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Independent Contractor Misclassification and Compliance News: October, 2018

   |   Nathan Gibson   |   October 31, 2018

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. National Labor Relations Board Proposes Rule to Change its Joint-Employer Standard

The National Labor Relations Board (NRLB) is proposing a rule that changes the joint-employer standard. A company can be a joint employer with another company if they both participate in the control and/or supervision of an employee. Joint control can frequently occur in situations when a staffing company or other intermediary engages with the worker who then provides services to the staffing company’s client. Joint employment is also a concern when engaging with independent contractors because disgruntled independent contractors can also allege joint employment.

The NLRB’s proposed rule says an employer may be found to be a joint-employer only if it possesses and exercises substantial, direct, and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint-employer relationship. The proposed rule is better for companies because it makes it less likely that they will be considered joint employers, at least for the purposes of the National Labor Relations Act (NLRA).

2. Alaska Governor Signs a Workers Compensation Reform Bill with a New Definition of an Independent Contractor

Alaska enacted a workers’ compensation reform bill with a new definition of an independent contractor. Alaska has taken a different approach from California and provides a definition of an independent contractor that employers can use to know whether or not the worker with whom they are engaging should be classified as an employee or independent contractor for workers’ compensation purposes.

The new legislation provides:

a person is an independent contractor for the purposes of this section only if the person

(A) has an express contract to perform the services;

(B) is free from direction and control over the means and manner of providing services, subject only to the right of the individual for whom, or entity for which, the services are provided to specify the desired results, completion schedule, or range of work hours, or to monitor the work for compliance with contract plans and specifications, or federal, state, or municipal law;

(C) incurs most of the expenses for tools, labor, and other operational costs necessary to perform the services, except that materials and equipment may be supplied;

(D) has an opportunity for profit and loss as a result of the services performed for the other individual or entity;

(E) is free to hire and fire employees to help perform the services for the contracted work;

(F) has all business, trade, or professional licenses required by federal, state, or municipal authorities for a business or individual engaging in the same type of services as the person;

(G) follows federal Internal Revenue Service requirements by

(i) obtaining an employer identification number, if required;

(ii) filing business or self-employment tax returns for the previous tax year to report profit or income earned for the same type of services provided under the contract; or

(iii) intending to file business or self-employment tax returns for the current tax year to report profit or income earned for the same type of services provided under the contract if the person’s business was not operating in the previous tax year; and

(H) meets at least two of the following criteria:

(i) the person is responsible for the satisfactory completion of services that the person has contracted to perform and is subject to liability for a failure to complete the contracted work, or maintains liability insurance or other insurance policies necessary to protect the employees, financial interests, and customers of the person’s business;

(ii) the person maintains a business location or a business mailing address separate from the location of the individual for whom, or the entity for which, the services are performed;

(iii) the person provides contracted services for two or more different customers within a 12-month period or engages in any kind of business advertising, solicitation, or other marketing efforts reasonably calculated to obtain new contracts to provide similar services.

3. California Supreme Court to Decide if California Labor Laws Apply to Workers who Work Mostly in other States

There is a case before the California Supreme Court in which the court is being asked to decide if California labor laws apply to workers who work 80% or more of their time in other states. The case arose with flight attendants who spend 12%-17% of their time working in airspace over California.

This case is of particular interest to companies who engage with independent contractors who work most of their time outside of California but may come to California for meetings or presentations. With the recent decision by the California Supreme Court adopting a stricter standard for classifying workers as independent contractors, if California law applies to workers who spend a small amount of time in California, then it could lead to some bizarre situations where a worker is an independent contractor when they work in another state but becomes an employee when they enter California.

4. Barbers Quit Over State Ruling on Independent Contractors

The Sacramento Bee reports that some barbers have quit because the recent California Supreme Court decision adopted a new standard for classifying workers as employees or independent contractors and they did not want to be classified as employees. Reclassifying barbers seems to be an unintended consequence of the California Supreme Court’s decision and is an opportunity for the legislature to make a correction next year.

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
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