The Research Fairness Act would clarify that marketing research participants and mystery shoppers are independent contractors and not employees of research companies.

This common sense reform would amend the Fair Labor Standards Act (FLSA) to affirmatively protect against burdensome (and difficult to defend against) administrative actions and audits by the U.S. Department of Labor of marketing research organizations and firms that arrange mystery shopping visits, which are typically small businesses.

Marketing research participants and mystery shoppers are not employees

  • Some participants in marketing research studies, such as focus groups, receive reimbursement for their participation in a study, depending on the length and circumstances of the study, the specialized knowledge or background of the participant, etc. However, research companies that conduct these studies are facing an increasing number of cases in which a person receiving a small reimbursement for participating in a single marketing research focus group study is being characterized as an employee of the firm conducting the study.
  • Firms that arrange mystery shopping evaluations are facing similar threats. Mystery shopping opportunities are offered on an event by event basis for a fixed fee for completing an evaluation. Because a mystery shopping visit must be conducted in cognito, a firm cannot engage the same mystery shopper to conduct multiple evaluations of the same client location, but instead must engage a different shopper for each such evaluation. The mystery shopping industry operates principally over the internet; mystery shoppers can register with a firm at the firm’s website, select a client opportunity posted on the website, perform the event, submit the deliverable and obtain payment – all without any human contact between the mystery shopper and the firm. As with the rest of marketing research, the individuals who conduct mystery shopping evaluations are being classified as employees of the firms that arrange the evaluations.

The need for certainty

While it might appear viscerally obvious that marketing research participants and mystery shoppers are not employees, the firms that contract research with these individuals face troubling challenges to that nonemployee status by government agencies. The mounting cost of defending against these challenges and the uncertainty they create is having a material negative effect on the industry. It also threatens the integrity of the research process and the research results that people, companies and the government rely upon every day.

Rep. Mike Kelly (R-PA-03) introduced the Research Fairness Act (H.R. 5915) to clarify the nonemployee status of marketing research participants and mystery shoppers and remove the growing cloud of uncertainty that is hindering this industry’s continued growth and threatening other industries’ capability to learn and understand what consumers want and need.

FREQUENTLY ASKED QUESTIONS ABOUT THE RESEARCH FAIRNESS ACT

Q. In what states have marketing research companies faced frivolous cases from state authorities?

A. Texas
•    In 2003, the Appeal Tribunal of the Texas Workforce Commission found that a UI claimant who had participated in a single research study worked in “employment” and was paid “wages”.
•    In 2011, a focus group facility faced an unemployment claim filed by a survey research study participant who was provided a reimbursement. The focus group facility has filed initial commentary dismissing the integrity of the claim, but the matter is still pending.
New York
•    In 2010, the New York State Department of Taxation fined a company for a large sum of money for conducting marketing research and not reporting the incentives paid out to focus group respondents as “payroll”. Over 2,100 focus group participants received no more than $100 in incentives each.
•    In 2011, in a matter currently awaiting appeal before the New York State Department of Labor, a marketing research participant filed a claim for unemployment and included his participation in a focus group that provided him a reimbursement of $125. The Department of Labor decided that the focus group arrangement constituted an employment relationship since the facility provided him “tools” (a pen and paper), controlled his time, advertised the “job” offer and paid a set “wage”.
•    In 2011, MRA was made aware of another marketing research company in litigation over the definition of “employees” who complete surveys and participate in marketing research activities.
Wisconsin
•    In 2009, a major manufacturer conducting marketing research was found to have misclassified a focus group research participant as an independent contractor, instead of an employee.

Q. What frivolous cases have mystery shopping companies faced from state authorities?

A. Numerous states, particularly Wisconsin, Pennsylvania and New York, have challenged the independent-contractor relationship between mystery shopping companies and the mystery shoppers they represent. New York also assesses a substantial penalty for failure to maintain workers’ compensation insurance.  Proposed assessments against mystery shopping firms have been in the hundreds of thousands of dollars. Defending against these claims can be extremely expensive for companies that are, primarily, very small businesses.

Q. Can a person make a living as a marketing research participant?

A. No. In fact, the research profession goes to great lengths to prevent individuals from participating in too many research studies, referred to as “cheater-repeaters”. Individuals that attempt to make a living this way produce skewed data instead of representative data. Cheater-repeaters also threaten the integrity of research results because they frequently get onto panels using fake identification and information, and similarly provide fake or erroneous responses to questions.

Q. Does the Research Fairness Act preempt state laws?

A. No, but it will hopefully influence states to refrain from such seemingly ridiculous cases in the future. Most importantly, it will prevent the U.S. Department of Labor from taking any similar actions.

Q. What is marketing research?

A. Marketing research is the process of acquiring, analyzing and understanding opinions, attitudes and experiences from the public, regarding products, services, issues, candidates and other topics. That data is used to develop new products, improve services, and guide policy. It is used by all kinds of entities, including health care providers, private businesses and academic institutions. In fact, government is the largest consumer of marketing research in the United States.  No sales, promotional or marketing efforts are involved in bona fide research, and it is not intended to influence a participant’s attitudes or behavior.

Q. What is mystery shopping?

A. Mystery shopping is a means of measuring the extent to which a company's operating policies are being carried out in the field and of measuring company performance. A specialized type of marketing research, it is used in virtually all business sectors to capture and measure the actual customer experience compared to the experience a company desires the customer to have. The data is used to improve training, reward positive performance, reveal operational deficiencies, and otherwise enhance business operations to maximize positive customer experiences and, thus, the company's bottom line.

Q. Who is a typical mystery shopper?

A. He or she could be your next door neighbor. Mystery shoppers typically perform the service once in a while to supplement their income or benefit from a free meal or shopping trip. They could be homemakers, attorneys, lobbyists, accountants, couples, students, retirees, thespians and government employees. Attributes common among mystery shoppers include: writing ability; attention to detail; good organization; good short-term memory; and a desire to experience different venues and interact with people.

Q. What is the Fair Labor Standards Act (FLSA)? What impact would it have on research?

A. The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards for covered employers. If applied to research, it could impact: the minimum amount of reimbursements required to be offered for research participation; the ages of participants allowed to participate in a study (regardless of parental consent); the hours allowed/expected for research participation in a given day, including “homework”; and the amount and complexity of paperwork required for each research participant.

Q. Don’t most reimbursements for research participation fall below the threshold that requires reporting?

A. No. Although most reimbursements are minimal, the FLSA requires full reporting of all an individual’s income.

Q. What committees have jurisdiction over the Research Fairness Act?

A. H.R. 5915 has been referred to the House Education & Workforce Committee. A companion bill in the Senate would be referred to the Health Education Labor and Pensions (HELP) Committee.

Q. What is the Constitutional justification for this bill?

A. Because the Act amends existing definitions in the Labor code, it is justified by Article 1 Section 8 Clause 18 (the necessary and proper clause).

Q. Who is the contact in Congressman Mike Kelly’s office?

A. Brian Kerkhoven, 5-5406.