Independent Contractor Misclassification and Compliance News: November, 2020

By MBO Partners | November 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. Proposition 22: California Votes to Allow Uber and Lyft drivers to be Independent Contractors

In November, California voters voted in favor of Proposition 22, a ballot measure that allows companies like Uber and Lyft to classify their workers as independent contractors. In 2018, the California Supreme Court said that the test for determining whether a worker was an employee or independent contractors is the ABC test. The ABC test says that a worker is an employee unless the business can show:

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.

The ABC test makes it hard for independent workers to be classified as independent contractors.

In 2019, the California legislature passed—and the governor signed—Assembly Bill 5 (AB5) which turned the ABC test from a court adopted test into a statute. The new law, effective January 1, 2020, said the ABC test applied to all workers except those identified in the statute. AB5 was further amended in 2020 with the passage of AB2257 which added and modified the exceptions.

Despite a number of exceptions in AB5, drivers for Uber and Lyft were subject to the ABC test and classified as employees. Uber and Lyft worked to put a measure on the ballot that would allow app-based drivers to be classified as independent contractors. This measure became Proposition 22.

California voters adopted Proposition 22 and rejected the ABC test for app-based drivers.

The passage of Proposition 22 does two things. First, and most immediately, app-based drivers such Uber and Lyft drivers, can be classified as independent contractors. Second, the passage of Proposition 22 is support for independent professionals who want to work independently. As Miles Everson, CEO of MBO, noted “This is not just about Uber and Lyft. It’s about people who want to build their own business. … High-end knowledge workers generating six figures should be happy about the decision.” With respect to the ABC test, Miles said “It won’t go away, but it will be revisited and looked at more closely.” 

2. What a Biden Presidency Means for Independent Contractors

With the election of Joe Biden, speculation has begun about what a Biden presidency will mean for independent contractors. A Biden presidency will be more worker friendly than the Trump administration, but it is not likely that it will go so far as to adopt the ABC test for classifying workers.

Last year, the House of Representatives passed the Protect the Right to Organize Act (the PRO Act”). The PRO Act adopts the ABC test that is part of California’s Assembly Bill 5 (AB5) for determining whether a worker is an employee or independent contractor. Prior to the election, some speculated that if Biden won and Democrats controlled both the House and the Senate, the PRO Act and the ABC test would be passed and adopted as the federal standard for classifying workers as employees or independent contractors. Some predicted it would the standard for the Department of Labor and the Internal Revenue Service.

While control the Senate is still uncertain, it seems unlikely that the Democrats will go so far as to make the ABC test the standard for the Fair Labor Standard Act (FLSA). Democrats lost seats in the House, did not get clear control of the Senate, and voters in California voted in favor of Proposition 22 which allows Uber and Lyft drivers to be independent contractors. With the passage of Proposition 22, the momentum for adopting the ABC test in others states and nationally may have stalled. Democrats in competitive districts may not be willing to support the ABC test. Overall, it seems unlikely that there will be a dramatic change in the standards for classifying workers.

3. Pet Sitters Are Employees, not Independent Contractors

A Missouri court reviewed how much control and direction a pet sitting company had over its workers and found that the pet sitters should be classified as employees and not independent contractors. The court reviewed factors under the IRS twenty-factor test and found that the company exercised sufficient control and direction over the pet sitters for them to be considered employees. The company counseled workers when they received complaints and prohibited the sitters from assigning their jobs to others. The court said that these factors in particular demonstrated an employer-employee relationship.

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.

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