TAUC Legislative & Regulatory Update, October 2020
Although Washington, D.C. is still under a fairly strict lockdown, there's plenty of activity on Capitol Hill, as politicians struggle to resolve disputes over the next round of COVID relief legislation, battle over a contentious Supreme Court nomination process and work to finalize the Fiscal Year 2021 spending bills. All of this is occurring against the backdrop of a highly contentious election campaign and a COVID outbreak hitting the White House and Senate.
Here is an exclusive update from TAUC on policy and regulatory issues of vital interest to contractors and the union construction and maintenance industry.
Independent Contactors/Worker Misclassification
There has been significant activity over the past month on worker misclassification, which remains a serious problem in the construction industry.
Trump Administration Rule – The U.S. Department of Labor (DOL) issued a Notice of Proposed Rulemaking (NPRM) to seek to clarify guidelines for determining if a worker is an independent contractor or an employee under the Fair Labor Standards Act (FLSA). The DOL states that its goal with the NPRM is to simplify, clarify and harmonize principles the federal courts have used to determine what workers are 'employees.'
The proposed rule would develop an "economic reality" test to assess whether a worker is truly in business for themselves, like a contractor, or whether they are economically dependent on their employer, as an employee. The test in the NPRM proposes narrowing this test into five factors, less than the number used by various courts and previously used by DOL to determine the degree of control a worker has over their work, and whether their earnings came from their initiative or investment. It would also put greater weight to two core factors as determinative of status: the nature and degree of the employer's control over the work and the worker's opportunity for profit or loss based on personal initiative or investment.
However, there are concerns that if the test in the proposed rule were to be implemented, it would weaken the standards, worsening worker misclassification and undercutting the ability of contractors who appropriately classify their employers to compete.
The 30-day comment period on the NPRM ends October 26, 2020. The short timeframe signals that the Administration is going to push to finalize the rule quickly.
Worker Flexibility and Small Business Protection Act (S.4738) – In response to the DOL NPRM, Senator Murray (D-WA) and Senator Brown (D-OH) introduced legislation designed to strengthen labor protections for workers by tightening worker classification tests to narrow the definition of an independent contractor.
Under the legislation, a new standard will be established where workers are always presumed to be employees unless the terms of a new "ABC" test are met. The new test that would be established under the bill would ensure that workers will only be considered independent contractors if: the individual is free from control and direction; the labor is performed outside the usual course of business; and the individual is engaged in an independently established business. The bill will also make it a violation to wrongly classify an employee as an independent contractor.
This legislation will not move forward in the Senate this year, but with Murray in line to become Chairwoman of Senate Health, Education, Labor and Pension Committee if Democrats take the majority in the next Congress, it would likely be considered next year.
The House Education and Labor Committee advanced legislation (H.R. 8294) to reauthorize the National Apprenticeship Act, the primary federal law governing apprenticeships. The legislation would expand access to apprenticeships and training opportunities by codifying standards for registered apprenticeships. The bill will also provide funding to expand youth apprenticeships and pre-apprenticeship programs. The sponsors of the legislation say the goal is to create nearly one million new apprenticeship opportunities over the next five years.
During the Committee's consideration of the legislation, Republicans criticized the bill for not providing enough autonomy to employers by not allowing funds to be made available to Industry Recognized Apprenticeship Program (IRAPs). IRAPs were included in a training rule finalized by the Trump Administration earlier this year and would shift apprenticeship oversight and credentialing authority to industry groups. (Under the final rule, the construction and maintenance industry is exempt from IRAPs after the DOL determined was already well-served by the current privately funded registered apprenticeship system administered jointly by union labor and management.)
During the mark-up, the committee rejected an amendment offered by Rep. Smucker (R-PA) to extend funding to IRAPs. During debate on the amendment, Democratic members argued that it was not appropriate to provide funding to IRAPs, which they claimed are untested and lack adequate worker protections or quality standards.
Multiemployer Pension Relief and Composite Plans
Last week, the House passed a revised version of COVID-relief legislation – the "HEROES" Act. Like the original version of the legislation, which passed the House in May, the bill includes significant multiemployer pension relief and reforms. Among the reforms included in the bill are the authorization of a special partition program to allow the PBGC to recue failing multiemployer pension plans. It also includes the GROW Act, which authorizes the voluntary use of hybrid composite plans. The provisions included in the bill will both address the immediate need to rescue failing plans (which have been further weakened by the economic fallout due to COVID-19) and includes important reforms that will provide trustees an additional tool to ensure that otherwise healthy plans remain solvent for the long-term.
Negotiations on the next COVID relief legislation are continuing. The Senate has not been able to secure the votes necessary to pass a relief package. Legislation introduced by Senate Majority Leader McConnell (R-KY) failed to secure the votes to end debate. The McConnell bill did not include multiemployer pension language, but there are hopeful signs that a bipartisan agreement on pension reform could be included in the final package. Senator Grassley (R-IA) recently spoke on the Senate floor urging a bipartisan agreement this year to address this looming crisis. There are also bipartisan, bicameral discussions occurring on developing a final agreement on pension reforms to be included in a legislative vehicle after the election.
Pension Benefit Guaranty Corp.'s FY 2020 Annual Report
The Pension Benefit Guaranty Corp. (PBGC) released its FY 2020 Annual Report. It found that the multiemployer pension program will run large deficits, which are expected to grow without legislative changes. The report projects the multiemployer program's deficit to grow by $17.1 — from $65.2 billion to $82.3 billion by September 30, 2029. The PBGC stated that the increase in the projected deficit is due primarily to a considerable decline in both the projected investment returns on plan assets and the discount rate used to value the liabilities.
The report did find that multiemployer program's projected insolvency to be pushed back by at least one year. PBGC now reports that there is a "very high likelihood" of insolvency (i.e. run out of money) during fiscal year 2026 and that "insolvency is a near certainty by the end of fiscal year 2027." This change is due primarily to the enactment of the Bipartisan American Miners Act of 2019, which provided federal funding for the United Mine Workers Pension Plan.
DOL Notice of Proposed Rule Making (NPRM) on Fiduciary Duties Regarding Pension Proxy Voting
The DOL issued a NPRM requiring pension plans to demonstrate and certify how proxy votes would affect plan returns. If finalized, this rule would significantly increase record keeping requirements on plans and significantly increase costs to plans by requiring a justification for every proxy vote. Ultimately, if finalized, this rule would tip the scale against plans excercising their right to proxy vote.
This proposed rule would be a significant change to the existing requirements which does not require a vote-by-vote analysis. If finalized, plan fiduciaries would be required to justify how shares are voted on a vote-by-vote basis and the cost of deciding whether and how to vote shares would have to be weighed against the expected financial benefits of voting the shares. In effect, this rule would place a duty on plan fiduciaries to not vote shares unless the expected benefits of each vote exceed the costs associated with voting, including the cost of deciding how to vote.
The National Coordinating Committee for Multiemployer Plans (NCCMP) filed comments expressing significant concerns with the NPRM and urging its withdrawal.