Independent Contractor Misclassification and Compliance News: April 2021

By MBO Partners | April 30, 2021

misclassification and compliance news

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. West Virginia Adopts Single Standard for Worker Classification

West Virginia enacted the West Virginia Employment Law Worker Classification Act which goes into effect in June. This new law creates a single standard in West Virginia for determining whether a worker is an employee or independent contractor—taking into account workers compensation, unemployment compensation and claims, and wage and hour laws. In general, under the new law, a person qualifies as an independent contractor if:

  1. The person has a written contract that says the person acknowledges that s/he
    1. Is providing services for the principal as an independent contractor;
    2. Will not be treated as an employee for the purposes of  workers’ compensation, unemployment compensation, human rights, and wage payment and collection laws;
    3. Will not be provided workers’ compensation or unemployment compensation;
    4. Will not be eligible for the benefits and protection of labor or wage laws;
    5. Must pay applicable federal, local and state income taxes on the fees earned under the contract;
    6. Is responsible for supplies and other expenses;
    7. Is required to files appropriate income tax returns; and
    8. Provides the services through ab business entity or sole proprietaorship/
    9. directly controls how the work is to be accomplished; and
  2. With some exceptions, the person controls how the services are performed.
  3. Three or more of the following criteria are satisfied:
    • In general, the person has control over the amount of time personally spent providing services;
    • the person has control over where the services are performed;
    • The person is not required to work exclusively for one principal with some exceptions;
    • The person is free to advertise and/or solicit others to purchase the services;
    • The person is free to hire employees or assistants;
    • The person cannot be required to perform additional services without a new or modified contract;
    • The person obtains a license or other permission to utilize any workspace to perform the work;
    • The principal has been subject to an employment audit by the Internal Revenue Service (IRS) and the IRS has not reclassified the person to be an employee or has not reclassified the category of workers to be employees.

West Virginia is now a state in which the standard for classifying workers as employees or independent contractors is consistent for many purposes. Many states have a different standard for workers compensation, unemployment insurance, wage and hour laws, and tax purposes. While there are still different standards for workers in West Virginia for federal purposes—for example, there is a different standard for the Fair Labor Standards Act—the West Virginia Employment Law Worker Classification Act makes it easier to engage with independent contractors in West Virginia because companies only have to meet one standard for state purposes.

2. Handy is Able to Compel Arbitration in Massachusetts

The ability to compel arbitration is a key component for protecting a company from class action lawsuits from workers who allege that they were misclassified. Companies are well advised to have an arbitration clause in their independent contractor to prevent class action lawsuits. But despite the presence of these arbitration agreements, some workers challenge them in an effort to bring a class action lawsuit.

In Emmanuel v. Handy Technologies, Inc., the First Circuit Court of Appeals said that a person who worked for Handy Technologies, an online platform that connects housekeepers with individuals who provide housekeeping services, was bound by the arbitration agreement in her online agreement with Handy. The worker had complained that she had not entered into the arbitration agreement and that the agreement was unconscionable. The court disagreed and required her to arbitrate her claims.

This decision is good news for companies that engage with independent contractors, especially in light of a decision earlier this year in which a Massachusetts court said that GrugHub was not allowed to compel arbitration with drivers who alleged they were misclassified. In that case, a Superior Court judge said that the exemption from the Federal Arbitration Act (FAA) for interstate workers applied to GrubHub drivers because they delivered pre-packaged and non-food items that originated outside of Massachusetts. Because the FAA created an exception for interstate workers, and the court said that GrubHub workers were interstate workers, they were not required under the FAA to arbitrate.  

3. New Jersey Ban on Employment Arbitration Agreements is Struck Down

In 2019, New Jersey amended the New Jersey Law Against Discrimination to prohibit any “provision in an employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment.” Even though it does not specifically mention arbitration clauses or agreements, the impact of this change is to effectively ban clauses in employment contracts that required arbitration of disputes.

In a recent case, A District Court said that the federal Arbitration Act (FAA) preempts this clause and arbitration clauses in employment contracts will be enforced. This result is consistent with other states, such as New York and California, that have sought to limit the use of arbitration agreements in employment contracts. Courts have said that state laws that have limited arbitration agreements are invalid because they are preempted by the FAA. Congress, however, is considering limiting the use of arbitration agreements. The United States House of Representatives passed the Protect the Right to Organize Act (the “PRO Act”) largely along party lines. The PRO Act prohibits companies from requiring or enforcing arbitration agreements that prohibit class action lawsuits. Although most observers do not expect the Senate to pass the PRO Act.

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

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