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Proposed Legislation Imposes New Requirements and Higher Penalties for Employee Misclassification

The Employee Misclassification Prevention Act (H.R. 3178)

On October 13, 2011, Representative Lynn Woolsey (D-CA) introduced the Employee Misclassification Prevention Act (“EMPA”) in the House of Representatives. The EMPA amends the Fair Labor Standards Act of 1938 (“FLSA”) to require employers to keep records of non-employees and provides a special penalty for persons who misclassify employees. Specifically, it mandates that employers notify workers of their classifications within six months of the bill’s enactment. The notice must direct the workers to the Department of Labor’s website, which provides further information about employees’ rights under the FLSA. Employers must also comply with certain record-keeping requirements for independent contractors. If records are not properly maintained and preserved and workers are not provided sufficient notice of their classifications, they are presumed to be employees, subject to clear and convincing evidence to the contrary. Most notably, the bill imposes tougher penalties on employers for misclassification. First offenders are subject to a civil penalty of up to $1,100, and employers who repeatedly or willfully commit a violation are subject to a penalty of up to $5,000.

According to a press release issued by Rep. Woolsey’s office, the IRS has estimated that misclassification deprives the federal treasury of about $2.7 billion a year in unpaid tax revenue. The General Accountability Office provides that at least 10 million workers in the United States are classified, rightly or wrongly, as independent contractors, and the Department of Labor estimates that up to 30 percent of companies nationwide misclassify their employees. The EMPA attempts to curtail these statistics and ensure that workers are properly compensated for their services.    

For the full text of the bill, please visit:

https://hdl.loc.gov/loc.uscongress/legislation.112hr3178.