AUGUSTA – A group of retail carpet and flooring business owners, unhappy with the costly scrutiny their industry has received from the Maine Department of Labor, want a change in the state law that governs how they deal with the people who install their products.

Several of them testified Tuesday before a legislative committee about a bill that would make it easier for them to do business with installers. The business owners see the installers as independent contractors who set their own schedules and rates.

But state labor officials view it differently. To them, the installers are employees of the retail businesses – workers for whom the retailers should pay unemployment taxes to the state.

Andrea Knight, owner of Knight’s Flooring in Windham, told the committee that she has extensive experience in the flooring business and was unaware of the state’s legal interpretation on the issue until she recently was audited by the department.

“A week later, I got a bill in the mail [from the state] for $10,000,” Knight said. “How can a law be in existence for so long and have no one know of it?”

Knight said many installers don’t want to be considered employees because few, if any, individual retailers can give them enough jobs to work full time. The installers would rather make the “darn good money” they earn as independent contractors than be eligible for unemployment, she said.

“It’s hard on me,” Knight said. “I’m a small business. I’d like to grow, but I don’t see how I’m going to with all these things being thrown at us.”

The change Knight and other retailers spoke in favor of is LD 1847, which, according to its legislative sponsor, would make it easier for business owners to maintain the arrangements they have long had with independent contractors.

The sponsor of the bill, Rep. Janet Mills, D-Farmington, said the only thing that would have to be done is to change a word in the existing law from “and” to “or,” which would give more flexibility to how Maine’s independent contractor standard is met.

“It is so strict,” Mills told the Legislature’s joint labor committee. “The bar is very high under Maine law. It’s time we rectified the situation.”

State labor department officials, however, oppose changing the existing law.

Laura Fortman, Labor Department commissioner, told the committee the law requiring employers to pay unemployment taxes dates back to 1935. She said the law was created to establish a safety net for workers and for the economy at large in the event that people lose their jobs for reasons beyond their control.

The growing practice of paying installers as independent contractors instead of as employees serves to “undermine” the social safeguards that have been in place for decades, Fortman said. Changing the law could hinder the state’s ability to pursue legally required audits of businesses, she said.

John Hanson, executive director of Maine State Building and Construction Trades Council, also opposes the bill. He said the purpose of the law is to promote social stability and that it helps even the playing field by making all employers pay unemployment taxes.

“We expect there would be a lot more litigation, a lot more contention” if the law is changed, he said.

David Marden, whose family owns and operates 12 Marden’s Discount Stores throughout Maine, said carpeting sales comprise a significant portion of the company’s business. He said he favors the bill because Marden’s already pays plenty to the state in unemployment taxes for its employees without having to pay such taxes on installers as well.

He said Marden’s customers do not directly pay installers for installation. Part of the money paid for the carpet and installation is a “pass-through” expense that Marden’s then sends to the installer. This arrangement helps maintain a high standard for the quality of work Marden’s expects from the independent contractors with which it works, he said.

Marden dismissed the notion that installers should be viewed as Marden’s employees because the store tells them where to go to install the carpet.

“That’s patently ridiculous,” he said.

Mike Joseph, a former carpet installer who now sells carpet at Joseph’s Flooring in Winslow, said that foreign competition and high taxes already have helped push large manufacturing companies out of Maine. He said the effect of the state’s enforcement of existing policy may result in more work being done under the table or without being reported to the government, which in turn would mean less tax revenue for the state.

“This has been working well for more than 40 years,” Joseph said. “It’s very hard to see, and sad to see, that it’s now becoming a problem for the sole proprietor.”

The committee is expected to hold a work session on the bill at 1 p.m. Thursday, Feb 16, at the State House in Augusta.