In Michigan, Wisconsin, and Minnesota we have more than 3,000 very small sawmills, a very large number of independent loggers, and a great many independent truckers who take contracts to haul logs or lumber. The sawmill will have a number of contracts with loggers and the loggers will have contracts with truckers and many of these contractors are not tied up with one firm but have contracts with two or more. The lumber industry is but part of this local picture. The products of these same forests through the work of many other presently independent people maintain important sections of the pulp and paper industry, the veneer and plywood industry, raw material for wood chemical plants, cross ties for the railroads, and timbers for the great iron ore and copper mines of Michigan and Minnesota.

The following list is not complete but indicates the field of operations frequently taken care of by independent contractors:

Jobbers who contract to cut timber and skid and load logs on trucks in the
woods.

Independent truckers handling logs or lumber, material, or supplies.
Road-building and gravel contractors.

Bridge-building contractors.

Commission men or lumber brokers.

Some farmer loggers who take pulp-wood-cutting and clean-up jobs in the woods.

Many substantial citizens and men of broad affairs in the local timber industries made their first successes as independent contractors where they obtained a knowledge of management requirements as an executive and developed selfreliance.

This association has received many letters of protest on this part of H. R. 6000. The attached letter from the Ahonen Lumber Co., of Ironwood, Mich., well summarizes what is being said in the local industry.

(The letter mentioned above was read by Mr. Fuller in his oral testimony.)

STATEMENT OF SOUTHERN PINE INDUSTRY COMMITTEE

EFFECTS OF SECTION 210 (K) (4) OF H. R. 6000 UPON THE SOUTHERN PINE INDUSTRY The adoption of any more general and flexible standards than now apply under the common law for determining the status of a person as an "employee" will lead, in the southern pine industry, to—

(1) The destruction of many small enterprises with consequent loss of freedom and independence of such employers to operate businesses of their own; (2) A disturbance in relationships that have existed for many years; (3) A probable increase in the production costs of logs and lumber which, if not absorbed by home builders and other lumber consumers, must necessarily lead to the closing of plants and to unemployment; and

(4) An intolerable burden of administration in the collection of social-security taxes that would be almost impossible of application from the Government standpoint and which would compound the confusion already surrounding businessmen in the determination of the status of the people with whom they deal by contract.

To understand how the southern pine industry will be affected by an administrative agency authorized to determine the status of an "employee" under flexible and variable factors as those named in section 210 (k) (4) of H. R. 6000 (passed by the House at the last session of Congress), it is necessary to examine the structure of the industry and its method of operation.

The sawmilling phase of the industry includes, according to the Bureau of the Census, 20,000 units in the area from Virginia to Florida and to Texas and Oklahoma. A relatively small proportion of these operations own large tracts of timber and usually have their own logging crews. Many others, however, do all or some of their logging through independent contractors. The operators then perform the entire manufacturing process on the trees thus removed.

Besides this type of sawmilling operation, there are approximately 1,500 concentration plants which either buy rough, green lumber on the open market or make contracts with operators of small mills to cut and deliver timber owned or being purchased by the concentration plant.

The remainder of the 20,000-plus units in the southern pine industry are small mills, with a vast range in equipment, managerial skill, capital, and operating methods. They are described by the United States Forest Service thusly: "Most

of these cut less than 10,000 board feet a day and less than 2,000 M feet a year. The typical small mill is a portable mill, employing 6 to 10 men in the mill and about as many in the woods. It works more or less intermittently, seldom more than 200 days a year. These mills cut lumber either on their own account, or under contract for concentration yards or other operators who take the rough lumber, finish it, and put it on the market."

"Few of the small-mill operators own timberland. Many of them buy stumpage from farmers or other landowners, but in many instances the stumpage is purchased by the concentration-yard operators who employ the small-mill men to cut it for them."

"Although some operators keep careful and accurate records, accounting methods at most mills are crude. Many keep no written records at all and have only a vague idea of their costs and earnings."

This description of sawmilling in the southern pine industry has been simplified for quick and easy understanding, but the variety of operating methods, arrangements, and relationships among people in the industry practically defies accurate description.

However, it is in logging operations that most independent contractors perform in the southern pine industry. While some mills log with their own personnel and equipment or buy logs on the open market, thousands of others depend on independent contractors for their woods operations.

There are logging contractors who own but one truck, a limited amount of equipment, and a few employees. On the other hand there are other logging contractors whose investments exceed $25,000 and who employ a dozen or more men. Some contractors have sufficient money to finance equipment purchases: others finance their purchases through banks or other lending institutions; and still others induce the lumber companies with which they deal to lend them money for trucks or equipment, to be amortized from the contractor's earnings.

There are contractors whose arrangements are covered by written agreements, while others have informal understandings with the companies without sacrifice of their independence.

Some contractors perform for the same company for several years with little or no interruptions, while others work for several companies at one time or on different occasions. In still other cases, farmers, during their off seasons, use their labor, tractors, and teams to log as independent contractors.

With most experienced logging contractors, the only degree of what might be termed "supervision" is in connection with the timber to be cut and what conditions will be observed in the cutting. There is no hour-to-hour or day-to-day supervision, but a company representative may visit the woods every few days, not to instruct the contracotr and his employees in methods of doing their work, but to see that the conditions of the oral or written agreement are being observed and that the timber and land are not being damaged.

It is the universal custom that contractors hire and fire their own men and have complete control over pay rates and methods, hours of work, and conditions of employment.

Since most State laws in the South render the principal liable, lumber companies for their own protection, often require evidence from the contractors that compensation insurance is carried or the companies will receive or make the contractor's pay rolls in order to guarantee insurance coverage and make premium payments.

It is evident that with the almost limitless range in contractual arrangements and operating relationships in the southern pine industry, were any administrative agency granted the power to apply the standards of section 210 (k) (4) of H. R. 6000 in its own discretion they would be impossible of practical application to empolyer-contractors who are small and transitory and who keep little, if any, records and operate in rural areas.

If the question of the status of an independent contractor must be resolved in each case under a different set of rules, the uncertainties and confusion will multiply, and the incentive to continue in business will be threatened.

While manufacturers of southern pine must face the taks of accurately judging who is an independent contractor and who is an employee for the purposes of damage suits and social-security taxes, the problem would become further complicated when the operator remembers that the Wage-Hour Division and the National Labor Relations Board, as well as the branch of the Bureau of Internal Revenue collecting the transportation tax, will make their own determinations of each contractor's status independently of the decisions of other Government agencies.

It is only realistic to assume that, if independent contratoers are classified as "employees" in order to alleviate the difficulties of collecting social-security taxes, other Government agencies, in support of their own policies, would regard the social-security determination to be persuasive. Indeed, it is probable that even where contractors have been determined to be employers at common law, they would eventually lose their status under those rules also.

To ascertain the effects on the southern pine manufacturing industry of flexible standards such as those in section 210 (k) (4), H. R. 6000, for the determination of "employee" there are submitted, as exhibit A attached, comments from letters writetn shortly before the end of 1949, direct from lumber producers.

The difficulties of administering the law if it includes a definition of "employee" such as that proposed will be insuperable. To consider contractors and their employees as employees of lumber companies is the equivalent of asking the producers to collect taxes on the compensation of people they don't know, don't pay, and never see.

The proposed definition of "employee," if enacted, would mean the disruption of successful, happy, and practical relationships and a disturbance in the employment pattern of areas in the South.

This statement does not concern itself with the application of social-security benefits to the employees of its contractors, but the southern pine industry contends that, in the administration of the system, the responsibility for the collection of the taxes should rest with those contractors who have always been considered to be employers in their own right.

The southern pine industry does not think that Congress is justified in adopting the definition of "employee" proposed in H. R. 6000 simply to expedite the tasks of an administrative agency when such action would only aggravate an already badly confused situation.

EXHIBIT A

EXCERPTS FROM LETTERS FROM SOUTHERN PINE MANUFACTURERS REFERRING TO EFFECTS OF "EMPLOYEE" DEFINITION IN H. R. 6000

* * At present all of our logging is being done by independent contractors with from one to three trucks each. This change would seem to make it necessary to discontinue the contract logging business altogether and do our logging with company equipment and personnel at a higher cost. It is easily understood why personnel will take better care of their own equipment than they will of company-owned equipment, and put forth more effort on contract work than on an hourly basis. There is also less supervision on our part required in connection with the contract logging.

"Should our contract logging be continued under such changed legislation, this would materially affect the amount of clerical work to be done; in other words, it would increase the number on our pay roll by at least 20 percent and all other clerical work accordingly. *

** It is absolutely physically impossible to regulate the affairs of independent contractors. They are men who are in business for themselves and are scattered over a wide area, making it absolutely impossible to regulate their activities in the way of employment. Other than this, if they were taken away from the status of independent contractors, there would be utter confusion as to their contract obligations, securing of materials, what they did in the way of workmen's compensation, and so on. It would destroy a number of small businesses. Independent contractors have the status of a small-business man at this time, but if the law should go into effect, there would be no other alternative than for the mill operators to take over these activities so that they could have a close line on their operation. They would have to spend considerable amounts of money for equipment, and it would materially raise the cost of the products sold due to the extra cost that would be involved in supervision, 'both men and equipment.

66

**

** The most important other effects this proposal would have on our business would be that, immediately after we were required to report independent contractors and their employees for social security, surely to follow would be employment-compensation commissions of the various States would rule we were responsible to them for independent contractors and their employees. Then would come the necessity of reporting all of these men under

our workmen's compensation insurance and in our case this would not be 1 percent, or 0.5 percent, such as we are now paying the social security and the employment compensation, but it would be an average of around $7 per hundred. Too, there would be no earthly way for us to even know who was working for us until after they reported an accident, making it impossible for them to have a physical check-up before hiring them and no control over them, and the up-shot of this would be we would pay for all of the accidents of these men regardless of where they got hurt-hence our rate would go up steadily from year to year. In some operations where they are widely scattered, it would be possible to have men in hospitals that we would not even know about, as well as have employees reporting accidents, say, 6 months after working for one of the independent contractors, claiming that he sustained permanent injuries while working for some contractor on one of our jobs.

* There will not be one industry who has work done by contractors who will even know where they stand and how much liability is outstanding against them and from what angle it will show up and certainly the cost would certainly skyrocket when you go to paying $7 per hundred on all pay rolls for workmen's compensation insurance, and if this is paid on the contractor, you would be paying on any profit he has and on 50 percent of the gross amount trucks and mules make-so you can see what this would do to logging

We contract with loggers to cut our timber, load it, and haul it to our mills. Our timber is in small scattered stands and it pays us better to have a group of small independent contractors to do this work rather than try to maintain our own logging crew and do it ourselves. In a larger operation, with bigger stands of timber, it might be more inexpensive to do the work with our own crew supervised by experienced men, but since this situation does not exist we find that an independent logger will work side by side with his men and do a better job than we could hope to do if we hired men to supervise these small gangs. It is natural that these contractors take more interest in the efficiency of their operations than they possibly could if they were working for us on a salary basis. The maintenance of their equipment means more to them, as the equipment represents a considerable investment and is important to their very livelihood. If it were company equipment, they would never have the same interest.

This would be disastrous in our business as we now operate since a large amount of our sawmilling and all of our logging is carried on by independent contractors. It would mean the end of independent contractors as I see no way that we could still operate after this manner and assume responsibility for practically everything he did. In fact, it would eliminate the need for such contractors. It would mean that we would have to start company operations for all sawmilling and all logging and assuming that everyone did this, as they would probably have to do, it would mean in the long run higher prices in lumber products to the consumer, as the independent contractors can definitely render cheaper services in some instances than can be done by company operations and usually the customer finally pays the bill.

Should we be required to treat these independent contractors and their employees as our own, it would be necessary to include these names in our regular weekly pay roll, deducting social security, withholding taxes, etc. This would mean that the number of employees on our regular pay roll would be increased from approximately 120 to at least 150. In addition to our responsibility for the social-security and withholding taxes, a more different feature would be in connection with keeping an accurate record of their socialsecurity numbers, as a number of these employees of the logging contractors are on the job 1 week and gone the next and most difficult to locate.

*

* It would not be so bad if we could know definitely just what employees of independent contractos are engaged and engaged solely on work for us, if we could know exactly what such employees are paid, but we have no way of verifying the wage rates, hours of employment, or determining what part of the employees' time is spent on work for us, and because we cannot determine these things accurately, by that very fact we incur a liability for which we cannot very well hold the contractors responsible. *** *79

!!* * * It would mean almost the elimination of the market in small amounts produced by farmers.

66* * To absorb such small operators (logging contractors) means lowering the incentive basis of good men, who are experts in a small way.

* It would deny the small operator the privilege of having an independent business. By making the companies responsible for employees of an independent contractor, they are eliminating that contractor. The contract, which has been used so successfully down through the years, has been a stepping stone to bigger things for most of the successful businessmen in the country today. Passage of this legislation, it appears to me, indirectly destroys one of the basic rights of all men, that is the right to make a contract.

66* * * We are at present using approximately 25 small contractors at our two mills which covers all types of contract logging from those cutting on the company's timber to those cutting timber bought for them by the company and which timber really belongs to them but is carried in the company's name until it is paid out, to those from whom the company buys logs and over which the mill had no control or no connection with whatsoever, the only contact with this contractor being at the skidway where his logs were bought.

STATEMENT OF SOUTHERN HARDWOOD PRODUCERS, INC., IN OPPOSITION TO H. R. 6000

The Southern Hardwood Producers, Inc., located at Memphis, Tenn., is an association of hardwood lumber mills operating in all or part of 16 Southern States and shipping their lumber and other mill products throughout the world.

The southern hardwood industry is opposed to much of the expanded socialsecurity program represented by H. R. 6000, as it firmly believes this program throws an undue tax burden on industry and represents another step toward socialization of our economy. However, as many witnesses will appear before the committee and discuss fully all phases of the bill, this statement will be confined to a consideration of section 104 (a) and 206 (a), amending the definition of "employee" and more specifically to paragraph (3) (E) of these sections which define a "contract logger" as an "employee."

This proposed definition of "employee" is highly objectionable as it is contrary to the accepted meaning of the term which has been established and recognized under common law for hundreds of years and in many hundreds of court cases. We cannot believe it is the wish or intent of Congress to completely reverse the findings under common law and thereby legislate many small legitimate businessmen out of business. However, this is exactly what will happen if section 104 (a) and 206 (a) of the bill are approved in their present form.

If these Sections, as now drafted, are enacted into law, the Federal Security Agency and the Treasury Department would be empowered to change the status of many persons that are presently self-employed, by simply classifying them as "employees" of the companies with which they have contractual agreements. In many cases, such as a "contract logger," the reversed status becomes mandatory and the administrative agencies are given no choice as to classification, but in other instances the decision is apparently left up to the whim of the Administrator to be announced at such time and under such conditions as he chooses. To fully appreciate the impact it would have on both the sawmill operators and their independent loggers if the existing relationship between the mills and the loggers is disrupted, a clear understanding of the operations of the industry is necessary. It should be kept in mind that a mill may draw its logs from one or more sources and from a wide area-either from company-owned timberlands, or from timberlands on which they own cutting rights, or by purchasing logs delivered at the mill or some designated site, or from all three sources. Also, these timber tracts can be, and possibly are, located in different localities great distances apart. Few, if any, mills are able to concentrate their woods operations in an immediate locality.

The manner in which the woods work is handled varies with the individual mill. Some mills own their own equipment and do all of their own logging, other mills do part of their own logging and use independent contractors for the balance, while still other mills, representing by far the greatest majority, rely entirely on contract loggers for their supply of logs. There is a number of reasons for these different methods of operations. One mill may decide it is more economical to own and operate its own logging equipment, while another mill may feel it can get the job done better and cheaper through independent contractors. Or, as is frequently the case, the mill simply does not have managerial