Labor and Public Employees Committee

JOINT FAVORABLE REPORT

SPONSORS OF BILL:

Joint Enforcement Commission on Employee Misclassification

REASONS FOR BILL:

The bill aims to implement the commission's recommendations related to employee misclassification.

SUBSTITUTE LANGUAGE:

The substitute language increases the penalty for this violation by specifying that each day of the violation constitutes a separate offense. Violators are liable for a civil penalty of $300 to the Labor Department.

RESPONSE FROM ADMINISTRATION/AGENCY:

Attorney General Richard Blumenthal: Supports

In 2008, the General Assembly established a joint commission of 5 state agencies (Attorney General, Chief State's Attorney, Labor, Revenue Services, and Workers' Compensation Commission) to work collaboratively on the problem of some businesses misclassifying employees as independent contractors. In addition, the legislation created an advisory group to the joint commission consisting of representatives from business and labor.

Misclassification costs employees important compensation and benefits while fraudulently failing to pay assessments for unemployment compensation and workers compensation. Misclassification also creates an unfair advantage for companies over other competitors who properly designate their employees and provide the legally required benefits.

The Joint Commission recently issued its first annual report which contained a recommendation for studying the current level of penalties for misclassifying employees. The commission and the advisory group have agreed to recommend substitute language to this bill that would increase the civil penalties for failing to obtain workers compensation insurance or knowingly misrepresenting one or more employees as independent contractors from $300 per violation to $300 for each day the violation occurs. The per day fine recommended in this amendment will substantially increase the law's deterrence. In addition, the amendment also clarifies that the criminal penalty for knowing violations of the misclassification law includes defrauding the state of Connecticut. I support this measure as a step in the right direction.

Chief State's Attorney Kevin T. Kane, Division of Criminal Justice: Supports

The Division of Criminal Justice supports the amendments submitted to the Labor Committee regarding revisions to Section 31-69a and subsection (g) of Section 31-288 of the general statutes. These revisions will strengthen the position of the state and its ability to prosecute the failure to pay assessments for Workers' Compensation insurance and the Second Injury Fund.

NATURE AND SOURCES OF SUPPORT:

Glenn Marshall, New England Carpenters Local 210:

Included in my testimony, (available online), is the first annual report of the commission. I would like to highlight a few accomplishments: 1) the Stop Work Unit at the Department of Labor has issued more than 300 stop-work orders for the misclassification of workers. This unit has collected approximately $90,000 in civil penalties and issued two arrest warrants. More than 1,200 workers are now properly classified. 2) The Labor Department's Unemployment Field Audit Unit completed 2,020 compliance audits of employers and reclassified 6,700 workers from independent contractor to employee between October 1, 2008 and September 30, 2009. This effort recovered more than $53 million in wages and additional unemployment tax of $750,000. These wages would also have to be reported for state income tax purposes. 3) From July 1, 2008 to June 30, 2009, the Department of Revenue Services BETA Unit conducted 61 audits related to worker misclassification and assessed $1,222,869 in additional tax. For the current fiscal year, to date, there have been 39 worker misclassification audits completed, resulting in additional tax of $780,219. Thanks to this commission, state agencies are working together on this issue like never before. For the first time ever, state agencies conducted joint sweeps on Connecticut construction jobsites.

More than 25 states are strengthening their enforcement efforts thanks to recommendations from the National Council of Insurance Legislators. With the recommendations included in this bill, along with other amendments, the commission's mission to step up enforcement and compliance with the law can be accomplished.

Nate Brown, International Union of Operating Engineers:

Employment misclassifications need to be enforced by the State of Connecticut and the penalties for violating the law need to be significant in order to have a deterrent effect. While there are many upstanding contractors in the state, there are some bad actors who need to realize that there are severe consequences when you violate the law and take advantage of the hard working construction workers of Connecticut.

NATURE AND SOURCES OF OPPOSITION:

None submitted.