Independent Contractor Misclassification and Compliance News: March, 2020

By MBO Partners | March 31, 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. Independent Contractors May be Eligible for Collect Unemployment Benefits Under the Disaster Unemployment Assistance Program

The coronavirus pandemic has decimated the nation’s economy and has been hard on independent professionals in particular. Because independent contractors do not pay unemployment taxes, they are not typically not eligible for unemployment benefits. However, independent contractors may be able to obtain unemployment benefits under the Disaster Unemployment Assistance Program. The website says:

The Disaster Unemployment Assistance (DUA) program provides unemployment benefits to individuals who have become unemployed as a direct result of a Presidentially-declared major disaster.

In order to qualify for this benefit your employment or self-employment must have been lost or interrupted as a direct result of a major disaster declared by the President of the United States. You must have been determined not otherwise eligible for regular unemployment insurance benefits (under any state or Federal law).

Payment will be made to an unemployed worker, who as a direct result of a Presidentially-declared major disaster:

  • No longer has a job.
  • Is unable to reach their place of work.
  • Cannot work due to damage to the place of work.
  • Becomes the head of the household and is seeking work because former head of household died as a result of the disaster.
  • Cannot work because of a disaster-incurred injury.

President Trump has declared a Major Disaster in California, Washington, and New York. Independent contractors in those states should be able to file claims for unemployment benefits. The Disaster Unemployment Assistance Program is administered by the Federal Emergency Management Agency (FEMA) and more information can be found here.

Texas has its own version of Disaster Unemployment Assistance which is available through the Texas Workforce Commission. This is different from the FEMA program.

In addition, some states like New Jersey are considering legislation that would provide unemployment benefits to independent contractors and self-employed workers.

2. Families First Coronavirus Response Act Was Signed into Law

The Families First Coronavirus Response Act was signed into law on March 18, 2020. The act provides paid sick leave and paid Family and Medical Leave Act (FMLA) leave to employees and self-employed workers. The law establishes temporary tax credits to employers, self-employed workers, and independent contractors to fund the paid sick leave and paid FMLA leave.

For self-employed workers and independent contractors, the law provides for a tax credit for paid sick leave for up to 10 days. However, the amount of credit available is both limited and a bit complicated. The amount of the credit is limited to the lesser of:

  1. $200 per day or $511 per day if any portion of the paid sick time is either: (i) a day the individual is subject to a quarantine or isolation order related to COVID-19 (ii) a day the individual has been advised by a health care provider to self-quarantine due to concerns related to COVID-19, or (iii) a day the individual is experiencing symptoms of COVID-19 and seeking a medical diagnosis) or
  1. 67 percent of the average daily self-employment income (100% if the individual has a leave that qualifies for the $511 rate as described above).

The tax credit for paid FMLA is available for up to 50 days of paid leave. The rate is limited to the lesser of (1) $200 or (2) 67 percent of the average self-employment income applicable to the business owner or independent contractor.

Some states are considering legislation that would provide unemployment benefits to independent contractors and self-employed workers.

3. Doordash and Postmates Required to Arbitrate Thousands of Claims

Both Doordash and Postmates must arbitrate thousands of claims with their drivers. In the District Court for the Northern District of California, Judge William Alsup ordered Doordash to arbitrate claims with 5,000 drivers. Doordash failed to pay the arbitration fees and expected the cases to be combined and litigated in court.

However, the plaintiffs’ attorneys asked the judge to compel arbitration and he agreed with them. Doordash adopted arbitration agreements as way to avoid class action lawsuits. An expected consequence of this approach is that Doordash must now pay the arbitration fees and arbitrate claims with thousands of drivers.

Postmates is facing the same situation in the United States District Court in Oklahoma. Judge Saundra Brown has ordered Postmates to conduct more than 5,000 individual arbitrations with drivers. The arbitration fees alone are likely to exceed $10 million.


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