One of the most onerous bills introduced this General Assembly Session is H.7677 entitled An Act Relating to Labor and Labor Relations-Payment of Wages. This legislation was introduced at the request of Peter E. Neronha, Attorney General of the State of Rhode Island. He testified at the bill’s hearing and stated that this was his “Number 1” bill this legislative session. As drafted, it would substantially increase the criminal penalties for employers who fail to pay employees the proper amount of wages per day or who knowingly and willfully misclassify an employee as an independent contractor.
Nonpayment of wages $1500 or less would remain a misdemeanor with a fine for each offense or imprisonment of up to one year. However, if the nonpayment is $1500 or more, the violation would be a felony. Any second or subsequent violation or if the employer is found guilty of knowing or fails to comply with the statute would be a felony. Please remember that each day’s failure to pay wages due, an employee as required by law shall constitute a separate and distinct violation and is retroactive to include an unlimited number of violations. The fine and term of imprisonment increases based on the value of the wages in question.
The business community agrees that there is no place for wage theft in Rhode Island and no one should be cheated out of an honest day’s payment. However, there are work situations where both the business owner and worker are acting in good faith and by agreement have a client/independent contractor business arrangement as the independent contractor desires to seek and perform other jobs. However, if the state performs an audit and concludes that the contractor is an employee; the client/business owner could end up in prison and be fined.
There are no clear guidelines to determine who shall be considered an employee or independent contractor. Both legislators and courts have long struggled with this issue to define the difference between an employee and a self-employed individual, i.e. income taxes, social security benefits, unemployment insurance, workers’ compensation, and so on. In fact, the Internal Revenue Service has its own multi-factor test to make its determination. Yet, this legislation proposes a violation be a felony without clear cut guidelines, definitions or standards.
The bill does not take into consideration the difficulty employers especially small businesses incur. This includes economic downturns, payments not timely made, unexpected expenses incurred; delay on loan applications and receipt of supplies, key employees or even employer injury/losses, or unexpectedly leaving employment.
Let us not forget that with COVID and our computer technology, many individuals became and still are and want to be independent contractors. They do work from their residence and have flexible work schedules and still fulfill tasks necessary for business. The dynamics of the workplace environment are in transition and this is not the time to pass such draconian legislation without substantial revision to address the new work economy. There are countless situation where businesses retain an independent contractor for a particular purpose, project or otherwise. In fact, our society and economic well-being could not flourish without business being able to have independent contractors.