Category Archives: Independent Contractor

NEW CASE: NLRB Changes Its Independent Contractor Test

In a recent decision (SuperShuttle DFW, Inc.), the NLRB has overruled a 2014 decision (FedEx Home Delivery) and reinstated the common law independent contractor test as the standard the NLRB will use when evaluating whether an independent contractor is properly classified.

In its 2014 FedEx Home Delivery decision, the NLRB had issued a new independent contractor test decided that, in determining whether an individual is an independent contractor or an employee, “entrepreneurial opportunity represents merely ‘one aspect of a relevant factor that asks whether the evidence tends to show that the putative contractor is, in fact, rendering services as part of an independent business.’”

 This new decision (SuperShuttle DFW, Inc.), the NLRB has returned to the common law test to determine whether an individual is an independent contractor (and thereby not a covered individual for purposes of the NLRA).  These factors include: Continue reading NEW CASE: NLRB Changes Its Independent Contractor Test

California Adopts New Test for Independent Contractors

On April 30, 2018, in a departure from well-established precedent, the California Supreme Court held that the proper standard for determining whether a worker is an independent contractor or an employee under the state Wage Orders is the “ABC” test.  Prior to this ruling, courts and the California Division of Labor Standards Enforcement had utilized the multi-factor balancing test established by the court in Borello & Sons, Inc. v. Dep’t of Indus. Relations for this determination.

This decision will make it much more difficult for employers to classify workers as independent contractors with potentially far reaching implications including subjecting them to liability for misclassification which could include back payment of federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, workers’ compensation premiums, and unpaid minimum wages and overtime wages and penalties associated with failure to pay proper wages.

The Old Rule (Borello) Continue reading California Adopts New Test for Independent Contractors

NEW LAW: North Carolina Employee Fair Classification Act

North Carolina Governor Roy Cooper recently signed the North Carolina Employee Fair Classification Act into law.  This new law, which goes into effect on December 31, 2017, creates the Employee Classification Section of the North Carolina Industrial Commission and also creates new notice requirements for North Carolina employers.

The Employee Classification Section will have the authority to receive and investigate reports by employees who claim they were/are misclassified as independent contractors.  The Section is also authorized to share information they receive with other government agencies (i.e. Department of Labor, the Division of Employment Security, the Department of Revenue and the Industrial Commission.  The creation of this new agency will likely make it easier for North Carolina to target employers who are engaging in employee misclassification.

In addition to the new Section, employers will also be required to post a notice in the workplace stating:

Workers must be treated as employees unless they are independent contractors and that those who believe they have been misclassified have the right to report the alleged misclassification to the Employee Classification Section.

The notice also must provide the physical and e-mail addresses and telephone number where alleged misclassifications may be reported.

Recommendations for employers

There are several things that North Carolina employers should do prior to December 31, 2017.  First, employers who work with independent contractors should audit those relationships and verify that they are true independent contractors.  In addition, employers should prepare the required notice.

 

 

Clarification on independent contractor classification for Connecticut employers

In a recent decision (Southwest Appraisal Group, LLC v. Administrator, Unemployment Compensation Act), the Connecticut Supreme Court has provided employers additional guidance on when an individual can be considered an independent contractor – this time in the context of an “independent contractor” working for only one company. Specifically, the Court held that an individual can be considered an independent contractor even if he or she provides services to only one employer.

Background

Southwest Appraisal Group is an automotive damage appraisal business that regularly contracts with independent appraisers for a flat fee.

Upon conducting an audit of Southwest Appraisal Group’s taxes, the Connecticut Unemployment Compensation Act Administrator found that Southwest had misclassified some individuals as independent contractors instead of classifying those individuals as employees. In making this determination, the auditor used the three-prong “ABC test,” which is the test Connecticut uses to determine whether a service provider is an employee or independent contractor.

In order to show that a worker is properly classified as an independent contractor in Connecticut, a company must be able to demonstrate all of the following:

  1. The worker is free from direction and control of the employer;
  2. The services the worker provides are outside the employer’s usual course and/or place of business; and
  3. The worker is customarily engaged in an independently established business of the same nature as the services performed.

Here, the auditor found (and, later, the trial court), that the workers were improperly classified as independent contractors because the company could not satisfy the third prong of the test because the workers in question did not perform work for any companies other than Southwest Appraisal Group during the relevant time period. The fact that workers each owned their own equipment, utilized registered business names, and had business cards with their own contact information and licenses did not change the determination.

Southwest Appraisal Group ultimately appealed the auditor’s finding to the Connecticut Supreme Court. The sole issue before the Court – Does the ABC Test require proof that a worker classified as an independent contractor perform services for multiple companies.

The Court held that evidence of the performance of services for third parties is not required to prove prong C of the ABC Test but, rather, is a single factor that may be considered under the totality of the circumstances analysis governing that inquiry.” In addition, the Court provided 10 factors that are taken into consideration when determining whether prong C is satisfied:

  1. The existence of state licensure or specialized skills;
  2. Whether the putative employee holds himself or herself out as an independent business through the existence of business cards, printed invoices, or advertising;
  3. The existence of a place of business separate from that of the putative employer;
  4. The putative employee’s capital investment in the independent business, such as vehicles and equipment;
  5. Whether the putative employee manages risk by handling his or her own liability insurance;
  6. Whether services are performed under the individual’s own name as opposed to the name of the putative employer;
  7. Whether the putative employee employs or subcontracts others;
  8. Whether the putative employee has a saleable business or going concern with the existence of an established clientele;
  9. Whether the individual performs services for more than one entity; and
  10. Whether the performance of services affects the goodwill of the individual rather than the company for which he or she is performing services.

What Does This Mean for Connecticut Employers?

This case provides valuable guidance for employers who engage the services of independent contractors. It is recommended that Connecticut employers regularly audit their independent contractor relationships to ensure that the totality of the circumstances supports the classification of the worker as an independent contractor.

New Guidance Materials available on independent contractor misclassification

On December 19, the U.S. Department of Labor (DOL) released a new website where, according to the DOL, workers, employers, and government agencies can find information and resources about misclassification of workers as independent contractors.

What prompted the release of the website? According to the DOL, the misclassification of workers as independent contractors continues to be a huge problem in the United States. This new resource is intended to educate employers about the harm misclassification causes by offering “information about how misclassification affects pay, unemployment insurance, safety and health protections, retirement and health benefits, and taxes.” It can also be used as a tool by those employers who use independent contractors to perform a self-audit of their independent contractor relationships.

Take Home for Employers

With the release of these new materials, the message to employers should be clear – the DOL will be continuing to heavily scrutinize independent contractor relationships in the New Year. It is recommended that all employers who use independent contractors review these materials and use those materials to evaluate their independent contractor relationships.

California Transportation Network Companies Face New Background Check Requirements

On September 28, 2016, California governor Jerry Brown signed AB-1289 into law. This new law requires any drivers participating with a Transportation Network Company in California be subjected to mandatory criminal background checks, regardless of whether a driver is considered an employee or an independent contractor.

Under California law, a “Transportation Network Company” is an organization, including, but not limited to, a corporation, limited liability company, partnership, sole proprietor, or any other entity, operating in California that provides prearranged transportation services for compensation using an online-enabled application or platform to connect passengers with drivers using a personal vehicle. A “participating driver” or “driver” is any person who uses a vehicle in connection with a transportation network company’s online-enabled application or platform to connect with passengers.

Under the new law, a California Transportation Network Company will be required to conduct a criminal background check (local and national) for every potential driver, which must include:

  • A multi-state and multi-jurisdiction criminal records locator or other similar commercial nationwide database with validation; and
  • A search of the United States Department of Justice National Sex Offender Public Web site.
  • In addition, the new law prohibits Transportation Network Companies from employing or contracting with any individual who:
  • Is registered on the USDOJ National Sex Offender Public Website;
  • Has been convicted of a terrorism-related felony or other violent felonies specified in the new law; or
  • Has been convicted within the past seven years of misdemeanor assault or battery, a domestic violence offense, driving under the influence of alcohol or drugs, or other felonies specified in the new law.
  • The new law goes into effect on January 1, 2017. It is recommended that all California Transportation Network Companies review their background check procedures and verify that they comply with the new law. To the extent that these companies use a third-party background screening company, it is recommended that these employers verify their third-party background screening company is searching the appropriate databases.

The NLRB Joins the employee misclassification bandwagon

A current hot topic in wage and hour law is Worker Misclassification (i.e. classifying a worker as an independent contractor instead of an employee). As we reported earlier, most recently in “DOL Partnership Regarding Worker Misclassification — 34 States and Counting”, the US Department of Labor has taken a very active role in attempting to combat worker misclassification – both by partnering with at least 35 states and other federal agencies when conducting worker classification investigations.

Not to be outdone by the Department of Labor, the General Counsel of the National Labor Relations Board recently issued an advice memorandum stating that the NLRB was to treat employee misclassifications as a violation of the National Labor Relations Act. Specifically, the General Counsel stated that that by informing workers that they are not employees, but rather independent contractors, an employer effectively interferes with the workers’ rights under Section 7 of the NLRA to organize a union and engage in other protected concerted activity.

This new memorandum is important to all employers because it adds another “player” in the misclassification game and with that, adds a whole new set of penalties that can be issued against an employer for misclassification of independent contractors. It is recommended that employers carefully review any independent contractor relationships they might have and work with either an HR Professional or qualified legal counsel to determine if the worker truly is an independent contractor.

DOL Partnership regarding worker misclassification — 34 States and Counting

Thirty-five states have agreed to “team up” with the US Department of Labor to investigate worker misclassification. Is your state one of them?

In 2015, Department of Labor launched an initiative to combat the misclassification of employees as independent contractors. As a part of this initiative, the Department of Labor sought to partner with the state agencies and agree to share information and conduct joint investigations regarding independent contractor misclassification. To date, 35 states have entered into a memorandum of understanding regarding worker misclassification issues.

These states are:

  • Alabama
  • Alaska
  • Arkansas
  • California
  • Colorado
  • Connecticut
  • Florida
  • Hawaii
  • Idaho
  • Illinois
  • Iowa
  • Kentucky
  • Louisiana
  • Maryland
  • Massachusetts
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Hampshire
  • New Mexico
  • New York
  • North Carolina
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • South Dakota
  • Texas
  • Utah
  • Vermont
  • Virginia
  • Washington
  • Wisconsin
  • Wyoming

What does this mean for employers in these states?

Employers in the above-listed states should expect collaborative efforts between their state agencies and the Department of Labor during a investigation into potential employee misclassification as the state and the Department of Labor will share information. This could lead to simultaneous, multi-agency investigations into worker classification. It is recommended that companies have qualified legal counsel review any existing independent contractor arrangements. In addition, before entering into an independent contractor relationship, speak with an HR Professional or qualified legal counsel to verify that the worker truly is an independent contractor.

Independent contractor status newly defined in Arizona

A new Arizona law, which went into effect on August 6, 2016, makes it easier for an Arizona employer to prove the existence of an independent contractor relationship.

Under this new law, an employer is able to prove the existence of an independent contractor relationship by having the independent contractor sign a Declaration of Independent Business Status, which creates a rebuttable presumption that an independent contractor relationship exists.

The statute requires that the declaration “substantially comply” with following form (in other words, contain the following language):

This declaration of independent business status is made by   (contractor)   in relation to services performed by the contractor for   (contracting party)  . The contractor states and declares the following

:

 

  • The contractor operates the contractor’s own independent business and is providing services for the contracting party as an independent contractor.
  • The contractor understands that the contractor is not an employee of the contracting party and the services rendered for the contracting party do not establish any right to unemployment benefits or any other right arising from an employment relationship.
  • The contractor understands that the contractor is not insured under any of contracting party’s insurance coverage, including workers’ compensation insurance.
  • The contractor understands that the contractor is responsible for any and all tax liability associated with payments received from the contracting party and that the contracting party will not withhold any taxes from payments to the contractor.
  • The contractor understands that the contracting party does not restrict the contractor’s ability to perform services for other parties.
  • The contractor is authorized to accept work from and perform work for other businesses and individuals besides the contracting party.
  • The contractor acknowledges that the contracting party expects that the contractor provides services for other parties and is therefore not economically dependent on the services performed for the contracting party.
  • The contractor has the right to accept or decline requests for services by the contracting party.
  • The contractor has the right to subcontract the services provided to the contracting party to qualified employees or subcontractors of the contractor.
  • The contractor recognizes that the contracting party does not dictate the time of performance or the methods or process the contractor uses to perform services for the contracting party.
  • The contracting party has the right to impose quality standards or a deadline for completion of services performed, or both, but the contractor is authorized to determine the days worked, the time of work and other aspects of performance.
  • The contractor recognizes that the contractor is responsible for obtaining and maintaining any required registration, licenses or other authorization necessary for the services rendered by the contractor.
  • The contractor understands that the contractor will be paid by the contracting party based on the work the contractor is contracted to perform and that the contracting party is not guaranteeing or otherwise providing the contractor with a regular salary or any minimum, regular payment.
  • The contractor understands that the contractor is responsible for providing and maintaining all tools and equipment associated with the services performed for the contracting party.
  • The contractor understands that the contractor is responsible for all expenses incurred by the contractor in performing the services for the contracting party.
  • The contractor acknowledges that the terms set forth in this declaration apply to the contractor, the contractor’s employees and the contractor’s independent contractors.

While use of this declaration is not required, there does not appear to be any “downside” to an Arizona employer using this declaration with all of its independent contractors. Finally, an employer’s decision not to use this declaration (or an independent contractor’s refusal to sign the declaration) does not create a presumption that an independent contractor relationship does not exist.

If an Arizona employer does elect to use this declaration, please remember that this The statute is a state law and isn’t binding on federal agencies like the U.S. Department of Labor (DOL).  Therefore, before entering into any independent contractor relationship, please consult with an HR Professional or an employment attorney to determine whether an independent contractor relationship truly exists.