SOCIAL SECURITY REVISION WEDNESDAY, MARCH 8, 1950 UNITED STATES SENATE, The committee met at 10 a. m., pursuant to recess, in room 312, Senate Office Building, Senator Walter F. George (chairman) presiding. Present: Senators George, Byrd, Hoey, Kerr, and Taft. Also present: Senator Dworshak; Mrs. Elizabeth B. Springer, chief clerk; and F. F. Fauri, Legislative Reference Service, Library of Congress. The CHAIRMAN. The committee will come to order. We are honored to have you with us this morning, Senator Tobey. STATEMENT OF HON. CHARLES W. TOBEY, A UNITED STATES SENATOR FROM THE STATE OF NEW HAMPSHIRE Senator TOBEY. I esteem it an honor to be here, Mr. Chairman. You and I are somewhat familiar with the hymnology of our earlier days, and there is an old hymn, the second stanza of which begins: A cloud of witnesses around hold thee in full survey. And making application of that in speaking to you this morning— these witnesses, invisible but real, are small-business men in our State of New Hampshire and throughout New England, who feel very keenly about this definition of "employee" in this proposed legislation. In connection with the committee's consideration of the Social Security Act amendments, II. R. 6000, I wish to present the views of the lumber industry of my State of New Hampshire with respect to the provisions of this bill, which would change the existing definition of "employee." New Hampshire lumber and pulpwood operators object strongly to any change in the present common-law rules applicable in determining the employer-employee relationship. The new definition of "employee" contained in this bill would jeopardize the status of independent contractors under the present law. In New Hampshire much of the forest industry is operated by small independent contractors or subcontractors who engage in any one or combination of the following: logging, chopping, hauling, skidding, sawing, and stacking of lumber, pulp, or cordwood. The independent contractor or logger hires his own men to do this work, has complete charge of these men, including hiring and firing, and directs their work, including methods which may be used to obtain the de sired results. The men he hires are his employees. He is on the job with them, knows what is going on each day, makes the necessary deductions from their pay for withholding taxes and social security deductions, keeps the necessary records of hours worked and wages paid-but the owner of the business who hires this independent contractor has no right to hire or fire any of the men working under such contractor; neither has the owner the right to direct the contractor's men in any way as to the peformance of their work. The industry fears that if these new definitions are permitted to remain in H. R. 6000, thousands of small independent businessmen would be eliminated, because they and their employees would become employees of the larger companies that contract for their services. Independent contractors will lose their status under the new definitions proposed in subsection (k) (s) and (4) of the proposed new definition and become "employees" of the companies for whom they now perform services as independent contractors. In addition, the status of many will remain in doubt, requiring burdensome litigation and administrative interpretation if the well-understood common law test of the employer-employee reationship is abandoned. My constituents argue that the adoption of such legislation would be in diametric opposition to the policy of Congress to encourage small business, and would result in further strengthening the economic power of big companies. The Senate Special Committee to Study Problems of American Small Business (Rept. No. 46, 81st Cong.) reported that "during the last decade the only way a man has been able to accumulate any substantial estate has been to build up the value of a business equity; to start or take a small business and build it up to some substantial value." The committee found as a plain fact that "a stable economy and kind of competition which will benefit the public requires not only growing small businesses but the steady creation of new ones." So by arbitrarily classifying as an "employee" a person hitherto regarded at law as an "independent contractor"merely for administrative convenience in collection of social-security tax-would serve only to discourage that person from developing the spirit of competitive enterprise and in individualism which characterizes the American small-business man, whose activities are essential to a healthy economy. The question of coverage under the Social Security Act is not at issue here. The employees of independent contractors are now fully covered, or they and the contractor himself will be covered by other provisions of this bill. The big contractors do not want this change, and the "little" businessmen do not want it. To repeat, the lumber industry in New Hampshire, and I join emphatically in their view, protest any definition of "employee" which would tend to force contractors and subcontractors on the pay rolls of the larger companies by whom they are engaged in a contractual relationship. The effect of such a procedure would be to concentrate operations in the hands of a relatively small number of large companies and would materially increase the cost of doing business for these concerns, resulting in a higher cost to the consumer. The effect of this definition, of course, is not limited to the lumber industry. Analogous situations are to be found in every industry which operate through independent contractors. For instance, in the oil industry the distributor for a large company, as well as the independent station operators who lease their facilities from the company, and the employees of the independent station operators, could all become employees of the parent company under this proposed law. It would become a very involved, not to say impossible, bookkeeping problem. At a time when the American people are crying for reduced taxes, it would result in materially increasing taxes for many businesses, not through tax legislation but through the indirect route of a changed definition. In my judgment it would constitute harassment. The proposed change in the definition of "employee" provided for in section 104 (a) and 206 (a) of the present bill is detrimental to a free economy, a menace to small business enterprises. So I wish to go on record in behalf of the New Hampshire lumber industry in protesting against these sections of the bill and urge that the common-law rules for determining the employer-employee relationship be retained. The committee's consideration is appreciated. And I might add one more word. I sit in the Banking and Currency Committee and, as you know, by action of the Senate the Vice President has recently been authorized to appoint a committee of 15 as a Small Business Committee, not a legislative committee but an advisory and research body. That committee is about to be appointed by the Vice President, as I understand it. So the hearts and interest of the Senate are behind the small-business men of this country. And here We are building up constructively efficient help for the small-business men, on the one hand, by Senate action, and on the other hand some agency of the Government, in this case the Treasury Department, by this desire of theirs, seeks to pull down, harass, or make it harder for small-business men to do business. Somebody has said: "Consistency, thou art a jewel." And I make the point that there is inconsistency here in our regard for small-busiless men if we permit this definition to stand. I thank the committee for their courtesy. The CHAIRMAN. I thank you very much, Senator Tobey. You have very much the same problems that we have down in Georgia. Senator TOBEY. I am very sure of that. The CHAIRMAN. Especially in the lumber business, in connection with getting timber out for any purposes, logging for milling purposes, pulpwood, paper, what have you. Senator TOBEY. Well, Walter, sometimes I am constrained to feel, without any malice at all or vituperation but just regarding it as a fair statement, that this Government of ours, which has so grown and multiplied and increased and mushroomed, has now become titanic in a way. It is far-flung and widespread. But what is the Government, after all? What are these agencies of Government? Call them by rote if you want to; we know what they are. But they are all the creation of Congress, for better government in this country. However, they are the creation and the creature of Congress and not the master of Congress. Whom do we represent? We represent everybody, 150,000,000 people. When these small-business men, in this case and others I might mention, cry out for relief and earnestly seek it, they turn to us. And, in my judgment, the interests of these people are paramount and far transcend the convenience or the efficiency or the time-saving efforts of a Government bureau, whatever it may be. None of them are sacrosanct. I get back to that thesis that what we need in this country is to demonstrate to little people, after all, that we care something more about them than to get their votes at election time. And one of the reasons that we only had a half, 50 percent, of the people of this country, including both parties, vote in the last election was that people have become a little bit cynical out in the hinterlands of this country about how much we are interested in them. We can do no finer service toward the strengthening of democracy and toward repelling the inroads of any subversive movement in our country than by demonstrating that we in this Government have a real heart interest in the problems of little men. I think you will agree with me. I thank you for your courtesy. Senator KERR. Senator, I gather that your position is that the additional language other than that in the orignial act, but now in H. R. 6000, should be eliminated? Senator TOBEY. That is exactly correct, sir. Senator KERR. And the definition of "employee" continued in the future? Senator TOBEY. The status quo. Senator KERR. As it has been in the past. Senator TOBEY. I could not express it better, Senator; and thank you for that help. The CHAIRMAN. Thank you very much, Senator, for your appearance. Senator TOBEY. Thank you, Mr. Chairman. The CHAIRMAN. The next witness is Mr. John B. Veach. Mr. VEACH. You are representing the National Lumber Manufacturers Association? STATEMENT OF JOHN B. VEACH, PRESIDENT, HARDWOOD CORPORATION OF AMERICA, AND ASSOCIATED COMPANIES, APPEARING ON BEHALF OF NATIONAL LUMBER MANUFACTURERS ASSOCIATION, WASHINGTON, D. C. Mr. VEACH. Yes; Senator. The CHAIRMAN. You may be seated if you wish, Mr. Veach, and proceed with your statement. Mr. VEACH. My name is John B. Veach, and I am president of the Hardwood Corp. of America and associated companies which operate in western North Carolina, northern Georgia, and eastern Tennessee. 1 appear here in behalf of the National Lumber Manufacturers Association, a federation of 16 regional associations representing lumber manufacturers in all parts of the United States, and they have honored me with the office of vice president and treasurer of that association. I would like to speak particularly, this morning, on behalf of the Southern Pine Association, which represents about 20,000 small sawmills in the South from Texas to Virginia, the Southern Hardwood Producers, Inc., which represents the hardwood part of that industry in the South, the Appalachian Hardwood Manufacturers, Inc., which represents the hardwood industry in North and South Carolina, northern Georgia, Tennessee, Kentucky, West Virginia, and Virginia, and the Northeastern Lumber Manufacturers Association, which is in the New England States and the Northern Hemlock and Hardwood Manufacturers Association, which is in Michigan and Wisconsin. In order to conserve your time, I am not going to try to give you the picture from each one of these districts, because they are practically all the same. All of the sawmills in the East are practically small business. There aren't, with possibly few exceptions, any really large operators in this entire territory. We are all faced with exactly the same problem. Senator Tobey has expressed to you the feeling of the sawmill men up in New Hampshire and New England. I don't know of a single sawmill man or logger or anybody else that I have any contact with who is in favor of this definition of an employee in H. R. 6000, as it is written. Senator George, we operate, down at Ellijay and Jasper, Ga., and I know you are very familiar with that particular country down there. The CHAIRMAN. Yes, I am. Mr. VEACH. You can go all the way from Mineral Bluff through Blue Ridge and on down to Marietta and Atlanta, and you will find 300 different kinds of small mill operators. The CHAIRMAN. Yes, I am very familiar with that. Mr. VEACH. They are all doing the same thing in a different way. There is no way in the world that I know of that you can actually describe what a contract logger or a small sawmill operator is doing. I had the honor and privilege during the war of serving our Government in the procurement of hardwood lumber and softwood lumber for the armed services. On one occasion we tried to help the Office of Price Administration to define what green lumber was-just the words "green lumber." What is the difference between green lumber and dry lumber? We worked on it for 4 years, and we never did come out with a satisfactory answer of what was green lumber and what was dry lumber. I feel that this situation here, on the matter of trying to define an employee is almost as complicated as trying to define green lumber. We have had occasion in our operations to go before the Supreme Court of the State of North Carolina to determine what an independent contractor was and what an employee was. As a result of our experience I think that we can safely determine today in our contracts whom we are responsible for and whom we are not responsible for. Now, here is the thing that worries me about this whole proposition. What liability do I assume as a sawmill operator in doing business with a man who I consider as a small-independent businessman with whom I am doing business? I can cite you examples of people like John Rogers, now living at Ellijay, Ga., today, who started out with me 15 years ago without a nickel, but with, however, a knowledge of the logging business. Today he has developed to where I suppose he has $25,000 worth of equipment, caterpillar tractors, bulldozers, teams, a trained organization, and so forth. If he were to start out today under this new definition, because of the liabilities involved, he would never be able to get started. 60805-50-pt. 3- -33 |