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Independent Contractor Misclassification and Compliance News: May, 2018

   |   Nathan Gibson   |   May 30, 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. California Supreme Court Replaces Legacy Worker Classification Test with New ABC Test

California’s Supreme Court recently set forth a new standard for determining if a worker is an employee or independent contractor. In Dynamex Operations West Inc. v. The Superior Court of Los Angeles Countythe California Supreme Court replaced a test for classifying workers that had been in place for nearly 30 years and put in its place a test that is commonly referred to as the ABC test.

More than 20 states have adopted the ABC test in one form or another, but the California Court adopted the version used in Massachusetts. To determine if a worker is an employee or independent contractor, the California Supreme Court said:

a worker is properly considered an independent contractor … only if the hiring entity establishes:

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that 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.

Most standards for classifying workers as independent contractors contain some aspect of these elements. The California decision shifts the emphasis for these factors from being part of the process to being the central focus when determining if a worker is an employee or independent contractor. The California Supreme Court said that the standard should not prohibit a company from hiring a plumber or electrician as an independent contractor. This makes it clear that workers can continue to be independent contractors but the Dynamex case will likely lead to more uncertainty as employers and employees try to understand and interpret this new test in different circumstances.

2. Federal Judge Says UberBLACK Drivers are Independent Contractors

In Pennsylvania, a federal judge said that UberBLACK drivers were independent contractors. UberBlack drivers provide “black car” limousine services. The judge determined that Uber did not control the manner in which the drivers performed their services, that the drivers had an opportunity for profit or loss by being able to accept work from Uber or from a competitor, that the drivers had made a substantial investment by acquiring their own limousines, and that the relationship between the drivers and Uber was not permanent because the drivers were in control of how long they worked for Uber.

Interestingly, the judge found that the drivers were an integral part of Uber’s business but that the totality of the circumstances supported the classification of the drivers as independent contractors. If this case had been considered under the new ABC test that California just adopted, the conclusions probably would have been different because the judge said that the drivers were an integral part of Uber’s business and therefore Uber would not have been able to pass the requirement that the worker performs work that is outside the usual course of the hiring entity’s business.

3. New York Protects Independent Contractors from Sexual Harassment

Perhaps in response to the #MeToo movement, New York has strengthened its laws protecting workers from sexual harassment and has extended the protections to independent contractors. The new law makes employers liable if independent contractors are sexually harassed if the employer knew or should have known about it.

4.  Massachusetts Supreme Courts Asks Legislature to Clarify Independent Contractor Statutes

Soon after the California Supreme Court adopted the Massachusetts ABC standard for classifying workers as employees or independent contractors, Massachusetts Supreme Justices asked the legislature to update independent contractor classification laws.

Justice Gant, in a concurring opinion in a workers’ compensation claim case, noted that there are at least four different standards for determining employment status in Massachusetts—one for wage and hour claims, one for unemployment insurance, another for workers compensation claims, and yet another for income tax purposes. Justice Gant supports reforms to make it easier for employers and employees, and invited the Legislature to address the issue.

While California adopted one of the Massachusetts standards, Massachusetts justices call on the legislature to create one standard for all purposes.

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