The Independent Contractor Racket

How to restore workplace protections and union organizing to taxicab drivers, "agents", and "lessees"

opinion by Burton H. Wolfe, Free Press Contributor

s the result of bogus classification of employees as "independent contractors" or equivalent terms, there has been a loss to the city, state, and federal governments of hundreds of billions of dollars in evaded city payroll taxes and state and federal income taxes, employer contributions to the Social Security fund, contributions to the various unemployment and disability funds, and workers' compensation payments to public hospitals and clinics. Present IRS commissioner Charles Gossotti estimates that there is an annual tax revenue loss of $30 billion owing to the "independent contractor" racket.

In addition to those losses expressed in dollars, there have been and there continue to be other monstrous damages. Workers have been relegated to a modern form of peonage in which they are classified as being self-employed without having any of the rights and privileges of self-employment, while they are in reality employees deprived of all union and statutory benefits accorded to employees. As the end result, many industries, such as the taxicab industry, have become deprofessionalized.

Federal legislators propose to deal with the nationwide damage through a bill designed to amend the Internal Revenue Code so as to provide "simplified criteria" for determining whether an individual is an employee or an independent contractor. Instead, these proposals would create a whole new round of loopholes and legal proceedings while misclassification of workers goes on and on.

The fundamental mistake was that Congress failed to provide within the National Labor Relations Act (NLRA) a clear, concise definition of "employee" and "independent contractor." The act simply states that employees shall have the rights set forth in the NLRA, but independent contractors shall not.

See what this omission hath wrought: all across this nation, hundreds of government agencies and courts have rendered tens of thousands of decisions in individual cases where the question of employee versus independent contractor status has been raised. The costs and wastes in this mindless process are incalculable.

One example is the taxicab industry, which is now dominated by a so-called "lease agreement" scheme in which a taxicab company is called a "leasing company" that is in business to "lease" vehicles to taxicab drivers who are not called taxicab drivers, but who instead are called "lessees" of the "leasing company's" cars.

In the taxicab industry, around 90 percent of the drivers working on the bogus lease-agreement arrangement have taken themselves entirely out of the city, state, and federal tax systems, and the remaining 10 percent grossly underreport their earnings. Drivers on the bogus leases comprise the vast majority of taxi drivers.

Assuming that only changes in the Internal Revenue Code are made, taxicab companies still won't have to worry about passing work contracts off as lease contracts. The taxicab company's attorney will simply argue to the IRS and to the courts that the driver is not performing services for the company; rather, the driver is performing services for his or her passengers. You'll have piles of documents submitted and testimony. This goes on and on in every business and in every industry. You get to Xerox Corporation and you are told their service persons are no longer employees, but rather "agents" who are performing service for users, owners, or lessees of Xerox equipment.

(At Xerox, service workers, among other employees, no longer submit W-2 forms to have their taxes deducted at the source. They are "agents". The cities in which they work no longer get any city payroll taxes from Xerox.)

And even if a bit more taxes were collected as a result of changes in the tax code, the "lessees" and "agents" would still be ineligible for workers' compensation for accidents, and would still be ineligible to form unions.

Say a taxicab driver is injured while driving a cab company's vehicle; he is rushed to the hospital and runs up a bill of $10,000. This hospital used to bill the taxicab company under workers' compensation laws. Now the driver must pay with his/her own insurance.

If a hundred taxicab drivers petition the National Labor Relations Board for union election, most NLRB districts have ruled that they are independent contractors, so they cannot hold a union election. This is how unionism has been destroyed in industry after industry.

OSHA says the same thing: We cannot protect you cab drivers because the laws we enforce pertain only to employees.

The way to bring this controversy to an end simply and forcefully begins with an amendment to the NLRA itself, something like the following:

• It is hereby decreed that the term "independent contractor" is abolished.

• In the commerce of this nation, there shall be but two classifications for purposes of this and all labor laws and regulations, and for purposes of all city , state, and federal tax codes: employer and employee.

• An employer is any person who operates a legally constituted enterprise for remuneration, whether on a profit or non-profit basis, and who in doing so enables other persons to obtain remuneration of any kind for their performance of any work of any kind whatsoever that is related in any way to the enterprise.

• An employee is any person who is compensated for performing work of any kind whatsoever that is related in any way to the enterprise of an employer, regardless of the source of the compensation or the manner in which the compensation is obtained.

That's all. Very simple. No exceptions, no loopholes. No convolutions for lawyers to use in arguing that somebody is not an employee but rather an independent contractor. It eliminates the independent contractor racket very simply. It simplifies tax collection, and restores union organizing and workplace protections.

Burton H. Wolfe is a San Francisco-based writer who writes for the progressive weekly San Francisco Frontlines.