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Top Independent Contractor Compliance Stories from 2018

   |   Nathan Gibson   |   December 20, 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. 2018 was a fascinating year for independent contractor compliance. Here’s a look at the top five stories.

1. California Supreme Court Adopts ABC Test for Classifying Workers

Perhaps the biggest change in 2018 for independent contractors was the California Supreme Court decision in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County, Charles Lee et al, Case No. S222732 (Dynamex). Dynamex changed the world for independent contractors and the companies that engage with them in California. The California Supreme Court adopted the ABC test for determining if a worker is an employee or independent contractor.

Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply 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.

The ABC test is widely regarded as the toughest standard to meet for classifying workers as independent contractors. While stating that the test would still allow independent contractors like plumbers and electricians, the court did not provide meaningful guidance for many other situations.

Since the decision, courts have said that the Dynamex standard should be applied retroactively, that the ABC test only applies to wage order claims, and that the ABC test does not apply when considering whether two entities are joint employers. In one prominent news story, some barbers have quit rather than be reclassified as employees.

Business organizations have called on the legislature to address Dynamex to allow more workers to be classified as independent contractors. Until the legislature acts, there is likely to be a lot of litigation as businesses, workers, and courts try to understand and apply the new standard.

2. United States Supreme Court Confirms that Class-Action Waivers in Arbitration Agreements are Valid/Enforceable

In Epic Systems Corporation v. Lewis (Epic), the United States Supreme Court upheld the validity of class-action waivers in arbitration agreements. Those who challenged class-action waivers in arbitration agreements claimed that section 7 of the National Labor Relations Act (NLRA) said that employees had the right to be “engaged in other concerted activities for the purpose of …mutual aid or protection” and that a class-action lawsuit was a prime example of a concerted activity for the purpose of mutual aid. Supporters of class-action waivers in arbitration agreements pointed to the Federal Arbitration Act (FAA) and its clear support for enforcing arbitration agreements.

The United States Supreme Court said that class action waivers in arbitration agreements are enforceable under the FAA and do not violate the NLRA. This is good news for companies that engage with independent contractors because it means that arbitration agreements with independent contractors that contain class action waivers are valid. All companies that engage with independent contractors should include an arbitration clause with a class action waiver in their agreements.

3. New York Law Protects Independent Contractors from Harassment

New York adopted a number of new laws strengthening the protections against sexual harassment and extended the protections to independent contractors. One of the differences between employees and independent contractors is that employees receive the benefit of many laws that protect them, including laws that prohibit discrimination and sexual harassment. New York’s new laws extend the protections against sexual harassment afforded employees to independent contractors.

4. Grubhub Driver Is an Independent Contractor

In a widely publicized trial, a federal judge in California said that a Grubhub delivery driver was an independent contractor. The judge said Grubhub did not control the driver’s work and therefore Grubhub was not the driver’s employer. Grubhub did not supervise the driver, tell him when to work, what kind of transportation to use or what routes to take. This is believed to be the first time a court has reached the merits and found a worker to be an independent contractor in a gig economy misclassification case.

Commentators argued that the Grubhub case offered little precedential value because misclassification cases are almost always determined by the fact of the case—how much or how little control the company exercised over the work. The value of the Grubhub decision as a precedent is also diminished by the Dyanmex decision and the adoption of the ABC standard for classifying workers.

5. NLRB Considers New Rule for Joint Employer

The National Labor Relations Board (NLRB) has proposed a new rule for determining when a company is a joint employer. A company is a joint employer if it has obligations as an employer with respect to an employee or group of employees as another company. This frequently occurs when a company uses a staffing agency. The company that hires the staffing agency can be considered a joint employer of the staffing agency’s employees.

During the Obama administration, the NLRB issued a ruling that said that companies were joint employers if they share or determine matters governing the essential and conditions terms of employment including setting hours, approving overtime, and assigning work. This standard set a low threshold for when a company could be a joint employer.

The new rule proposed by the NLRB says that a company is considered a joint employer only if it possesses and exercises substantial, direct, and immediate control over the essential terms and conditions of employment in a manner that is not limited and routine. The proposed standard dramatically reduces the number of situations in which a company could be considered a joint employer.

The NLRB’s proposed rule will limit the rights of employees (and independent contractors who allege they were misclassified) against a company with whom they did not directly engage. Clients of staffing agencies, for example, are much less likely to be found to be joint employers and therefore subject to the NLRA.

Check out our additional resources for more information about worker misclassification, and if you have any questions about your company and how to properly classify independent contractors, we’re here to help.

Nathan Gibson

Senior Director, Risk Management
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