Testimony before

Joint Committee on Labor and Workforce Development

January 27, 2010

Re:  Senate 670 and House 1844

Christine Sullivan

Executive Director, Enterprise Center at Salem State College

President of Creative Economy Association of the North Shore

Thank you for allowing me to speak to you today about a difficult and complicated issue—employment of contract workers in this state.  I come to talk to you today wearing four hats:  Director of the Enterprise Center, a small business growth center on the North Shore, as co-President of the Creative Economy Association of the North Shore and as an appointee to the Statewide Small Business Committee and the Creative Economy Council.

The businesses that I want to talk about tend to fly under the radar screen.  They are the very small businesses in this state that include self employed sole proprietors and unincorporated micro businesses with four or fewer employees.   In 2006 there were 454,000 sole proprietors plus 304,760 unincorporated micro businesses with wage and salary employees in our state.  In fact between 2001 and 2006 the stage gained on average more than 35,000 new proprietors annually. And when you combine sole proprietors with micro businesses, you find that they represent 86% of all businesses in the state.  On the North Shore that number is 88%.  The fastest growing segment of proprietors is in the technical and professional services category—the most lucrative and innovative sector.

While many jobs have been lost in our economy we know that in recessions many people start their own businesses so this sector remains significant. 

We work with these companies every day.  The Enterprise Center at Salem State College is a nonprofit small business growth center owned and operated by the Salem State College Assistance Corp.  Last year 3500 people registered to take one of our 93 programs designed to help them learn the skills they need to run a business.  They came from 108 communities and 51% of them told us in a survey in November that they plan to grow in 2010.   31% said they plan to hire people.

But to them, growth is different from what our society is used to.  When they talk to us about growth they define it as increased revenues.  They hire very carefully and in a different way from traditional larger companies.  In many cases, they do not wish to expand to full time employment.  They operate on a different business model.  If, for instance, a small marketing

firm lands a big contract, they will meet the demand through strategic alliances with other companies or by hiring contract workers in the areas of expertise they most need for a very short term basis.  Once the contract is finished—a day, a week, a month or a few months—they then revert back to their smaller size.  This is the way they survive—and thrive.

The independent contractor law in Massachusetts is the toughest in the country.  If the marketing company needs an expert in email direct marketing—a core skill of their business—and they hire someone for a week on a part time basis, that is considered a violation of the independent contractor law because the person is performing a service within  “the usual course of the business of the employer”. 

Let’s look at the impact of this law on a specific sector of the businesses in Massachusetts—the creative economy. 

The Enterprise Center and the Salem Partnership have spent the past six years identifying and growing the creative economy in our region.  Defined as “those industries that have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation of ideas, products and/or services,” the creative economy on the North Shore generated more than $3 billion in annual sales with more than 17,000 employees in 220 companies representing 12% of the North Shore’s workforce. Most of these organizations are very small.  These results were part of a study completed in 2008 titled Economic Development Report:  Creative Economy of the North Shore.   

These are exactly the kinds of small companies that hire contract workers.  In fact, the report found that “65% of the creative economy enterprises surveyed use contract or consultant resources.”  The clusters of the creative economy that dominate in our region are design (including computer systems and software design); business and management consulting; engineering/research and development; artists and advertising. 

These findings reinforce the concern we have that the large numbers of very small businesses who represent well over 80% of all businesses can be harmed by a law that cannot differentiate between sizes of companies and is unaware of this major change going on our workforce.  I respect the concerns of the unions, particularly the construction union.  But a marketing company, business consultant, web design firm, etc. is not the same kind of business and their needs and approaches are very different.  We want to work with you on a solution to this problem.  What is happening now is that small businesses are being discouraged from growing or in fact encouraged to leave the state to avoid the problems of this law.  We do not need laws that make us less competitive with other states.  Just the opposite.  I believe there is a solution if we all work together to find it.

 For the record I am submitting our most recent research report on proprietorships titled Proprietor employment Trends in Massachusetts and Essex County:  2001-2006 and our report on the creative economy.