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Stricter definition of ‘employee’ sought

Special to the Legal News

Published: July 3, 2014

State Reps. Debbie Phillips and Denise Driehaus are stumping for the passage of a bill that would carve out a general uniform definition of employee for specified labor laws.

House Bill 347, also known as the Honest Employer Protection Act, would replace the definition of employee in the Minimum Fair Wages Standards law and the Industrial Commission and Bureau of Workers’ Compensation law with a new definition.

That new definition would be based on the recommendations of a multi-agency worker misclassification task force made up of the Ohio Attorney General’s office, the BWC, the Ohio Department of Jobs and Family Services and the Ohio Department of Taxation.

If enacted, the act would prohibit any person from requiring or requesting an individual enter into an agreement or sign a document that results in the misclassification of the individual as an independent contractor or otherwise does not accurately reflect the individual’s relationship with an employer.

The measure also would expand the definition of “employment” for the purposes of the unemployment compensation law as it relates to services provided by delivery drivers and specified salespersons.

It also seeks to remove the factor test used in the worker’s compensation law and the unemployment compensation law to determine whether an individual providing construction services is an employee for purposes of those laws.

HB 347 would ban an employer from retaliating against an individual who takes specified actions listed in the bill and outlines criminal and civil penalties for whoever violates any of the bill’s prohibitions and doubles the civil penalties if the employer knowingly committed the violation.

In recent sponsor testimony for the proposed legislation, Phillips, D-Athens, and Driehaus, D-Cincinnati, said the new definition will allow for more uniform enforcement by state agencies.

“The most common form of misclassification is declaring an employee an independent contractor while treating the employee as a traditional worker,” Driehaus said.

“Businesses and corporations who misclassify employees often do so in an effort to avoid paying workers’ compensation premiums, unemployment insurance premiums and other costs which honest and fair businesses pay.”

Driehaus said such practices “dismantle the integrity of these employee and employer benefit systems and do so at the expense of those that follow the rule of law.”

“By working to ensure that all businesses are paying into the system in a fair manner, we can help to control the rising costs of some programs as well as create a more competitive and level field for honest businesses,” she said. “In other words, we are working to protect honest businesses.”

The pair of lawmakers highlighted a 2009 report released by the attorney general’s office on the economic impact of misclassified workers for state and local governments within the state.

A summary of the report’s findings show that employee misclassification has cost the state up to $800 million annually through foregone state income tax revenues, BWC premiums and local income taxes.

“Many Americans go to work each day and earn a paycheck. Part of their earnings they use at their discretion: to provide for their families, donate to a church or charity or spend for leisure pursuits,” the report stated. “Some of that money, as we are all well aware, is returned to the government for the public benefit, in the form of taxes and fees. But other workers and employers do not share the cost of public services maintained at the federal, state and local government levels.”

The report refers to such workers as members of the “underground economy” and states they might be engaged in illegal commerce or compensated for legitimate work in cash and other benefits that elude detection by the Internal Revenue Service and state and local tax officials.

“Although much of the underground economy routinely falls under the radar screen, there are ways to identify when someone is being paid ‘off of the books’ or when employers fail to pay their fair share of taxes. But the nature of the underground economy becomes murkier with the contemplation of worker misclassification,” state officials wrote.

“The practice of classifying employees as independent contractors to avoid payroll taxes and other charges is apparently widespread across the country. This misclassification problem represents a kind of ‘black market’ that operates, as it often is consciously intended, to defeat government regulation and taxation. The most obvious effect of this structured noncompliance with the law is that it costs federal, state and local governments the revenues that are expected and needed to fund public services and programs.”

The director of the Ohio Department of Commerce would be tasked with administering and enforcing the bill.

“Essentially, the creation of a uniform definition of employee will allow greater clarity, better cross-agency collaboration and a level playing field,” Phillips said.

“Employers who are playing by the rules should not face a competitive disadvantage as a result, and workers should not have their safety and financial security undermined through semantic game-playing.”

Phillips said employee misclassification is impacting Ohio’s ability to invest in human capital and infrastructure.

“This issue is one of fairness for employers and for workers. It will help to protect the integrity of workers’ compensation and unemployment insurance,” she said, adding that other states are moving forward to address “this vexing problem.”

“Illinois, West Virginia, Delaware, Colorado, Massachusetts, Nebraska and Missouri have enacted similar laws, and several other states are considering such legislation. New York, Michigan and Connecticut have created task forces to look into the issue. To be clear, the goal of the Honest Employer Protection Act is to create a level playing field and to ensure a truly competitive economic environment in our state.”

HB 347 is co-sponsored by Reps. Nick Barborak, Kathleen Clyde, Mike Foley, Robert Hagan, Tracy Heard, Matt Lundy, Dale Mallory, Dan Ramos, Michael Sheehy and Fred Strahorn.

The bill is before the House Commerce, Labor and Technology committee.

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