Did a State Supreme Court Just Rewrite a Key Definition in Independent Contractor Misclassification Law?

knowtherulesFor businesses using independent contractors and concerned about misclassification claims, there hasn’t been too much to get mad about lately. As of last week, I’m just mad about saffron. (She’s just mad about me.)

But a recent decision by the Pennsylvania Supreme Court may change that. The PA Supreme Court just took a commonly used phrase in Employee vs. Independent Contractor tests and gave it a new meaning. (Fun fact about change: If you change your name, you probably can’t include a numeral or punctuation.”)

Under PA unemployment law, anyone receiving pay is an employee for unemployment insurance purposes, unless the individual is (a) free from control and direction, and (b) customarily engaged in an independently established trade, occupation, profession or business. Traditionally, that’s a test that’s been considered pretty easy to meet. Maybe not anymore.

Addressing part (b), the PA Supreme Court ruled that to be “customarily engaged in” an independent business, the individual must — right now — “actually be involved, as opposed to merely having the ability to be involved, in an independently established trade, occupation, profession, or business.”

The Court looked to see whether the contractor actually operated his/her own business. Merely being allowed to do so wasn’t enough. It may still be enough if the contractor advertises his/her services to the public, even if a contractor doesn’t have other customers at that particular time. But the contractor needs to take some affirmative steps that show that the contractor is — at that time — “actually involved” in an “independently established trade, occupation, profession or business” at the same time the contractor is being paid by whatever company doesn’t think that worker is its employee.

If this “actually engaged” standard is applied in other states, it may make it harder in other states to maintain independent contractor status. States that have a similar “customarily engaged in” requirement in one or more of their misclassification tests include:

  • Alaska
  • California
  • Colorado
  • Connecticut
  • District of Columbia
  • Georgia
  • Hawaii (apostrophe before the last i or no? I never know.)
  • Indiana
  • Lousiana
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Montana
  • Nebraska
  • Nevada
  • New Jersey
  • New Mexico
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Utah
  • Vermont
  • Washington
  • West Virginia
  • Wisconsin

Yikes. In most of these states, the “customarily engaged in” language is in the statutes covering who is an employee for unemployment insurance, but some of the states also include this as part of their test for other laws.

In California and Massachusetts, for example, that language is part C of the dreaded ABC Test that addresses other aspects of the employer-employee relationship.

To be safe, companies should consider requiring independent contractors to provide some proof that they are “actually engaged in” an “independently established trade, occupation, profession or business.” The proof might consist of evidence that they advertise for other customers or that they have other clients. What’s considered sufficient in one state might not be good enough in another.

While coronavirus seems to be dominating the news cycle, let’s not lose sight of the fact that independent contractor relationships are still under attack. Companies should do what they can to be proactive. Now it a good time to evaluate your relationships with contractors to make sure they can withstand a challenge.

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© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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