New Mexico state Rep. Eleanor Chávez (D-Albuquerque) late last week announced that she led more than 100 state lawmakers from nearly two dozen states in co-signing a letter to the U.S. Department of Labor to oppose a proposal that critics say would reclassify hundreds of thousands of Americans as contractors rather than employees.
The Labor Department in February announced a proposal to modify the rule that governs whether workers are classified as employees or contractors. In the announcement, it said it would implement an “economic reality test” to determine whether someone is self-employed and, therefore, a contractor, or whether they’re dependent on an employer for work and, therefore, an employee.
In a letter to the Labor Department last week, Chávez and lawmakers nationwide argued that the proposed changes could reclassify 250,000 American workers as independent contractors, which could jeopardize their benefits and shift the burden of unemployment insurance, workers’ compensation, and Medicaid to the states they live in.
“We are 114 state legislators from 23 states, collectively home to over 176 million people,” they wrote. “The Department has failed to consider the substantial fiscal impact this rule would have on our states. Adopting the proposed rule would impose significant fiscal costs on state governments, and change critical frameworks without sufficient attention to state-level impacts on workers, businesses and budgets.”
The coalition of lawmakers cited a 2009 report from the U.S. Government Accountability Office that found that if just 1% of employees across the nation were reclassified as contractors, unemployment insurance revenue would plummet $200 million. They also cited a more recent report from the Pennsylvania Department of Labor and Industry, which found that employee misclassification in fiscal year 2019 cost the state’s general fund $6.4 million to $124.5 million in revenue.
The lawmakers asked the Labor Department to either rescind its proposal or conduct a comprehensive analysis of how it would impact state government budgets before proceeding.
“This is the latest example of the Trump administration turning its back on working people, and leaving states responsible for cleaning up their messes,” Chávez said in a statement. “Rather than protecting the hardworking people at the heart of our economy, the Department of Labor is trying to upend vital workforce systems, without even doing its homework on how much damage it will cause.”
