The group of small business owners sat around a table talking earnestly about what helps and what hurts their efforts to stay in business and maintain the jobs they have previously created.
During the current recession, said one gentleman, he did everything he could to avoid layoffs in a construction-related company that had lost much business. He and other principals took no pay for several months. He knew he could not keep everyone on full time at full pay, so he explored alternatives. Could he cut back employees’ hours, keeping everybody but giving everybody some time off? Or just reduce their pay? Or put some employees on a contract rather than employee basis? The consultants who advise him on employment law matters told him no. He would face serious liabilities if he did those things, possibly from the workers, possibly from the government. Eventually he had to let some people go. They lost their jobs. The company lost the value of their knowledge, training, and established working relationships.
The employment laws developed in the 20th century to protect workers from exploitation are now clashing head-on with new realities of the 21st century.
Last year, an attempt was made to pass new federal legislation that would have increased already complex restrictions on business’ ability to use independent contractors. Similar legislation was introduced in 2012 in the state legislature: House Bill 91, called the Employee Fair Classification Act, which defined “misclassification” as “wrongly designating an individual who performs services for an employer as not being an employee of the employer.” These bills attempt to hold “employers” liable if a person is treated and compensated on an independent contractor basis when he or she should be classified as an employee. The New Mexico bill didn’t pass but is expected to be back, perhaps next year.
Tax collection is said to be one reason for this initiative. Most Americans are pretty good about paying income tax, largely because their employers withhold the money from their paychecks. But nobody takes deductions for independent contractors. They are supposed to pay their own taxes, and allegedly many don’t. So federal agencies are looking for “misclassified” workers whose “employers” should have withheld money.
The “misclassification” concept also opens the door to making employers liable for benefits they didn’t provide to these independent contractors but that are required by law for employees.
But the 21st century requires businesses to be efficient and flexible, and smaller businesses don’t have enough work to keep everybody busy all the time. The flexible workforce is the logical answer. This demand is met by independent contractors who are willing to work independently as needed. Some of those new entrepreneurs are former salaried workers who have lost their full-time jobs.
Companies in some European countries are embracing this model, we hear. They keep their workforces intact by cutting back hours, paying everybody less, but keeping everyone employed. That’s beneficial not only in the short run, but also in the long run: when the economy picks up, those trained workers will be ready to resume full production. Meanwhile all the workers are feeding their families.
I wonder about the logic of a system that applies the same standards of employer liability to big corporations and small struggling family-owned companies. They are not the same at all. The hard-won labor protections of the last century still have great value when applied in the right places, but when applied in the wrong places they can threaten the viability of small businesses and cost jobs. Not only don’t we need harsher restrictions, we should take a fresh look at some of the laws already on the books.