Worker classification is a constantly evolving realm with various laws, tests, and guidelines that are often open to interpretation and subject to varying levels of enforcement from state to state. 2017 was a fascinating year for independent contractor compliance with lawsuits, memos, and new acts taking place across the U.S. Here’s a look at the top 7 stories.
On June 15, 2015, the DOL issued Administrators Interpretation 2015-01 with guidance on how the DOL viewed the misclassification of employees as independent contractors. On June 7, 2017, just a few days before the two-year anniversary of the Administrators Interpretation 2015-01, the DOL withdrew Administrators Interpretation 2015-01. This move is perhaps not entirely surprising as the Trump administration has pledged to reduce regulation—a trend that we predict will continue to impact the future of work.
The withdrawal of the Administrators Interpretation does not change substantive law. The original guidance expressed the DOL’s view on how the Fair Labor Standards Act (FLSA) would be interpreted by the DOL, but any case alleging misclassification would be evaluated based on existing precedents. The withdrawal does not change any precedents, but it does signal this Administration’s position with respect to the classification of employees as independent contractors.
Employment agreements frequently contain a requirement that all disputes be resolved through arbitration, and prohibit an employee from participating in any class action. These arbitration provisions have been challenged because they may violate the National Labor Relations Act (NLRA).
Arbitration agreements are a key line of defense to prevent class actions by workers who are alleging that they have been misclassified as independent contractors. The National Labor Relations Board (NLRB) has taken the position that a class-action waiver is a violation of the NLRA. Some Circuit Courts of Appeal agreed with the NLRB, while others said that the Federal Arbitration Act (FAA) took precedence in upheld the validity of the arbitration agreements with the class-action waivers.
In October, the United States Supreme Court reviewed the question and a decision is expected in January or February 2018. The Supreme Court’s decision will determine the future of class action waivers in arbitration agreements.
In Florida, one court said that an arbitration agreement with the class-action waiver was valid in part because the agreement had an opt-out clause. When there’s an opt-out clause, it is hard to argue that the requirement to arbitrate disputes is a condition of employment, and therefore a violation of the NLRA.
The new NLRB General Counsel issued a memo in December saying that it would no longer argue that an employer’s misclassification of employees as independent contractors, in itself, violates the NLRA. The General Counsel said that misclassification could still be a violation of the NLRA if the employer actively used the misclassification to interfere with the protected rights of employees.
This is a dramatic change for the NLRB. Previously the NLRB had taken the position that misclassification of employees was a violation of the NLRA.
In 2016, New York City passed the Freelance Isn’t Free Act (FIFA) and it took effect on May 15, 2017. FIFA requires agreements with freelancers to be in writing, itemization of freelancer’s services, a specified rate, method, and timing of payment to the freelancer, and provides penalties for violations. FIFA only applies to services in New York City but it may be a sign of things to come. New Jersey is already considering a statue similar to FIFA.
In 2017, Wyoming, Florida, and Michigan became part of the growing number of states with laws that say drivers for transportation network companies, such as Uber and Lyft, are independent contractors.
48 states have passed some sort of transportation network company legislation and many of them state that drivers are independent contractors and not employees if certain conditions and requirements are met.
Uber has made waves in Europe this year as well. On December 20, 2017, the European Court of Justice ruled that Uber is a transportation service rather than simply a technology platform. This means that Uber will now be subject to the same regulations as taxi companies across the EU. This ruling could be a sign of how online and app-based gig economy services will be regulated in Europe.
The Connecticut Supreme Court ruled that an independent contractor who only had one client was still an independent contractor. Connecticut requires independent contractors to meet the ABC test. The third prong of this test says that to be an independent contractor “the individual is customarily engaging in an independently established trade, occupation, profession or business of the same nature as the service performed.”
The court said, “part C must be considered in relation to the totality of the circumstances, without inquiry guided by multifactor test” and that it was possible for an independent contractor with only one client to qualify as an independent contractor engaging in an independently established trade, occupation, or profession.
This is a big step for independent contractors because it was previously assumed that independent contractors had to have multiple clients to demonstrate they were engaged in an independent business.
Like Connecticut, New Jersey also uses the ABC test to determine if a worker is an independent contractor. Part C requires an individual to be “customarily engaged in an independently established trade, occupation, profession, or business.” The court said that prong C would be satisfied if a person has a business, trade, occupation, or profession that will continue despite termination of the challenged relationship. Prong C would not be satisfied if the person joined the ranks of the unemployed.
Both the Connecticut and New Jersey courts took liberal interpretations of the requirement to be engaged in an independent business. This is good news for independent contractors.
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.
Employee misclassification affects business owners, workers, and the government. The cost of misclassification on businesses and what organizations can do to minimize risk.
An exploration of independent contractor tests and guidelines from the IRS, DOL, and individual states.