This issue of The Metropolitan Corporate Counsel comes at a time when the future of this country seems particularly bleak. An important reason is that the huge number of unemployed will undoubtedly increase if the nation focuses on deficit reduction to the exclusion of job growth. If people don't have jobs, they are not going to have money to spend, businesses will increasingly falter as consumption dries up and the deficit will inevitably grow.
In past recessions, small businesses accounted for 50 to 65 percent of U.S. job growth. New Jersey is unique because it is actively addressing the greatest impediment to job growth, namely cutting the red tape in government agencies that discourages the formation and growth of small businesses. Governor Chris Christie is leading the charge. He appointed Lieutenant Governor Kim Guadagno to head a Red Tape Review Commission with the specific mission of reducing regulatory barriers to job growth. In Executive Order No. 2, he vowed to restore economic vitality to the state by making the process by which regulations are promulgated "transparent and accessible to persons outside of government," and by requiring that they be "understandable, consistent and predictable."
Regulators at a state level can spur recovery and enable small businesses to kick-start job growth. We can make this happen here in America given the leadership provided by Germany and the Netherlands. In Germany, unemployment is the lowest since figures for a unified Germany became available back in the early 1990s, and in the Netherlands, the unemployment rate is just 4.2 percent.
In both Germany and the Netherlands, a major factor contributing to job growth has been the use of individuals as independent contractors. In Holland, they are called "independent without employees." In Germany, they are characterized as those performing "atypical" jobs.A study by the German federal statistics office found that three-quarters of the increase in employment last year was attributable to those in atypical jobs.
State departments of labor should seize the opportunity to create new jobs. The current enforcement efforts of the New Jersey Department of Labor and Workforce Development (DLWD) and similar agencies throughout the country make it virtually impossible for individuals (particularly those starting new businesses) to qualify as independent contractors. Their efforts typically begin with a computer search of 1099s filed by businesses reflecting a payment to individuals (precisely the group that accounts for the low unemployment rates in Germany and Holland). If those payments were for services, the field auditor would then investigate the details of the relationship. Usually, she will determine that the individuals are "employees."
There is currently great uncertainty about whether it is possible to use individuals as independent contractors, even though they operate in strict compliance with the statutory ABC test applicable in New Jersey and many other states. DLWD does not publish its guidelines for determining who is an independent contractor because it considers "each case to be unique," and "therefore must be decided on its own facts."
Treating each case as unique as an excuse for not publishing guidelines is inconsistent with the right of every citizen (or business) to due process of law under the U.S. Constitution. It, in effect, is tantamount to saying I am the law and I will decide each case as I see fit.
Before using an independent contractor, businesses need assurance that they will be deemed by DLWD to have complied with the law. In a situation of such profound uncertainty, businesses will not take the risk of hiring individuals as independent contractors.
The redeeming reality is that DLWD and other state regulatory bodies are made up of good people who want to do the right thing. Within the existing framework of the law, state regulatory bodies like the DLWD can become job creators by encouraging the use of individuals as independent contractors, following the lead of the Germans and the Dutch. We are confident that, as Chris Christie's initiatives are implemented, DLWD will remove its current barriers to job growth.
Regulatory bodies similar to the DLWD exist in many other states. Check out the way those bodies operate in the states in which your company does business. They may need to be reminded that the country's - and your company's - most immediate need is to spur U.S. consumption. As Germany and the Netherlands have demonstrated, the best way to do this is through policies that foster private sector job creation through use of individuals as independent contractors.
Information about Germany and the Netherlands cited above can be found in an analysis entitled "A fix that functions" on page 5 of the August 4, 2011 issue of the Financial Times.
We would welcome our readers' responses to the thoughts expressed above.
Published September 1, 2011.