Blumenthal eyes action against state firms with workers listed as contractors

Attorney General Richard Blumenthal says he's tired of companies cheating the state out of tax revenue, so he wants to crack down on the practice of misclassifying employees as independent contractors.

Blumenthal said Wednesday he hopes to have the current penalty of $300 per violation for misclassifying employees increased to at least $300 per day for each worker mislabeled as an independent contractor. He called the present penalty "an insignificant expense lawbreakers dismiss as the cost of doing business."

The proposal to raise penalties for companies that misclassify workers is expected to be considered for legislative action during the current session of the General Assembly.

"Companies that misclassify employees as independent contractors harm not only workers, but other businesses," Blumenthal said in a statement. "Failing to pay taxes and provide health and other benefits enables cheaters to underbid honest businesses."

By classifying employees as independent contractors, businesses avoid paying Social Security and Medicare taxes and limit workers' rights to unionize, secure health benefits and a safe work environment, receive minimum wage and workman's compensation and avoid discrimination, according to various sources.

Businesses routinely misclassify employees as independent contractors, whether by accident or on purpose. FedEx, for instance, was fined more than $300 million by the IRS in December 2007 for insisting that its drivers were independent contractors.

In Connecticut, Blumenthal said, the construction industry's use of subcontractors whose workers are often treated as independent contractors sometimes falls into a shady area of the law.

Employers of independent contractors, according to the IRS, "have the right to control or direct only the result of the work and not the means and methods of accomplishing the result." In other words, according to a union Web site, an independent contractor must be able to work independently of the company, setting his own hours, for instance, as well as deciding on how work is actually performed.

Locally, Pfizer Inc. has about 700 independent contractors or workers with companies it contracts with on its campuses in Groton and New London, but the company changed its contingent-worker policy at the end of 2008 in an apparent attempt to comply with emerging interpretations of labor law. The policy resulted in all independent contractors at Pfizer receiving notice that they could not expect to continue working for the company indefinitely; their employment would end with the conclusion of their contract.

The new contingent-worker policy occurred at a time when Pfizer was transferring a large portion of its information technology work from American contractors to a largely Indian work force officially employed by outside firms.

Pfizer spokeswoman Liz Power said the company has clear policies in place to manage its relationships with contract personnel.

"These policies fully comply with state laws. We instituted these policies to mitigate any risks to Pfizer's defined benefit plans and to provide better security to Pfizer's facilities and proprietary information," Power said.

Blumenthal, who would not comment on specific companies' use of independent contractors, said that just because a firm has a large number of outside workers doesn't mean it is violating the law.

"It depends on the terms of the agreement," he said. "It's like any other enforcement program; the facts of each case must be reviewed."

Blumenthal said workers who believe they have been misclassified can file a complaint. Enforcement of laws has been ongoing, he said, but was made more difficult because of the inadequate fines compared to the thousands of dollars companies save by misclassifying workers.

Blumenthal, who is running for a U.S. Senate seat being vacated by Sen. Chris Dodd, D-Conn., said his proposed crackdown on the use of independent contractors grew out of a series of meetings by the Joint Enforcement Commission on Worker Misclassification, a state panel that he co-chairs with acting Labor Commissioner Linda Agnew.

Other recommendations of the commission included implementing stronger criminal sanctions for misclassification and having the Attorney General's Office and state Department of Labor launch joint investigations of complaints in conjunction with other state agencies.

At the end of this month, the commission plans to launch a Web site on which workers can complain about misclassification. It also has created a database where all state agencies can submit information about misclassification complaints.

"Misclassified workers are forced into state insurance programs or emergency rooms, compelling taxpayers to cover health costs that are employers' responsibility," Blumenthal said.

l.howard@theday.com