Independent Contractor Misclassification and Compliance News: February 2021

By MBO Partners | February 26, 2021

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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. Biden Department of Labor Withdraws Trump Administration Opinion Letters

The Biden administration continues to undo actions of the Trump administration. On January 19, the last day of the Trump Administration, the United States Department of Labor (DOL) issued an opinion letter, FLSA2021-9, which said that owner-operators of tractor-trailer trucks were likely to be independent contractors. A week later, the Biden Administration’s DOL withdrew the opinion letter saying it and other letters, “were issued prematurely because they are based on rules that have not gone into effect…these letters may not be relied upon as statements of agency policy as of the date of withdrawal.”

On February 19, 2021, the Biden administration DOL withdrew an opinion letter, FLSA2019-6, which said that a service provider for a virtual marketplace is an independent contractor. The DOL said it withdrew the opinion letter because it addressed the same issue as the “Independent Contractor Status” rule that the DOL had delayed. The DOL’s opinion letter saying that service providers in virtual marketplace were independent contractors was applauded as supporting the gig economy. The withdrawal of the letter is in line with the expectation that the Biden administration will be more worker friendly and protective of worker rights.

2. Massachusetts: If Company Would Not Exist Without Workers, They Are Part of the Company’s Usual Course of Business

A Massachusetts federal court ruled in favor of vendor servicing workers who were allegedly misclassified as independent contractors. The court applied Massachusetts’ three-prong test, which says an individual performing any service is an employee unless:

A. the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

B. such service is performed either outside the usual course of the business for which the service is performed; and

C. the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

The B prong of the test, that the service is outside the usual course of business of the company, is the prong most difficult to interpret and difficult to meet. The court found that the company failed to meet the B prong because the company would cease to exist without the workers.

Because the B prong is so difficult to interpret, observers are always looking for guidance from the courts. While facts may differ in other cases, if a company would cease to exist without particular workers, it is likely that they are part of the company’s usual course of business.

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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