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Independent Contractor Misclassification and Compliance News: October, 2020

By Nathan Gibson |

Updated Friday, October 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. United States Department of Labor Proceeds with New Rule for Classifying Workers

The United States Department of Labor (DOL) proposed a new rule for classifying workers as employees or independent contractors and offered a 30 day comment period which ended October 26, 2020. According to Richard Reibstein, more than 1,500 comments were submitted on the proposed rule. In addition, Democrats and others pushed for a longer comment. Despite these requests, the DOL stayed with the 30=day comment period and appears poised to move forward with the proposed rule.

The proposed regulations say that the determination is based on the economic reality and that the economic reality should be determined by considering these primary factors:

  1. the individual’s control over the work and
  2. the individual’s opportunity for profit and loss.

If these factors are not determinative (if they point in different directions), then these factors should be considered:

  1. amount of skill required,
  2. the permanence of the relationship and
  3. whether the work is part of an integrated unit of production.

The long-term effect of the proposed rule depends on the outcome of the election. If President Trump is not re-elected, look to the new administration to offer new rules to replace the proposed rules.

Finally, please note that the proposed rule does not change state laws so companies doing business in California or Massachusetts will still be subject to their states’ strict ABC test, and companies in other states will have to comply with their states’ laws relating to classifying workers as employees or independent contractors.

2. California Referendum on Classifying Uber and Lyft Drivers as Independent Contractors

Earlier this year, California put into effect AB5, a statute that codified the ABC test for determining if an employee was an employee or independent contractor. Under AB5, a worker is an employee unless the business can show that:

A. The worker is free from the direction and control of the higher are in connection with the performance of the work, both under the contract for the performance of such work, and in fact;

B. The worker performs work that is outside the usual course of the hiring entities business; and

C. 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.

For many companies that engage with independent contractors, the challenging piece is prong B—that the worker performs work that is outside the usual course of the hiring entities business. Many independent contractors are able to demonstrate that they work free from the control of the hirer and that they are customarily engaged in independent trade or business.

After the passage of AB5, courts have said that drivers for Uber and Lyft should be treated as employees. Recently, a California appeals court affirmed a lower court’s order requiring Uber and Lyft to treat their drivers as employees.

Uber and Lyft have responded to AB5 by collecting signatures and putting a question on the November 3rd ballot. Proposition 22 would define app-based transportation (rideshare) and delivery drivers as independent contractors and adopt labor and wage policies specific to app-based drivers and companies. and not independent contractors. One recent poll said that Proposition 22 did not have support from 50% of likely voters. as employees or as previously classified by Uber and Lyft as independent contractors.

3. Minnesota Employers Face Jail Time for Misclassifying Workers to Avoid Paying Workers Compensation Insurance Premiums

The owners of a drywall company created fake companies, paid workers in cash, and misclassified them as independent contractors to avoid paying workers compensation insurance premiums. They were charged with and pleaded guilty to theft by swindle. They were sentenced to six months in jail and repaying their insurance provider $309,000 for the lost premiums.