Independent Contractor Misclassification and Compliance News: June, 2020

By MBO Partners | June 30, 2020

misclassification and compliance news

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. California Focuses on Drivers Misclassified as Independent Contractors

California took action against drivers who are alleged to be misclassified as independent contractors in three separate acts. First, the California Attorney General filed a lawsuit alleging that Uber and Lyft drivers are misclassified as independent contractors. Second, the California Public Utilities Commission issued an order saying Lyft and Uber drivers are presumed to be employees, and San Francisco filed a lawsuit against DoorDash for allegedly misclassifying their worker.

California AG Files Suit Against Uber and Lyft Alleging Misclassification of Drivers

The Attorney General of California filed a lawsuit alleging that Uber and Lyft are misclassifying their drivers as independent contractors. The Attorney General alleges that Uber’s and Lyft’s misclassification is an unlawful and unfair business practice and violates California’s Unfair Competition law, that it deprives drivers of their rights as employees, and that it harms law-abiding competitors and would-be competitors. The Attorney General is seeking a court order prohibiting Uber and Lyft from engaging in unfair competition including misclassifying drivers as independent contractors.

California Public Utilities Commission (CPUC) says Uber and Lyft Drivers are Presumed to Be Employees

The California Public Utilities Commission (CPUC), the state agency responsible for regulating ride sharing and transportation network companies (TNC) providing services in California, issued an order stating that TNC drivers are presumed to be employees. The order reviewed the standard in AB5, the law that became effective on January 1, 2020, that requires all the following be met:

  1. The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  2. The person performs work that is outside the usual course of the hiring entity’s business; and
  3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The order acknowledged that Uber and Lyft had placed on the November ballot a measure that would exclude TNC drivers from AB5. Nonetheless, the order said it must enforce the law until it is changed. The order concludes:

TNC drivers are presumed to be employees and the Commission must ensure that TNCs comply with those requirements that are applicable to the employees of an entity subject to the Commission’s jurisdiction.

San Francisco Files Suit Against DoorDash

The San Francisco District Attorney filed a suit against DoorDash alleging that DoorDash “has systematically misclassified workers and is so doing deprived workers of labor law safeguards to which they’re legally entitled.” Like the California AG’s suit against Lyft and Uber, the City is seeking a court order that would require DoorDash to treat its drivers as employees.

2. Virginia’s New Laws on Misclassification Take Effect on July 1

Employers should take note that a number of laws relating to the misclassification of workers as independent contractors take effect on July 1. The new laws seek to protect workers from being misclassified by”

  • Creating a presumption that a worker is an employee, (this took effect on January 1)
  • Creating a private cause of action for workers who allege they were misclassified, (workers subject to the Fair Labor Standards Act (FLSA) already have a cause of action)
  • Protecting workers from retaliation if they make a claim that they were misclassified
  • Giving the power to the Department of Labor and Industry to enforce the law by imposing civil penalties and debarring a company from contracts with the Commonwealth of Virginia

The new laws do not change the standard for determining whether a worker is an employee or independent contractor. The test is still the Internal Revenue Service’s (IRS) standard for determining whether a worker is an employee or independent contractor. Companies that have a process for evaluating whether an independent contractor meets the IRS test and have classified workers accordingly should be aware of the new laws but don’t need to reclassify workers.

 3. New Jersey Issues Notice for Employers to Post about Misclassification

New Jersey recently enacted a number of laws to make it more costly for companies that misclassify workers. The New Jersey laws:

  • Empower the Department of Labor (DOL) to issue stop work orders against employers who violate state wage, benefit and tax laws
  • Empower the DOL to impose civil penalties for misclassification
  • Impose joint and several liability on “client employers” and “labor contractors” who violate tax laws.
  • Protect workers from retaliation for inquiring, complaining or making a claim relating to their misclassification
  • Require employers to post a notice relating to misclassification

The new laws do not change the standard for determining if a worker is an employee or independent contractor. There were bills in the legislature that would have instituted the ABC test that California recently adopted. While it is still possible for New Jersey to require employers meet the ABC test, the good news for now is that New Jersey has not adopted i

In June, New Jersey issued a notice for employers to post conspicuously “in a place or places accessible to all employees in each of the employer’s workplaces.” The notice defines misclassification, informs a worker that s/he is presumed to be an employee, informs the worker of the penalties that could imposed on their employer, and informs the worker that they are protected from retaliation if they make a complaint.

The notice can be found here.





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