If I Told You Once, I Told You 55,000 Times! These NYC Employment Laws Now Apply to Contractors

NYCHRL independent contractors 8-107(23)A Twinsburg, Ohio man received a statement in the mail for his daughter’s student loan. And then another. And another. And another. The lender sent him 55,000 identical letters filling 79 bins at the post office.

Even better, all of the statements were wrong. They provided an incorrect payment amount.

A recent change to New York City’s Human Rights Law (NYCHRL) doesn’t need to be explained 55,000 times. But it does need to be explained once. Correctly.

Effective January 11, 2020, the protections under the NYCHRL now apply to independent contractors, including freelancers. That means, under NYC law:

  • It is now unlawful to discriminate, harass, or retaliate against an independent contractor, based on any protected class;
  • Businesses must provide reasonable accommodations, including for needs related to pregnancy, lactation, religious observances, sexual offenses, or stalking;
  • Businesses must engage in a “cooperative dialogue” with any contractor seeking an accommodation and must provide a written determination of any accommodation that was granted or denied;
  • Businesses must follow the Fair Chance Act requirements before taking any adverse action based on the results of a criminal background check, including providing a written Artcile 23-A analysis;
  • Businesses cannot inquire about salary history;
  • Businesses cannot perform a credit check (maybe; this is unclear); and
  • Businesses may need to provide sexual harassment training to contractors, depending on the number of hours worked.

For those keeping score at home, the change is to Section 8-107(23) of the NYCHRL. This one little sentence does all the work: “The protections of this chapter relating to employees apply to interns, freelancers and independent contractors.” Boom!

The law applies to businesses in New York City that had four or more workers, including independent contractors, at any time in the previous 12 months.

The law does not apply to wage and hour issues like minimum wage and overtime payments, and the law does not change the test for determining whether someone is an independent contractor or an employee.

The Commission has published some additional guidance on how this will work, especially the sexual harassment training part. You can read it online. Thankfully, the Commission didn’t send it 55,000 times to every business in the mail.

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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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Bring Forth the Tiger-Dogs! Here’s a Quick Status Check on the Challenges to California’s New Independent Contractor Law

Tiger independent contractor dynamex california

Not an actual tiger. Or a dog.

When outside forces pose a threat to people’s livelihood, people will go to great lengths to fight back.

For example, when monkeys began ravaging the crops of a farmer in Karnataka, India, the imaginitive farmer painted his dog to look like a tiger, to scare away the pesky invaders. [Photo here.]

Business owners in California are taking more conventional measures to fight back againt the tyranny of Assembly Bill 5, the new California law that seeks to reclassify many of the state’s independent contractors as employee. Here’s a quick summary of the resistance:

  • Owner-operator truckers claim the new California law cannot be applied to them because of a federal law (FAAAA) that prohibits states from enacting their own laws that affect the “price, route, or service of any motor carrier with respect to the transportation of property.” They won a preliminary injunction last month, temporarily preventing the law from applying to them.
  • Freelance writers and photographers are challenging the law too. The law has an exception for freelancers, but the exemption goes away if freelancers submit 35 or more pieces to a single publication. In other words, they’re independent contractors for submissions #1 through #34, but they instantly become employees with submission #35. They argue that the exemption is arbitrary and violates their First Amendment and equal protection Rights.
  • Rideshare and food delivery apps filed their own lawsuit, alleging that the exemptions are arbitrary and violate their equal protection and due process rights.
  • Five gig economy app companies have contributed $110 million to a ballot measure that will be voted upon in the November 2020 election if the measure collects 625,000 signatures. The law would exempt app-based gig economy drivers from the new test if the companies provide workers with specific levels of pay, benefits, and rights, which are defined in the proposal.
  • Republican lawmakers have proposed a constitutional amendment (A.C.A. 19) called the “Right to Earn a Living Act,” which would overturn Assembly Bill 5 and enshrine in California law “the right to pursue a chosen business or profession free from arbitrary or excessive government interference.” The amendment would reinstate California’s S.G. Borello balancing test for determining whether a worker is an independent contractor or an employee.

Meanwhile, the California Supreme Court is considering whether the 2018 Dynamex decision, which first imposed the ABC Test for wage and hour claims, applies retroactively. If it does, then businesses can be liable for failing to comply with a test that did not yet exist. Really.

That’s a lot of action, and we’ll continue to watch for new developments. Meanwhile, California businesses that use independent contractors should tread carefully, follow the status of legal challenges, and paint their dogs to look like tigers — just in case that turns out to be effective.

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

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

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When The Rules Do Not Apply: Freelancers’ Lawsuit Challenges California’s New ABC Test

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I was headed to an appointment last week when I came upon this sign. Sometimes the people who make the rules just assume the rules don’t apply to them. Or sometimes people don’t even think about the rules and whether they make sense.

I was tempted to take the sign off the piano, in the interests of following the directive on the sign. But I just took a picture instead.

This post is about when the rules should apply.

Since California’s new ABC Test law (Assembly Bill 5) went into effect January 1st, the legal challenges have been rolling in. (See this post, for example.) The latest groups to challenge the new law are freelance writers and photographers.

Wanna know something absurd? Of course you. We all do. That’s why we read the internet on our phones during meetings. Under the new law, freelancers are exempt from the ABC Test — and can likely remain independent contractors — if they make 35 or fewer submissions to a publication in a year. But with the 36th submission, the ABC Test suddenly applies, meaning that same freelancer would more likely become an employee, retroactive to the first submission.

What is so special about the 36th submission that would convert a freelancer from an independent contractor to an employee? All together now: “Nothing!” This law is ridiculous. A newly filed lawsuit asks a court to invalidate that limit on the basis that it is arbitrary, which it absolutely is. The lawsuit alleges that the arbitrariness violates the freelancers’ Equal Protection and First Amendment Rights.

Freelancers don’t want to be employees for two reasons.

First, works created by contractors are owned by the contractors, who can license the works and earn a fee. That’s how they make money — and is the reason why freelance journalists are all so rich. (That’s for my daughter, who’s in journalism school and doesn’t eat ramen noodles. Yet.) In contrast, under the U.S. Copyright Act, works created by an employee are owned by the employer. That means the freelancer who created the work loses the rights to it. So, if we apply the new rule, that would mean Submission #36, which likely converts the freelancer to a retroactive employee, also converts ownership of Submissions #1-35 to the employer. No way that’s fair.

Second, for every action there’s a reaction. Publishers are not stupid. They don’t want freelancers to become their employees either. So what will they do once a freelancer hits the 35-submission limit? They won’t accept any more submissions. That hurts the publication and the freelancer. Or maybe they will want some freelancers to become their employees so they can commandeer ownership of Submissions #1-35. Either way, this is absurd.

If you’d like to read more, here’s a copy of the complaint. The lawsuit is pending in federal court in the Central District of California.

And please don’t place anything on top of the piano.

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

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

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Trump’s Tax Plan Is Great News for Independent Contractors! Here’s Why.

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[Important Note to Readers, 1/15/18: This post is dated May 2017, before the final tax plan was passed, and the final version is slightly different than described in this post. For a revised 2018 analysis based on the final tax bill, click here.]

President Trump’s tax plan, released last week, is great news for independent contractors. Contractors may be able to cut their tax rates by half (or more) by creating an entity, instead of contracting as an individual. Indirectly, this would help companies who use contractors as well. Here’s why:

Benefit to Individuals:

For individuals, the proposal would reduce personal tax rates modestly. An individual being paid as an independent contractor will likely see a reduction in marginal tax rates, but the range is likely to remain somewhere between 25% and 35%, depending on income level.

For individuals being paid through their homemade entities, however, the proposal could result in substantial savings. Currently, pass-through entities like LLCs pay taxes at the rate of the individual. The sole owner of an LLC would pay taxes on the LLC’s profits at the individual’s personal income tax rate, likely between 25% and 35%.

Under the proposal, however, pass-through entities such as LLCs and partnerships would instead be taxed on pass-through business income at 15%. That’s a sizable savings compared to 25-35%. [Note 9/29/17: Latest proposal would tax entities at 20%, not 15%, but there’s still a long way to go before any of this becomes law.  And it may never become law.  For now, it’s just a proposal.]

If this proposal passes, individual independent contractors will have a strong financial incentive to incorporate. Creating an LLC is relatively inexpensive. If it leads to Continue reading

How Can There Be Misclassification When The Worker Prefers to Be an Independent Contractor?

Alan Hudock

Photo of Singer Dave Mason (We Just Disagree), by Alan Hurtock

Let’s start with this: Everyone is happy being an independent contractor until they’re not.

What do I mean by that? Right now, the relationship works. The contractor performs, and you pay for the work.

But what happens when things go south? As soon as you decide you no longer need those services, the contractor might stop being your BFF.

A disgruntled former contractor has some options, all of which involve some variation of this story: “Once upon a time, I was misclassified and should have been an employee.” None of the former contractor’s possible next steps are good for you: Continue reading

What is the IRS Voluntary Classification Settlement Program (VCSP)? How Can It Limit Misclassification Liability?

dollar-independent contractor misclassification-IRS-VCSP-1443244_1920The IRS offers a settlement option for companies that suspect they have been misclassifying their independent contractors and wish to reclassify them as employees.

The Voluntary Classification Settlement Program (VCSP) requires companies to meet certain eligibility criteria to participate but, in exchange, the IRS rewards participating companies with a steep discount off potential back taxes and penalties.

To participate in VCSP, a company:

  1. Must declare its intent to reclassify one or more independent contractors as employees;
  2. Must have consistently treated this class of workers as non-employees;
  3. Must have filed Forms 1099 for payments made to these employees; and
  4. Cannot be under a misclassification audit by the IRS, DOL, or a state government.

Benefits for participating companies include:

  1. Pay only 10 percent of the employment tax liability that would have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509(a) of the Internal Revenue Code. See VCSP FAQ 15, for information on how payment under the VCSP is calculated. Also see Instructions to Form 8952;
  2. No liability for any interest and penalties on the amount; and
  3. No IRS employment tax audit with respect to the worker classification of the workers being reclassified under the VCSP for prior years.

The settlement process requires companies to sign a closing agreement with the IRS.

Is this a good deal? It can be, but it depends on the overall circumstances. Some factors to consider before applying include: Continue reading

What is an ABC Test? (and why these tests are a problem)

abc

As we know, there are a variety of tests used to determine Independent Contractor vs. Employee, and the proper test varies depending of the law being applied.

Most of these tests are balancing tests. A variety of factors are considered, and no single factor is determinative.

ABC tests, however, are different. ABC tests start with a presumption that a contractor is an employee, then requires a company to prove each of three factors to protect a contractor’s status as a contractor.

ABC tests tend to apply only to state unemployment coverage laws and, less commonly, to
state workers’ compensation laws. Continue reading