[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.]