Independent Contractor Misclassification and Compliance News: April, 2019

By MBO Partners | April 30, 2019

Independent Contractor Misclassification and Compliance News April, 2019

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

1. Texas Says App-Based Gig Workers Are Not Employees

The Texas Workforce Commission recently adopted rules that say companies that hire workers through a marketplace platform’s digital network do not have to pay unemployment taxes on their independent-contactor workers. The new rules say that a marketplace contractor will not be treated as an employee of the marketplace platform if certain conditions are met. The conditions include: the marketplace contractor is paid on a per-job basis, does not have to work specific hours, can work for other marketplaces, and can work where they want.

A number of other states have passed laws that treat marketplace platform workers as independent contractors but the recent change in Texas came from the agency responsible for administering the unemployment compensation program.

2. United States Department of Labor Proposes New Rule for Joint Employers

The United States Department of Labor (DOL) published a proposed rule for determining when two employers are considered to be joint employers. Simply put, two companies are joint employers if both of them have obligations as an employer with respect to the same employee.

For example, there is a joint employment relationship when a temporary staffing company provides their client with an employee and the client supervises and/or directs the work of that employee. The DOL rules applies to when two companies are potentially joint employers and subject to the Fair Labor Standards Act (FLSA). The rule applies to situation where both companies might be liable for the wages to an employee.

The current standard for determining if two companies are joint employers with respect to an employee is whether the companies “are not completely disassociated with respect to the employment of a particular employee.” In most contingent work situations, two companies will joint employers.

The proposed test looks to whether the potential joint employer actually exercises the power to:
• hire or fire the employee;
• supervise and control the employee’s work schedules or conditions of employment;
• determine the employee’s rate and method of payment; and
• maintain the employee’s employment records.

One key part of the new rules is the requirement for a potential joint employer to actually exercise the power to perform one or more of these actions—it is not enough to just have the power to perform these acts, a joint employer has to actually exercise its power. The DOL is accepted comments on the proposed rule until June 10, 2019.

3. Sales Representative is an Employee Under ABC Test

In 2018, the California Supreme Court adopted Massachusetts’ ABC test for determining whether a worker is an employee or independent contractor. The ABC test looks at whether a company can demonstrate that

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Since California adopted the ABC test, some observers have paid attention to decisions in Massachusetts to see how the ABC test is applied.

A recent decision said that an outside sales representative was an employee under the ABC test because the employee’s work—sales—was not outside the usual course of business. The court said that the company had other sales representatives that were employees and these employees received and responded to inquiries from the company’s website. Because the worker performed work that was not outside the usual course of the company’s business, the worker was an employee.

For more information, check out our resources page on misclassification and compliance, or contractor engagement best practices. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.

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