Since 2010, the First and Only Blog Dedicated to Independent Contractor Law

Can You Legally Get Criminal Background Checks on Independent Contractors?

Independent contractors can pose safety and security risks as much as employees. Some go into customer homes. Others have access to personally identifiable information and proprietary business information. Some independent contractors drive trucks making deliveries for companies identified by logos on the vehicles. So, businesses should be able to lawfully obtain criminal background checks on these types of independent contractors, right? Not so fast.

Read More

The Delicate Case for Reclassification of Independent Contractors: February 2024 IC ‎Legal News Update

Two cases reported below in our review of legal developments in February 2024 address reclassification of independent contractors.  The first case is one in which a state and county sought enforcement of California’s strict ABC test for independent contractor status and secured a settlement against a staffing company including its agreement to reclassify workers as employees whom it had previously classified as ICs.  The second lawsuit involves a group of workers first engaged as independent contractors and then converted to employees.  Many companies that use ICs question whether they should reclassify their contractors and begin to treat them as employees in the hope that they can avoid IC misclassification lawsuits. The act of reclassifying workers as W-2 employees after treating them as 1099 independent contractors can, however, not only prompt an IC misclassification lawsuit but, if not done in an appropriate manner, can also be used as evidence that the workers were initially misclassified. In contrast, especially in states like California and Massachusetts with their ultra-strict ABC tests for IC status, reclassifying workers from IC to employee status as part of a settlement of a lawsuit is an option some employers have considered. The approach taken by the overwhelming number of companies, however, is not to reclassify, which can create the impetus for an IC misclassification lawsuit and typically is not financially feasible. Rather, most prudent businesses seek to enhance compliance with laws governing the use of ICs. One process used by an increasing number of businesses is IC Diagnostics (TM), which enhances IC compliance by restructuring, re-documenting, and re-implementing IC relationships in a customized and sustainable manner consistent with the company’s business model. The only approach that makes little sense is to do nothing and instead risk a legal proceeding brought by a government agency or plaintiffs’ class action lawyer, as in the first two cases reported below.

Read More

Reminder: Final Biden Administration Independent Contractor Rule Takes Effect March 11 – ‎Do Not Fear, But Don’t Stand Still

On January 9, 2024, the same day the U.S. Department of Labor issued its final rule on independent contractor status, we published a comprehensive blog post analyzing and commenting on the new regulation, which goes into effect less than a week from now on March 11, 2024.  We have heard from numerous clients that have an IC business model, expressing concern that the legal landscape will change on that date.  It won’t. As we noted in our January 9 post, “The legal impact of the final rule … will hardly ripple the waters. After all, it is the courts that create law on this subject, not regulatory agencies.”  But we also cautioned that “the final rule issued today will give renewed impetus to disaffected workers classified as independent contractors to file class actions seeking minimum wage, overtime payments, and employee benefits under applicable laws.” We commented further that “This is likely to propel more companies using independent contractors to take steps to enhance their IC compliance by using a process such as IC Diagnostics (TM) to restructure, re-document, and re-implement their relationships with ICs in a customized and sustainable manner, consistent with their business model.”  That is exactly what we have seen – more companies have been attacked by IC misclassification lawsuits while at the same time more companies are seeking to maximize their compliance with laws governing ICs.

Read More

Case Establishing Strict New Jersey Test for Independent Contractor Status Finally ‎Resolved: January 2024 IC Legal News Update

In early 2015, New Jersey borrowed the state’s strict ABC test under its unemployment law and adopted it as the new test for independent contractor status under its wage laws. That change in the law was not an act by the state legislature; instead, it was created entirely by the judiciary – much the same way the judiciary in California borrowed the test for IC status from Massachusetts when creating an ABC test for certain wage claims for California. These judicial decisions have created havoc for businesses and legitimate independent contractors that had developed business relationships based on then-existing law. Nine years later, that case has settled for $4.5 million, as noted below in our summary of legal developments for January 2024. Today, New Jersey is one of a few states in the U.S. where businesses and freelancers are in peril if they seek to create or maintain IC relationships including those that would otherwise be compliant with the test for IC status under the federal wage and hour law and most state wage laws. As a result, while IC misclassification claims are not nearly as ubiquitous in New Jersey as they are in California and Massachusetts, they have become quite prevalent in New Jersey. Indeed, the title of our blog post for February 2023 legal developments was “New Jersey is Becoming the Next California.” As a result, more companies operating in that state have undertaken a process such as IC Diagnostics (TM) to restructure, re-document, and/or re-implement their IC relationships in a customized and sustainable manner to minimize misclassification liability.

Read More

Legally Nil, But Will Look a Lot Like a “Score”: Labor Department Issues Its Final Rule ‎on Independent Contractor Status‎

It has been well over a year since the U.S. Department of Labor issued its proposed rule entitled ‎‎“Employee or Independent Contractor Classification under the Fair Labor Standards Act.” The ‎regulation was expressly intended to override the Trump Administration’s regulation covering ‎the same subject, which the Biden Administration felt was weighted in favor of businesses. ‎Earlier today, the Labor Department issued its final rule on independent contractor status under ‎the FLSA. No surprise: little was changed substantively in comparison to the proposed rule. ‎Only a few tweaks were made despite the fact that over 55,000 comments to the proposed ‎regulation were posted in a two-month period by individuals and organizations both in support ‎of and in opposition to the proposed regulation. The final rule addressing the independent ‎contractor (IC) status of workers in the U.S. is an “employee-friendly” version that will ‎undoubtedly prompt jubilation among worker advocate organizations and unions while creating ‎consternation on the part of many businesses and otherwise legitimate ICs that want to retain IC ‎status. The legal impact of the final rule, however, will hardly ripple the waters. After all, it is ‎the courts that create law on this subject, not regulatory agencies. We nonetheless project that ‎the final rule issued today will give renewed impetus to disaffected workers classified as ‎independent contractors to file class actions seeking minimum wage, overtime payments, and ‎employee benefits under applicable laws. This is likely to propel more companies using ‎independent contractors to take steps to enhance their IC compliance by using a process such as ‎IC Diagnostics (TM) to restructure, re-document, and re-implement their relationships with ICs ‎in a customized and sustainable manner, consistent with their business model. ‎

Read More

Even Clown Companies Are Targets of Independent Contractor Misclassification ‎Lawsuits: December 2023 IC Legal News Update

We have had the opportunity, in the course of our independent contractor practice, to represent ‎clients in over 75 diverse industries including some in rather esoteric businesses. These clients ‎have included musical bands, hail repair companies, meditation centers, adult entertainment ‎clubs, amusement parks, dog walking services, cultural exchange programs, museums, libraries, ‎athletic teams, and song writing. We never have been called upon to serve a client in the clown ‎industry or a business providing children’s party entertainment – the lead case of this month’s ‎update of legal developments in December 2023. This case underscores that virtually every ‎industry these days uses independent contractors, even companies with service providers who ‎wear costumes and paint their noses and cheeks red. While companies in offbeat industries ‎typically have a limited number of workers, an adverse determination of independent contractor ‎misclassification by a workforce or tax agency can have disastrous financial implications, and a ‎class action lawsuit typically entails expensive defense costs. For that reason, many companies, ‎both large and small, that wish to minimize the likelihood of an independent contractor audit or ‎lawsuit, have chosen to use a process such as IC Diagostics (TM) to structure, document, and ‎implement their independent contractor relationships to enhance compliance in a customized ‎and sustained manner, consistent with their business models. As we have written previously in a ‎blog post, even strip clubs can comply with applicable IC laws. Clown companies can, too. ‎

Read More

Concerns Over New York State’s Freelancer Pay Protection Bill – And How to Navigate ‎Around Them

New York Governor Kathy Hochul signed into law on November 22, 2023 the Freelance Isn’t Free Act bill (S 5026), after the Governor had vetoed the exact same bill (S 8369) the year before. This freelancer law, which was modeled after the 2017 New York City freelancer pay protection law of the same name, is plagued with ambiguities and other critical defects, similar to flaws in the City law including a pyramiding damages provision. We highlight below concerns about this new law and how to navigate through the traps it creates for unwary businesses. 

Read More

Independent Contractor Juxtaposition: November 2023 IC Legal News Update

This past month, new independent contractor misclassification lawsuits were filed in Illinois, Maryland, New Jersey, and Washington by EMTs, cellular service “drive testers,” home health aides, and app-based couriers making deliveries for a big box store. In addition, last month the U.S. Department of Labor recovered a sizeable amount of damages from a local Alabama health care company, while a court in California approved a $30 million settlement between a nationwide cleaning franchisor and its franchisees. These lawsuits show that IC misclassification lawsuits arise in every region of the country and cover an endless array of industries. Why? Because the use of independent contractors has become ubiquitous in the U.S. While states and cities have enacted laws over the past decade to curtail the misclassification of workers as independent contractors, they have now begun to pass laws to protect independent contractors that have been properly classified as such. The most recent state to do so is New York, which last month passed an independent contractor payment protection law, as we report below, affording ICs double damages if they have not been paid all their fees in a timely manner. Now, when advising businesses how to enhance their compliance with laws affecting independent contractors, we not only use a process such as IC Diagnostics (TM) to minimize misclassification exposure, but also provide suggestions for ensuring that those companies don’t expose themselves to liability under these new IC pay protection laws.   

Read More

New York State’s Freelancer Pay Protection Bill Enacted Despite Prior Veto and Continuing Defects

In the waning days of 2022, New York Governor Kathy Hochul vetoed the New York State Freelance Isn’t Free Act bill (S 8369B) that had been awaiting her action for over six months. In early June 2023, the New York legislature passed the identical bill (S 5026) and once again sent it to the Governor.  On November 21, 2023, the Governor reversed course and signed the bill.  Evidently, the reasons Governor Hochul gave in her veto message in December 2022 were discounted. As noted below, this new independent contractor law is plagued with ambiguities and other critical defects. Perhaps one of the most glaring defects in the law is an unreasonable double damages provision for late payment or nonpayment by a company even if it had a good faith belief the freelancer’s work was unsatisfactory or did not meet contract specifications.

Read More

Hoopla Over Arbitration of IC Misclassification Cases Makes Little Sense: October 2023 ‎IC Legal News Update

Companies can use two independent grounds to compel arbitration of independent contractor misclassification lawsuits: the Federal Arbitration Act (FAA) and state arbitration laws. The FAA, however, includes an exemption for workers engaged in interstate transportation. This exemption has consumed the attention of lawyers and courts for years, with numerous disputes over which types of workers are covered by the FAA’s arbitration exemption. Last month we reported in a blog post that the U.S. Supreme Court accepted a case addressing the application of that exemption to independent contractors who distribute food products to grocery and convenience stores for companies that manufacture the goods. The question presented to the Supreme Court is whether the FAA exemption applies to workers that are actively engaged in interstate transportation for companies that are not in the transportation industry. The Supreme Court typically grants review of cases only where they have outsized legal significance, but because lawsuits are also subject to arbitration under state law – regardless of whether the litigants are covered by or exempt from arbitration under federal law – there is little reason for the courts to continue to spend time and resources deciding if the FAA’s exemption applies. As reported below, this very issue was posed by a court last month when it stated that a state’s arbitration law may well have given it grounds to compel arbitration of an independent contractor misclassification dispute, even if the workers were covered by the FAA’s interstate transportation exemption. As we have noted repeatedly in several of our blog posts, an arbitration clause drafted in an effective manner as one part of an IC compliance program should provide sufficient grounds for a company to compel arbitration of misclassification disputes by independent contractors, even if the FAA’s interstate transportation exemption otherwise applies.

Read More
Loading

About The Publisher

Richard ReibsteinRichard Reibstein is the publisher of this legal blog, which has been, since its inception in 2010, the only legal blog in the country dedicated exclusively to publishing original content on the subject of independent contractor compliance and misclassification. Read more

JD Supra Readers Choice Top Author 2021 The publisher of this blog, Richard Reibstein, was named a "Top Author" in JD Supra Readers' Choice Awards in 2016-2017 and 2019-2022 for his thought leadership on the topics of "Employer Liability" issues and/or "Class Actions."

Email the Publisher

Click here to Email the Publisher

Locke Lord LLP

For the latest information about our Firm visit lockelord.com and Locke Lord’s Independent Contractor Misclassification and Compliance Practice