law to say that only companies that are found to have “purposefully” misclassified their employees or “purposefully” made false statements would have to pay further penalties or face legal enforcement.

The bill says that anyone who owns all or part of a business, including as an unincorporated sole proprietor, that is registered with either the Vermont secretary of state or local government would not be considered an employee.

“The way I read the bill now, I can go get a business card, I can register on the secretary of state’s website, and I can have a business of stocking shelves,” said Tony St. Hilaire, from the Vermont chapter of the Teamsters union. “I can go work at Shaw’s or Wal-Mart, and guess what. I’m not an employee. I’m an independent contractor.”

The bill also directs the Agency of Administration to reconvene the Worker Misclassification Task Force created by the Labor Department, which Hoffer found hadn’t held any meetings in the previous two years. The task force would need to produce a comprehensive report to the Legislature by Feb. 15 that addresses unanswered questions from the bill.

Rep. Jean O’Sullivan, D-Burlington, a member of the House Commerce Committee, said her committee shares concerns about protecting workers from labor abuses. That’s one of the reasons the bill directs the task force to reconvene and study certain issues within less than a year, she said.

“Will this (bill) lead to a better form of employee classification, or will it create more misclassification?” asked O’Sullivan while testifying Friday before House General Affairs during its first hearing on H.867. The bill directs the task force to answer that question. “It is a very large issue, and it’s a grave concern to all.”

“Do we as a Legislature decide that all construction, everybody at the worksite, should have workers’ comp, and no one can waive that right?” O’Sullivan asked. The bill directs the task force to determine whether all construction subcontractors should have to purchase workers’ compensation insurance.

Rep. Tom Stevens, D-Waterbury, is the vice chair of the House General Affairs Committee. He also testified Friday to explain parts of the bill. “Generally, there’s an attitude that bills that come out of Commerce are employer-based or employer-friendly, and bills that come out of General are employee-friendly, and there’s a natural tension that happens,” he said.

“If you assume that 95 percent of people in Vermont are good actors in business … that still leaves the percentage of people who may abuse any law,” Stevens said.
“And so (when we change the law), do we do this in a way that people who may not (understand) it right away are abused?”

H.867 requires any company using an independent contractor to post a state-provided written notice in a prominent place outlining labor rights and the new definitions.

Support and opposition

Bill Driscoll, a lobbyist who represents manufacturers at the Associated Industries of Vermont, supports the bill. “We think it updates the definition of who is an independent contractor in a way that more accurately reflects reality and makes the lines more clear for clients and for contractors,” he said.

“It’s not really clear where that (exploitation) would be the case,” Driscoll said. “I think it just draws a sharper line between who is and is not an employee.”

The National Employment Law Project sent a letter to lawmakers Wednesday opposing the bill. The letter said H.867 “would almost completely undermine decades of a well-established and strong safety net for Vermont workers by making it easier for employers to misclassify their employees and evade unemployment and workers compensation insurance.”

Hearings on the bill will continue Tuesday in the House General Affairs Committee.

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Erin Mansfield

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  • Scott Woodward

    It would be good to highlight in this article how VT law differs from federal IRS regulations in terms of the definition of an independent contractor. I would hope that there is not a great deal of difference.

  • Paul Lorenzini

    Dear State of VT, have no fear, I’ll never hire anyone.

  • Rich Lachapelle

    The democrats of the Vermont Legislature never miss an opportunity to thrust another knife into the back of small businesses. The public service they provide is like the service a bull provides for a cow. And they have the arrogance to push for things like this in an election year without fear of repercussion from honest, taxpaying voters. Sad state of affairs…

  • Pete Novick

    Here’s the solution: all lobbyists in Vermont must become independent contractors at midnight March 31, 2016.

    End of problem.

    Beginning in the 1980’s, the private sector began an effort that continues to this day to reduce the proportion of the cost of selling goods and services attributed to labor. This takes many forms, including driving down salaries and wages, outsourcing, union busting, sending jobs overseas, transferring jobs to right-to-work states, increasing the ratio of part-time to full-time employees, not translating workplace productivity gains into wage increases, shifting more health care costs to employees, ending defined benefit pensions, reducing employer contributions to defined contribution pensions and switching to once-a-year lump sum contributions, forcing employees to work unpaid overtime, classifying employees as independent contractors to avoid paying benefits and workingman’s compensation contributions, increasing the number of unpaid internships, hiring new workers through temp agencies, requiring employees to sign non-compete agreements, offering only one-off bonuses and other rewards instead of annual pay raises, and layoffs, not only during recessions, but also after mergers and acquisitions. Non-cyclical layoffs have become a permanent feature of the new economy.

    Economic marginalization of ordinary working Americans in the private sector is once again a core organizing principle of American conservatism.

    What a mean-spirited and nasty thing to do.


  • Dave Bellini

    Is the state of Vermont going to apply these new definitions to itself? Over the years the State has been the biggest abuser of this even under current law. It’s good that we are getting a new A.G. and perhaps some enforcement.

  • Jay Eshelman

    A difference without a distinction.

    Re: “While companies can face stiff penalties for misclassification, the labor laws protecting those workers are not always enforced.”

    OK. So the remedy, then, is to make yet another labor law that’s not always enforced. That makes sense.

    RE: “…. a misclassified worker making $44,000 a year could end up paying more than $3,000 in federal Social Security and Medicare taxes that the employer should have been paying.”

    Folks, the referenced taxes must be paid one way or another. Nothing new there.

    If a worker is a bona fide sub-contractor, the subcontractor pays the taxes.

    If the worker is a bona fide employee, the employer pays the taxes, adding to the employer’s cost of doing business and decreasing the amount of money available to the employee.

    In either case, the taxes diminish the amount of discretionary income a contractor or an employee has available to them. The point is that when a ‘sub-contractor’ does work, it’s under a ‘contract’ that the two businesses negotiated with each other in good faith and, one would think, the contractor’s ‘contract’ includes in its price the cost of those taxes as does the wage consideration between an employer and an employee.

    This story is about more ‘pillow-arranging’ by people who want us to believe they know what they’re doing on our behalf and that the rest of us don’t know what we’re doing.

    But keep something else in mind, folks. These ‘pillow arrangers’ are costing the economy money too, money that could be used for commerce, including the taxes the ‘pillow-arrangers’ think they know something about.

    Post Script:

    “If you assume that 95 percent of people in Vermont are good actors in business … that still leaves the percentage of people who may abuse any law,” Stevens said.

    “And so (when we change the law), do we do this in a way that people who may not (understand) it right away are abused?”

    What???? Is this ‘pillow arranger’ saying that laws prevent abuse? …..even when the laws already on the books aren’t enforced?

    The sky is falling and pieces of it hit must have hit the ‘pillow-arrangers’ on the head.

  • Howard Ires

    Another bill to make it harder to earn a decent living in Vermont, now every employer will be looking to re-classify as many workers as possible as “contractors” to avoid paying benefits. Bills like this are why skilled workers choose to work in NY, NH, or MA where wages are higher and working conditions better.

  • Jennifer Roberts

    Good luck getting a handyman at a reasonable cost. The cost to a person who is self-employed and does not hire employees is screwed. Another hit to small business.

  • Lee Russ

    “Lobbyist Bill Driscoll said. ‘I think it just draws a sharper line between who is and is not an employee.'” Spoken like a lobbyist. The problem, Mr. Driscoll, is where the line is drawn. No matter how “clear” the line, it can cause nightmares for working people if it is in the wrong place.

  • Roger Carnahan

    I wonder what Mr. Hoffer thinks of the farms. Are they classified correctly? Are they paying minimum wage or workers comp?

    Considering this law is not enforced equally, Why would any employer follow it 100%.

  • The reality now for the “Trade” profession (self employed or a general contractor) is that EVERYONE is required to carry worker comp policies. This is an unwritten directive from insurance companies.

    All insurance companies have basically deemed VT waivers as too risky to accept due to the existing vague definition of the contractor/ subcontractor relationship.

    H867 fixes all definitions and will force VT worker comp waivers to be accepted as they were intended to be in the first place.

    EVERY TRADESMAN now is audited once a year by their INSURANCE CARRIERS…who needs the state to audit anything ( heavy sarcasm). Big trouble occurs if they find your record tracking is not correct $$$$$$$$

    The result?

    Sole proprietor-self employed subs have to purchase $600-$1000 dollar policies each year. These policies DO NOT cover the sole proprietor if injury occurs. The insurance industry calls these ghost policies. Ghost policies are intended to cover theoretical employees a sub may bring to a job site. Worthless.

    General Contractors are required by their insurance carriers to have subs carry their own W/C policies-no waivers accepted if you want to work in VT.

    Who is winning with the current status quo?

    The insurance companies $$$$$$$$$.

    Mary Hanson

    • Max D. Meridi

      Thank You, Mary. You’re the first to point out the 800 lb. gorilla in the corner of this little room.

      It’s not FICA, Medicare, or Unemployment that has employers wanting to divorce employees. It’s the major expense and undertaking of Workman’s Compensation, General Liability, and (ultimately) Health Insurance. Who carries the burden of liability at a job site accident (including property damage) where all workers are uninsured/under-insured subcontractors?

  • Susanna Rodani

    By the way, anyone working on a construction project creates potential liability for the owner.
    Ultimately an uninsured worker could cause the owner a loss far in excess of the value of their investment. Picture the scenario where the guy shingling your roof who might even be hungover from the weekend which you cannot prove falls and is in a coma. He is in a coma for a year. He has a wife and six kids. He has no insurance and no assets. He is working under the table for his cousin who got the job. His cousin does not have insurance either. Who is going to get sued?
    The owner.
    How many owners demand verified proof of insurance? The state is well intentioned here but without regulatory oversite on every job the law will have no teeth. The only way to make sure contractors are properly insured is by requiring permits, inspections, and the whole rest of what comes with progress. No insurance, No permit, No problem.

  • Susanna Rodani

    Sorry to point out that the roofer in the heading picture of this article is not using any form of safety restraints, there is no fall protection in the form of staging or platform scaffolding and he is working facing downward on the slope of the roof. Good thing his face isn’t visible or he could be fined.
    Of course nobody is checking the jobsite so it doesn’t really matter.