[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]




 
                    MISCLASSIFICATION OF EMPLOYEES:
                    EXAMINING THE COSTS TO WORKERS,
                      BUSINESSES, AND THE ECONOMY

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS


                         COMMITTEE ON EDUCATION
                               AND LABOR
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, SEPTEMBER 26, 2019

                               __________

                           Serial No. 116-41

                               __________

      Printed for the use of the Committee on Education and Labor
      
      
      
      
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





           Available via the World Wide Web: www.govinfo.gov
                                   or
              Committee address: https://edlabor.house.gov
              
              
              
                           ______                       


             U.S. GOVERNMENT PUBLISHING OFFICE 
 37-858 PDF           WASHINGTON : 2021 
               
              
              
              
              
                    COMMITTEE ON EDUCATION AND LABOR

             ROBERT C. ``BOBBY'' Scott, Virginia, Chairman

Susan A. Davis, California           Virginia Foxx, North Carolina,
Raul M. Grijalva, Arizona            Ranking Member
Joe Courtney, Connecticut            David P. Roe, Tennessee
Marcia L. Fudge, Ohio                Glenn Thompson, Pennsylvania
Gregorio Kilili Camacho Sablan,      Tim Walberg, Michigan
  Northern Mariana Islands           Brett Guthrie, Kentucky
Frederica S. Wilson, Florida         Bradley Byrne, Alabama
Suzanne Bonamici, Oregon             Glenn Grothman, Wisconsin
Mark Takano, California              Elise M. Stefanik, New York
Alma S. Adams, North Carolina        Rick W. Allen, Georgia
Mark DeSaulnier, California          Lloyd Smucker, Pennsylvania
Donald Norcross, New Jersey          Jim Banks, Indiana
Pramila Jayapal, Washington          Mark Walker, North Carolina
Joseph D. Morelle, New York          James Comer, Kentucky
Susan Wild, Pennsylvania             Ben Cline, Virginia
Josh Harder, California              Russ Fulcher, Idaho
Lucy McBath, Georgia                 Van Taylor, Texas
Kim Schrier, Washington              Steve Watkins, Kansas
Lauren Underwood, Illinois           Ron Wright, Texas
Jahana Hayes, Connecticut            Daniel Meuser, Pennsylvania
Donna E. Shalala, Florida            William R. Timmons, IV, South 
Andy Levin, Michigan*                    Carolina
Ilhan Omar, Minnesota                Dusty Johnson, South Dakota
David J. Trone, Maryland             Fred Keller, Pennsylvania
Haley M. Stevens, Michigan
Susie Lee, Nevada
Lori Trahan, Massachusetts
Joaquin Castro, Texas
* Vice-Chair

                   Veronique Pluviose, Staff Director
                 Brandon Renz, Minority Staff Director
                                 ------                                

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

               ALMA S. ADAMS, North Carolina, Chairwoman

Mark DeSaulnier, California          Bradley Byrne, Alabama,
Mark Takano, California                Ranking Member
Pramila Jayapal, Washington          Mark Walker, North Carolina
Susan Wild, Pennsylvania             Ben Cline, Virginia
Lucy McBath, Georgia                 Ron Wright, Texas
Ilhan Omar, Minnesota                Fred Keller, Pennsylvania
Haley M. Stevens, Michigan

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on September 26, 2019...............................     1

Statement of Members:
    Adams, Hon. Alma S., Chairwoman, Subcommittee on Workforce 
      Protections................................................     1
        Prepared statement of....................................     3
     Byrne, Hon. Bradley, Ranking Member, Subcommittee on 
      Workforce Protections......................................     5
        Prepared statement of....................................     6

Statement of Witnesses:
    Chemers, Mr. Alexander M., J.D., Shareholder, Ogletree, 
      Deakins, Nash, Smoak, and Stewart, P.S.....................    45
        Prepared statement of....................................    47
    Crawford, Ms. Maria, GIG Worker..............................    57
        Prepared statement of....................................    59
    Dworak-Fisher, Ms. Sally, Attorney, Public Justice Center....     8
        Prepared statement of....................................    11
    Passantino, Mr. Alexander J., J.D., Partner, Seyfarth Shaw, 
      LLP........................................................    30
        Prepared statement of....................................    32
    Racine, Hon. Karl A., J.D., Attorney General for the District 
      of Columbia, Office of Attorney General....................    63
        Prepared statement of....................................    65
    Townsend, Matt, CEO of OCP Contractors, Inc., President, 
      Signatory Wall and Ceiling Contractors Alliance (SWACCA)...    37
        Prepared statement of....................................    39

Additional Submissions:
    Ms. Adams:
        Letter dated September 26, 2019 from the Construction 
          Employers of America (CEA).............................    95
     Mr. Byrne:
        Supplemental Statement...................................    97
        Letter dated October 7, 2019 from the National 
          Association of Home Builders (NAHB)....................    98


                    MISCLASSIFICATION OF EMPLOYEES:

                    EXAMINING THE COSTS TO WORKERS,

                      BUSINESSES, AND THE ECONOMY

                              ----------                              


                      Thursday, September 26, 2019

                       House of Representatives,

                 Subcommittee on Workforce Protections,

                   Committee on Education and Labor,

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:19 a.m., in 
Room 2175, Rayburn House Office Building, Hon. Alma S. Adams 
[chairwoman of the subcommittee] presiding.
    Present: Representatives Adams, DeSaulnier, Takano, Wild, 
Stevens, Byrne, Walker, Cline, Wright, and Keller.
    Also Present: Representatives Scott, Norcross, and Foxx.
    Staff Present: Tylease Alli, Chief Clerk; Ilana Brunner, 
General Counsel; Sharit Cardenas, Labor Policy Fellow; Emma 
Eatman, Press Assistant; Eli Hovland, Staff Assistant; Eunice 
Ikene, Labor Policy Advisor; Stephanie Lalle, Deputy 
Communications Director; Jaria Martin, Clerk/Assistant to the 
Staff Director; Kevin McDermott, Senior Labor Policy Advisor; 
Richard Miller, Director of Labor Policy; Max Moore, Office 
Aid; Merrick Nelson, Digital Manager; Udochi Onwubiko, Labor 
Policy Counsel; Veronique Pluviose, Staff Director; Banyon 
Vassar, Deputy Director of Information Technology; Jonathan 
Walter, Labor Policy Fellow; Joshua Weisz, Communications 
Director; Rachel West, Senior Economic Policy Advisor; Cyrus 
Artz, Minority Parliamentarian; Courtney Butcher, Minority 
Director of Member Services and Coalitions; Akash Chougule, 
Minority Professional Staff Member; Cate Dillon, Minority Staff 
Assistant; Rob Green, Minority Director of Workforce Policy; 
Dean Johnson, Minority Staff Assistant; Jeanne Kuehl, Minority 
Legislative Assistant; John Martin, Minority Workforce Policy 
Counsel; Hannah Matesic, Minority Director of Operations; Audra 
McGeorge, Minority Communications Director; Carlton Norwood, 
Minority Press Secretary; Brandon Renz, Minority Staff 
Director; and Ben Ridder, Minority Professional Staff Member, 
and Lauren Williams, Minority Professional Staff Member.
    Chairwoman Adams. Good morning, the Subcommittee on 
Workforce Protections will come to order. Welcome to everyone. 
I note that a quorum is present. So I also note for the 
subcommittee that Mr. Norcross of New Jersey is permitted to 
participate in the hearing today with the understanding that 
his questions will come only after all Members of the Workforce 
Protection Subcommittee on both sides of the aisle who are 
present have an opportunity to question the witnesses.
    The subcommittee is meeting today in a legislative hearing 
to hear testimony on misclassification of employees and its 
cost to workers, businesses, and the economy.
    Pursuant to Committee Rule 7(c), opening statements are 
limited to the Chair and the Ranking Member. This allows us to 
hear from our witnesses sooner and provides all Members with 
adequate time to ask questions.
    I recognize myself now for the purpose of making an opening 
statement.
    Today we are gathered to discuss worker misclassification, 
a pervasive problem that imposes significant cost to workers, 
businesses, and our economy. When a worker who should be an 
employee under the law is categorized anything else, such as an 
independent contractor, there is misclassification. And this 
misclassification is too often used as a cost cutting strategy 
by low road employers to gain an unfair competitive advantage. 
And while we do need more up to date comprehensive national 
research on misclassification, we know from available data that 
a significant portion of the U.S. workforce may be affected. As 
our witnesses will testify, this has severe consequences for 
workers.
    The Fair Labor Standards Act has a broad employment 
standard that helps ensure a wide range of workers have basic 
wage and hourly protections. This year our committee has passed 
legislation to strengthen these protections so that hardworking 
Americans are paid fairly for their labor. This includes 
passing an increase to the minimum wage out of the House for 
the first time in more than a decade.
    This subcommittee has also sought to hold the 
Administration accountable for promoting weak overtime 
protections. When workers are misclassified, they lose out on 
these and other protections that ensure workers are paid for 
the hours that they work. This can translate into a significant 
income loss for low wage workers. For example, in 2012 the Wage 
and Hour Division recovered roughly $250,000 in unpaid overtime 
and minimum wages for 75 workers who were misclassified by a 
cleaning company, the equivalent of nearly 3 months of 
earnings.
    And misclassification is not only bad for workers, it also 
harms businesses that classify the employees lawfully by 
providing bad actors an unfair advantage. Estimates show that 
employers can save as much as 30 percent on payroll and related 
taxes by misclassifying workers. And as we will hear from our 
witnesses, law abiding businesses who want no part of 
misclassification schemes are forced to compete against low 
road employers who use misclassification as a strategy to 
undercut their competitors by evading basic labor protections.
    Finally, worker misclassification harms our economy. 
Available data show that misclassification deprives our 
government of badly needed tax revenue that could be spent on 
our communities. According to the 2009 GAO report, roughly 15 
percent of employers misclassified 3.4 million workers in 1984. 
In that year alone, misclassification cost the Federal 
Government $1.6 billion in lost tax revenue. Adjusted for 
inflation, that is $3.72 billion today.
    Conversation around misclassification is nothing new. A 
Department of Labor Commission report from nearly 20 years ago 
indicated that anywhere between 10 and 30 percent of employers 
in audited states misclassified at least 1 of their workers. 
For decades unscrupulous employers have tried to cut labor 
costs by treating workers who should be considered employees 
under the law as anything but employees.
    The evidence is clear that misclassification violates 
workers' rights, damages law abiding businesses, and increases 
the burden on taxpayers. State governments across the country 
and across the political spectrum, from the District of 
Columbia to Missouri, have taken bipartisan steps toward 
combating misclassification. And over the last several years at 
least 20 states have enacted laws to more effectively combat 
misclassification and more than 15 states have initiated 
innovative government taskforces to do the same. As states take 
the lead, the Federal Government must also do its part to 
uphold worker protections and defend the many employers who 
play by the rules.
    And that is why Congress must pass the Payroll Fraud 
Prevention Act. This legislation would help reduce 
misclassification by requiring employers to accurately classify 
their workers and to provide all workers they hire with a 
written notice of their classification. The bill would hold 
employers accountable for misclassification by establishing 
civil penalties for violations and extend the private right of 
action to misclassified employees to recover lost wages.
    The bill would also improve the detection of 
misclassification by directing the Wage and Hour Division to 
conduct audits of industries with frequent incidents of 
misclassification.
    Each of us in this room has a responsibility to ensure that 
workers are properly treated as employees when in fact they are 
employees and provided the protections that they are guaranteed 
under the law.
    Today's hearing is an opportunity for this committee to 
come together, build upon state level efforts and take concrete 
bipartisan steps toward improving the lives of workers across 
the country.
    I want to thank the witnesses for their testimony and 
express my appreciation for taking the time to be with us 
today.
    I now recognize the distinguished Ranking Member for the 
purpose of making an opening statement.
    [The statement by Chairwoman Adams follows:]

 Prepared Statement of Hon. Alma S. Adams, Chairwoman, Subcommittee on 
                         Workforce Protections

    Today, we are gathered to discuss worker misclassification, a 
pervasive problem that imposes significant costs to workers, 
businesses, and our economy.
    When a worker who should be an employee under the law is 
categorized as anything else, such as an independent contractor, there 
is misclassification.
    And this misclassification is too often used as a cost cutting 
strategy by low-road employers to gain an unfair competitive advantage.
    While we do need more up-to-date, comprehensive national research 
on misclassification, we know from available data that a significant 
portion of the U.S. workforce may be affected.
    As our witnesses will attest, this has severe consequences for 
workers.
    The Fair Labor Standards Act has a broad employment standard that 
helps ensure a wide range of workers have basic wage and hour 
protections.
    This year, our committee has passed legislation to strengthen these 
protections so that hardworking Americans are paid fairly for their 
labor.
    This includes passing an increase to the minimum wage out of the 
House for the first time in more than a decade.
    This subcommittee has also sought to hold the Administration 
accountable for promoting weak overtime protections.
    When workers are misclassified, they lose out on these and other 
protections that ensure workers are paid for the hours they work.
    This can translate into a significant income loss for low-wage 
workers.
    For example, in 2012, the Wage and Hour Division recovered roughly 
$250,000 in unpaid overtime and minimum wages for 75 workers who were 
misclassified by a cleaning company --the equivalent of nearly three 
months of earnings.
    And misclassification is not just bad for workers, it also harms 
businesses that classify their employees lawfully by providing bad 
actors an unfair advantage.
    Estimates show that employers can save as much as 30 percent on 
payroll and related taxes by misclassifying workers.
    As we will hear from our witnesses, law-abiding businesses who want 
no part of misclassification schemes are forced to compete against low-
road employers who use misclassification as a strategy to undercut 
their competitors by evading basic labor protections.
    Finally, worker misclassification harms our economy.
    Available data shows that misclassification deprives our government 
of badly needed tax revenue that could be spent on our communities.
    According to a 2009 GAO report, roughly 15 percent of employers 
misclassified 3.4 million workers in 1984.
    In that year alone, misclassification cost the federal government 
$1.6 billion in lost tax revenue. Adjusted for inflation, that is $3.72 
billion today.
    The conversation around misclassification is nothing new.
    A Department of Labor-commissioned report from nearly 20 years ago 
indicated that anywhere between 10 and 30 percent of employers in 
audited states misclassified at least one of their workers.
    For decades, unscrupulous employers have tried to cut labor costs 
by treating workers who should be considered employees under the law as 
anything but employees.
    The evidence is clear that misclassification violates workers' 
rights, damages law-abiding businesses, and increases the burden on 
taxpayers.
    State governments across the country and across the political 
spectrum, from the District of Columbia to Missouri, have taken 
bipartisan steps towards combatting misclassification.
    Over the last several years, at least 20 states have enacted laws 
to more effectively combat misclassification and more than 15 states 
have initiated innovative government taskforces to do the same.
    As states take the lead, the federal government must also do its 
part to uphold worker protections and defend the many employers who 
play by the rules.
    That is why Congress must pass the Payroll Fraud Prevention Act.
    This legislation would help reduce misclassification by requiring 
employers to accurately classify their workers and to provide all 
workers they hire with a written notice of their classification.
    The bill would hold employers accountable for misclassification by 
establishing civil penalties for violations and extend a private right 
of action to misclassified employees to recover lost wages.
    The bill would also help improve the detection of misclassification 
by directing the Wage and Hour Division to conduct audits of industries 
with frequent incidents of misclassification.
    Each of us in this room has a responsibility to ensure that workers 
are properly treated as employees, when in fact they are employees, and 
provided the pay protections they are guaranteed under law.
    Today's hearing is an opportunity for this Committee to come 
together, build upon state-level efforts, and take concrete, bipartisan 
steps towards improving the lives of workers across the country.
    I want to thank the witnesses for their testimony and express my 
appreciation for taking the time to be with us today.
    I now yield to the Ranking Member, Mr. Byrne, for an opening 
statement.
                                 ______
                                 
    Mr. Byrne. Thank you, Madam Chairwoman, for yielding.
    This subcommittee has jurisdiction over the Fair Labor 
Standards Act, which offers protections to more than 143 
million workers in this country every day. Today the Majority 
has scheduled this hearing to examine how workers are 
classified under the Fair Labor Standards Act, in particular, 
the challenges and implications of determining whether worker 
is an employee who works for a business, an independent 
contractor who works for themselves but provides services to a 
business, or a worker who is employed by a separate business.
    To compete in our modern and ever-changing economy, 
companies and individuals are seeking flexible workforce 
arrangements. We hear about that a lot in this committee. 
Workers recognize and seek out the benefits and flexibility 
these arrangements provide as they can significantly improve 
the quality of life for many workers, as well as their 
families. This is a growing trend among American workers that 
should be encouraged, not impeded.
    I have two members of my family who have chosen to be 
independent contractors so that they can have that flexibility. 
We do not want to impede that, we want to encourage that. Many 
businesses who also value flexibility are turning to these 
independent contractors. The use of independent contractors 
makes sense for many job creators to obtain high quality 
services and for many workers who want to offer their skills on 
their own terms, and for consumers who benefit from a reduction 
in the cost of goods and services.
    The overwhelming majority of businesses follow the law and 
want to do what is expected of them. Sometimes it seems we as 
policy makers make it harder than it needs to be for that to 
happen.
    Which brings me to the Democrats' purported solution, the 
Payroll Fraud Prevention Act of 2019. This proposed legislation 
would amend the Fair Labor Standards Act to radically expand 
reporting mandates for employers and create new and punitive 
penalties for misclassifying employees. In other words, the 
legislation will increase the legal risk to business owners and 
make it too costly for them to use independent contractors to 
provide services. In fact, all workers providing services to a 
business will get swept up in the extreme mandates in this 
bill, not only independent contractors, but also sub-contractor 
employees, vendor employees, caterers, delivery drivers, taxi 
drivers, and others. Tying the hands of independent contractors 
and other service providers with excessive bureaucratic red 
tape will also increase the cost for consumers and will limit 
work opportunities for individuals who desire flexibility or 
who want to work on their own terms, which is increasingly the 
case in our workforce, especially among younger people, 
especially among women.
    The Fair Labor Standards Act already has strong remedies in 
place for employers who misclassify workers and violate minimum 
wage and overtime requirements. All workers should be paid in 
full for their work. That is why we committee Republicans 
support enforcement of the Fair Labor Standards Act as written. 
We shouldn't penalize Americans who work for themselves or 
companies for doing business with them. Instead, we should 
applaud these Americans for their entrepreneurial spirit.
    The draft bill we examine today is lacking in many ways and 
adds additional complexity to what is already a complicated 
area of law, which is demonstrated by the fact that the bill 
would apply to all types of business relationships that I am 
sure were unintended. Instead of considering an unworkable bill 
that will damage workers and business, we should be discussing 
how to modernize the Fair Labor Standards Act and bring it into 
the 21st century, something I have been calling for a long 
time. Our laws do not match the workplace of the 21st century.
    Finally, I find it interesting that the issue we are 
discussing in today's hearing was also a primary focus of a 
bill that this committee approved yesterday, which would turn 
the independent contractor classification on its head. There 
was an additional Democrat amendment yesterday offered which 
would further muddy the waters for independent contractors. It 
appears to me that committee Democrats decided on their 
preferred approach, which makes me question the purpose of 
today's meeting. It seems to me the decision has already been 
made and this hearing is a fig leaf for the decision that was 
made and acted on by the full committee yesterday.
    I do thank the witnesses for being here and I look forward 
to their testimony.
    And I thank you for yielding, Madam Chairman.
    [The statement by Mr. Byrne follows:]

Prepared Statement of Hon. Bradley Byrne, Ranking Member, Subcommittee 
                on Subcommittee on Workforce Protections

    This Subcommittee has jurisdiction over the Fair Labor Standards 
Act (FLSA), which offers protections to more than 143 million workers 
in this country every day. Today, the Majority has scheduled this 
hearing to examine how workers are classified under the FLSA--in 
particular, the challenges and implications of determining whether a 
worker is an employee who works for a business, an independent 
contractor who works for themselves but provides services to a 
business, or a worker who is employed by a separate business.
    To compete in our modern and ever-changing economy, companies and 
individuals are seeking flexible workforce arrangements. Workers 
recognize and seek out the benefits and flexibility these arrangements 
provide as they can significantly improve the quality of life for many 
workers as well as their families. This is a growing trend among 
American workers that should be encouraged, not impeded. Many 
businesses who also value flexibility are turning to independent 
contractors.
    The use of independent contractors makes sense for many job 
creators to obtain high-quality services, and for many workers who want 
to offer their skills on their own terms, and for consumers who benefit 
from a reduction in the cost of goods and services.
    The overwhelming majority of businesses follow the law and want to 
do what is expected of them. Sometimes, it seems, we as policymakers 
make it harder than it needs to be for that to happen, which brings me 
to the Democrats' purported 1solution, the Payroll Fraud Prevention Act 
of 2019.
    This proposed legislation will amend the FLSA to radically expand 
reporting mandates for employers and create new and punitive penalties 
for misclassifying employees.
    In other words, the legislation will increase the legal risks to 
business owners and make it too costly for them to use independent 
contractors to provide services. In fact, all workers providing 
services to a business will get swept up in the extreme mandates in 
this bill, not only independent contractors but also subcontractor 
employees, vendor employees, caterers, delivery drivers, taxi drivers, 
and others. Tying the hands of independent contractors and other 
service providers with excessive bureaucratic red tape will also 
increase costs for consumers and will limit work opportunities for 
individuals who desire flexibility or who want to work on their own 
terms.
    The FLSA already has strong remedies in place for employers who 
misclassify workers and violate minimum wage and overtime requirements. 
All workers should be paid in full for their work. That is why 
Committee Republicans support enforcement of the FLSA.
    We shouldn't penalize Americans who work for themselves or 
companies for doing business with them. Instead we should applaud these 
Americans for their entrepreneurial spirit.
    The draft bill we are examining today is lacking in many ways and 
adds additional complexity to what is already a complicated area of 
law, which is demonstrated by the fact that the bill would apply to all 
types of business relationships that I am sure were unintended. Instead 
of considering an unworkable bill that will damage workers and 
businesses, we should be discussing how to modernize the FLSA and bring 
it into the 21st century.
    Finally, I find it interesting that the issue we are discussing in 
today's hearing was also a primary focus of a bill that the committee 
approved yesterday, which would turn the independent contractor 
classification on its head. There was an additional Democrat amendment 
offered which would further muddy the waters for independent 
contractors. It appears to me that Committee Democrats decided on their 
preferred approach, which makes me question the purpose of today's 
hearing.
    However, I thank the witnesses for being here and I look forward to 
their testimony.
                                 ______
                                 
    Chairwoman Adams. And thank you very much.
    Without objection, all Members who wish to insert written 
statements into the record may do so by submitting them to the 
Committee Clerk electronically in Microsoft Word format by 5:00 
p.m. on Wednesday, October 9, 2019.
    At this time I want to introduce our witnesses. First of 
all, we have Miss Sally Dworak-Fisher who is an attorney at the 
Public Justice Center, a nonprofit legal organization in 
Maryland whose mission is pursuing systemic change to build a 
more just society. Ms. Dworak-Fisher leads the PJC's workplace 
justice project where she is litigating cases under the Fair 
Labor Standards Act, Maryland wage laws, and has led policy 
efforts to expand and improve protections for low wage workers 
and victims of wage theft.
    Mr. Alexander Passantino is a member of the DC office, 
leader for Seyfarth Shaw, LLP's Wage and Hour Litigation 
Practice Group, a former acting administrator of the U.S. 
Department of Labor's Wage and Hour Division. Mr. Passantino 
focuses his practice on all aspects of wage and hour law and 
represents employers before the United States Department of 
Labor.
    Mr. Matt Townsend is the chief executive officer of OCP 
Contractors, an interior systems contractor with offices in 
Cleveland, Columbus, and Toledo, Ohio. Mr. Townsend is 
testifying in his capacity as president of the Signatory Wall 
and Ceiling Contractor's Alliance, a national association 
representing construction company owners who employ tens of 
thousands of carpenters, drywall finishers, plasterers, and 
laborers throughout the United States.
    Mr. Alexander M. Chemers is a shareholder in the Los 
Angeles office of Ogletree, Deakins. Mr. Chemers defends 
employers against wage and hour claims, ranging from single 
plaintiff administrative proceedings to class actions involving 
thousands of putative class members.
    Miss Maria Crawford is from Altadena, California, proud 
wife of 25 years, mother of 2 adult daughters, grandmother of 2 
beautiful granddaughters. Maria is an outspoken leader among 
gig workers, saying technology is a source of opportunity that 
is not contingent on unfair labor standards.
    Attorney General Karl A. Racine is the first elected 
attorney general for the District of Columbia. He has 
prioritized data driven juvenile justice reform, consumer 
protection efforts, aimed at assisting the District's most 
vulnerable residents, measures to advance democracy and 
safeguard public integrity, and legal actions to protect 
affordable housing in communities across the District.
    Welcome to all of you. We appreciate all of the witnesses 
for being here today and look forward to your testimony. And 
let me remind the witnesses that we have read your written 
statements and they will appear in full in the hearing record.
    Pursuant to Committee Rule 7(d) and committee practice, 
each of you is asked to limit your oral presentation to a five 
minute summary of your written statement.
    Let me remind the witnesses that pursuant to Title 18 of 
the U.S. Code Section 1001, it is illegal to knowingly and 
willfully falsify any statement, representation, writing, 
document or material fact presented to Congress, or to 
otherwise conceal or cover up a material fact.
    Before you begin your testimony please remember to press 
the button on the microphone in front of you so that it will 
turn on and Members can hear you. As you begin to speak the 
light in front of you will turn green. After 4 minutes the 
light will turn yellow to signal that you have 1 minute 
remaining. When the light turns red your five minutes have 
expired and we ask that you please wrap up your comments.
    So we will let the entire panel make their presentations 
before we move to Member questions. When answering a question, 
please remember once again to turn on your microphone.
    I am going to first recognize Miss Dworak-Fisher for her 
testimony.

  TESTIMONY OF SALLY DWORAK-FISHER, ATTORNEY, PUBLIC JUSTICE 
                             CENTER

    Ms. Dworak-Fisher. Good morning, Chairwoman Adams, Members 
of the committee. Thank you for allowing me the opportunity to 
testify today.
    My name is Sally Dworak-Fisher and I am an attorney at the 
Public Justice Center in Maryland. I lead our workplace justice 
project, which litigates cases involving the failure to pay 
wages under the Fair Labor Standards Act, or FLSA, and Maryland 
wage laws.
    We primarily represent low wage workers, many of whom work 
in high growth industries. Our cases involve violations of the 
basic, minimum, and overtime requirements of the FLSA. Often 
the first response we hear from an employer is that the FLSA 
does not even apply, that our clients are beyond the reach of 
the statute. Why? Because the FLSA protects employees, but 
these businesses have classified their workers as independent 
contractors, unprotected by the statute.
    Where businesses misclassify an employee as an independent 
contractor, they not only deny the worker earned wages, they 
erode the effectiveness of the FLSA and create a race to the 
bottom as law abiding employers struggle to compete with those 
who cut costs through misclassification.
    My testimony today will briefly cover three things. First, 
I will describe the scope of the Fair Labor Standards Act, 
second, I will discuss some disturbing trends we have seen, and 
finally, I will conclude with a request for a Federal 
commitment to ensuring that the bedrock protections of the Fair 
Labor Standards Act are not undermined by schemes that 
eliminate coverage for vulnerable low wage workers whom the Act 
was designed to protect.
    The FLSA was enacted to eliminate substandard working 
conditions, and it defined covered employees broadly to achieve 
that purpose. The FLSA's definition of employee includes to 
suffer or permit to work, and it was deliberately adopted from 
child labor laws in effect in most states. That definition 
distinguishes the FLSA from common law and many statutory laws 
and gives it broader coverage than the common law and most 
other statutes.
    While the sufferer permit language is deliberately broad, 
however, not every worker is an employee. Independent 
contractors, people who are in business for themselves, are not 
covered. However, employers cannot avoid the FLSA's minimum 
wage and overtime requirements simply by labeling employees 
independent contractors. The FLSA framework looks to whether 
the worker is economically dependent on the business or is in 
fact in business for themselves. Unfortunately, we have seen 
many businesses claim that they do not employ the people who 
work for them. Often as a condition of getting a job these 
workers are forced to sign contracts calling them independent 
contractors, even as those businesses assign them hourly work 
and gives them a schedule and sets their pay rate. Other 
businesses have gotten more creative, requiring a worker to 
form a limited liability corporation, for example. Yet these 
workers are not running their own business by any definition, 
they are not entrepreneurs, they lack power to negotiate their 
pay. To the extent that they have any control over their 
income, it depends more on working longer, not on the exercise 
of any managerial or entrepreneurial skill. And they are 
usually engaged to provide a product or service integral to the 
business, usually something the business markets to its own 
clients or consumers. These workers put in long hours, but when 
they ask to be paid minimum wage or overtime that they are due, 
the business denies responsibility as their employer. Thus, the 
first hurdle in many of our cases is even proving that the 
employees are entitled to coverage as employees, a hurdle that 
often burdens our enforcement efforts.
    Unfortunately, the experience of our clients is common, 
particularly among low wage workers. And without a robust 
campaign to combat misclassification, law abiding businesses 
find it difficult to compete, cheating becomes the norm, and 
the FLSA, along with other workplace protections, is 
undermined.
    We need Federal reform to ensure that the FLSA protects the 
employees Congress intended it to protect. The Payroll Fraud 
Prevention Act would amend the record keeping requirements of 
the FLSA to require employers to notify workers of their 
classification. This bill, if enacted, would provide important 
transparency for workers and their employers. It would require 
a deliberate analysis at the outset and help prevent 
misclassification. It would also deter misclassification 
through increased penalties and a rebuttable presumption of 
employee status where notice is not provided.
    These reforms are a necessary first step to creating a 
culture of compliance that ensures that the FLSA's promise is 
realized for the millions of workers who depend on it.
    Thank you again for the opportunity to be with you today.
    [The statement of Ms. Dworak-Fisher follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Chairwoman Adams. Thank you very much.
    I want to recognize now Mr. Chemers. I am sorry. I think I 
missed someone. Oh, excuse me, Mr. Passantino. Okay, you are 
recognized for five minutes.

  TESTIMONY OF ALEXANDER PASSANTINO, J.D., PARTNER, SEYFARTH 
                           SHAW, LLP

    Mr. Passantino. Thank you. Good morning, Chairwoman Adams, 
Ranking Member Byrne, and Members of the subcommittee. Thank 
you today for the opportunity to speak with you regarding the 
important issue of independent contractor status in today's 
workplace.
    My name is Alex Passantino. I am a partner in the 
Washington, DC office of Seyfarth Shaw where my practice 
focuses on helping employers comply with the wide variety of 
wage and hour laws. Despite my representation of employers, my 
testimony today is solely my own.
    The majority of my practice involves counseling employers 
on issues such as independent contractor status, overtime 
exemptions, regular rate of pay, and other pay practices. Prior 
to working at Seyfarth I served as the deputy and acting 
administrator of the Wage and Hour Division. For the past 22 
years, both in private practice and at Wage and Hour, I spent 
the majority of each working day addressing compliance issues 
related to the wage and hour laws. During that time I have 
experienced a broad spectrum of uses of independent 
contractors, from contractors taking advantage of the aftermath 
of Hurricane Katrina in New Orleans and Gulfport, to businesses 
carefully assessing whether a particular worker can qualify as 
an independent contractor, to workers all but begging to work 
as independent contractors, to new economy companies attempting 
to navigate their obligations under the law. I have seen the 
good, the bad, and the ugly of this issue.
    Make no mistake, there are businesses out there that 
intentionally misclassify workers in an effort to gain an 
economic advantage. But in my experience, and particularly in 
my practice, the overwhelming majority of businesses are trying 
to make the right decision on the classification issue. And the 
businesses that are doing it the right way have an interest in 
ensuring that their competitors are doing it the right way.
    But even the businesses doing it the right way don't always 
get the assessment right. The standard for determining whether 
a worker is an independent contractor or an employee under the 
FLSA is a seemingly constant moving target. We have had 
multiple pronouncements by the DOL over the past several years 
and we have had far more court decisions. Even when the factors 
that are considered are the same, the focus placed on those 
factors differs. Different courts considering the same exact 
business models have come to different conclusions based on 
their own understanding of the facts and their own 
understanding of the relative importance of those facts. 
Clarifying the standard in a meaningful way would go a long way 
to leveling the playing field and ensuring compliance.
    Unfortunately, the Payroll Fraud Prevention Act does 
nothing to provide that clarity. Instead, it simply changes the 
risk assessment. Businesses will need to provide detailed 
notice to an astounding number of individuals. Failure to do 
so, or a failure to provide a 100 percent accurate notice, can 
result in a heightened burden of proof and severely increased 
penalties, including unprecedented civil money penalties and 
treble damages.
    The PFPA would force business into a series of impossible 
choices. Do they provide the notice described in the Act to 
everyone contemplated in the Act, which could include 
employees, independent contractors, employees of 
subcontractors, taxi drivers who transport company executives, 
and many others, or do they ignore certain covered individuals 
and take the risk that they will be more heavily penalizedI 
down the road? The incredible breadth of the definitions 
covered makes it effectively impossible to achieve complete 
compliance. Instead, it will almost certainly force businesses 
to decide to forego at least in part compliance with the PFPA 
based on an assessment of the risks associated with that 
noncompliance.
    It seems odd to create a new legislative requirement that 
will be ignored in a wide range of circumstances, but that's 
precisely what this definition does. As a result, businesses 
may even reconsider whether to continue to use independent 
contractors. Ultimately, the PFPA is likely to chill legitimate 
use of independent contractors. The risk of litigation will 
simply be too great, the penalties too severe.
    Unfortunately, the worst offenders, those who willfully 
misclassify the most vulnerable workers without any basis for 
doing so, are likely to continue to do so. They are already 
undeterred by the specter of a massive wage and hour lawsuit 
and potentially bankrupting damages. Changing the burden of 
proof and doubling already crippling damages are not going to 
cause these businesses to hand a worker a piece of paper 
advising them of who to call when they have an issue.
    For most workers the PFPA will have no practical impact. 
Employers of employees will spend millions of dollars creating, 
sending, and tracking millions of notices telling employees 
that they are employees and providing a web address, street 
address, and phone number of a wage and hour office.
    At a time when many businesses and workers are seeking 
flexibility in their working relationships, the PFPA would 
dramatically limit that flexibility. This result is bad for 
employees and employers alike. Rather, the focus should be on 
developing a legislative solution that protects innovation and 
flexibility while protecting those most in need of protection.
    Thank you for the opportunity to share my thoughts. I look 
forward to your questions.
    [The statement of Mr. Passantino follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
            Chairwoman Adams. Thank you very much.
    Mr. Townsend, you are recognized for five minutes, sir.

   TESTIMONY OF MATT TOWNSEND, CEO OF OCP CONTRACTORS, INC., 
  PRESIDENT, SIGNATORY WALL AND CEILING CONTRACTORS ALLIANCE 
                            (SWACCA)

    Mr. Townsend. Good morning, Chairwoman Adams, Ranking 
Member Byrne, and Members of the subcommittee.
    My name is Matt Townsend. I am the CEO of OCP Contractors, 
a construction company that employs 500 men and women working 
across the State of Ohio and in neighboring states. I am 
privileged to appear before you today in my capacity as 
president of the Signatory Wall and Ceiling Contractor's 
Alliance. SWACCA is an association representing construction 
company owners who employ tens of thousands of carpenters, 
drywall finishers, plasterers, and laborers throughout the 
United States. We thank you for holding this hearing and 
allowing me to explain the threat of worker misclassification 
poses to the ability of law-abiding employers in my industry to 
compete, to innovate, and to create jobs.
    Our members are entrepreneurs who do not want to be 
complicit in the misclassification racket in order to compete. 
But rampant misclassification in the construction industry is 
making it hard for law-abiding employers to compete and to 
provide fair pay and economic security for our employees. In my 
industry, misclassification is a choice to disregard the legal 
responsibilities of being an employer. It provides a 
competitive advantage by transferring to workers and taxpayers 
financial obligations and the risks associated that honest 
business owners accept.
    SWACCA members pursue their work through a cost competitive 
bidding process in which 60 to 80 percent is the cost of labor. 
This includes the number of workers, how much time they will 
need to finish the project, and to what degree they will have 
to work overtime to finish on schedule. If our estimates about 
labor costs are wrong, our profits quickly evaporate. But 
workers get paid for every hour worked and they get overtime 
when their work exceeds 40 hours in a week. People using the 
misclassification model can always submit a lower bid because 
they don't have to worry about how many hours it takes the 
workers to complete the project or whether they work overtime 
to get the job done on schedule. For them, labor is a fixed 
cost. They pay a predetermined amount for each piece of drywall 
finished or square foot of framing or ceiling installed, and 
not one penny more, not matter how many hours it takes.
    Make no mistake, in the misclassification schemes I see, 
contractors control and direct their workers at the jobsite 
just like my company does. These are regular crews economically 
dependent on a boss who takes them from jobsite to jobsite. By 
disassociating themselves from the legal responsibilities and 
costs of being employers, these so-called contractors get a 
tremendous competitive advantage.
    The Ohio Attorney General estimated that misclassifying 
workers provides at least a 20 to 30 percent competitive cost 
advantage against law abiding employers. When competing against 
a company like mine that pays middle class wages, sponsors 
training programs, and offers retirement and health benefits, 
the advantage is more than 50 percent.
    The people running these rackets know that a shrinking 
number of investigators face considerable barriers bringing 
them to justice. Investigations require evidence from 
vulnerable workers, afraid of being blacklisted from future 
jobs and anxious about being on the government's radar screen. 
When workers do come forward, holding bad actors financially 
accountable is complicated by layers of shell companies upon 
which misclassification schemes are typically built.
    The rampant misclassification of workers in my industry 
isn't just bad for us employers, it also hurts workers and 
their families. For example, a contractor employed a crew of 
over 1,000 misclassified workers on more than 2 dozen hotel and 
apartment projects. The workers toiled over 50 hours a week 
without breaks or overtime. They are not paid in regular 
intervals, and when the contractor finally issued checks, they 
bounced. Misclassification in the construction industry also 
victimizes taxpayers to the tune of $2.6 billion a year. This 
is because these schemes don't withhold payroll taxes, social 
security, or FICA contributions, they don't pay unemployment 
insurance or worker's compensation premiums. Instead, they 
throw the cost of unemployed and injured workers on taxpayer 
funded programs while fueling tax fraud, labor trafficking, and 
other serious crimes.
    I know every Member here today supports law abiding 
entrepreneurs responsibly pursuing productive and profitable 
activities benefitting our companies, our customers, our 
workers, and our communities. But in the construction industry, 
pervasive misclassification is rapidly undermining the 
viability of the traditional model of American free enterprise.
    So on behalf of the law abiding construction employers, I 
thank you for holding this hearing. I hope that it will result 
in concrete proposals to address the rampant misclassification 
plaguing my industry.
    I welcome any questions you may have.
    [The statement of Mr. Townsend follows:]
    
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT    
   

    Chairwoman Adams. Thank you very much.
    Mr. Chemers, you have five minutes, sir.

 TESTIMONY OF ALEXANDER CHEMERS, J.D., SHAREHOLDER, OGLETREE, 
              DEAKINS, NASH, SMOAK & STEWART, P.S.

    Mr. Chemers. Chair Adams, Ranking Member Byrne, and Members 
of the subcommittee, I appreciate the opportunity to testify 
before you on the Payroll Fraud Prevention Act.
    My name is Alexander Chemers. I am an attorney and a 
shareholder with Ogletree, Deakins, Nash, Smoak & Stewart, 
though I am appearing today in my individual capacity.
    I have spent my entire legal career in California. I appear 
before Federal and state courts and I see on a daily basis the 
real work effects that laws like the PFPA have after they are 
passed. More employment class actions are filed in California 
state courts than in the 49 other states combined. That is not 
because more companies violate the law in California, it is 
because well intentioned legislation has resulted in a maze of 
legal obligations with unclear and ever-changing requirements, 
where businesses face excessive penalties for even hyper 
technical violations of the law.
    The PFPA is similarly well intentioned in seeking to reduce 
the misclassification of independent contractors. The bill's 
provisions, however, will do little or nothing to address that 
issue. The centerpiece of the PFPA is the requirement that all 
workers receive a notice informing them whether they are an 
independent contractor or an employee, along with detailed 
information, including the address and telephone number of the 
Department of Labor's local office. Let me be plain, virtually 
every person in the United States who works for a living would 
receive at least one, and in some cases, many notices. It is 
unclear whether this information will help educate workers or 
result in them contacting the DOL, or whether the DOL will do 
anything in response to the notices. It is also unclear, and 
perhaps doubtful, that persons who are already flouting 
existing laws by misclassifying workers, will even issue the 
notices.
    What is clear is that law abiding businesses will incur 
millions of dollars preparing and maintaining the notices. It 
is also clear that the vast majority of the notices, which 
would be issued to persons who are already classified as 
employees, will serve no purpose.
    Finally, it is clear that businesses will be exposed to 
enforcement actions and private lawsuits for even hyper 
technical violations of the notice requirement. That is because 
the next major elements of the PFPA include a presumption of 
employee status along with enhanced damages and penalties for 
violations of the statute. Like the notice provision, these 
remedies are unlikely to advance the PFPA's stated goal.
    The FLSA already provides significant remedies for the 
misclassification of workers, including unpaid wages, 
liquidated damages, and attorney's fees and costs. It is 
unclear what impact, if any, there will be from piling on yet 
more damages.
    Once again, the only thing we know for sure is that the 
PFPA will burden and penalize businesses of every size. The 
severe consequences for violating the PFPA apply with equal 
force to a business that intentionally misclassifies a worker 
as to a business that cannot prove compliance with the notice 
requirement.
    For example, a business could be exposed to millions of 
dollars in penalties for not issuing notices, even if that 
company does not use any independent contractors. Likewise, 
hyper technical violations, such a notice that references the 
DOL's wrong local office, would expose a business to a 
presumption of employee status and penalties.
    The combination of the PFPA's detailed notice requirement, 
together with the severe penalties for noncompliance creates a 
perfect gotcha statute. We already have too many of those. One 
example is the Fair Credit Reporting Act, which requires 
businesses to issue stand alone disclosures to job applicants 
before obtaining a consumer report. Plaintiff's firms have 
seized on hyper technical violations of this notice 
requirement, like a disclosure form stapled to other new hire 
documents, to seek millions of dollars in penalties.
    Another example is California's Private Attorney General's 
Act, frequently referred to as PAGA. Like the Payroll Fraud 
Prevention Act, PAGA is premised on aggrieved parties giving 
notice to a state agency of the claimed violations. In 
practice, the stage agency rarely, if ever, investigates 
claims, a pattern that will likely be repeated by the DOL here.
    Like the PFPA, PAGA authorized civil penalties for alleged 
violations, including the misclassification of workers. These 
penalties, which easily reach into the millions of dollars, are 
routinely used by plaintiff's firms to threaten law abiding 
businesses with catastrophic damages and even bankruptcy.
    If there are concerns surrounding the use of independent 
contractors, further enforcement in this area should be 
balanced and narrowly tailored to reduce misclassification 
while minimizing the harm to businesses and others who lawfully 
partner with independent contractors.
    As presently drafted, the PFPA undermines that balance and 
risk imposing severe costs and penalties without any 
demonstrated benefit.
    Thank you for the opportunity to share my thoughts.
    [The statement of Mr. Chemers follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
       

    Chairwoman Adams. Thank you very much.
    Miss Crawford, you are recognized for five minutes, ma'am.

            TESTIMONY OF MARIA CRAWFORD, GIG WORKER

    Ms. Crawford. Thank you, Chairwoman Adams, Ranking Member 
Byrne, and Members of the subcommittee.
    My name is Maria Crawford and I am a gig worker from 
Altadena, California. I am a proud wife of 25 years, a mother, 
and a grandmother. I previously worked in the IT field for over 
15 years, but lost my job to outsourcing. At the age of 54 I 
found it difficult to start a new career, bringing me to online 
work, or gig work.
    I spend most of my time gigging for Instacart and also work 
for Postmates, DoorDash, Cavier, and Uber Eats. I start every 
day unsure of how much work will be available. Some apps allow 
me schedule shifts in advance, while others I can do on demand. 
Because base compensation is so low, it is important that I 
check what shift incentives are available on the different 
platforms. Once I am done scheduling myself, I wait for my 
first customer order. When I get one, I have a short amount of 
time to decide if I want to take it despite not being told 
where I am delivering it to. Since I get dinged on passing on 
too many orders, I am pressured into taking jobs that don't pay 
well. I then rush through the grocery store, since my time is 
monitored, pay for the groceries, and then make my delivery.
    After I complete an order I am given a breakdown of my 
total compensation, which is a nontransparent mix of base pay, 
incentives, and customer tips. Initially I found the pay to be 
good, but over time I found it difficult to earn a living wage, 
despite it being my primary job and income that my family 
relies on.
    I believe I am misclassified as an independent contractor 
instead of an employee, which means I am losing out on 
protections that could ensure fair pay and hours. Sometimes my 
pay is so low it dips below the $12 an hour minimum wage in my 
state. In fact, a job could cost me money after factoring in 
car maintenance and gas. My pay structure seems to change 
often. I now must rely on tips and incentives to make ends 
meet.
    I do not get paid for any down time, even if I am on a 
scheduled shift. I sometimes have to wait a long time without 
pay for customers to receive their orders. On top of that, 
these apps have also been accused of stealing our tips.
    I am told that the advantage to my type of work is the 
flexibility to set my own schedule. The truth, flexibility is 
totally dependent on a narrow window of time when most orders 
come in. This means I have to compete with co-workers for 
lucrative shifts. I also don't have the flexibility to pick and 
schedule these lucrative shifts or even stay on the app unless 
I meet unreasonable standards.
    Instacart has a demerit system, which they call reliability 
incidents. I can get a reliability incident if I pass on too 
many orders, even if I would lose money, if I want to finish 
early, or if I sign up for a shift but then can't make it due 
to an emergency. So, when I want to be flexible with my work, 
Instacart punishes me. Maintaining a high customer rating is 
also vital to the job. On Instacart, if your rating drops to a 
4.2 out of 5 stars, you are kicked off the app completely. Just 
to be clear, 4.2 stars is an 84 percent rating. Imagine if 
Members of Congress had to maintain this approval rating to 
keep their jobs.
    The app on my phone dictates my ability to take orders. It 
constantly tracks me. It sets and changes my pay. It times my 
work. It can discipline me. I have less control over my work 
now than before when I was properly classified.
    With no transparency in how I am paid and how my work is 
evaluated, it is impossible to budget for my family, especially 
when I am expected to pay for worker's compensation, 
disability, health insurance, unemployment, liability 
insurance, auto insurance, social security, as well as Federal, 
state, and local income taxes.
    While I am fortunate to have financial support from my 
husband, I still rely on my retirement savings to make ends 
meet. I don't see how this type of work is sustainable for 
families.
    Despite this, why do I do this work? Again, as a woman in 
her 50s I have found it difficult to find a new job, despite 
over a decade of experience. I saw this new technology as a 
source of opportunity in a new and growing sector, and I know 
that its success is not contingent upon workers being treated 
this way. I raise these issues not to single out my employers 
because this practice is widespread and growing. I fear that if 
we let these companies continue to misclassify their workers, 
it will only incentivize this bad corporate behavior.
    What we are asking for is not radical. We want the same 
fair labor standards that have fueled innovation in this Nation 
for years. I ask you to support the Payroll Fraud Prevention 
Act and help prevent workers like me from being misclassified 
so we can have family sustaining wages and benefits.
    Thank you.
    [The statement of Ms. Crawford follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
       

    Chairwoman Adams. Thank you.
    Attorney General Racine, you are recognized for five 
minutes, sir.

   TESTIMONY OF THE HONORABLE KARL A. RACINE, J.D., ATTORNEY 
 GENERAL FOR THE DISTRICT OF COLUMBIA, OFFICE OF THE ATTORNEY 
              GENERAL FOR THE DISTRICT OF COLUMBIA

    Mr. Racine. Good morning, Chairwoman Adams and Ranking 
Member Byrne.
    I am Karl Racine, the attorney general for the District of 
Columbia. I can assure you that my customer rating is likely 
below 4.2, although I am happy to have been reelected just last 
year.
    One of my top priorities is protecting workers' rights in 
the District. That is why I am here to testify in support of 
the Payroll Fraud Prevention Act.
    My office has implemented a broad effort to protect 
District workers by enforcing the District's wage laws to fight 
wage theft, an illegal practice that denies workers the wages 
or benefits they have earned.
    Businesses do this in multiple ways, such as failing to pay 
the required minimum wage, refusing to pay overtime, or 
misclassifying employees as independent contractors. Wage theft 
affects millions of workers across all job types and income 
levels nationwide. The District of Columbia's efforts have 
given us a better understanding of one particular form of wage 
theft called worker misclassification.
    We are grateful for the opportunity to discuss this 
important issue with the Subcommittee on Workforce Protections. 
Worker misclassification is a type of payroll fraud that hurts 
workers, undercuts law abiding businesses, and cheats 
taxpayers. In its most common form, an employer improperly 
classifies an employee as an independent contractor to 
unlawfully cut payroll costs. We found that this practice, as 
CEO Townsend's testimony makes clear, is prevalent and indeed 
rampant in aspects of the District's construction industry.
    Often employers target vulnerable low wage and immigrant 
workers who may not fully understand their rights under 
District law, or how to seek and enforce their rights. This 
creates a ripple effect of harms.
    First, employers who misclassify employees illegally duck 
costs that they ordinarily would bear and shift those costs on 
the back of workers. Misclassified workers are forced to foot 
their employer's social security and Medicare tax bills, 
leaving them with less take home pay than properly classified 
employees. They lose out on labor protections and on programs 
like worker's compensation.
    In the states and territories with strong wage laws, like 
the District of Columbia, employers who misclassify employees 
avoid the requirement to provide a higher minimum wage, 
overtime pay, and paid sick leave.
    Second, this isn't just stealing from employees, it is also 
stealing from law abiding companies that play by the rules. In 
the construction industry, for example, work is often awarded 
through a rigorous bidding process. By illegally evading 
payroll costs, an employer that misclassifies its employees is 
often able to underbid competitors. Should other companies 
looking to make a quick buck follow suit, we will end up in a 
true race to the bottom.
    Third, if this unlawful practice becomes an industry norm, 
it also impacts the government and taxpayers too.
    Both the Federal Government and the District fund social 
benefit programs, like social security, Medicare, and 
unemployment insurance through payroll taxes. All employers are 
required by law to pay into these programs and support our 
fellow citizens. But employers who misclassify employees don't 
pay their fair share. They are shorting the public and 
pocketing the difference.
    As you know, my office recently commissioned an economic 
report that examined just how much worker misclassification can 
unlawfully cut costs for companies in the District's 
construction industry. The researchers found that by 
misclassifying workers a company could illegally reduce its 
labor cost by at least 16.7 percent and as high as 48 percent.
    To close, our experience enforcing worker misclassification 
in the District has taught us that it causes concentric harm, 
beginning with the worker and radiating across the industry and 
to taxpayers. Stopping worker misclassification therefore not 
only protects workers, it also protects fair competition and 
government benefit programs that serve taxpayers. I am 
encouraged that the proposed Payroll Fraud Protection Act seeks 
to punish and deter worker misclassification by making the 
practice a violation of the Fair Labors Standards Act, 
increasing damages available to workers and imposing monetary 
penalties on companies who engage in this unlawful behavior. In 
our experience, we have found that these steps are invaluable 
in enforcing and deterring worker misclassification.
    I look forward to your questions.
    Thank you.
    [The statement of Mr. Racine follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
       

    Chairwoman Adams. Thank you very much.
    Under Committee Rule 8(a), we will now question witnesses 
under the five minute rule. We will alternate between the 
parties.
    I will now recognize myself for five minutes.
    Ms. Dworak-Fisher, how do the purposes of the Fair Labor 
Standard align with its broad standard for employment? You need 
to turn on your mic.
    Ms. Dworak-Fisher. Sorry about that. The purpose of the 
Fair Labor Standards Act was to eliminate substandard working 
conditions. So, the definition of employ, to suffer or permit, 
is intentionally broad to effectuate that purpose.
    Chairwoman Adams. Okay. So would narrowing the Fair Labor 
Standards Act employment standard from the broad stuffer or 
permit standard to a narrower common law standard leave some 
workers without protections?
    Ms. Dworak-Fisher. It would leave a great many workers 
without protection. The whole point of the Fair Labor Standards 
Act is--well, not the whole point, but one of the points of the 
Fair Labor Standards Act is to reach beyond common law to cover 
more employees. And so that would essentially roll back the 
clock on protections for their workers.
    Chairwoman Adams. Okay. You state in your testimony that we 
lack recent comprehensive national data on the extent to which 
employers are misclassifying their workers. What do we know 
from the data that we do have about the prevalence of 
misclassification, and how would more current comprehensive 
national data help us combat employee misclassification?
    Ms. Dworak-Fisher. Yes. I believe the last time--at least 
the Department of Labor had done an analysis was back in 2000 
and it found that millions of workers had been misclassified, 
up to 30 percent of firms misclassified their employees as 
independent contractors, costing billions of dollars in state 
and Federal coffers and lost wages to the employees.
    I think it is important to get a more recent comprehensive 
look at the scope of the problem because if we understood the 
scope of the problem, it would be even more imperative that we 
take action to combat misclassification.
    Chairwoman Adams. Attorney General Racine, your office 
recently issued a report estimating the economic incentives to 
misclassifying employees in the District of Columbia's 
construction industry. Why was this information helpful for 
your efforts to combat misclassification? And do you think that 
your efforts and efforts by the states would be helped by up to 
date and comprehensive national data on misclassification?
    Mr. Racine. No doubt about it. I think there is, you know, 
a porous amount of relevant and current data, and so often 
times we are guided by anecdote and, of course, our 
investigations. I think that, clearly, if we are able to 
compile better data, we will not only have a better sense of 
the scope of the problem, but also perhaps uncover better ways 
to enforce and otherwise ameliorate the issue.
    The reason why we went outside of our office to contract 
with researchers is that we really wanted to understand exactly 
the cost factor. How much money, at minimum, are companies who 
cheat saving. And I think CEO Townsend really, you know, said 
it right when he talked about his industry in particular. These 
are competitive businesses. When companies can save 16.7 
percent by illegally misclassifying an employee or a bunch of 
employees, they have a competitive advantage against their 
company peers who are following the law.
    I hear in our enforcement cases from companies like Mr. 
Townsend's, who are very happy that we are enforcing the law 
because they are tired of losing out to those companies who 
break the law.
    Chairwoman Adams. Okay. Miss Dworak-Fisher, are there 
states that make misclassification a violation of their wage 
and hour laws? And how would making misclassification a 
violation help prevent misclassification and help workers hold 
employers accountable.
    Ms. Dworak-Fisher. Yes. This isn't anything particularly 
new. Several states actually make misclassification a violation 
of their wage and hour laws. I believe Wisconsin, 
Massachusetts, New Jersey. And complementing that with a clear 
statement in the Federal law, in the FLSA, that 
misclassification is a standalone violation, would go a long 
way to preventing misclassification by the mere virtue of the 
fact that you are requiring employers to complete an analysis 
of someone's status before they--at the time of hiring. So it 
would create a level of transparency that we don't currently 
have.
    Chairwoman Adams. Okay. I am going to yield now to and 
recognize the Ranking Member for the purpose of questioning the 
witnesses.
    Mr. Byrne. Thank you, Madam Chairman.
    Mr. Passantino, like you, I have read the bill that we are 
here today to talk about and it seems to me it was very poorly 
drafted. Someone was not paying close attention to detail when 
they did it, which causes me to question the seriousness of it. 
But in your testimony, you describe a number of unrealistic and 
unworkable mandates in the bill, including the expansive 
definition of a covered individual, which would include pizza 
delivery drivers.
    Can you further explain why the mandates are unrealistic 
and unworkable?
    Mr. Passantino. Thank you. The definition of covered 
individual in the bill is an individual providing labor or 
services for remuneration for such employer. So it is anyone 
who is providing labor or services to an employer who gets paid 
for that. There is no clarity on whether it has to be a direct 
or indirect payment, so if I am counseling a client, I am going 
to tell them that they can't assume that it has to be a direct 
payment. And the reason why I use an example of a pizza 
delivery driver who brings pizzas to a lunch is because if that 
person gets a tip then there is a further complicating question 
as to whether there has been remuneration.
    Under the Act that employer, that putative employer would 
need to decide do I have to hand, in addition to this $20 bill 
that is a tip, a notice that says you are not my employee to 
that pizza delivery driver. In all likelihood, they are going 
to ignore the requirement to do that because it is going to be 
an administrative nightmare, but if they do that, then there is 
a presumption that person is an employee if that person ever 
sues. That would have to be rebutted by clear and convincing 
evidence under the Act.
    Mr. Byrne. And clear and convincing evidence is a higher 
standard than a preponderance of the evidence?
    Mr. Passantino. Yes, it is a much higher standard.
    Mr. Byrne. So,Right. So the reason I was concerned about 
that was not just because you might have some that don't 
comply, but you might have some that are not going to do 
certain things because they don't know how to comply. And isn't 
that an equal concern here?
    Mr. Passantino. I think there is a combination of 
businesses that don't know how to comply and then it is not 
going to do anything to address--a contractor that decided that 
1,000 laborers were independent contractors is not going to 
issue those people notice that said that they were independent 
contractors. They are not going to--they are just going to 
ignore that obligation under the law.
    Mr. Byrne. If they are going to violate the law today, they 
certainly are going to violate something like this.
    Mr. Passantino. Correct.
    Mr. Byrne. Mr. Chemers, in your testimony you discussed the 
fact that most independent contractors understand how they are 
classified based on a written agreement. Can you elaborate on 
the types of written agreements that businesses and independent 
contractors enter?
    Mr. Chemers. If you ask most business owners, they are 
already entering into written agreements with independent 
contractors. They are usually referred to on their face as 
independent contractor agreements and we have even had 
testimony today as to the existence of such agreements. And the 
reason for that is existing law already encourages and 
incentivizes businesses to enter into written agreements. For 
instance, the Internal Revenue Service. When it looks at 
whether someone is properly classified as an independent 
contractor or an employee, one of the requirements is that 
there be written contracts which describe the relationships the 
parties intend to create. So you are already seeing persons 
described in the written agreement with those businesses as 
independent contractors.
    And so if the point of the PFPA is to provide notice and in 
large--in significant cases, that is already occurring 
naturally.
    Mr. Byrne. Now, if I am paying an employee, every year I 
give him a W-2. If I am paying an independent contractor, I 
give them a 1099, right?
    Mr. Chemers. That is correct.
    Mr. Byrne. And then it is the independent contractor's 
responsibility to pay the taxes that are due on the income that 
is stated in the 1099, right?
    Mr. Chemers. That is correct. In addition to--at the outset 
of the relationship you are typically going to have a written 
contract at various points during the relationship, including 
with respect to taxes. There will be a reaffirmation of that 
relationship.
    Mr. Byrne. When I was listening to testimony earlier about 
lost government income, and that must mean that the independent 
contractors who are getting their 1099s aren't paying the taxes 
that are due under the law. So this presumed in all of that we 
got people that are just violating the law.
    So when I look at all of this, I guess I go back to what I 
see as what the relationship is between the vast majority of 
businesses and the vast majority of independent contractors, 
and that is perfectly legitimate independent businesses working 
with one another and one is providing services to the other and 
the other is paying them for it. Don't we do that in America 
all the time?
    Mr. Chemers. As I look at this bill again, and as shared in 
my written comments, the key issue is whether or not you think 
the issue of independent contractor misclassification is a 
major one for society. That this bill as constructed does 
little to nothing, in my view, to actually address that issue.
    Mr. Byrne. I agree.
    Thank you. I yield back.
    Chairwoman Adams. Thank you very much. I want to recognize 
now the gentlelady from Pennsylvania, Miss Wild.
    Ms. Wild. Thank you, Madam Chair.
    I would like to address my first question to Ms. Dworak-
Fisher. Mr. Chemers and Mr. Passantino have expressed concern 
about providing workers with notice of their employment status. 
And they also state that employers are subject to monetary 
penalties for violations of notice requirements.
    Do you have a response to those concerns and their analysis 
regarding penalties for notice violations?
    Ms. Dworak-Fisher. I do actually. And I was just looking at 
the bill. I think that it is incorrect to say that a notice 
violation in and of itself will trigger a penalty. By my 
reading of the bill, the additional penalties only kick in if 
the worker is in fact misclassified. The bill specifies that a 
person who violates section 11(c)(2), which is the 
classification section, not the notice section. So I don't 
believe there will be in fact any penalties for the notice 
violations.
    Second, I think the notice actually is a good idea. At 
least in the cases that we see, a notice actually would prevent 
litigation in many cases because a worker could question at the 
outset what their classification is and the bill would protect 
them from retaliation and enable them to actually find that out 
at the outset, ask questions, and to the extent it is needed, 
come to us or somebody else and then we can call the employer 
and work it out without recourse to litigation.
    Ms. Wild. Thank you. So it is your position then that the 
penalties are only if the actual status is misclassified as 
opposed to notice violations?
    Ms. Wild. Right.
    Ms. Dworak-Fisher. Only where the worker is in fact 
misclassified would those additional penalties kick in, not for 
hyper technical violation of the notice provision.
    Ms. Wild. Okay. And staying with you, if I could for a 
moment, it sounds like the most recognizable form of 
misclassification happens when an employee is simply 
misclassified as an independent contractor. But in your written 
testimony, there was a statement that misclassification can 
look different than just an independent contractor status.
    Can you elaborate on that?
    Ms. Dworak-Fisher. Right. Well, certainly that is--the most 
obvious is where someone is called an independent contractor 
when they are not. We have also seen situations where a worker 
is forced or requested to form their own LLC. I have certainly 
read about cases where you have franchisers of one as a way to 
just sort of make it look like someone is an independent 
contractor when they are not.
    So it can take many forms.
    Ms. Wild. Okay. Thank you.
    Mr. Townsend, do you think the Federal Government should 
follow the lead of some states by penalizing employers for 
repeated or willful misclassification?
    Mr. Townsend. In my industry one of the biggest concerns--
--
    Ms. Wild. Mm-hmm, that is why I am asking you.
    Mr. Townsend.--is the rampant misclassification of workers. 
And in my company, we hire our employees, we direct our 
employees on where and what to do and how to work each day. 
When there is an independent contractor who brokers out labor 
to individual laborers who work and toil in the field every day 
under their direction without receiving overtime pay, without 
getting worker's comp, without getting any Federal unemployment 
taxes or social security, that is the issue that I am dealing 
with. It is basically people that choose to follow the laws 
versus those that blatantly disregard them.
    Ms. Wild. And does that put you at a competitive 
disadvantage? You or others who are following the law?
    Mr. Townsend. It puts us in extreme competitive 
disadvantage.
    Ms. Wild. Can you elaborate?
    Mr. Townsend. And the reason for that--yes. So if I am a 
dishonest labor broker or misclassified worker, I get paid a 
set price per hour. That price per hour is what that worker 
receives. What my workers receive is that price per hour plus 
all the taxes, burdens, that the Federal and state governments 
give, plus worker's comp, plus overtime pay, and so forth. And 
the example without health and welfare attached to it, it is a 
26 percent disadvantage in my sector. If you add health 
insurance to that, it becomes over 50 percent disadvantaged. 
And if I add a retirement plan to that, it becomes over a 60 
percent disadvantage. It is a significant disadvantage.
    Ms. Wild. So those who follow the law are at a 
disadvantage?
    Mr. Townsend. I am purely talking about bad actors versus 
quality good free enterprise contractors that follow the laws.
    Ms. Wild. Thank you so much.
    Chairwoman Adams. The lady yields back. Thank you. I will 
now recognize the gentleman from Virginia, Mr. Cline.
    Mr. Cline. Thank you, Madam Chair, and thank the witnesses 
for being here.
    This committee should be focused on returning power back to 
employers and employees instead of creating nearly impossible 
compliance frameworks with new regulations that do nothing to 
prevent the misclassification of employees.
    Independent contractors and the businesses who employ them 
share in a mutually beneficial relationship that allows for 
flexible terms for both parties. These benefits are then passed 
on to the consumer through a reduction in the cost of goods and 
services.
    Wherein misclassification of an employee occurs, there are 
current ramifications to disincentivize the intentional 
practice of this and to compensate for the damages to the 
employee. These remedies include liability for back wages or 
overtime pay and can be coupled with a monetary penalty to the 
employer.
    This proposed bill increases the legal risk to business 
owners to the extent that it is not feasible for them to engage 
with independent contractors. This will increase the cost for 
business owners, this would eliminate opportunities for 
independent contractors and inflate prices for consumers.
    We should work to lower the misclassification of workers 
certainly, but we need to allow employers and independently 
contracted employees to continue to utilize a relationship that 
works for them. Far too often Washington, DC identifies a 
problem and then responds by over regulating it without regard 
to the real and harmful impacts it has on constituents.
    Let us move forward not move backward. This is a 20th 
century regulation for a 21st century economy.
    So I would ask Mr. Passantino, you discussed both your work 
at the Department of Labor and your work advising businesses 
who want to be in compliance while using independent 
contractors. Can you elaborate on what the likely outcome would 
be on imposing these regulations on employers in such a short 
timeframe?
    Mr. Passantino. I think one of the issues is that the bill 
requires the Department of Labor to establish a website 
providing information on the independent contractor issue, 
which is probably actually a good thing, to have some more 
information for employers and employees out there. The issue is 
that the Department of Labor is required to do that within 180 
days. The bill also says that employers have to provide notice 
containing that website information within 6 months, which 
maybe there is a day or 2 difference between 6 months and 180 
days, but it is not enough time for employers who are going to 
have to issue hundreds of thousands of these notice, to make 
sure that they have the right website information included. If 
they don't get it out in a timely manner, then they are going 
to be subject to the presumption that all of those individuals 
who don't receive the notices are employees.
    Mr. Cline. Thank you.
    Mr. Chemers, I represent a rural district with a lot of 
small businesses. Can you discuss the actual costs and 
complications associated with the newest requirements to the 
employees and their impact on small rural businesses in 
particular?
    Mr. Chemers. Yes. I mean there is going to be two types of 
costs that businesses, including your constituents, will 
experience. One will be the actual hard cost of manufacturing, 
printing the notices, providing them to workers, then 
maintaining those notices for an indefinite period. It could be 
1 year, it could be 10 years. So you have this actual hard 
cost. This could also be in the cases of larger businesses 
engaging a vendor to have some sort of an electronic process. 
And then in addition to that you have the payroll costs, 
because someone, whether it is the business owner, someone in 
the HR department, is going to be responsible for creating 
these notices.
    And one point that I don't think has been stressed enough 
today is you are going to have to do detailed notices for each 
one of your workers because of the requirement that you list 
the local DOL office. So, for example, in California, a 
business with operations in California would have to provide 
eight different versions of that notice to their workers just 
in that state. And so every time before you even issue a notice 
you are going to have to look, you know, what local 
jurisdiction is this person in, where is the DOL office, has 
the DOL's address or telephone number changed since I last 
issued those notices, all to try to get it right with this 
notice requirement, which to my view doesn't have any 
demonstrated benefit in the first place.
    Mr. Cline. This proposed legislation would apply to anyone 
who provides a service for a business. Can you give any 
examples of services that an employer may use that would 
improperly included by the qualifications of the bill?
    Mr. Chemers. We do not have enough time during today's 
proceeding to discuss all the ways in which people use 
independent contractors, but it can be for a small business an 
outside accountant, a lawyer, it could be a plumber on a short 
range basis, you could have an event at your office and you 
could hire a caterer to come in for that. And as currently 
drafted, the PFPA would require notice to all of those workers. 
And if you don't provide those notices, there is this 
presumption of employee status. So, again, you are a small 
business, someone in your office is having a birthday and you 
have someone come in and provide flowers for that, if you don't 
issue them the notice, they are presumed to be your employee. 
And that, you know, to my view makes no sense.
    Mr. Cline. Thank you.
    Madam Chair, I yield back.
    Chairwoman Adams. Thank you very much.
    Now I yield to the gentleman from California, Mr. Takano.
    Mr. Takano. Thank you, Chairwoman Adams, for this critical 
and timely hearing on the misclassification of employees and 
the evasion of the requirements under the Fair Labor Standards 
Act.
    Misclassifying workers is wage theft, whether intentional 
or not. This is clearly a problem, which is why over 20 states 
have passed laws to correct the wrongdoings, states like 
California, which recently passed and signed into law AB5.
    And I want to correct something that my colleagues on the 
other side of the aisle have been saying. This is not about 
taking away an employee's flexibility. Instead, this is about 
ensuring they are properly protected under the Fair Labor 
Standards Act. In fact, the FLSA does not prohibit split shifts 
or flexible scheduling models.
    Mr. Townsend, you mentioned in your testimony that 
companies can underbid you if they set up a model where they 
have no intention of paying overtime to the workers, ever. They 
misclassify their workers as independent contractors and say 
they are not entitled to overtime pay.
    Mr. Townsend, can you talk more about this practice and 
what you do in contrast?
    Mr. Townsend. Thank you, Congressman.
    Yes, I would like to speak on a personal level of what I 
see in that regard. The abuses we see are, in terms of 
overtime, happen in misclassifications and you can physically 
see it in the states I work in and the states I visit. And it 
is a particular type of building that goes up and the telltale 
signs of that are workers working on Saturdays, workers working 
on Sundays without the proper fall protection, without the 
proper safety equipment, and so forth.
    So that to me is a physical display of taking advantage, of 
not paying overtime. When you are there on a Saturday and 
Sunday and you have worked Monday through Friday already, 
obviously there is something going on there. I certainly can't 
afford to have my employees work Saturdays and Sundays.
    So the competitive advantage there, or the abuse therein 
lies with the pure no accountability for taxes, payroll, so 
forth, that again helps cause the spread of the disadvantage.
    Mr. Takano. So you, as someone who follows the rules, are 
put at a disadvantage for those who get around the rules.
    Do you think increasing penalties for overtime violations 
when there is a misclassification would be helpful in cracking 
down on denying workers overtime pay through misclassification?
    Mr. Townsend. In regards to that issue, I am not really a 
lawyer or a litigator, but I do think we need to do something 
to further deter bad actors through stiffer penalties. We 
certainly can't maintain the status quo.
    Mr. Takano. Well, thank you.
    Ms. Dworak-Fisher, how likely is it for a worker to receive 
back pay of wages if it is found that they were misclassified 
by an employer today?
    Ms. Dworak-Fisher. In the cases that we litigate today, or 
sometimes they don't get to litigation because the issue of the 
employee status or misclassification is a hurdle that the 
employer will put up and then we will negotiate it and often 
the double damages will not necessarily be something that the 
worker receives.
    But if it was clear that misclassification was an 
independent violation, that would enable further enforcement 
and the threat of double damages, or even treble damages, has 
been--we have seen it be effective as a deterrence where 
employer's businesses that may not have been complying with the 
law get the message that you can't violate the law with 
impunity. And therefore, the additional damage is essential.
    If I could just respond briefly to some of the notice 
concerns that I hear raised.
    Mr. Takano. Please do.
    Ms. Dworak-Fisher. I have heard a lot about the details of 
the notice and how cumbersome it is and how this is going to 
create additional costs. And it sounds to me like there is 
actually some room to negotiate that or some concerns around 
the margins of what the notice should contain. And it sounds 
like, you know, I would be hopeful that folks could work across 
the aisle and maybe look to other areas where notice is already 
given. Like, you know, they have to give notice to the IRS or 
1099s, or something like that.
    Mr. Takano. Because this particular complaint indicates 
that there is an acknowledgement that there is a problem with 
misclassification.
    Ms. Dworak-Fisher. Right. Absolutely.
    Mr. Takano. My time is up and I am going to have to yield 
back.
    I yield back, Madam Chair.
    Chairwoman Adams. Thank you very much.
    I want to recognize the gentleman from Texas. Mr. Wright, 
you are recognized for five minutes.
    Mr. Wright. Thank you, Madam Chairman.
    Mr. Passantino, you may recall Ronald Reagan used to say 
that government's view of the economy is moves, tax it, and if 
it keeps moving, regulate it. Based on this bill, I would 
conclude that view hadn't changed much in 40 years.
    I want to ask you, because you mentioned in your testimony 
that this bill will force a business to choose between strict 
compliance, including millions of dollars of unnecessary 
paperwork; on the other hand, noncompliance and consequences of 
that noncompliance. Would you elaborate a little bit on the 
structure and your concern for the structure of the bill.
    Mr. Passantino. Sure. Thank you.
    I think the issue really stems from the overbroad 
definition of covered individual, which as we were talking 
about a little earlier, would include all kinds of people who 
no one would ever contemplate as being an employee or an 
independent contractor, who provide services or labor to an 
employer for money. So if we start with this incredibly broad 
understanding of who the law requires to get notice, employers 
either have to decide that every time a CEO or a business 
executive gets into a taxi and pays someone for that service, 
they have to provide them a notice that says they are an 
independent contractor or they are an employee. If they choose 
not to do that, then they are creating a presumption that 
person is an employee under the FLSA.
    I think a lot of businesses are going to conclude we are 
not going to give that notice, but the point is the law 
shouldn't be structured in a way that requires employers to 
say, you know what, we are not going to comply with this 
requirement under the Act because we don't think the penalties 
are harsh enough on this piece.
    Mr. Wright. Right.
    Mr. Chemers, our powerhouse economy that has been the 
American economy almost since its inception, but certainly in 
the last 100 years, was built not on government regulation, but 
on entrepreneurism. In your experience, can you tell me what 
you would suggest the effect of this bill would have on 
entrepreneurism, and in particular, people that want to become 
entrepreneurs and start businesses?
    Mr. Chemers. Thank you.
    There are many reasons why people start small businesses 
and become independent contractors. And I think some of our 
larger businesses originally started out in the American 
economy as just being a one or two-person business and it grew 
from there. Well, a restriction like this, where businesses 
become unfair to bring on and use the small businesses for even 
episodic and random tasks, for which their core business isn't 
even involved in, I think is harmful to those businesses in 
restricting how flexible they can be. And it can also be I 
think damaging to the independent contractors. Again, for 
instance, an outside accountant. You know a small business may 
use an outside accountant. That is also going to fall within 
the PFPA. Notice is going to be required and there is going to 
be this presumption, among other potential harms from the Act.
    Mr. Wright. You mentioned earlier in California employers 
are already required to provide 10 separate notices regarding 
various legal requirements. And the extent to notice 
requirements under the proposed legislation adds another 
burdensome and unnecessary mandate on employers. Did I hear you 
right, that this would have really no effect on the problem it 
is supposedly going to address, and that is the 
misclassification of employees?
    Mr. Chemers. I think the issue is that as we sit here 
today, we have no confidence it will have any impact. And that 
is because in order for those notices to cause any meaningful 
change, you need at least five things to happen.
    One, in the first place, someone needs to already not be 
aware that they are an independent contractor, and I think 
there is some doubt as to that fact. Two, when they get the 
notice, they will have to actually read the notice. And given 
all the things we see on a daily basis, that is unclear to me. 
Three, in response to reading the notice, they are going to 
have to contact the DOL. Four, in response to any complaint, 
the DOL is going to have to actually take some action, which 
again we don't have any confidence that is going to happen. And 
last, in response to some sort of investigation, there will 
have to actually be a finding of misclassification.
    And so you are going to need all those things to happen and 
I think that is very uncertain. What we do know for sure is, I 
think there is--just to be clear, based on the current 
definition, we are not talking about hundreds of thousands or 
millions or tens of millions. Every person that performs 
services in the United States is arguably, according to the 
PFPA, entitled to a notice.
    Mr. Wright. Great. Thank you very much.
    And I yield back.
    Chairwoman Adams. Thank you.
    I now yield to the gentleman from California, Mr. 
DeSaulnier, you have five minutes.
    Mr. DeSaulnier. Thank you, Madam Chair.
    And I want to begin by agreeing with the Ranking Member, 
one of my favorite attorneys, a very charming man, that 
obviously we have to look at this issue and it would be nice to 
work on it in a bipartisan way.
    I will say that as a Member from California, as a former 
chair of the labor committee in the California State Senate, 
who continues to be engaged--and I do want to point out for the 
record that the two Republican witnesses are lawyers, not 
entrepreneurs, so it is sort of ironic. I am just trying to be 
a little bit light with that comment. And as somebody who owned 
businesses in California and didn't find the regulations 
burdensome--sometimes they were a nuisance, I agree with that, 
and they could be better.
    Having said that, the real problem we have in my view is 
this is just a symptom of the larger problem of capital being 
the driver of the U.S. economy versus wages. And we know, 
whether you want to leave Picardy or just follow the evidence, 
there has got to be a balance here, and it is out of whack.
    But the enforcer of good ethical behavior, when I started 
in the restaurant business was, Mr. Townsend, where we didn't 
need a lot of attorneys or regulation in my view because there 
was an ethical bond between the business community and if 
somebody was cheating, especially in a local community, 
everyone would know about it. The Chamber would be involved 
with that.
    So, Mr. Townsend, having worked with a former Member, Mimi 
Walters, when we were both in the legislature, when we had 
licensed contractors coming to us, and maybe it was because 
Orange County was particularly licensed contractors who did 
swimming pools, they came in and just said they couldn't 
compete because there was too much competition from people who 
were totally unlicensed. And then we created a taskforce, and 
it was bipartisan, so that all the departments would be more 
focused to go after the bad behavior. Which I think we could 
all agree, Mr. Passantino, you sort of alluded to that as let 
us get after the bad behavior and bring everyone back up. And 
then we can have a further discussion about innovation and Uber 
and Lyft and what their responsibilities are.
    Mr. Townsend, you have already talked about this a little 
bit. It is really hard for you to compete, as you said, against 
companies that have a 7 or a 10 percent, 20 percent advantage. 
My attorney once wholly said to me, they said well, they make a 
risk assessment that they are assuming they are not going to 
get caught. But then you have to compete with them, and you 
have to make a payroll every day. That is a huge disadvantage.
    So how do we re-instill and strengthen your position for 
people to make sure that the regulations are appropriate, and 
you can compete fairly against people who have no interest and 
basically make a risk assessment that they are going to make 
money as long as they can, until they get caught?
    Mr. Townsend. I first would again lean on the legitimate 
contractor versus the illegitimate contractor. And, you know, 
again, when we talk about overtime, worker's comp, unemployment 
insurance, social security, that being paid by legitimate 
contractors, therein where a misclassified worker that is 
directed every day by an individual to do the same work my 
crews do, that competitive disadvantage is quite frankly 26 
percent right out of the gate. And that grows, again as I 
stated, with if you add health insurance and retirement income 
to that.
    Mr. DeSaulnier. How about if you were competing against a 
business that did these things or marginalized it and had 
unlimited investment to wait you out until you went out of 
business to take your customers?
    Mr. Townsend. That would be a significant problem.
    Mr. DeSaulnier. Well, that is one of the problems we have 
in the gig economy. And as somebody who is proud of innovation, 
being from the Bay Area, and being very engaged--I know the 
governor has said this in California, we want to continue--and 
the Labor Federation asked too to have these discussions to 
make these conflicts work in an efficient way.
    So I think it is a misrepresentation, if I can use that 
work, that for those of us who think there is a problem in 
California and supported AB5, want to put legitimate businesses 
out of business, we want to work out some of the changes in the 
innovation that give benefit to consumers, workers, and 
shareholders, proportionately, but we don't want to indirectly 
or directly help people who don't want to play by the rules and 
then hide behind the statement that you are inhibiting 
innovation, which to me is just an euphemism to cheat.
    So therein lies the challenge. I think this conversation is 
a good one. It would be nice if it was more balanced between 
the business community and people who want to have workers' 
voice. But having said that, right now, we are at almost a 
historical mismatch between income inequality and the voice of 
workers and how their lives are determined.
    And with that I will yield back the balance of my time.
    Chairwoman Adams. Thank you, I recognize the gentleman from 
Pennsylvania, Mr. Keller, for five minutes, sir.
    Mr. Keller. Thank you, Chairwoman, and thank you to the 
members of the panel for your testimony today.
    Just a couple of things I want to make sure I got right in 
the testimony.
    Mr. Passantino, you actually were in private practice and 
then you worked for the Department of Labor on wage issues and 
compliance?
    Mr. Passantino. That is correct. And now I am back in 
private practice.
    Mr. Keller. Okay. Looking at the regulations--and I heard 
this many times--that this would place on employers that are 
doing things properly, in your opinion, the resources that 
would take, would that limit what the Department could then do 
to make sure we are enforcing the law, the current law, against 
people that are the bad actors doing it intentionally?
    Mr. Passantino. I think it has the potential to do that. 
The Department has to balance its resources just like any 
agency in the government does. The Wage and Hour Division has 
to figure out where its best use of resources is. I would hope 
that they wouldn't spend their time on the high wage workers 
who are independent contractors and they would spend them on 
low wage workers who are misclassified as independent 
contractors. But I mean there is no guarantee that they do 
anything on that front, and they are going to get complaints 
across the spectrum. And I know from experience that people in 
this room don't like when their constituents don't get their 
complaints answered, so that drives some of it as well.
    Mr. Keller. Right. In other words, but there would be a lot 
of paperwork that would be additional work to do, currently 
over what they are doing?
    Mr. Passantino. Sure. It is every person who provides a 
service has to get this notice.
    Mr. Keller. And much of that paperwork probably wouldn't 
even get looked at, quite frankly. The potential is there.
    Mr. Passantino. That is probably right.
    Mr. Keller. Yeah, that the--and also you are experienced 
both in private practice and with the government. When you are 
dealing with employers, would you say that the vast majority of 
the employers want to get it right and do the right thing?
    Mr. Passantino. That has been my experience, yes.
    Mr. Keller. That has been your experience? That has been my 
experience too, having worked in private industry and having 
run a business and having been an entrepreneur, a general 
contractor. We want to do things properly. And most people want 
to. Most of our constituents do. So when we are sitting here 
talking as elected officials about people who are breaking the 
law, we are saying our constituents are--a lot of them--I 
believe mine do it right and I want to commend those that do, 
and those that don't, you know, need to be held accountable.
    Again, Mr. Chemers, I want to ask you a question, because 
you had mentioned about a business that would hire an 
accounting firm, notice would have to go out to the accounting 
firm that they might be subject to this rule, they might be an 
employee of the company hiring them.
    Mr. Chemers. Based on the way the PFPA is drafted, if you 
are a small business and you hire an outside accounting firm, 
as many of them do because you don't have the resources or need 
for a full-time accountant, you would have to issue them a 
notice that identified them as an independent contractor. And 
if you fail to issue them a notice identifying them as such, 
there would then be this presumption that they were your 
employee.
    Mr. Keller. Okay. And again, that might be if I ran a 
business out of my house, I would have to send that to my 
garbage man because he picks up my garbage and that is part of 
my business? I mean technically they could file a complaint 
under the--the way this is written.
    Mr. Chemers. Again, if you are a small business, and you 
have a caterer come in to provide food, that would be someone 
to whom a notice is required to be given. If you have a florist 
come in, if you have a plumber come in, you know, to fix your 
toilets, all of those people fall within the language of the 
Act as drafted.
    Mr. Keller. Okay. I appreciate that.
    Just a couple of remarks, I guess, I will have on the whole 
thing. The vast majority of the people that are constituents 
get it right, they do it properly. My constituents I don't 
believe are out to cheat people. And we as elected officials 
all the time talk about how we are pro jobs, pro jobs, pro 
jobs, and we want people to have jobs. But this to me looks 
like Congress trying to interfere with the employee/employer 
relationship between many of the people who are doing it 
properly. You can't be pro jobs and anti-business. I think we 
should focus on making sure that whatever we do, we are not 
unduly penalizing the people that get it right, and that is the 
vast majority of the people we represent.
    You know, and making a person that provides a service to a 
business an independent contractor, that would be like making a 
person that does some printing for any one of our campaigns, 
one of our campaign volunteers. I mean I think we are really 
stretching here on things.
    Again, my message is you can't be pro jobs and anti-
business. I think we need to look at solutions that really get 
to the heart of the issue of the people who are not abiding by 
the current law we have.
    Thank you.
    I yield back.
    Chairwoman Adams. Thank you, sir.
    I recognize the gentlelady from Michigan, Miss Stevens.
    Ms. Stevens. Thank you, Madam Chair, and thank you to our 
witnesses for today's hearing on what is also a piece of 
legislation that is standing before us amending the Fair Labor 
Standards Act of 1938.
    Most certainly, our economy has changed in dramatic and 
tremendous ways since the 1930s and with that so has the nature 
of work. And I think it is fair to say that we can't be pro 
economy and pro job if we aren't pro worker and if we aren't 
pro for the people who are really going to be contributing to 
the productivity and the outputs of our economy.
    Ms. Crawford, I want to particularly commend you for your 
courageous and bold testimony, your first-hand narrative, your 
remarkable career in technology, your inspiring family, and 
what it means to be a worker in the gig economy. And you 
mentioned in your testimony that you sometimes have, you know, 
waiting periods that, you know, you are maybe not paid for. Can 
you describe these times for us?
    Ms. Crawford. Yes, I can. Thank you.
    Sometimes I will multitask apps when I am not on an active 
order, especially with Instacart, and I try to decline the less 
profitable offers when I am on shift. It is risky to have 
multiple apps running because depending on the app, I have 
either 30 seconds to 4 minutes to evaluate whether I want to 
take an order or not.
    Ms. Stevens. So you have blacked out your time to do a job, 
but if it is not necessarily there, you are just kind of 
hanging in the balance.
    I think as we kind of--we get compelled to talk about the 
future of work, but the future of work is here. And it is fair 
to say that while apps drive your work, you are not an app and 
you are an actual worker that is signed up and ready to deliver 
a service. And as we all know in this hyper digital 
environment, it is still people that will move our economy. So 
we are glad that you do that work, but we are also delighted 
that you brought these comments here today.
    And, Ms. Dworak, just kind of piggy backing off of that, 
are there times when an employee should be paid for waiting 
time, as we have maybe seen in other industries, that you could 
elaborate for us here today?
    Ms. Dworak-Fisher. Sure.
    Yes, there are--under the Fair Labor Standards Act there 
are times where an employee must be paid for waiting time. The 
FLSA has a well-established framework for that. You determine 
whether the employee is engaged to wait, in which case it is 
compensable time, or just waiting to be engaged, in which case 
it is not compensable time. And the analysis there really looks 
to, you know, how long does the worker have to respond to the 
offer, whether they are free to decline without adverse 
consequences, whether they are free to go about their daily 
lives outside the waiting time. You know, can they go grocery 
shopping, can they do all manner of other things. If the time 
is their own, then they are waiting to be engaged and it is not 
compensable.
    Ms. Stevens. It sounds like the most recognizable form of 
misclassification happens when an employer misclassifies an 
employee as an independent contractor. But your testimony also 
states that misclassification can take other forms. So how else 
can an employer misclassify its workers outside of this?
    Ms. Dworak-Fisher. Sure.
    Well, in some situations the employer might ask the 
employee to set up their own LLC, to form a franchising 
business of one, or, you know, other times they are just not 
classified at all, paid off the table or, you know, paid under 
the table in cash, those types of situations.
    Ms. Stevens. Well, it is certainly a moment for our gig 
economy as it relates and speaks to and compels this notion of 
a 21st century labor movement and how we can value the work of 
people and make sure that people are earning a fair living wage 
and that one job should be enough.
    And so with that, I am going to yield back the remainder of 
my time.
    Thank you, Madam Chairwoman.
    Chairwoman Adams. And thank you very much.
    At this time, I want to yield to the gentlelady from North 
Carolina, Ranking Member of Education and Labor, Dr. Foxx, you 
are recognized.
    Mrs. Foxx. Thank you, Madam Chairman. And I want to thank 
our witnesses for being here today.
    Mr. Chemers, the proposed bill states that if an employer 
fails to give an individual covered by the legislation a notice 
identifying the individual's employment status, then the 
individual is presumed to be an employee and you have talked 
about that a good bit.
    Could you elaborate a little more on what this means and 
what the purpose of the provision is, what your concerns are 
about it?
    Mr. Chemers. Thank you.
    I will start with just the description of what the 
presumption is, which is if you fail to issue one of the 
notices, and that could be failing to issue the notice at all, 
or as currently drafted, if you issue it and it doesn't have 
the correct local office for the DOL, or it hashas the correct 
office for the DOL but doesn't have the correct address or 
telephone number, if you do any of those things, there can be 
an argument that this presumption applies. And in that case, 
you will have to prove as a business, or someone engaging an 
independent contractor, by clear and convincing evidence, which 
is a very high standard, that they were properly classified as 
an independent contractor. So that is what that provision would 
do. And what I find a little perplexing is that strong 
presumption doesn't actually apply to people necessarily who 
are misclassifying workers. And that is what I understood to be 
the focus of today's hearing. There has been a lot of testimony 
on that. But it doesn't punish that. What it punishes is again, 
is just the failure to provide notice.
    So if you have a business that is intentionally 
misclassifying workers, but providing those notices, that 
presumption will not apply to it. But if you have a well-
meaning, law abiding business, particularly a smaller business 
that may have a harder time understanding what its obligations 
are under the law, and it fails to provide the notice, then 
that presumption will apply to that business, even if it has a 
very good faith basis for classifying that worker as an 
independent contractor.
    Mrs. Foxx. So everything on the notice has to be perfect or 
else they are in violation? It is a gotcha kind of thing?
    Mr. Chemers. That would be my concern based on how it is 
currently drafted and how we have seen other similar 
legislation, once it goes into effect, the arguments that are 
made.
    Mrs. Foxx. Mr. Passantino, we know the current test for 
determining if an individual is an employee or independent 
contractor can be difficult to apply, particularly for small 
businesses. However, the assumption from my colleagues across 
the aisle is that most employers are willfully and 
intentionally misclassifying workers.
    Based on your experience, do you think that is the case, or 
do most employers who misclassify do so unintentionally while 
acting in good faith? How does the proposed legislation treat 
the overwhelming majority of employers acting in good faith?
    Mr. Passantino. I think that is one of the issues with the 
legislation, is it treats someone who willfully misclassifies 
and someone who innocently misclassifies in the same way.
    So someone who decides that all of their 1,000 laborers are 
independent contractors is treated the same way as someone who 
makes a bad judgment call on whether a freelance journalist 
should be treated as an independent contractor or an employee. 
There are legitimate uses of independent contractors, there are 
a number of different tests that are out there, there are a 
number of different ways that those tests are applied. I have 
seen cases where it is literally the exact same position and if 
you read the two court decisions, you would think that one of 
the people was just nailing something into the wall and the 
other one was launching a rocket. There are a fundamentally 
different description of the facts based on the cases, and 
because of that employers can never have 100 percent certainty 
whether they are properly classifying.
    So you have--under this provision it is treated exactly the 
same whether someone is doing it willfully and intentionally, 
or whether someone is doing it innocently.
    Mrs. Foxx. As someone who over the years has been in the 
construction business and knows about hiring independent people 
to work for them, I can certainly understand that situation and 
the examples that you and Mr. Chemers have given are so 
appropriate, I think.
    Mr. Chemers, in your testimony you state that if this bill 
goes into effect, we would likely see a flood of litigation as 
a result. It sounds to me like a full employment bill for 
bureaucrats and lawyers, frankly.
    So could you further elaborate on what you believe that be 
the case?
    Mr. Chemers. Very quickly, my starting point is whether or 
not there are already enough remedies under the FLSA, and we 
have talked about them. There is already you can recover unpaid 
wages, liquidated damages, attorneys' fees, you can bring a 
collective action on behalf of dozens or hundreds of people, 
and there is a lot of activity already under the FLSA with 
misclassification.
    What you do by stacking additional penalties, my concern--
and this is what we see in California and why I have to rush 
back there after we are done today--is there is this gold rush 
mentality of we just have to bring a lawsuit and a small 
business or a large business will look at the potential 
exposure to it, potentially in the millions of dollars, and 
they will decide that rather than hire their own attorneys and 
have that risk, they will pay some amount of money. And, again, 
that is what we see in California, and this why it is such a 
hotbed of wage and hour litigation.
    Mrs. Foxx. It seems to me that there is always the 
assumption on the other side of the aisle that the private 
sector is made up of a bunch of crooks and that all they want 
to do is abuse people. That is not my experience. Unlike Mr. 
Keller, my experience is they are almost all very honest 
people.
    I yield back.
    Chairwoman Adams. Thank you.
    At this time, I want to yield to the gentleman from 
Virginia, the chair of Education and Labor. Mr. Scott, you are 
recognized.
    Mr. Scott. Thank you, Madam Chair.
    Ms. Dworak-Fisher, you read the section on fines. As I 
understand it, the fines are up to a certain amount. Does that 
suggest that any fine imposed would consider whether it is a 
technical or intentional violation or whether it is one off or 
a frequent violation?
    Ms. Dworak-Fisher. Absolutely. There is discretion. It is 
up to. In other words, depending on the severity of the 
violation. I would point out----
    Mr. Scott. And the fine would be proportional to the 
severity?
    Ms. Dworak-Fisher. Yes.
    Mr. Scott. Thank you.
    Mr. Townsend, you indicated that there is a significant 
savings that can be achieved with misclassification. How often 
do those savings affect the winning of a bid?
    Mr. Townsend. The construction industry has the largest 
amount of misclassified workers. In the State of North 
Carolina, the state has a 35 percent disadvantage and the State 
of Texas is greater than that.
    Mr. Scott. You mean 35 percent reduction in costs to help 
you on a bid?
    Mr. Townsend. Thirty-five percent, I am sorry, was the 
amount of misclassified workers. In the reduction of bid, the 
percent I discussed was, out of the gate for me, my company and 
the constituents I represent, it is about 26 percent out of the 
gate.
    Mr. Scott. And how often does that affect you winning or 
losing a bid?
    Mr. Townsend. It affects me greatly. I can speak in terms 
of my personal experience in regards to--I am going to talk 
about wood frame structures in my industry where these are low 
rise structures, under 10 stories, that are constructed out of 
wood. That particular market segment, we don't even spend time 
bidding and it is gone. That segment has been taken over by 
misclassified workers ruled by independent contractors and 
labor brokers.
    Mr. Scott. How does misclassification affect compliance 
with Davis-Bacon?
    Mr. Townsend. Davis-Bacon, greatly. Again, these actors 
that I am discussing, again, I am talking about legitimate 
contractors versus illegitimate contractors. In contrast, the 
bad actors pay a base rate, hopefully, they then don't pay 
overtime, they work their people at a straight base rate, 
contrasted to the companies I represent. We pay overtime for 
the first hour for any time worked over 40 hours and we pay all 
the benefits that go along with that.
    Mr. Scott. Thank you.
    Mr. Racine, could you say a word about why this legislation 
is necessary?
    Mr. Racine. Sure, Congressman.
    I think enforcement of laws that are on the book is 
extremely important. And I think that when we have identified a 
problem like a problem like misclassification, it is incredibly 
important for the business community and the community of 
employees to know that there will be laws and there will be 
enforcement as to those important issues.
    If I could just take 1 minute max to tell you a little bit 
about what we do at the office of attorney general in the 
District of Columbia in regards to the investigations that we 
have. And there are indeed instances where the issue relates to 
a computer snafu, a software glitch, et cetera. It is not 
really a bad actor, it is a mistake. And when we come across 
those mistakes, they do in fact happen, we don't penalize. What 
we do is we try to make sure that the mistake is fixed, we 
might enter into a consent decree whereby we go back every 6 
months for a period of 18 months to see whether the mistake has 
occurred again.
    And so it really is I think not a world of pinheaded 
bureaucrats and zealot enforcers, certainly not in the District 
of Columbia, but more so people who are really trying to get it 
right and level the playing field and being very, very 
judicious in regards to how we seek penalties.
    Mr. Scott. Thank you.
    Ms. Dworak-Fisher, one of the problems with defining 
somebody as an employee rather than as an independent 
contractor occurs when you are, as we have heard, using 
multiple apps at the same time. If you are doing Uber, then you 
know what you are doing, but if you are doing Uber and Lyft at 
the same time and there is an accident, who owes the worker's 
compensation, if you work more than 40 hours, who owes the 
overtime? How would this work with somebody that is working 
multiple apps at the same time?
    Ms. Dworak-Fisher. So it would depend on whether they were 
determined to be employees or independent contractors. To the 
extent that they are employees, each hiring or each employing 
entity would be responsible for minimum wage and worker's comp 
and overtime for each hour that they actually worked.
    Now, the secondary question is whether having an app open 
is compensable work. And as I mentioned earlier, that depends 
on the analysis of whether you are engaged to wait and waiting 
to be engaged.
    So, you know, the FLSA would provide a framework for 
figuring that out in terms of whether you are an employee and 
whether it is compensable work.
    Mr. Scott. Thank you, Madam Chair.
    Chairwoman Adams. And thank you very much. I want to 
recognize the gentleman from North Carolina, Mr. Walker, for 
five minutes, please.
    Mr. Walker. Thank you, Madam Chair.
    The more I study this, the more this looks like a classic 
case where the government continues to overreach, and then 
overreach seems sometimes to do more damage than good. In 
reviewing this it seems like it is more lack of enforcing the 
laws that are already on books than more regulatory processes.
    Many of these independent contractors, if you look at this 
information, are single moms or individuals that are looking to 
supplement their income.
    Miss Crawford, I don't know if that is the case with you, 
but I have read a little bit about your background and 
certainly how hard you work, and some Uber driver. I think some 
of that, if that is correct.
    The use of these contractors makes sense for many job 
creators to obtain high quality services. Many of these workers 
want to offer these skills on their own terms and for 
consumers, who benefit from a reduction in the costs of goods 
and services. Unfortunately, the PFPA act will increase the 
legal risk--the legal risk--lawyers--to business owners and 
make it prohibitive for them to engage independent contractors 
who provide needed services.
    You know, I think specifically about entrepreneurs. You 
know, 2/3 of all jobs are small businesses and some of these 
wonderful new ideas and startups trying to launch out and 
follow additionally the regulations.
    I have got a couple of questions for Mr. Chemers, but I 
want to start with Mr. Townsend since you peaked my interest. 
You brought up my home state of North Carolina. You said that 
35 percent are misclassified workers or bad actors. Is that 
what you are saying?
    Mr. Townsend. That was a government statistic we had 
received.
    Mr. Walker. What government statistic was that?
    Mr. Townsend. Department of Labor.
    Mr. Walker. Okay. So that is easy to be able to ascertain.
    You are I think the president, is that correct? What is the 
organization that you are the president of?
    Mr. Townsend. SWACCA is the acronym, it is the Signatory 
Wall and Ceiling Contractor's Alliance.
    Mr. Walker. All right. And how many governing--I think I 
looked at your website, there are 11 directors or presidents or 
regional directors, is that correct?
    Mr. Townsend. There are 11.
    Mr. Walker. Okay. And is that a volunteer position?
    Mr. Townsend. Yes, it is.
    Mr. Walker. Okay. And the 11 guys, you volunteer the time 
to be able to represent this specific union that represents--is 
it wall and ceiling contractors? Is that was it----
    Mr. Townsend. Correct.
    Mr. Walker. Okay. Thank you. Just wanted to make sure I was 
clear on the background there.
    Mr. Chemers, what if an employer were to provide a notice 
to an employee but list the wrong office for the Department of 
Labor? What implications would that have for the employer who 
was attempting to comply with the law?
    Mr. Chemers. Based on the way that the PFPA is currently 
drafted, that would have the same impact as if they didn't 
provide a notice at all.
    Mr. Walker. So I assume there are penalties? How does that 
play out? Unpack that for me for just a minute.
    Mr. Chemers. Yeah. I mean the most significant thing that 
will flow from that will be the presumption of employee status. 
So, again, even though regardless of whether or not that 
company intentionally misclassified that worker, there will 
then be that negative legal inference and there are going to be 
a much-heightened legal standard for them to prove that worker 
was in fact an independent contractor. Again, whether they 
don't issue the notice or if there is some technical violation 
with the notice that was issued.
    Or also let us say someone doesn't maintain copies and 
can't find that notice 3 or 5 years after the fact.
    Mr. Walker. So it could be completely unintentional but 
still set off a chain of problematic--that could last for some 
time?
    Mr. Chemers. Based on the way the statute is currently 
drafted, yes.
    Mr. Walker. That is unfortunate. This proposed legislation 
seemed like it would result--just transparently being a lot of 
money for plaintiffs' lawyers and not actually solve the 
problem, which I think--listen, I think that is the intent of 
everybody on the panel, is to solve this issue of bad actors. 
We get that and we respect that. But I think it could create a 
problem of misclassifications of employees. I mean do you agree 
with that? Does it not solve the problem?
    Mr. Chemers. If the key issue is trying to reduce the 
misclassification of workers, the focus of this bill on a 
notice requirement and then negative presumptions and other 
penalties and remedies flowing from that presumption I think is 
the wrong way to go about curing that issue.
    Mr. Walker. Well, I am going to talk slow here for a second 
for you to get a sip of that water. I have got one more 
question for you there and I would like for you to elaborate. 
Maybe some of the reasons that businesses that you represent 
might choose to use independent contractors to begin with.
    Mr. Chemers. There are a host of reasons. One is obtaining 
specialized skills. Again, a small business might need an 
accountant or a lawyer. Many small businesses use human 
resources administrators because that is not a function they do 
internally. And just as we are sitting here today, the thought 
that you are going to hire an outside human resources 
administrator, that person would need to generate a notice that 
identifies themselves as an independent contractor and then 
provide that notice to themselves under the PFPA. And so that 
is specialized skills, specialized equipment, ways to deal with 
fluctuating demands. A lot of time, you know, if you are in a 
seasonable business, if you are in a farming economy and that 
is what you have to deal with, you may have a lot of need for 
workers during a certain time of year and other times of year 
you may not have any need because of, you know, when the crops 
come in.
    Mr. Walker. Thank you, Miss Chairman.
    I yield back, Madam Chair.
    Chairwoman Adams. Thank you.
    The gentleman from New Jersey, Mr. Norcross. You are 
recognized.
    Mr. Norcross. Thank you, Madam Chairwoman, and appreciate 
very much holding this hearing. It is something that I saw in 
private life long before I came here to Congress.
    What I want to start with is, the fact is that from what I 
am hearing, everybody on the panel believes there is an issue 
here, the way that we fix it.
    So let me start with you, Miss Crawford. We all agree with 
the great spirit of starting your own company, becoming your 
own boss, and working forward. In the job that you described 
that you have, jumping between the applications or how you get 
it, do you personally feel like you are your own boss?
    Ms. Crawford. Thank you for that question.
    No, I do not feel like I am personally my own boss because 
there is so much control through the apps. It dictates the time 
and the pay. I have no negotiation avenue. It is either I take 
the offer, or I don't. I know that my co-workers, or fellow 
workers, in some instances they are just trying to make ends 
meet and they will take a low paying offer because they might 
have to make a car payment or pay insurance or just buy food 
for the family.
    Mr. Norcross. So as an independent contractor, or your own 
boss as many described it, have you hired anybody to work for 
your new company?
    Ms. Crawford. No, I have not.
    Mr. Norcross. Do you know any of the other drivers that you 
work with who have then expanded their base and hired people?
    Ms. Crawford. No.
    Mr. Norcross. So that spirit is absolutely alive today in 
starting your own company. There is a difference between owning 
your own company and growing it and working to survive. And 
that is what we all hear. And there are bad actors.
    And that is where I just want to shift here for a moment to 
you, Mr. Townsend, the construction industry, something I spent 
37 years in and we saw day in and day out. When you are 
bidding, whether it is a government funded job, which has a 
little bit more protections in that certified payroll set to 
come across. Can you walk me through the bidding process, which 
is historically how you get all your work. Why those small 
independent contractors who have their own pickup truck who 
show up only work for one GC, or general contractor, all the 
time? They are really an employee that they are turfing off 
some much of this liability that they carry, how does that hurt 
you as a contractor who has maybe a collective bargaining 
agreement or 50 of your own employees? Walk me through that.
    Mr. Townsend. Thank you, Congressman.
    So to walk you through the bid first.
    Mr. Norcross. Well, why is there a competitive advantage 
for those small one-man shops? I am not talking about 
competition that is playing on the same field as you. Walk us 
through that. How does that help them?
    Mr. Townsend. The biggest competitive advantage, as I 
continue to reiterate, is the good actor versus the bad actor 
scenario.
    So looking at my business, our costs incorporate if there 
is going to be overtime or not, they incorporate special taxes 
and issues that might be unique to a city or jurisdiction. We 
incorporate unemployment insurance, we----
    Mr. Norcross. Well, the worker's comp is very big.
    Mr. Townsend. Yes. So when we look to the other side, 
again, they are paying a base rate to an employee that maybe 
gets a 1099, maybe doesn't, maybe gets paid in cash, as Ms. 
Dworak-Fisher discussed. That is where the disadvantage comes 
in, right there at that exchange. There are none of those 
benefits paid. And that takes me back to that minimum 26 
percent disadvantage.
    Mr. Norcross. How about when it comes to worker safety? 
Those bad actors that you described, do they generally have 
good OSHA standards and teach their employees or themselves on 
how to be safe on the job?
    Mr. Townsend. Thank you for that question.
    The quick answer is no. The true world is--in my world we 
have apprenticeship training programs, we have journeyman 
upgrading programs, we have continuing training o employment, 
all of our people are 30-hour OSHA trained as a rule and a 
policy. Compare that to an individual who is a classified 
worker getting paid a base rate. They at that point in time 
have no worker's compensation employee, they have no skill set. 
They are supposed to provide their own safety equipment and 
personal protective equipment out of their own paycheck.
    Mr. Norcross. Thank you. And I only have a few seconds 
left, but I just want to make it a real distinction between 
those who want to become entrepreneurs, start their own 
company, which we want to encourage, versus somebody who just 
wants to get an employee off their payroll, so that they now 
become their own accountant, their own tax advisor, their own 
retirement counselor, their own lawyers, so that liability, 
their own insurance agent, to give them that flexibility. That 
doesn't sound like to me somebody who wants to become an 
entrepreneur. It sounds like a company just trying to turf that 
off.
    I yield back the balance of my time.
    Chairwoman Adams. Thank you very much.
    I remind my colleagues that pursuant to committee practice, 
materials for submission for the hearing record must be 
submitted to the Committee Clerk within 14 days following the 
last day of the hearing, preferably in Microsoft Word format. 
The materials submitted must address the subject matter of the 
hearing and only a Member of the committee or an invited 
witness may submit materials for inclusion in the hearing 
record. The documents are limited to 50 pages each. Documents 
longer than 50 pages will be incorporated into the record via 
an internet link that you must provide to the Committee Clerk.
    Again, I want to thank the witnesses for their 
participation today. What we have learned is very valuable and 
Members of the committee may have some additional questions for 
you, and we ask the witnesses to please respond to those 
questions in writing. The hearing record will be held open for 
14 days in order to receive those responses.
    I do remind my colleagues that pursuant to committee 
practice, witness questions for the hearing record must be 
submitted to the Majority Committee Staff or Committee Clerk 
within 7 days. The questions submitted must address the subject 
matter of the hearing.
    I now recognize the distinguished Ranking Member for his 
closing statement.
    Mr. Byrne. Thank you, Madam Chairwoman.
    I want to thank the witnesses for being here today, for 
your testimony. This was very enlightening. As usual, we hear 
new pieces of information and that helps us understand these 
issues better.
    I do want to make sure I add my voice to something that was 
said by some of the others. And I practiced law in the labor 
and employment area for a long time. There is not 30 percent of 
the people out there that are not complying with this law. That 
is just not true. Now, we have heard this today for the first 
time, and we are going to run it down. But if that were true 
there would be massive Federal activity going on out there to 
do something about it, particularly in the Obama Administration 
there would have been, and there was none.
    So whatever that figure came from, it is false and we need 
to call out false information when we get it.
    I represented construction contractors that were unionized 
and some that were not unionized. And I found that unionized 
contractors, non-unionized contractors worked very hard at 
complying with the law, because it hurts them when they don't 
comply with the law, and sometimes it hurts them very badly. So 
I don't want there to be any sort of insinuation out there that 
somehow non-unionized contractors are not obeying the law. That 
is not true.
    What is true is that we have a rapidly changing American 
workforce and workplace. And things are moving a lot faster 
than the government moves. The government just isn't nimble 
enough apparently to keep up with it. We have a lot of people, 
a lot of younger people, a lot of women who are looking for 
different ways to work. And we haven't come up with very good 
ways to try to deal with those different ways to work. And some 
of them have taken action on their own, started their own 
businesses to become independent contractors so they could give 
themselves the flexibility that they wanted. I have those in my 
own family.
    And, you know, we should be mindful of that fact and not 
creating through our laws and policies impediments to them. Let 
them do their thing. You know, in America, because we have let 
private individuals do their thing, we have become the most 
powerful economy in the world with more freedom and opportunity 
than people all over the world have. In fact, the reason so 
many people are literally dying to get into this country is 
because of those freedoms and those opportunities. And the 
worst thing the government can do would be to put together a 
law like this and put it out there and create that impediment.
    When I read this bill and I saw that it literally turns on 
its head our fundamental notion of how we handle legal disputes 
in this country--you know, typically somebody files a 
complaint, the burden of proof is on the person who files the 
complaint. This bill would turn that around, make it a 
presumption against the person against whom the complaint has 
been filed, and then say that person can only defend themselves 
against that presumption by making proof on a clear and 
convincing standard basis. Everybody in the law knows what that 
means. It is almost like you have to meet the same standard in 
criminal court.
    Ladies and gentlemen, that is not America. The person that 
wrote that could not have been serious, because we are not 
going to do that. We are not going to subject employers or 
anybody else in this country to that standard.
    So I heard some mention during the testimony that there was 
room for negotiation. There hasn't been any negotiation. This 
piece of legislation was just given to us, boom, there it is. 
If we want to be serious about this issue, and I am very 
serious about this issue, let us deal with it on a realistic 
basis, what is really going on out there in the American 
economy, what is really going on out there in terms of 
compliance or noncompliance with the laws that exist today, 
what can we do--I heard at least one Member say this--working 
together to deal with that situation.
    This bill that has been drafted that we have seen for 
discussion purposes is not it. The bill was passed out of 
committee yesterday is absolutely not it. None of them are 
going anywhere. But if we really want to solve it, there is 
something we could do to get something somewhere and I am ready 
to get to work on that.
    With that, Madam Chairwoman, I yield back.
    Chairwoman Adams. Thank you, sir.
    I want to again thank our witnesses for sharing their 
expertise and experiences with us.
    I recognize myself now for the purpose of making my closing 
statement.
    Again, I thank you all very much for being here. Your 
compelling testimony shed a much-needed light on unscrupulous 
employers that misclassify their workers in order to evade 
labor laws and save on labor costs. We heard how this business 
model hurts workers who are paid below the minimum wage, forced 
to work more hours without overtime pay, or make less pay than 
they earned. We heard how worker misclassification hurts honest 
businesses that are put at a competitive disadvantage by 
businesses that save money by stripping workers of labor 
protections. And we heard how misclassification hurts taxpayers 
that are forced to shoulder higher taxes or cuts to services 
due to the lost state and Federal tax revenue.
    The consequences of misclassification are so severe that 
states across the political spectrum have taken the lead in 
combating misclassification. If these states can work across 
the aisle to end misclassification, there is no reason we 
cannot do the same to fulfill our responsibility to protect 
workers and honest employers.
    I am pleased that we discussed the Payroll Fraud Prevention 
Act, which would outlaw misclassification nationwide and hold 
accountable those employers that ignore workers' right.
    As part of the legislative process, today's witnesses have 
provided helpful input on how we can strengthen and improve the 
current discussion draft of this bill.
    With this legislation, the committee has an opportunity to 
stand united in taking a significant step to uphold workers' 
rights and improve the lives of workers across the country. 
Simply put, each of us here today believes workers should 
receive fair pay and fair treatment for their work.
    I look forward to working with all of my colleagues toward 
that shared goal.
    And if there is no further business before the committee, 
without objection, the committee stands adjourned.
    [Additional submission by Chairwoman Adams follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]      
   
    
    [Additional submissions by Mr. Byrne follow:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
   
    [Additional submission by Mr. Racine follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
    
    [Additional submission by Mr. Townsend follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    [Whereupon, at 12:22 p.m., the subcommittee was adjourned.]