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Introduced by Representatives Kitzmiller of Montpelier and Obuchowski of Rockingham

Referred to Committee on


Subject:  Labor; workers’ compensation

Statement of purpose:  This bill proposes to authorize the departments of labor, of banking, insurance, securities, and health care administration, and of taxes to adopt rules to reduce the practice of employee misclassification.


It is hereby enacted by the General Assembly of the State of Vermont:


(a)  The general assembly finds:

(1)  An increasing number of employers in Vermont and nationwide are improperly classifying individuals they hire as “independent contractors,” even when those workers legally should be classified as “employees” as these terms are legally defined.  For the purposes of this act, this practice is termed “employee misclassification.”

(2)  Employers sometimes engage in employee misclassification in an attempt to avoid the employers’ legal obligations under the federal and state labor, employment, and tax laws, including laws governing minimum wage, overtime, prevailing wage, unemployment insurance, workers’ compensation insurance, wage payment, and income tax.

(3)  Employee misclassification has a significant adverse impact on the residents, businesses, and economy in Vermont because this practice:

(A)  deprives vulnerable workers of protections and benefits that they need and to which they are legally entitled;

(B)  reduces compliance with employment and safety standards;

(C)  gives employers who misclassify their employees an improper competitive advantage over law-abiding businesses;

(D)  deprives Vermont of substantial revenues;  

(E)  imposes indirect costs on Vermont from decreased legitimate business activity and increased demand for social services.

(4)  A recent survey of worker compensation insurers conducted in response to No. 57 of the Acts of 2007 reveals that a majority of insurers find employee misclassification to be a significant problem which adds 10–20 percent or more to the cost of workers’ compensation.

(5)  Compliance and enforcement activities in this area historically have been divided among various agencies, reducing the efficiency and effectiveness of employer compliance and state enforcement.  Compliance and enforcement could be enhanced and made more efficient through interagency cooperation, information sharing, and joint enforcement of serious violations.

(b)  Therefore, it is the purpose of this act to reduce this problem and thereby reduce the cost of workers’ compensation.

Sec. 2.   RULES 
On or before October 1, 2008, the department of labor, the department of banking, insurance, securities, and health care administration, and the department of taxes shall collaborate to adopt rules to address the practice, intentional or otherwise, of employee misclassification.  At a minimum the rules shall:

(1)  Coordinate the investigation and enforcement of employee misclassification matters by the departments of state government;

(2)  Facilitate the sharing among state departments of information relating to suspected employee misclassification, in a timely manner and to the maximum extent permitted by law;

(3)  Pool, focus, and target investigative and enforcement resources of the respective departments to assess existing methods of preventing, investigating, and taking enforcement action against employee misclassification;

(4)  Adopt appropriate measures to improve departmental prevention and enforcement efforts;

(5)  Promote systematic investigation of  employee misclassification within those industries in which misclassification is most common; 

(6)  Facilitate the filing of complaints and identification of potential violators, including by soliciting referrals and other relevant information from the public;

(7)  Facilitate identification of significant cases of employee misclassification which should be investigated jointly by the departments;

(8)  Promote the cooperation and participation of local and state law enforcement as appropriate;

(9)  Promote cooperation and consultation with business, labor, and community groups interested in reducing employee misclassification, including:

(A)  seeking ways to prevent employee misclassifications, such as through the dissemination of educational materials regarding the legal differences between independent contractors and employees;

(B)  posting workplace notices regarding employee misclassification; and

(C)  enhancing mechanisms for identifying and reporting employee misclassification where it does occur;

(10)  Increase public awareness of the illegal nature of and harms inflicted by employee misclassification.


The department of labor in consultation with the department of banking, insurance, securities, and health care administration and the department of taxes shall issue a report to the general assembly on February 1 of each year, which shall:

(1)  Describe the record and accomplishments of the departments in reducing the amount of employee misclassification, including the amounts of wages, premiums, taxes, and other payments or penalties collected; the number of employers cited for violations related to misclassification; and the approximate number of employees affected;

(2)  Identify any administrative or legal barriers impeding the more effective operation of the departments with respect to employee misclassification, including any barriers to information sharing or joint action;

(3)  Propose, after consultation with representatives of business and  labor organizations, members of the legislature, and other agencies, appropriate administrative, legislative, or regulatory changes to:

(A)  reduce or eliminate any barriers to further cooperation among state and where relevant federal agencies;

(B)  prevent employee misclassification from occurring; 

(C)  investigate potential violations of the laws governing employee misclassification;

(D)  improve enforcement where such violations are found to have occurred; and

(E)  identify successful mechanisms for preventing employee misclassification, and thereby reducing the need for greater enforcement.

Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont