Monthly Archives: September 2023

09.25.23
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Odd Jobs and Not-So-Odd: Illinois to Enact New Freelancer Law

My Smart Home is book smart, not street smart.

It’s going to be hard to move my garage. I figure I’ll need at least four or five strong guys to help. My garage is heavy and seems pretty securely attached to the ground, so the work will be hard and I’m sure that I’d have to pay them at least $500 apiece.

But at least I don’t live in Illinois. Starting July 1, 2023, freelance labor will be governed by the Freelance Worker Protection Act (FWPA), another freelancer law similar to the ones in Los Angeles, Minneapolis, New York City, Seattle, and Columbus Ohio.

Here’s what you need to know before retaining a solo independent contractor in Illinois:

When the Law Applies

  • Independent contractor who is a natural person (i.e., a human, not an entity)
  • Providing services in Illinois
  • Providing services for a person or entity in Illinois
  • Total value is $500+, including all work aggregated over 120 days

Exclusions

  • N/a to construction or subcontractors, as defined in the Illinois Employee Classification Act (construction industry)
  • N/a to employees, as defined by the Illinois Wage Payment and Collection Act

Requirements

There must be a written contract that includes:

  • The name and contact information of both parties (including the hiring party’s mailing address);
  • An itemization of all products and services to be provided by the freelance worker;
  • The value of the products and services to be provided;
  • The rate and method of compensation;
  • The date when payment is due, which must be “no later than 30 days after the products or services are provided”; and
  • If the hiring party requires a list of products and services rendered in order to meet any payment processing deadlines (such as an invoice), the date by which the freelance worker must submit the list.
    (IDOL will provide model contracts)

Prohibitions

  • Once the IC “has commenced preparation of the product or performance of the services under the contract,” the hiring party cannot require, as a condition of timely payment, that the IC accept less compensation
  • Hiring party cannot threaten to withhold payment unless IC takes a lesser amount (no exception for unsatisfactory performance?)
  • Hiring party cannot do anything that would discourage the IC from exercising rights under the Act
  • No retaliation
  • Waivers are void against public policy (does that mean you can’t settle a dispute?)
  • If the contract failed to specify a due date for payment, the hiring party violates the Act if payment is made more than 30 days days “after the completion of the freelance worker’s services under the contract”

Record Keeping

  • Hiring party must retain a copy of the contract for two years

Enforcement

  • IC can file a civil lawsuit, or
  • IC can file an administrative complaint, which can lead to a broader investigation as to overall compliance

Penalties

  • For failure to timely pay: 2x amount owed, plus attorneys fees and costs
  • For failure to contract or to provide the contract: value of the contract or $500, whichever is greater
  • For discrimination or retaliation: value of contract, plus attorneys fees and costs

In addition, the IDOL may impose civil penalties up to $5000 for each violation, or $10,000 for each repeat violation within a five-year period, plus monetary damages to the state, restitution, and equitable relief, including injunctions.

Other Stuff

  • The law does not weigh in on whether the worker is misclassified
  • The Illinois DOL will issue regulations

Problems I See with the Law, as Written:

I see a few problems, and hopefully the IDOL will address these issues in its rulemaking.

First, suppose the IC’s work is unsatisfactory. Suppose the IC is slow or sloppy or rude or has terrible body odor. Suppose the IC does the work you requested but stomps all over your prized rose garden when walking in an out of the building. Suppose the IC comes into your home or business and breaks stuff or takes a cell phone picture of confidential information.

The law does not take into consideration all of the things that could warrant reduced or nonpayment, even if the products or services are ultimately provided. It seems that you’d still have to pay the value of the contract.

Second, the law seems to prohibit settlements. It says that any waiver of rights under this law is void as against public policy. It does say “except as otherwise provided by law,” so maybe a settlement would fall into that category.

Tips for Retaining ICs in Illinois after July 1, 2024

  • Consider including specifications or other requirements in the contract, to preserve an argument that the work is not yet completed or that the work was not performed as contractually agreed. (But don’t impose control over how the work is done, because that could lead to misclassification.)
  • Evaluate current use of individual ICs in Illinois, and consider whether this law will apply to those relationships.
  • Implement a Gatekeeper System like this, prohibiting managers from retaining ICs without going thorough an internal chokepoint for vetting. Managers who don’t know about the FWPA might retain ICs to get something done, creating liability for the company under the FWPA.
  • Look for the IDOL to release regulations that will hopefully provide clarity on the poor performance and settlement concerns.
  • Be careful about any IDOL investigation. If your business uses freelancers and the IDOL receives a complaint of a potential FWPA violation, the IDOL is likely conduct a thorough investigation that extends beyond the one complaining worker. With fines of $5,000 per occurrence, the penalties for noncompliance can get big in a hurry.

The scope of this law is broad. It applies to all “natural persons” (hey, no jokes about the weird guy down in the cubicle down the hall) who perform services for $500 or more. That would include your regular babysitter, your house cleaner, the guy you pay to wash the windows, solo consultants, or the guy you pay to assemble all the new modular furniture.

That would also include the guys I’m gonna need to pick up and move my garage.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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09.11.23
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Did New York State Just Make Independent Contract Misclassification a Felony?

When Johnny Cash recorded At Folsom Prison in 1968, he has performing for an audience of arsonists, kidnappers, and killers. But the inmate audience probably didn’t include any independent contractor misclassifiers.

Fast forward to 2023. There’s a new sheriff in town, and you wouldn’t believe what might now qualify a person for prison time.

Under a new law signed by Governor Hochul last week, wage theft in New York State is now larceny. The law amends section 155 of the penal code (larceny).

Section 155 defines larceny:

  2. Larceny includes a wrongful taking, obtaining or withholding of
another`s property, with the intent prescribed in subdivision one of
this section, committed in any of the following ways:

The definition then lists five subparts: (a) by embezzlement, (b) by taking lost property, (c) by issuing a bad check, (d) by false promise, or (e) by extortion.

Now there’s a subpart (f) “by wage theft.”

Wage theft is defined to include failing to pay overtime, if overtime is due, for work performed. That definition appears broad enough to include the failure to pay overtime because a worker was treated, incorrectly, as an independent contractor.

Larceny comes in different degrees, based on how much money is involved. The new law says that prosecutors can aggregate multiple instances of wage underpayment to one person into one count. It’s unclear to me whether underpayments to multiple people could be aggregated to create a higher degree of felony.

If the value of the property is up to $1,000, that’s petit larceny and a class A misdemeanor. But anything over $1,000 is grand larceny.

If the value of the property exceeds $1,000, that’s grand larceny in the 4th degree, which is a class E felony. More than $3,000 is 3rd degree grand larceny and a class D felony. More than $50,000 is 2nd degree grand larceny and a class C felony. More than $1,000,000 is 1st degree grand larceny and a class B felony.

These are serious crimes. Non-violent felonies can mean prison time. Conviction of a class E felony (for taking $1,001 to $3,000) can result in up to four years of prison time.

New York is not alone in seeking to classify wage theft as criminal conduct. Minnesota and Washington, D.C., are among other jurisdictions that have criminalized wage theft with laws that authorize jail time. California and Rhode Island are considering similar legislation. Rhode Island’s bill would criminalize the knowing misclassification of independent contractors as a felony.

Here’s a link to the new law in New York, created through two companion bills, A154A and S2832A.

Do I expect Riker’s Island to start filling up with accountants and corporate officers who misclassified independent contractors? Not exactly. But I do expect this new law to be used by the state as leverage.

Now that felony prosecutions are a new weapon in the enforcement arsenal, it would not surprise me to see the state threaten prosecution as leverage to force a company to settle disputes over whether independent contractors were misclassified. States can initiate proceedings through tax, unemployment, or workers compensation audits or as a result of worker complaints. Investigations can lead to findings of misclassification, along with hefty fines and back assessments, and companies naturally want to dispute these findings (sometimes causing my phone to ring).

Will the state use the threat of criminal prosecution to try to leverage settlements or capitulation? Yeah, probably.

This is a well-intentioned law because intentional wage theft from employees is obviously a bad thing. But the breadth of the law is a concern for companies that use independent contractors.

For those of you in New York City, there’s also the Freelance Isn’t Free Act, which imposes all sorts of contractual requirements when retaining solo independent contractors. Don’t forget about that.

There are lots of traps out there, and the dangers of misclassification keep growing.

I got stripes, stripes around my shoulders
I got chains, chains around my feet
I got stripes, stripes around my shoulders
And them chains, them chains,
They’re about to drag me down.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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09.05.23
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Going to Rehab? Patients Can Still Be Employees, Says Court

Driving back from Ann Arbor after dropping off my youngest daughter at college, I decided it would be a good time to catch up on some albums I hadn’t heard in a while. Soon I settled on Amy Winehouse’s Back to Black, which was her second and final album, released in 2006. The article liked here describes the conversation with her father that led to the song.

If Amy had gone to rehab, it’s fair to assume she would not have expected to be considered an employee of the rehab center where she was being treated. That was probably the expectation of a number of rehab patients at a Texas facility too, but a court ruling last month found otherwise.

It’s true, the situation in this case was a bit unusual, but it still involves rehab patients being deemed employees of their rehab enter. Here’s how it went down.

The patients, as part of their treatment, were required to undergo vocational, on-the-job training at third parties, where they worked regular shifts. The third parties would pay the rehab center, and the fees were used to offset operating costs. The patients signed agreements that they did not expect compensation for their work.

The rehab center, though, essentially functioned as a staffing agency. It charged the third parties for the patients’ time, even charging time-and-a-half when they worked overtime hours. The patients saw none of that cash, and some of them sued.

A district court in Texas applied the economic realities test and found the patients to be acting as employees of the rehab center / staffing agency when it performed the offsite work. After discovery, the court certified a collective action under the FLSA, and the case is ongoing.

An interlocutory appeal to the Fifth Circuit Court of Appeals failed, with the appeals court holding that the district court applied the right test for determining whether the patients could have been employees.

This case, while still underway, is a good reminder that employment relationships can be created in unexpected ways. This time it was the rehab center that tried to say, no no no.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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