A bill that would have immediately penalized employers who misclassify their workers as independent contractors underwent major last-minute changes Monday and now proposes to waive the penalty if the employer corrects the situation.
The Louisiana Senate Committee on Revenue and Fiscal Affairs approved the substitute bill without debate.
The bill that Sen. Jay Luneau, D-Alexandria, originally proposed, Senate Bill 92, would have forced employers who fail to withhold proper taxes for a misclassified worker to pay a fine equal to 6% of that worker’s wages. It also proposed that a contractor who knowingly used a subcontractor who used misclassified employees would face a fine of 25% of the worker’s compensation and payroll taxes owed by the subcontractor.
The replacement bill imposes a $500 fine for each individual misclassified, but if it’s the first time an employer is caught misclassifying an employee, the penalty would be waived if the situation is rectified within 60 days. A second offense would prompt a $1,000 fine and a third offense a fine of $2,500. Even without the waiver, a $500 fine is about 10 times lower than it is in other states. First-offense fines average at about $5,000 across the country.
“There were lots of folks that had lots of issues with this (original) bill,” Luneau said Monday. “And to be in a compromising mood that I was in that day, I guess we sat down and worked it all out.”
Luneau said the new legislation was created through a collaboration with lobbyists Jim Patterson and Louis Reine, from the Louisiana Association of Business and Industry and the AFL-CIO labor union, respectively. However, the changes are identical to proposals that LABI suggested several months ago to Louisiana’s Misclassification of Employees Task Force, which rejected them.
“I was, frankly, very surprised and very pleased when Mr. Reine reached out to me and indicated that he was aligned with the thinking of the business community on this particular issue,” Patterson said.
The bill includes, word-for-word, LABI’s 12-point proposed definition of independent contractor, according to documents on the task force’s website. It defines an independent contractor as anyone who can be described by any seven of the 12 points. Going by that proposed definition, independent contractors could include workers who can’t set their own hours, aren’t allowed to work for other businesses and are directly managed or supervised by the contracting party.
“It is the only thing that allowed my members to be comfortable with the idea of increasing the penalties,” Patterson said of the newly-proposed definition of independent contractor.
Reine said he supported the bill because it would institute fines instead of warnings for businesses that misclassify workers, but no one pointed out that the bill still allows for a first-offense warning.
Louisiana’s current law already gives a warning to employers who are caught for the first time misclassifying employers. Legislative Auditor Darryl Purpera, who recently retired, had described that leniency as the primary cause of the state’s worker misclassification problem. In 2019, the Louisiana Legislative Auditor issued a report on more than 3,000 audits it conducted on misclassified employees. That report concluded that more than 13,000 misclassified workers had cost the state $3 million in unemployment taxes and $9 million in income taxes. Louisiana, according to Workforce Commission Secretary Ava Dejoie, is the only state that gives businesses a warning for breaking the law against misclassifying employees.
“To borrow Darryl Purpera’s words: Penalties that aren’t penalties don’t work,” Erika Zucker with Loyola’s Workplace Justice Project said in opposition to the substitute bill Monday.
The bill was not initially scheduled to be heard in committee on Monday, and several stakeholders who who have been involved in the debate and were on the task force, such as the Workforce Commission and Department of Revenue, were not present.
Zucker, who was in attendance to support Luneau’s original bill, was the only person there to oppose the substitute.
“This kind of came out of left field and was clearly kept under wraps until the last minute,” Zucker said in a phone interview after the meeting.
Reading from notes she had hastily jotted as the substitute was unveiled, Zucker told the committee the bill proposes to do things that were already considered, researched and rejected by the Misclassification of Employees Task Force.
“This is not an objective set of criteria in the definition of independent contractor,” Zucker said. “This is a set of criteria written by the business community.” She said the proposed definition of an independent contractor is far from how it is defined in federal labor laws: “This new definition shifts the burden from businesses to workers and subjects the workers to being coerced into being classified as independent contractors.”
The bill breezed through with no objections raised.
“Do you think it will improve your LABI score?” the committee chairman, Sen. Bret Allain, R-Franklin, asked Luneau earlier in the meeting.
“Uh, I’m hoping not,” Luneau said to laughter from the members of the committee.
Rep. Mandie Landry, D-New Orleans, spearheaded the effort to fix Louisiana’s problem of employee misclassification with a bill she introduced last year that ultimately died in committee. Lawmakers from both political parties, such as Rep. Neil Riser, R-Columbia, have since taken up the cause with legislation this year. Riser’s House Bill 51 is even stronger than what Landry proposed. It would implement a fine of up to $5,000 for a first offense.
Landry said she was disappointed to hear about Luneau’s substitute bill.
“I haven’t been able to examine it closely yet, but from what I’ve heard it is not what the task force recommended,” she said, “which is extremely disappointing.”