A Bill Defining Independent Contractors Meets A Contentious Demise

May 4, 2016

An attempt to define the difference between employees and independent contractors turned into one of the most controversial bills of the 2016 legislative session. The legislation met its demise this week when a procedural maneuver, orchestrated by the leader of the House Progressive caucus, led to a decision to pull it from the House floor. But the issue isn’t going away.

For all the contention it’s wrought in Montpelier, House Bill 867 springs from surprisingly peaceable origins.

Back in early March, the legislation passed unanimously out of a House Committee on Commerce and Economic Development that includes six Democrats, four Republicans and an Independent. 

Supporters hailed it as a sensible solution to what, under current law, has been a vexing question: What’s the difference between an employee and an independent contractor?

Supporters of 867 say the bill broadens the definition of an independent contractor in ways that accommodate the growing freelance economy of the 21st century. They say it’ll also eliminate flaws in existing law that prevent home-builders, for instance, from subbing out work that most people agree should be eligible for independent contractor status.   

Maureen Connolly, executive officer for Homebuilders and Remodelers Association of Vermont, says flaws in existing law expose companies that engage in legitimate business practices to tens of thousands of dollars in fines.

“This is devastating to small business, regardless of whether you’re in the home-building industry or any other industry, and it really needs to be addressed,” Connolly says.

Ben Johnson, president of AFL-CIO Vermont, says the bill tries to solve the employee classification problem in ways that would allow companies to lay off existing employees and bring them back on as independent contractors, thereby robbing them of benefits – such as health insurance, paid time off and workers compensation – that come with actual employment.

"If the Vermont Legislature creates an open door the size of a barn door that employers could walk through to save money and take those protections away, I would not feel safe living in that world." - Ben Johnson, AFL-CIO Vermont

“If the Vermont Legislature creates an open door the size of a barn door that employers could walk through to save money and take those protections away, I would not feel safe living in that world,” Johnson says.

Johnson is among the labor officials who began sounding the alarm after the legislation picked up steam. 

“We could just see a wholesale abandonment of everything that we think of in the workplace as giving us protections, would just be wiped away,” Johnson says. “That’s where we don’t want to go.” 

Stowe Rep. Heidi Scheuermann has been working for a fix to the independent contractor conundrum for the last six years, and she says the idea that businesses would exploit the legislation to offload workers “is hogwash.”

“This is the only bill, the single bill this year, that does anything to move the economy forward in Vermont,” Scheuermann says. “And they want to gut it.”

"This is the only bill, the single bill this year, that does anything to move the economy forward in Vermont. And they want to gut it." - Rep. Heidi Scheuermann

At issue is the test the Department of Labor uses to determine whether someone should be an employee or an independent contractor. Specifically, lawmakers focused on the question of “like work.”

Under existing law, if the company’s business includes work that is “like” the work being done by the person it wants to hire, then the person should generally be treated as an employee, not an independent contractor. 

Bennington Rep. Bill Botzow is the Democratic Chairman of the House Committee on Commerce and Economic Development, and he says the regulations, as structured now, are flawed. When the bill passed out of his committee, he says he thought the language drew a brighter line between “employee” and “independent contractor,” and did so in ways that would resolve associated issues in the technology, construction and other industries.

Botzow says his position has since evolved.

“I think I spent a lot of time reading more about the conversion of workers with good jobs to independent contractors where they end up in a disadvantaged position,” Botzow says.

Scheuermann says it was upsetting to see the bill fold under pressure from labor. But members of the business community also began to voice concerns. 

"When some of my members took a look at the bill ... they realized that could essentially, if they wanted to, fire all of their employees and rehire them as independent contractors." - Daniel Barlow, Vermont Businesses for Social Responsibility

“When some of my members took a look at the bill that came out of House Commerce, they realized that could essentially, if they wanted to, fire all of their employees and rehire them as independent contractors,” says Daniel Barlow, public policy director at Vermont Businesses for Social Responsibility. 

Barlow says his members already face competitive disadvantage at the hands of businesses who try to save money on costs like unemployment insurance and workers compensation by misclassifying what should be employees as independent contractors.

“It’d be a real savings for the business,” Barlow says of provisions in the bill. “It’d be a real burden on those workers.”

Scheuermann says those concerns don’t have merit, and that businesses, like the one she owns, rely on employees to function.

“I want to be able to tell them what to do, to make sure they’re there on time, and to make sure they do what I am hiring them to do,” Scheuermann says.

Scheuermann says if businesses employed the tactics feared by Johnson and Barlow, “then stores wouldn’t open, lifts wouldn’t run.”

The bill was headed for a floor vote on Monday evening. But a last-minute procedural maneuver from Burlington Rep. Chris Pearson, a Progressive, resulted in deliberations that saw House Speaker Shap Smith instead send it to the House Committee on Ways and Means.

In a point of order on the House floor, Pearson argued that since the bill might have financial impacts on the state’s unemployment trust fund, it should be sent to the committee that has jurisdiction over that issue.

Smith huddled with the House clerk before emerging with his ruling. Smith later said that while the rules could be interpreted to allow the floor vote to proceed, he felt that sidestepping the committee process could set a dangerous precedent for the future.

Smith said he had no idea that Pearson was going to introduce the point of order, and that he and other top Democrats were not only prepared to proceed with the vote, but would have preferred one. Faced with the option of moving forward with the vote, or establishing a precedent that might see future bills not get vetting from committees of jurisdiction, Smith said he chose the latter.

Like many in the business community, Connolly was thrilled to see the bill pass so convincingly out of committee. She says it was disheartening to see it stall thereafter, and she believes Democrats’ desire to win the votes of big labor won out over sensible reform.

"To have [the bill] hijacked from the Vermont small-business community because of a political maneuver in an election year is unforgivable." - Maureen Connolly, Homebuilders and Remodelers Association of Vermont

“And to have that hijacked from the Vermont small-business community because of a political maneuver in an election year is unforgivable,” Connolly says.

Smith said that if Democrats’ action on the bill had been motivated by political interests, then they wouldn’t have taken the issue up in the first place. 

“What became clear when the bill was voted out of the committee was that there was going to be significant disagreement within the body about whether it was going to be the right direction to go,” Smith says.

Smith says if workers weren’t so reliant on the benefits that come with their employment status, then it might make sense to move forward with the bill.

“But when most people get their insurance through their employer, the idea of converting a lot of people to independent contractors is very problematic,” Smith says.

Smith says he believes Vermont needs to reform its employee classification laws, and he and other key Democrats say they anticipate revisiting the issue next year.

“We have to keep our eye on making sure that the workplace can evolve,” Botzow says. “That’s the dilemma – it’s been the dilemma all along."

This post was edited at 9:40 a.m., 11 a.m., and 1:03 p.m. on 5/4/16 to clarify the procedural process that led to the bill being pulled from the House floor