Legislators, regulators, and even some courts have sought to alter the status quo in terms of the test for independent contractor status under different laws. Some have taken the approach that a well-established federal or state law test for determining IC status balances the competing interests of promoting legitimate IC relationships and eliminating IC misclassification – but need to be enforced more vigorously or, if violated, need harsher penalties for misclassification particularly intentional misclassification. Other legislators, regulators, and judges have sought to change a well-established federal or state test to make it more challenging to maintain IC status and thereby curtailing the number of lawful IC relationships. Still others have sought to make an applicable test for IC status less challenging in order to expand legitimate IC relationships. These types of initiatives fall into three categories, each of which are described below.
“IC-Neutral” legislation, rule-making and court decisions refers to recent and proposed laws and regulations and recent judicial rulings that do not penalize legitimate independent contractor (IC) relationships or alter the test for IC status, but are intended to focus on the misclassification of employees as ICs and, in particular, intentional IC misclassification. Such laws would include those that deter or discourage IC misclassification by, among other things, increasing penalties or other sanctions for improper classification of employees as ICs.
“IC-Minus” legislation, rule-making and court decisions refers to recent and proposed laws and regulations and recent judicial rulings that are intended to or will result in curtailing legitimate IC relationships by, among other things, altering existing tests for IC status so that those who would otherwise qualify as ICs under the common law or other existing legal tests for IC status may now become “employees” as a matter of law, and the maintenance of previously lawful IC relationships would now become unlawful – unless the IC relationship is restructured and re-documented to maintain lawful status.
“IC-Plus” legislation, rule-making and court decisions refers to recent and proposed laws and regulations and recent judicial rulings that are intended to or will result in expanding the number of legitimate IC relationships by, among other things, altering existing tests for IC status so that those who would not otherwise qualify as ICs under the common law or other existing legal tests for IC status may now become “lawful” ICs. Such laws would include newly added safe harbors for workers and businesses that wish to structure their relationship as independent contractors.
“IC-Neutral”, “IC-Minus” and “IC-Plus” legislation and rule-making is often a result of political and economic interests being articulated through legislative or administrative change.
Certain of the state laws enacted since July 2007 (as catalogued in the preceding page under Resources) are IC-Neutral while others are IC-Minus or IC-Plus.
The following are selected articles, blog posts, and publications that address the issue of IC-Neutral, IC-Minus and IC-Plus laws, rule-making and judicial decisions. It is a “running” list with new IC-Neutral, IC-Minus, and IC[-Plus developments added on an ongoing basis:
- “A Solution to the ‘Five Degrees of Independent Contractor Misclassification,’” is a comprehensive commentary where this blog’s publisher explains how the term “independent contractor misclassification” is a phrase used to cover a wide array of disparate forms of IC misclassification: unpardonable; uninformed; unprepared; unintentional; and unjust. The commentary focuses initially on a recent example of an “unjust” use of the term IC misclassification: California’s Assembly Bill 5 (AB5) – now reissued without much change as AB2257 – which codified the Dynamex court decision and expanded it to cover virtually all situations involving ICs in California, except for about 50 categories of independent contractors, who were exempted from the Dynamex ABC test and permitted to establish IC status based on the decades-old test in the Borello decision. The legislature purportedly sought to simplify IC law in California, but the exemptions have created a far more complex and ambiguous set of tests, with many exemptions having up to a dozen criteria that must be satisfied to avoid the ABC test. The legislation is perhaps the quintessential form of IC-Minus government action because it codified a court decision that “changed the rules in the middle of the game” for many businesses and freelancers, who had relied upon existing law on the books for almost three decades to create legitimate and lawful independent contractor relationships, many of which have now become unlawful under AB5 and its successor AB2257.
The commentary notes that other states and some members of Congress are contemplating the adoption of an ABC test for IC status similar to California, although the backlash from AB5 has been so dramatic that some legislative bodies are understandably having serious reservations about emulating California on the test for IC status.In the commentary, the publisher of this blog cited to repeated public statements of Obama Administration officials including the Secretary of Labor and Administrator of the Wage and Hour Administration urging increased enforcement of existing laws and coordination with state workforce agencies to (a) raise tax revenues that the federal and state governments are losing from those businesses that engage in intentional IC misclassification and, by so doing, are not paying unemployment and payroll taxes to taxing authorities; and (b) level the playing field for companies that operate in accordance with the law; and (c) ensure that workers receive minimum wages for their work. Such an approach, they remarked, would preserve what they described as the vital role that legitimate ICs play in the U.S. economy – without having to change well-established tests for IC status that businesses and freelancers have relied upon in structuring lawful IC relationships. Finally, the commentary cites to governmental studies by both the Obama and Trump Administrations and a study by Gallup Polling showing that those who have chosen an independent contractor relationship are far more satisfied with their work than those laboring in traditional employment relationships.
- “Independent Contractor Bombshell for California Businesses: California Supreme Court Curtails the Lawful Use of ICs,” details how the California Supreme Court in Dynamex Operations West v. Superior Court (No. S222732), created a new test that is modeled after the so-called ”ABC” test used in Massachusetts, widely viewed as the toughest test in the country for ICs. This “IC-minus” court decision was particularly surprising in light of recent legislative efforts across the country to regulate, instead of curtail, the increasing use of freelancers and on-demand workers including those in the gig economy. Questions left open by that decision, which applies to so-called “non-wage order” claims in California, was the subject of a later blog post.
- “New York’s Highest Court Issues IC-Friendly Ruling,” analyzes an October 25, 2016 decision by the New York Court of Appeals affirming that New York’s highest court supports the use of properly classified independent contractors and recognizes that some facts that are just as readily required of an IC as of an employee cannot be used by administrative agencies and lower courts in New York to defeat a worker’s classification as an independent contractor. This decision is “IC-Neutral” as it simply applies existing law to a factual scenario.
- “NLRB General Counsel Creates a ‘Misclassification-Plus’ Unfair Labor Practice,” comments on a Advice Division memorandum released on August 26, 2016, where the General Counsel of the NLRB concludes that IC misclassification is a violation of the National Labor Relations Act, particularly when accompanied by other alleged labor law violations. This position of the NLRB General Counsel at that time arguably seeks to expand the law under the NLRA to create a new type of unfair labor practice regardless of whether a company’s classification of workers as ICs is bona fide. The new NLRB General Counsel appointed by President Trump is highly likely to abandon this initiative by the General Counsel appointed by President Obama.
- “Misclassification of Independent Contractors: The Crackdown, Its Costs, and How to Minimize or Avoid Its Risks,” a three-part series published by Law 360 on July 7-9, 2015, authored by the publisher of this legal blog. The series was based on the publisher’s 2015 Update to the 2012 White Paper, which included an analysis of legislative initiatives since 2007 and noted that no state or federal laws prohibit the use of independent contractors who are properly classified in accordance with applicable laws.
- “(In)dependent Contractor Misclassification,” a working paper issued on June 8, 2015 by The Economic Policy Institute, a nonpartisan think tank, whose author assails the use of independent contractors but recognizes that one of the causes of IC misclassification is “ignorance” of the laws and can be the result of “honest mistakes on the part of businesses.” The working paper, which was the subject of a blog post on June 12, 2015, advocates an increase in fines for intentional independent contractor misclassification rather than a wholesale change in the legal tests for determining independent contractor status, which, the author notes, differ considerably under various federal and state laws. This type of approach is IC-Neutral.
- “Why We’re All Becoming Independent Contractors,” a blog post by Robert Reich in the Huffington Post on February 22, 2015 (former U.S. Secretary of Labor proposes that federal agencies such as the Labor Department and the IRS exercise their power to engage in rule-making would effectively overturn most court cases and administrative determinations in favor of companies found to have properly classified individuals as 1099ers, requiring them to abandon their lawful enterprises after years of being in full compliance, or face IC misclassification liability if they wished to continue their business). This is an IC-Minus approach, seeking to reduce the number of workers classified as independent contractors regardless of whether they are properly classified under existing law.
- “New Jersey Supreme Court Sets Low Bar for Workers Who Sue for Independent Contractor Misclassification”, blog post on this site on January 15, 2015 (commenting on court adopting a statutory test for IC status in New Jersey that may render illegal under the state’s wage and hour laws many previously permissible IC relationships). This is an IC-Minus decision; the status of many workers previously classified as ICs in that state, consistent with existing law in New Jersey, were placed in question upon the issuance of this decision, and the companies to whom they provide services are now subject to IC misclassification liability – unless they engage in a process such as IC Diagnostics™ to restructure and re-document their IC relationship consistent with this major change in the law.
- “New California Law Imposes Costly Risks to Companies Using Independent Contractors Supplied by Staffing and Recruiting Firms – But Risks Can Be Minimized,” blog post on this site on October 1, 2014. This is an example of IC-Neutral legislation; no IC test was changed, but penalties were significantly increased.
- “Major Change in Law of Independent Contractors: The New York Commercial Goods Transportation Fair Play Act,” New York Law Journal, November 27, 2013 (commenting on law changing common law test for IC status in commercial goods transportation industry in New York to a statutory test that rendered unlawful many previously lawful IC relationships with independent drivers). This is an example of IC-Minus legislation, changing the test for IC status in the commercial goods transportation industry – and not merely increasing penalties.
- “New Jersey Governor Vetoes Truck Operator Independent Contractor Act, But Misclassification Remains a Concern for Businesses in that State,” blog post on this site on September 9, 2013 (vetoed law would have changed the test for IC status of truck operators in New Jersey). This would have been an IC-Minus legislation.
- “Fair Playing Field Act of 2012: Congress Trying Once Again to End ‘Safe Harbor’ for Businesses that May Have Misclassified Employees as Independent Contractors,” blog post on this site on March 4, 2012. This bill would have changed many businesses’ reliance on Section 530 “Safe Harbor” and, as such, been an IC-Minus initiative.
- “Congress Reintroduces the “Employee Misclassification Prevention Act,” Which Would Create a Federal Offense for Misclassification of Employees as Independent Contractors,” blog post on this site on October 17, 2011. This bill would have increased the penalties for IC misclassification and created a new federal offense, but it would not have changed the test for IC status; therefore, it would have been IC-Neutral.
- “California Joins Growing Number of States to Enact Independent Contractor Misclassification Legislation: State adds new, costly penalties for willful misclassification, but protects the right of businesses to continue to legitimately use independent contractors,” blog post on this site on October 12, 2011. This state law did not change the test for IC status; indeed, it focuses on willful misclassification and increased the penalties for IC misclassification. It is a classic IC-Neutral legislative initiative.
- “Maine Governor Takes Positive Step to Clarify State Independent Contractor Laws,” blog post on this site on January 25, 2011. This is an example of IC-Neutral legislation, clarifying the test for IC status in Maine.
- “Pennsylvania Cracks Down on Independent Contractor Misclassification in the Construction Industry; Governor Signs Law that Imposes Strict Standards, Substantial Fines, and Criminal Penalties,” blog post on this site on October 14, 2010. Like other state laws creating more rigorous tests for IC status in selected industries, this is an IC-Minus type of legislative initiative.
- “NYS Construction Industry Fair Play Act: An End to Independent Contractors?” New York Law Journal, September 09, 2010 (original article is now archived). This state law created a more rigid test for IC status in the construction industry. As such, it is a classic form of IC-Minus legislation.
Analysis by Richard Reibstein
Edited by Janet Barsky