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Independent Contractor Misclassification and Compliance News: July, 2018

   |   Nathan Gibson   |   July 27, 2018

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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. NY Appellate Court Says Postmates Courier is an Independent Contractor

In a 3-2 decision, a New York appellate court said that a Postmates courier was an independent contractor. The courier has been terminated by Postmates and filed for unemployment. The Unemployment Insurance Appeal Board determined that the courier was an employee and Postmates was responsible for additional unemployment insurance contributions.

Whether the courier was an employee or independent contractor for the purposes of unemployment insurance is based on whether Postmates exercises control over the results produced or the means used to achieve results. The majority relied on the fact that there was no application—couriers could set their own hours, accept or reject any delivery request, are not required to make a minimum number of deliveries, choose their mode of transportation, choose the route for the delivery, and are not required to adhere to a delivery schedule.

The judges who felt Postmates couriers were employees noted that couriers are prohibited from using substitutes, were paid a non-negotiable fee, and Postmates handled complaints and customer feedback, and could not operate its business without the couriers.

This case provides encouragement for online platforms such as Postmates that engage with workers as independent contractors. It also shows how closely divided courts can be when it comes to balancing factors to determine if an entity exercises control over a worker.

2. Colorado to Investigate Misclassification in Construction

The governor of Colorado, John Hickenlooper, issued an executive order to create a commission to investigate payroll fraud and misclassification in the construction industry. The construction industry is often cited as an area where workers are frequently misclassified.

Misclassification in construction hurts workers who do not have access to Workers’ Compensation or Unemployment insurance and it hurts legitimate businesses who find it challenging to compete in competitive bids with companies that cut costs by improperly classifying employees as independent contractors to avoid paying payroll taxes, Unemployment insurance, and Workers’ Compensation insurance.

3. California Court Rejects “ABC” Test for Joint Employers

In one of the first cases to be decided after California’s Dynamex decision, in which the California Supreme Court adopted a new ABC test for determining if a worker is an employee or independent contractor, a California appellate court said that the ABC test only applies to determine if a worker is an employee or independent contractor and not whether two entities are joint employers. The ABC test in California asks whether:

  1. The worker is free from the direction and control of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
  2. The worker performs work that is outside the usual course of the hiring entity’s business; and
  3. 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.

The appellate court decided that the ABC test should be used to determine if a worker is an employee or independent contractor but not in the context of determining whether two entities are joint employers. The court looked at the policy reasons behind using the ABC test and said that the primary goals were to ensure that taxes were being paid and the worker is already afforded the protections of the labor laws. The policy purposes for presuming a worker to be an employee does not exist in the joint employment context and therefore it is not necessary for the alleged joint employer to have to prove that it was not an employer under the ABC test.

This case may be the first in a long line of cases that interpret the California Supreme Court’s decision in Dynamex. Commentators are trying to predict how the Dynamex decision will be interpreted, especially how the requirement that services be performed outside the usual course of business will be applied. Look out for litigation in California until there are clearer guidelines on who is an employee and who is an independent contractor.

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.

Nathan Gibson

Senior Director, Risk Management
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