Three-and-a-half years after a law passed increasing state oversight of independent contractors, ranging from farmhands to musicians, the Department of Labor and Industry is ready to begin imposing fines up to $1,000 per day on both the hiring agents and the contractors who are not properly insured through workers’ compensation or exempted by the state.
While the law, established in 2005, covers all independent contractors and their employers, musicians and bar owners are especially concerned about the effect it will have on the live music scene. State officials, meanwhile, maintain that the law protects employers from lawsuits and clarifies the relationship between contractors and hiring agents.
At issue is whether a musician is an employee of the bar or a fully independent contractor. As the law stands, if a musician hasn’t applied for a state workers’ compensation exemption and doesn’t have a personal insurance plan in place, then the musician is considered a regular employee of the bar and should be treated as such, benefits and all.
If the bar owner doesn’t cover those benefits, including workers’ compensation, then both parties are operating in violation of the law and can be fined.
Dallas Cox, supervisor for the Independent Contractor Central Unit (ICCU) of the Department of Labor and Industry, said the state doesn’t want to gouge people and therefore has never issued a fine. The state has, however, launched hundreds if not thousands of investigations that have led to, or resulted from, audits, as well as changes in business practices.
Cox said officials have hosted presentations and seminars across the state, as well as posting notices and contacting businesses, to inform people of the law. There’s not much more they can do in the way of education, he said. The fines should begin this year.
“We have been told that is our next step,” Cox said. “We’ve done as much education as we can.”
“Explaining the law to everyone is so difficult,” he added.
The law stems from a 2003 lawsuit, Kelly Wild v. Fregein Construction and Montana State Compensation Insurance Fund, in which Wild, an independent contractor, was hurt on the job and filed for workers’ compensation benefits but was turned down. He then appealed it to the Supreme Court, where he prevailed. The decision prompted a bill passed in 2005 that greatly increased the stringency of independent contractor laws.
Twelve states have independent contractor laws and Cox said of those states Montana had the highest percentage of independent contractors when a study was conducted several years ago. Independent contractors at the time constituted 8 percent of the state’s workforce. The next closest state was Florida at 2 percent, Cox said. Montana’s number has diminished since the new law took effect.
When the law was passed, the application fee for the workers’ compensation exemption increased from less than $20 to $125. It has to be renewed every two years and applicants must meet a set of criteria to qualify. Previously, with the laxer requirements and cheaper fees, Cox said employers would have 10 independent contractors sign up for the exemption even if they were technically employees.
“Prior to that we handed these things out like candy,” Cox said. “At 17 dollars a pop, that’s pretty easy.”
Andre Floyd, a long-time Montana musician and prominent figure in the Flathead music scene, said people in his trade don’t think along the lines of workers’ comp or formal paperwork, especially when government authorities are involved. He said the state is taking on a difficult and unreasonable task of monitoring musicians, who are “vagabondish” and often “don’t have addresses.”
“It sounds like they’re trying to rein in the hobos – the counterculture – is what it sounds like to me,” he said. “So there’s a conflict there.”
Many business owners and musicians aren’t aware of the law and are unintentionally operating illegally. Recently Bill and Jana Goodman, the owners of Red’s Wines and Blues in Kalispell, were surprised to find, through an audit by the state’s Unemployment Insurance Division, that the musicians who play frequently at their bar were technically their employees and should be receiving benefits like other employees. Only one musician who played at Red’s in 2007, the audit stated, had the state exemption.
The Goodmans weren’t fined, but they did have to pay more than $300 in unpaid insurance. Now they face the dilemma of whether they need to make sure the musicians have state-issued exemptions, or whether they continue operating as they have.
Joseph Reiner, who conducted the audit, said bar owners have to decide if they want to pay several hundred dollars every time an audit comes around or if paying insurance on the musicians is the better option. The possibility of fines must be considered as well.
“As business owners you take risks everyday,” Reiner said. “If you know of the law and you decide not to follow it, you’re taking the risk. The person who gets hurt could very well end up owning your whole company.”
Doug Rommereim, co-owner of the Great Northern Bar and Grill in Whitefish, said he heard about the law a couple of years ago and at that time tried to make sure his bar’s musicians were in compliance with the law. But he admitted it’s a difficult, if not impossible, task, adding: “How successful we were, I don’t really know.”
The Great Northern is a well-known music venue in Northwest Montana, providing a range of acts on a weekly basis, from full-band rock shows to singer-songwriter showcases.
“I do think it’s kind of silly,” Rommereim said. “It makes it hard for a guy to just come in and make 50 bucks playing a guitar.”
But Cox said that going through the process of liability coverage is better than the alternative: an injury onstage and a potential lawsuit with expensive medical bills. Cox said if a musician gets hit in the head with a beer bottle or trips on the stage, a bar owner could potentially be in for an expensive lawsuit if no workers’ compensation plan is in place.
“They need to require the musicians to get the paperwork done or they’re going to get burned,” Cox said.
Floyd, however, said his mentality is: “When I hurt my back moving a Hammond organ, I have to just recuperate, deal with it.” He said he’ll probably apply for the exemption because he can afford it. But a lot of struggling musicians can’t.
Floyd’s afraid that the law will significantly impact Montana’s live music scene. If enough venue owners are afraid of hefty fines and don’t hire musicians – to be sure, many musicians won’t fill out the exemption – music will suffer. Cox said he knows of one band that recently applied for the exemption.
A positive that could emerge from the law, Floyd said, is that artists may begin cooperating and communicating better statewide.
“It’s really time for musicians to come together and get in some kind of guild so we can have a voice in these things,” he said. “Unionize – give us some sort of brotherhood we can turn to.”
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