Independent contractors and other contingent workers are not currently eligible for workers’ compensation, disability benefits, health insurance coverage, and pension benefits under federal and most state laws. This may well change if the two Democratic sponsors of a bill introduced today in Congress are able to get bipartisan support for their legislation to fund a portable benefits study for independent workers. While early commentators have focused on what the bill would seek to accomplish, this blog post will also comment on what the bill does not do, including providing any comfort to businesses that fail to properly classify independent contractors.
The bill, called the “Portable Benefits for Independent Workers Pilot Program Act,” represents a dramatic turn in the approach taken by Democrats in Congress with regard to independent contractors. Now, instead of focusing on sponsoring legislation to curtail the use of independent contractors and crack down on companies that misclassify them, the thrust by these two Democratic members of Congress is to recognize that legitimate independent contractors should be eligible for benefits and be able to carry those benefits from one gig to the next.
The study that the bill would fund, however, would not be completed and reported to Congress until the early fall of 2020, just before the next presidential election is scheduled to occur. In the meantime, this bill, if passed, would not change the test for independent contractor status or afford companies a safe harbor to misclassify W-2 employees as 1099ers – nor will it likely affect state regulators and plaintiffs’ class action lawyers from targeting companies that allegedly engage in IC misclassification.
What the Bill Would Do
The bill introduced today by Senator Mark Warner (D-Va.) and a companion bill introduced today by Representative Suzan DelBene (D-Wash.) would create a $20 million fund for states, local governments, and non-profit organizations to study “broad innovation and experimentation with respect to portable benefits” for independent workers. Two types of grants would be available: $5 million to evaluate and improve the design and implementation of existing models or approaches for providing portable benefits; and $15 million to study the design, implementation, and evaluation of new models or approaches for providing such benefits. Any governmental body or non-profit organization that receives a grant must use it to study an array of benefits and not limit its study to retirement-related benefits only. Grants will be awarded by the Secretary of Labor, who is directed by the bill to focus on proposed models or approaches that can be “replicated on a large scale or at the national level.”
The types of portable benefits contemplated by the bill are those referred to as “work-related benefits” – those “commonly provided to traditional full-time employees, such as workers’ compensation, skills training, disability coverage, health insurance coverage, retirement saving, income security, and short-term saving.”
The bill is based on the following proposed Congressional findings: that many independent workers such as independent contractors, temporary workers, self-employed, and others who engage in work on a contingent or alternative work arrangement are not eligible for “work-related benefits,” that the number of these independent workers in the U.S. is rapidly expanding, and that “[a]s the population of independent workers grows, it is increasingly important that [such] workers are provided portable benefits.”
The term “portable benefits” is defined to mean work-related benefits “that allow a[n independent] worker to maintain the benefits upon changing jobs,” and includes contributions made by the eligible independent worker and/or by an entity (or multiple entities) for whom the independent worker is performing services.
The Secretary of Labor would award grants for the upcoming fiscal year on a competitive basis to grantees whose proposals would “support broad innovation and experimentation with respect to portable benefits.” Not later than September 30, 2020, the Comptroller General of the United States would evaluate the outcome of the grants and report the results to Congress.
What the Bill Would Not Do
Since 2007, there have been a dozen bills proposed in Congress to address independent contractors. Most were designed to curtail the use of ICs and punish those businesses that misclassified W-2 employees as 1099 contractors. Those bills, which are listed on a Resource page of this blog, included bills called the Payroll Fraud Prevention Act, Employee Misclassification Prevention Act, and Fair Playing Field Act. Not a single one of those bills became law.
In stark contrast, though, during the same 10-year period, more than two dozen states passed legislation addressing independent contractors. Most of these state laws (also listed on a Resource page of this blog) created greater penalties for IC misclassification or sought to curtail the use of independent contractors by making the test for IC status considerably more challenging. Not all of the state laws, however, were enacted to limit the use of ICs; a few provide safe harbors for businesses using legitimate ICs.
This newly proposed bill by Sen. Warner and Rep. DelBene would not provide a safe harbor, would not change the federal tests for IC status, and would not create penalties for IC misclassification. Rather, instead of addressing the legal status of independent contractors, this new bill responds to an increasing body of literature that confirms that more U.S. workers are finding work in the contingent workforce and that more of those contingent workers are equally if not more content in alternative work arrangements. As the U.S. Government Accountability Office (GAO) reported in a comprehensive study released in May 2015, 85% of independent contractors “appeared content with their employment type,” and that significantly more independent contractors (57%) were “very satisfied” with their jobs compared to those who held standard full-time employment (45%).
Analysis and Takeaways
In the past, Sen. Warner has been a proponent of creating new laws to rein in the use of independent contractors in the gig economy, as noted in a post earlier today by Caroline O’Donovan of BuzzFeed. In her article, O’Donovan notes that Sen. Warner had been a frequent proponent of creating a third classification of workers in the U.S., somewhere between employees and independent contractors.
Now, with the changing political landscape in Washington, Sen. Warner seems to have concluded what even former U.S. Labor Secretary Thomas Perez stated publicly: that while some companies misuse the IC classification, “there’s an important place for independent contractors” in the U.S. economy. Further, Sen. Warner’s bill now effectively acknowledges that because federal laws and almost all state laws permit the use of legitimate independent contractors ,Congress should look for ways to better the economic well-being of those workers who are properly classified as ICs.
There is, nonetheless, one caveat: this bill will not relieve businesses that use ICs from misclassification liability if they fail to structure, document, and implement their IC relationships in a manner that complies with applicable federal and state laws governing the status of workers as independent contractors. As I report each month in my comprehensive update on developments in the courts and before administrative agencies, companies that fail to satisfy the varying federal tests for IC status and a crazy quilt of state law tests for IC status are all too often the subject of multimillion dollar judgments and settlements in class action lawsuits and administrative proceedings.
Many companies have therefore chosen to enhance their IC compliance through a process such as IC Diagnostics™, which examines whether a group of workers would pass the applicable tests for IC status under governing state and federal laws, and then offers a number of practical, alternative solutions to enhance compliance with those laws. One such solution is the restructuring, re-documenting, and re-implementing of IC relationships in a customized manner that retains a company’s business model. For those companies that seek to retain skilled freelancers, gig workers, and other types of independent contractors to sustain their businesses into the next decade, Sen. Warner’s and Rep. DelBene’s bill may eventually result in a benefits environment that makes such contingent workers even more content with their independent work arrangements than were the respondents in the 2015 GAO report.
Written by Richard Reibstein