Transcript: Q&A w/ Sen. Al Franken on the use of independent contractors & payroll fraud – Nov. 12, 2013

Partial transcript of the Q&A with Sen. Al Franken (D-Minnesota) on the impacts of misclassifying employees as independent contractors and payroll fraud. The Senate Health, Education, Labor & Pensions subcommittee on employment and work place safety hearing was held on Nov. 12, 2013:

Sen. Al Franken (D-Minnesota):
Thank you, Mr. Chairman. Thank you for this very important hearing. Thank you – all of you – for your testimony.

I was just struck, Mr. Anderson, with Mr. MacKrell’s description of independent contractors that work with his business and his describing them as entrepreneurial and having insurance for their vehicles and that kind of thing.

You were, in your testimony, you did exactly the same thing, right? And nothing changed other than your being told that either you would be – you have to accept being an independent contractor or “don’t work at all”?

Matt Anderson, Residential Construction trim installer, Michigan:

Sen. Al Franken (D-Minnesota):
I think that’s a big difference. I mean, anyone acknowledge there isn’t a difference there? Okay, and we – Mr. Odom testified to the fact that he’s competing with companies that do exactly that. Now, Mr. Odom, you testified that it would serve – okay you get caught, it’s kind of the cost of doing business. You get a little bit of a fine that doesn’t reflect anything near the advantage that you get from doing this practice, which is unethical and illegal.

Was there any indication, Mr. Anderson, that your employer thought what they were doing was against the law or do you believe the employer was at all concerned about facing penalties?

Matt Anderson, Residential Construction trim installer, Michigan:
I don’t believe they were afraid of facing penalties. Like Mr. Odom said, it’s part of the cost. They’re willing to take that risk.

Sen. Al Franken (D-Minnesota):
Okay, I think that’s important.

Ms. Ruckelshaus, you talked about doing it during a recession. This practice becomes a widely-used practice, and employees are under a lot of pressure.

And Mr. Odom, I have to say I commend you for your sticking with your ethical way of doing business during the very difficult times, and I commend you for that.

But this is very common now. Ms. Ruckelshaus, you said you testified a few years ago and now it’s more common. Can you tell us a little bit about what happens during a recession?

And also, can you draw a distinction here between legitimate uses of independent contractors – and I don’t know much about your business, Mr. MacKrell – I understand what it is. It’s making those deliveries on the same day, like in Oregon. My goodness, an organ transplant delivery or something like that. But there’s a distinction here – a very clear distinction in my mind, is there not?

Cathy Ruckelshaus, Legal Co-Director, National Employment Law Project:
Yes, it is. And I think the question really is “Is the person running a business or not? Running his or her own business?”

And if you think about what that means, it means you have a specialized skill. You invest some capital. You can decide what you’re going to do and how you’re going to do it. You’re not integrated into somebody else’s business and doing their bidding and doing construction work or janitorial work.

The workers we see – the low-income workers – under no definition are they running their own business. I mean, restaurant servers – it’s hard to imagine how they could be called independent contractors and they are.

So, in a recession and when the unemployment is high as we’ve seen in the last several years, it is exacerbated and we’ve gotten a lot more calls. We’ve been involved in a lot more enforcement actions around the country because the workers have no bargaining power. They’ll take a job and they need a job. So if they’re told that the arrangement is changing on paper, they don’t have much of a choice. They take it because they need the job.

Sen. Al Franken (D-Minnesota):
Now, you mentioned that – and Mr. Odom, you do work in several states and that there have been efforts by states, including Minnesota, to get a handle on this. But what is the – to both of you – importance of federal legislation to address this?

Danny Odom, Odom Construction Systems, Inc., Knoxville, TN:
In our experience, the importance of the federal involvement here as opposed to the state level is because you have, as I mentioned in my testimony, multiple – a contractor can be touching several different states within a given project. He can be domiciled in Georgia, installing a project in Tennessee with labor workers sent out of Florida. So, there’s some issue of jurisdiction there that having clear-cut enforcement across at the federal level would help with.

Cathy Ruckelshaus, Legal Co-Director, National Employment Law Project:
There’s also a patchwork of state laws. Less than half have enacted laws that pertain in any way to independent contractor abuses, and most of them pertain only to construction because that’s the poster child of where the problems lie. It’s very patchwork. And then enforcement, as Sen. Casey mentioned earlier, is very spotty because of lack of resources. So it’s not enough.

We need federal oversight in leadership to really get a handle on the problem.


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One Comment on “Transcript: Q&A w/ Sen. Al Franken on the use of independent contractors & payroll fraud – Nov. 12, 2013

  1. Pingback: Transcript: Q&A w/ Sen. Johnny Isakson on the use of independent contractors & payroll fraud – Nov. 12, 2013 | What The Folly?!

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