FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 2046 * 

IRECEIVED 

l-EOtRAL ELECTIQM 

COMMISSION 

SECRETARIAT 

2012 SEP 25 PM U'32 

MEMORANDUM 

September 25, 2012 

SENSITIVE 

TO: The Commission 

THROUGH: D. Alec Palmer, 

J^!Le \ Staff Director 

FROM: ^ Compliance Office 

Patricia C. Orrock 

Chief Compliance Officer 

Tom HintermisteTN^ 

Assistant Staff Director 

Audit Division 

Douglas Kodisi 

Audit Manage 

Audit Division 

Paula Nurthen ^y'vj^ 

Auditor 

Audit Division 

General Counsel's Office 

Lisa J. Stevenson 

Special Counsel to the General Counsel 

Lorenzo Holloway — 

Assistant General Cdunsel 

Public Finance and Audit Advice 

Margaret J. Forman '^yy\ Q 

Attomey ^ 

SUBJECT: Request for Commission Directive 69 Guidance involving the Dallas County 

Republican Party (LRA # 903) 

I. STATEMENT OF ISSUE AND BRIEF ANSWERS 

Pursuant to Commission Directive 69, the Office of Compliance ("OC") and the Office of 

General Counsel ("OGC") seek the Commission's guidance oh an issue addressing what 

requirements exist under 11 C.F.R. § 106.7(d)(1) for individuals who perform work for a 

committee but appear to be "contract" employees. The Dallas County Republican Party 

("DCRP" or "Committee") disclosed some individuals as "contract labor." The Commission's 

statute and regulations use the term "employee" for the purpose of 2 U.S.C. § 431(20)(A)(iv) and 

11 C.F.R. § 106.7(d)(1), but that term is not defined in those provisions. 
Memorandum to Commission 

Dallas County Republican Party - LRA 903 

Page 2 of 4 

We recommend the Commission conclude that the DCRP's "contract labor" be treated as 

"employees" under the provisions addressing Federal election activity at 2 USC § 431(20)(A)(iv) 

and 11 CFR § 106.7(d)(1). 

II. ANALYSIS 

The Federal Election Campaign Act of 1971, as amended by the Bipartisan Campaign 

Reform Act of 2002 ("BCRA"), defines "Federal election activity" in several difFerent ways, 

including as "services provided during'any month by an employee of a State, district or local 

committee of a political party who spends more than 25% of that individual's compensated time 

during that month on activities in connection with a Federal election." 2 U.S.C. 

§ 431 (20)( A)(iv). Costs of this so-called "type IV Federal election activity" must be paid with 

100% Federal fimds. 2 U.S.C. § 441i(b)(2). "[S]alaries, wages and fringe benefits paid for 

employees who spend 25% or less of their compensated time in a given month on Federal 

election activities or on activities in connection with a Federal election must either be paid only 

fiom the Federal account or allocated" between Federal and non-Federal fiinds as administrative 

costs. 11 C.F.R. § 106.7(d)(])(i). "Salaries, wages and fiinge benefits paid for employees who 

spend none of their compensated time in a given month on Federal election acti vities or on 

activities in connection with a Federal election may be paid entirely with funds that comply with 

State law." 11 C.F.R. § 106.7(d)(l)(iii). In aid of these statutory and regulatory provisions, the 

Commission's regulations require State and local party committees to "keep a monthly log ofthe 

percentage of time each employee spends in connection with a Federal election." 11 C.F.R. 

§ 106.7(d)(1) (emphasis added). However, neither the statute nor the regulations define 

"employee" for these purposes. 

The audit of DCRP presents the question of whether individuals whom the Commiftee 

asserts are independent contractors are "employees" as that term is used in the statute's definition 

of "Federal election activity" ("FEA") and for purposes of the monthly log-keeping requirement. 

According to the Audit Division, the DCRP disclosed payments for the services of 132 

individuals during the audit period. Of this total, payments for the services of 128 individuals 

were disclosed as "contract labor;" DCRP disclosed $74,936 in payments for these individuals' 

services, of which $18,195 was disclosed as being paid from the Committee's Federal account 

and $56,741 was disclosed as being paid fiom the Committee's non-Federal account. The 

Committee described the purpose of these payments in a number of ways, including as "election 

worker," "phone banker," "field director for judicial candidate," and so forth. Payments for the 

services of the remaining four individuals were disclosed as salary and payroll expenses. DCRP 

disclosed $115,333 in payments for these four individuals' services, of \yhich $100,333 was 

disclosed as paid fiom the Federal account and $ 15,000 was disclosed as paid fiom the nonFederal account. DCRP, however, did not maintain a log. for any of the 132 individuals pursuant 

to 11 CF.R. § 106.7(d)(1). 
Memorandum to Commission 

Dallas County Republican Party - LRA 903 

Page 3 of4 

We recommend tiiat the Commission inteipret section 106.7(d)(1) to include contract 

workers, with few exceptions.' We arc unaware of any discussion in the legislative history, in 

the FEA rulemaking Explanation and Justifications, or in any advisory opinions construing the 

term "employee" in the Federal election activity provisions. In anotiier BCRA provision that 

uses tiie statutory term "employees," the Commission expressly interpreted that term to include 

"independent contractors" in its implementing regulations. Congress had required the 

Commission to promulgate new regulations pertaining to its coordination provisions to address 

communications made "by persons who previously served as an employee of a candidate or 

political party." Bipartisan Campaign Reform Act of 2002, Pub. L. No. 107-155, sec. 214(c)(3) 

(provisions codified at Note, 2 U.S.C. § 441a, pertaining to Commission regulations 

implementing 2 U.S.C. § 441a(a)(7)) (emphasis added). In adopting the "fonner employee or 

independent contractor" conduct standard at 11 CFR § 109.21(d)(5), the Commission stated: 

This conduct standard expressly extends to an individual who had previously 

served as an "independent contractor" of a candidate's campaign committee or a 

political party committee. One commenter opposed the inclusion of independent 

contractors, arguing that an "independent contractor" is legally distinct from an 

"employee" and Congress, recognizing this distinction in other statutes^ must have 

made an intentional decision to exclude independent contractors by using the term 

"employee" in section 214(c)(3). The Commission disagrees with this 

assumption and instead notes that the inclusion of independent contractors is 

entirely consistent with the use of''employee" because both groups receive some 

form of payment for services provided to the candidate, authorized committee or 

political party committee. Therefore, the Commission includes the term 

"independent contractor" in the final rule to preclude circumvention by the 

expedient of characterizing an "employee" as an "independent contractor" where 

the characterization makes no difference in the individual's relationship with the 

candidate or political party committee. 

Final Rules for Coordinated and Independent Expenditures^ 68 Fed. Reg. 421, 438 (Jan. 3, 

2003). 

While the regulation at issue here, 11 C.F.R. § 106.7(d)(1), does not contain the "or 

independent contractor" language of 11 C.F.R. § 109.21(d)(5). the rationale for reading the 

provision to include contractors in the case of the coordination regulations applies equally, if not 

more so, to Federal election activity. The Federal election activity provisions of BCRA, 

including fhe regulation of workers as "employees," were intended "to close existing loopholes, 

thereby ensuring that activities that actually infiuence Federal elections are subject to Federal 

limitations and rules, while leaving purely State and local campaign activities by State parties 

subject to applicable State law." 148 Cong. Rec. 32096-02, S2138 -S2140 (daily ed. March 20, 

2002) (statement of Sen. McCain) (discussing the Federal election activity provisions generally). 

We have no infonnation that any ofthe 128 individuals described as "contract labor" were "conunercial 

vendors" within the meaning of 11 C.F.R. II6.1(c). If the audit develops such information, our divisions will 

revisit this issue with respect to those individuals to determine whether such individuals would nevertheless fall 

within the scope of "employees." 
Memorandum to Commission 

Dallas County Republican Party - LRA 903 

Page 4 of 4 

As with the coordination provisions, this purpose is served by including independent contractors 

within the ambit of "employee" in 2 U.S.C. § 431 (20)( A)(iv) and the associated regulations 

where such characterization makes no difference in the individual's relationship with the 

political party committee.' 

We recommend the Commission conclude that the DCRP's "contract labor" be treated as 

"employees" under the provisions addressing Federal election activity at 2 USC § 431 (20)(A)(iv) 

and 11 CFR § 106.7(d)(1). 

111. RECOMMENDATION 

Conclude that the DCRP's "contract labor" be treated as "employees" under the 

provisions addressing Federal election activity at 2 USC § 431(20)(A)(iv) and 11 CFR 

§ 106.7(d)(1). 

^ We do nol recommend applying the IRS's classification of "employees," to 11 C.F.R. § 106.7(d)(1). See 

26 C.F.R. § 31.3401 (c)-1 (IRS multi-factor standard for determining an "employee" for the purpose of income 

withholding ta.x on employee wages under the Intemal Revenue Code of 1954, § 3402). The IRS's classification of 

workers as either employees or independent contractors has a different purpose, namely, to balance various factors 

given differing tax consequences. See Joint Committee on Taxation, Present Law and Background Relating to 

Worker Classification for Federal Tax Purposes (JCX-26-07), part II, May 7,2007, available at 

h»p.7/www.irs.gov/pub/irs-utl/x-26-07.pdf.