Independent Contractor Misclassification and Compliance News: February, 2019

By MBO Partners | February 27, 2019

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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. National Labor Relations Board Returns to Old Standard for Independent Contractors

The National Labor Relations Board (NLRB) overruled a previous decision and returned to the traditional common law test for determining if a worker is an independent contractor or an employee who would be eligible for the protections of the National Labor Relations Act (NLRA). The NLRA protects the rights of employees to engage in collective activities to improve wages, benefits and working conditions and to organize in a union and support a union. The NLRA applies to employees and the NLRB has to decide if workers are employees or independent contractors before extending the protections of the NLRA.

In 2014, the NLRB issued a decision in which it continued to use the common law test for determining if a worker was an independent contractor but said it would “give weight to actual, but not merely theoretical, entrepreneurial opportunities.” This shift in the importance of entrepreneurial opportunities made it harder for workers to be classified as independent contractors and provided the benefits of the NLRA to more workers.

In SuperShuttle DFW, Inc., the NLRB overruled the 2014 decision and returned to a traditional common-law test. This decision is viewed as a victory for employers because it makes it easier to classify workers as independent contractors to whom the NLRA does not apply. Despite being employer-friendly, the impact of this decision will be limited because it only applies to workers who are organizing or engaging in union activity. Many times, independent contractors are not in a union-environment and this decision will not affect them.

2. Insurance Agents Not Misclassified as Independent Contractors

The Sixth Circuit Court of Appeals reversed a District Court ruling and said that insurance agents were properly classified as independent contractors and were not misclassified. The District Court said that the common law factors were nearly evenly split between employee and independent contractor status and concluded that the insurance company exercised more control that was appropriate for an independent contractor relationship. The Court of Appeals weighed two of the common law factors differently and in favor of considering the agents as independent contractors and also put more emphasis on the written contract between the parties. The Court of Appeals concluded that insurance agents were independent contractors.

This decision is consistent with a Massachusetts District Court decision that also concluded that insurance agents were independent contractors. The Massachusetts District Court decision applied the stringent ABC test to insurance agents. The ABC test, recently adopted by California, requires a company to show:

(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.

Despite the more stringent test, the Massachusetts District Court found that the insurance agents were independent contractors because the insurance company outsourced all the sales of policies and therefore selling policies was outside the usual course of the insurance company’s business.

These cases suggest that positions that have traditionally been independent contractors will continue to be independent contractors under either the ABC or common law tests.

3. Companies May be Liable for Harassment by Independent Contractor

A federal judge said that a company could be liable for harassment even though the alleged actions were taken by an independent contractor. In Hewitt v. BS Transp. of Ill., LLC, et al., No. 18-712, 2019 (E.D. Pa. Jan. 10, 2019), an employee of a third party alleged he was harassed by the employees of a company. The court said that the company could be liable “where the employer (or its agents or supervisory employees) know or should have known of the conduct and fails to take immediate and appropriate corrective action.”

Employers should address any alleged harassment of independent contractors by their employees.

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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