Independent Contractor Misclassification and Compliance News: January, 2019

By MBO Partners | January 31, 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. United States Supreme Court Says Federal Arbitration Act Does Not Apply to Transportation Workers Engaged in Interstate Commerce

The United States Supreme Court said that workers alleging they had been misclassified as employees did not have to arbitrate their claims because they fell within an exclusion of the Federal Arbitration Act (FAA). Earlier this year, the Supreme Court said that agreements that required workers to arbitrate their claims were enforceable under the FAA even if the agreements contained a waiver of the workers’ rights to bring a class-action lawsuit.

The Supreme Court said the FAA took precedence over the National Labor Relations Act (NLRA). The NLRA protects workers’ rights to organize and cooperate in addressing claims against their employer, which some had interpreted to include participating in class-action lawsuits.

The FAA requires courts to enforce arbitration agreements. The FAA exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In this case, the parties agreed that the workers were engaged in interstate commerce. The Supreme Court said that the term “contracts of employment” applied to contracts with independent contractors and therefore arbitration agreements with independent contractors were exempt under the FAA.

This means that independent contractors engaged in interstate commerce in the transportation industry may not be required to arbitrate claims under the FAA. This could present a challenge for companies like Uber and Lyft if courts determine their drivers engage in interstate commerce in the transportation industry. On the other hand, 35 states have adopted some version of the Uniform Arbitration Act and even though the FAA does not apply, a state law could compel parties to arbitrate even if the FAA does not.

2. Clients of Staffing Firms May be Able to Enforce Arbitration Agreements

With arbitration agreements becoming central to preventing class action lawsuits, plaintiffs’ attorneys are becoming more creative in terms of who they are suing. In several recent cases, courts are willing to compel arbitration to the clients of intermediaries (like staffing firms) if the arbitration agreement contains appropriate language and the client is able to show it was acting as an agent for the intermediary or was an intended beneficiary of the arbitration agreement.

Staffing companies and other intermediaries, such as MBO Partners, frequently include an arbitration agreement in their agreements with workers. Because some attorneys for workers prefer to sue in court, they choose to sue the client rather than the intermediary.

In recent cases, courts have enforced arbitration agreements against the worker if the agreement says that the parties agree to arbitrate all claims arising out of the services or agree to arbitrate claims against the worksite employer. One court was not willing to enforce the arbitration agreement because the client did not provide any evidence it was an agent of the intermediary.

Companies that engage with intermediaries for temporary workers or independent contractors should ensure that the intermediary’s agreements with the workers contain an appropriate agreement to arbitrate claims and that the arbitration language includes claims against the company.

3. FCRA might not apply to Independent Contractors

For forty-seven years, the Federal Trade Commission (FTC) said the Fair Credit Reporting Act (FCRA) should be interpreted broadly and include independent contractors. But recently, a court did not agree. A judge in a federal court in the Southern District of Iowa said that when consumer reports are obtained for independent contractors, they do not fall within the meaning of “employment purposes” of the FCRA.

For years, best practices have been for companies to treat background checks and other consumer reports performed on independent contractors as subject to the FCRA and provide independent contractors with the protections. That has been called into question with the recent court decision. It will be fascinating to see if other courts follow suit. For the time being, the best practice is to continue to provide independent contractors the same protections as employees under the FCRA.

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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