Kerry Introduces Legislation to Reclassify Contractors

By Eric Miller, Staff Reporter

This story appears in the Jan. 4 print edition of Transport Topics.

The on-again, off-again fight to toughen classification standards for independent contractors is on again.

This time, the effort is being led by Sen. John Kerry (D-Mass.), who in December introduced a bill trucking industry officials said would erode the protections afforded employers against attempts by the Internal Revenue Service to reclassify independent contractors as employees.

So far, a similar House bill introduced in July by Rep. Jim McDermott (D-Wash.), has been dormant — and past efforts in recent years have failed. In 2007, President Obama introduced similar legislation while still a senator.

Kerry’s bill specifically targets Section 530 of the Revenue Act of 1978, known as the “safe harbor” provision, which allows employers to classify workers as contractors for employment tax purposes.

Kerry said his bill, which is supported by the Teamsters union, would stop employers from misclassifying some workers as independent contractors, denying them such rights as overtime, minimum wage, unemployment insurance and workers compensation.

“This is about leveling the playing field and ensuring that America’s workers receive the protections and pay they deserve,” Kerry said in a statement. “We cannot continue to reward businesses who refuse to play by the rules.”

The legislation is not being welcomed by the trucking industry, which employs an estimated 500,000 or more independent contractors.

“It is very important to the trucking industry — and many other industries as well — to preserve Section 530, and the Kerry legislation would remove the protections granted independent contractor status,” said Clayton Boyce, a spokesman for American Trucking Associations.

“Independent contractors are broadly involved in the trucking industry, and their status

is mutually beneficial for both trucking companies and owner-operators.”

For motor carriers, owner-operators provide a number of advantages, enabling them to save on equipment and capital costs, ATA said.

“Independent contractor status is a business model for many industries, not just trucking,” said Tim Lynch, an ATA senior vice president. “But there are special circumstances in trucking because freight flows vary from day to day, week to week, month to month. The use of independent contractors allows us to meet the surges in peak demand on a daily, weekly or monthly basis.”

According to an August report from the Government Accountability Office, about 10.3 million workers, or 7.4% of the employed workforce, were classified as independent contractors in the United States in 2005. In fiscal 2007, states uncovered at least 150,000 workers who may not have received protections and benefits to which they were entitled because their employers misclassified them as independent contractors when they should have been classified as employees, GAO said.

Kerry’s bill — the Taxpayer Responsibility, Accountability and Consistency Act of 2009 — would require companies to file reports with the IRS on each corporate provider of property and service to whom they pay more than $600 a year. It would also make changes to Section 530 to “reduce abuses.”

“Misclassification hurts responsible employers who pay their taxes, provide health insurance and respect their workers’ right to join a union,” Teamsters General President James Hoffa said in a statement. “It lets unscrupulous employers cheat workers out of benefits they’re entitled to.”

But Robert Digges, ATA vice president and deputy chief counsel, said the trucking industry’s independent contractor status has been well accepted for decades and confirmed by countless courts, including the U.S. Supreme Court.

“Without Section 530, small employers would have no choice but to abandon the use of independent contractors because they could not afford the hundreds of thousands of dollars needed to fight the IRS over the issue,” Digges said. “Section 530 allows employers to defend worker status without bankrupting themselves.”