NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A5169 Revised 4/14/15
SPONSOR: Brook-Krasny TITLE OF BILL:
An act to amend the labor law, in relation to the definition of "employ-
ee" for the purpose of the minimum wage act
PURPOSE OR GENERAL IDEA OF BILL:
To prevent employers from denying individuals due compensation, bene-
fits, leave, training, supervision, access to facilities, or other
rights and privileges due to improper classification of employees as
independent contractors.
SUMMARY OF PROVISIONS:
Section 1 requires that "captive" representatives, those under a
contract or other binding obligation to sell products for one and only
one firm, be included in the New York State definition of an employee.
This is done by retaining the exclusion of outside salespeople from the
definition of employee only when such individuals are under a non-cap-
tive agreement.
Section 2 effective date.
EXISTING LAW:
Currently, the Labor Law excludes all outside salespeople from the defi-
nition of "employee." This is the case whether or not such individuals
are capable of choosing the firms under which they conduct business in
any given arrangement.
JUSTIFICATION:
The IRS (2014) defines independent contractors as individuals "who are
in an independent trade, business, or profession in which they offer
their services to the general public," while noting that services cannot
be said to be provided under this arrangement if they can be controlled
by an employer. According to Wood (2013), the classification of employ-
ees as independent contractors has been a widespread labor practice
recently investigated by the United States Department of Labor and the
New York Attorney General. The Department of Labor has collected over
$18.2 million in back wages from 19,000 employees who were placed in the
wrong category. Other states have entered into deals with the DOT, to
crack down on this practice. The AFL-CIO (2014) suggests that millions
of employees have been hired as independent contractors by employers in
order to cut costs bypass federal anti-discrimination and collective
bargaining laws, exploit undocumented laborers, or avoid having to pay
for health benefits.
This practice is widespread across industries, occurring at 30 percent
of firms audited by the Department of Labor; over 700,000 workers in New
York could be reasonably assumed to be misclassified. In 2007, one in
four New York City construction workers was estimated by the Fiscal
Policy Institute to be operating under false terms. The federal govern-
ment was estimated to have lost $2.72 billion due to employees filed as
independent contractors in 2006 (AFL-CIO, 2014). These figures indicate
that current labor laws contain glaring inadequacies which allow a
significant portion of New York's labor force to fall through the
cracks, often without legal recourse. Loopholes which allow individuals
to be treated as employees without receiving proper benefits and
protections must be closed by the legislature.
PRIOR LEGISLATIVE HISTORY:
New bill
FISCAL IMPLICATIONS:
Increased revenue to the state due to increases in taxable wages and
unemployment insurance contributions. 2002-2005 losses to New York State
alone were estimated at $4 billion and $175 million respectively by a
2007 Cornell University study.
EFFECTIVE DATE:
This act shall take effect January first of the calendar year immediate-
ly following its enactment into law.
SOURCES USED:
AFL-CIO. (2014, October). Misclassification of Employees as Independent
Contractors. Retrieved from
http://dpeafIcio.org/programs-publications/issue-fact-sheets/misclass
ification-of-employeesas-independent-contractors/.
Donahue, LH, Lamare, JR, & Kotler, FE. (2007). The Cost of worker
Misclassification in New York State. Cornell University ILR School
Research Studies and Reports. Retrieved from
http://digitalcommons.ilr.cornell.edu/reports/9/
Internal Revenue Service. (2014). Independent Contractor Defined.
Retrieved from
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/ Indepen-
dent-Contractor-Defined.
Wood, RW. (2013, November 19). Feds and New York State Jointly Target
'Independent Contractor' Misclassification. Retrieved from
http://www.forbes.com/sites/robertwood/2013/11/19/feds-and-new-york-
state-jointly-targetindependent-contractor-misclassification/.
