Independent Contractor Misclassification and Compliance News August 2025

By Nathan Gibson • August 29, 2025

4 MIN

Key points

As independent work grows, companies face increasing challenges related to compliance, misclassification, and legal risks.
Arbitration agreements can protect businesses from lawsuits, but courts may refuse enforcement if they’re unconscionable.
Ensuring fair terms and giving workers time to review agreements is critical for procedural conscionability.

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 bring you the latest news stories from around the web.

Procedural Unconscionability Can Invalidate an Arbitration Agreement

Companies that engage independent contractors face the risk that after a project is over, a disgruntled independent contractor may allege that they were misclassified, even if they insisted that they were an independent contractor before they started.

Arbitration agreements are a great way for companies to protect themselves from class action lawsuits, including class action lawsuits by independent contractors alleging that they were misclassified.

Arbitration agreements can be unconscionable—either substantively or procedurally—which may lead a court to refuse to enforce them. Substantive unconscionability occurs when the terms of an arbitration agreement are overly harsh, unduly one-sided, or unreasonably favor the drafter.

If the terms of an agreement are fair, a court still might not enforce an arbitration agreement if the court found it was procedurally unconscionable. Procedural unconscionability occurs when the process for having a worker sign the arbitration agreement does not allow the worker time to review, understand, and/or consult with an attorney before signing the arbitration agreement.

In a recent case, a court did not require the parties to arbitrate their dispute because the arbitration agreement was part of a stack of documents that had to be signed quickly and before the worker could start work. In addition, the worker did not understand the agreement and when asked about it, was given inaccurate information.

Companies that use arbitration agreements should review their process for obtaining signatures to ensure that signers are given ample time to review the terms of the agreement, consult with their lawyers if they so choose, and are given accurate information about the terms of the agreement. Ensuring procedural conscionability is a key step to ensure that arbitration agreements are enforced by courts.

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.