Independent Contractor Misclassification and Compliance News: May, 2020

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. Pennsylvania Supreme Court Clarifies the Definition of an Independent Contractor for Unemployment Compensation

Many states have different definitions of what it means to be an independent contractor for income taxes, unemployment taxes, workers compensation, or wage and hour laws. The Pennsylvania Supreme Court recently considered the standard for being an independent contractor under Pennsylvania’s unemployment compensation laws. The unemployment compensation laws say that services are considered to be “employment” unless it is shown that

(a) such individual has been and will continue to be free from control or direction over the performance of such services both under his contract of service and in fact; and

(b) as to such services such individual is customarily engaged in an independently established trade, occupation, profession or business.

In A Special Touch v. UC Tax Services, Docket No. J-105-2019 (Pa. 2020), the Pennsylvania Supreme Court discussed what it means to be “customarily engaged in an independently established trade, occupation or business.” The court said a worker must actually be involved in an independent business and not just be capable of being involved in an independent business.

In short, to be an independent contractor in Pennsylvania for unemployment compensation purposes, an independent contractor must be actually involved in an established business or trade—such as by holding themselves out to perform services for others.

2. New York Considers Postmates Drivers as Employees Eligible for Unemployment Benefits

In New York, the Court of Appeals reversed a decision by the Appellate Division that reversed a decision by the Unemployment Appeals Board who found that a Postmates driver was an employee for unemployment benefits purposes. It seems like each time a decision was made, the other party appealed and the decision was reversed until it reached the Supreme Court who reinstated the Unemployment Appeals Board decision. All the reversals show how the facts in this case could be argued either way.

The Court of Appeals reviewed the case history and said that the decision by the Unemployment Appeals Board should be upheld if there was “substantial evidence” to support the decision and that they couldn’t simply impose their judgement if they reached a different conclusion.

The Court of Appeals felt that there was substantial evidence that Postmates exercised control over its couriers sufficient to render them employees rather than independent contractors. Evidence considered included:

• While couriers decide when to log into the Postmates' app and accept delivery jobs, the company controls the assignment of deliveries by determining which couriers have access to possible delivery jobs.
• Postmates informs couriers where requested goods are to be delivered only after a courier has accepted the assignment.
• Customers cannot request that the job be performed by a particular worker.
• In the event a courier becomes unavailable after accepting a job, Postmates—not the courier—finds a replacement.
• Although Postmates does not dictate the exact routes couriers must take between the pick-up and delivery locations, the company tracks courier location during deliveries in real time on the omnipresent app, providing customers an estimated time of arrival for their deliveries.

Therefore, there is record support for the Board's conclusion that Postmates exercised more than incidental control over the couriers. "There being substantial evidence to sustain the determinations, the judicial inquiry is complete" (Matter of Rivera, 69 NY2d at 682).

Some commentators say this decision may have a significant effect in New York. If courts follow this decision to apply other laws, such as the workers compensation or sick leave laws, then this decision could have substantial influence. On the other hand, this court was deferential to the Unemployment Appeals Board and may have reached a different conclusion on its own.

In addition, five parties had a chance to decide whether the Postmates drivers were employees or independent contractors and three decided they were employees while two decided they were independent contractors. The fact that the same set of circumstances led to contrary conclusions suggests that slight changes in facts could result in a different outcome.

3. New Jersey’s New Laws Increase the Liability for Misclassifying Workers

At the end of 2019, there was attention on New Jersey as it considered adopting the ABC test for classifying workers. While New Jersey did not codify the ABC test, it did adopt several laws that raise the stakes for companies that misclassify workers. The new law includes the follow:

• Stop Work Orders. The Commissioner of Labor was given the authority to issue a stop work order against any company that does not comply with wage laws.
• Joint and Several Liability. This law creates joint and several liability for client employers and labor contractors
• Additional penalties. The Commissioner of Labor was given the authority to impose penalties for misclassifying workers.
• Workers who complain about misclassification are protected from retaliation.
• Information sharing. The Department of Treasury can share information with the New Jersey Department of Labor that would assist in investigating misclassification claims.

While New Jersey did not change the standard for classifying workers—independent contractors who were correctly classified in the past continue to be independent contractors—the new laws increase the liability of a company who misclassifies workers.