What is the Test for Independent Contractor vs. Employee? (Jan. 2019)

what is the test for independent contractor misclassificationSeems like a simple question, but it isn’t. My question to your question is, “Why do you ask?” That’s because the test for Independent Contractor vs. Employee is different under different laws.

And worse, the tests keep changing, as we saw in Monday’s post about the NLRB’s SuperShuttle decision.

As of today, January 31, 2019, here’s where we stand:

The current tests for determining Independent Contractor vs. Employee are:

National Labor Relations Act (NLRA)

Right to Control Test (SuperShuttle version, as of 1/25/19)

Title VII, Age Discrimination in Employment Act (ADEA), ERISA

Right to Control Test (Darden version, or some variant of it, as applied circuit by circuit)

Internal Revenue Service

Right to Control Test (IRS version)

Affordable Care Act

Right to Control Test (emphasis on particular factors, based on regulation)

Fair Labor Standards Act (FLSA)

Economic Realities Test (which different courts articulate differently)

California, Massachusetts wage & hour laws

ABC Tests (strict version of Part B)

New Jersey wage & hour

ABC Test (regular version of Part B)

California state laws other than wage & hour

S.G. Borello & Sons Test (customized hybrid version of Right to Control & Economic Realities Tests), we think, for now

State Unemployment and Workers Comp Laws

Pick a card, any card. Tests vary substantially state to state. Some are Right to Control Tests, some are ABC Tests, some are entirely made-up, customized tests that require consideration of — or proof of — specific factors

Other State Laws (wage & hour, discrimination, tax)

Tests vary significantly state by state, law by law

This chart may be a helpful start, but three significant challenges remain, when trying to determine Independent Contractor vs. Employee.

  1. Fifty Shades of Gray.  These tests, for the most part, are balancing tests. Courts and agencies must weigh multiple factors. In most instances, some factors will favor contractor status and some will favor employee status. Different courts may reach different conclusions, even with the same facts.
  2. Planes, Trains, and Automobiles. Multi-state employers face the added challenge of having to deal with different tests in different states. Then, just to keep everyone on their toes, states generally apply different tests for different state laws. Sometimes different tests apply in different industries too. Transportation workers, for example, may be subject to different tests than construction workers.
  3. Into the Wild. The tests keep changing. In January 2019, the NLRB changed its test in the SuperShuttle case. In 2018, California changed its test under state wage and hour law from the S.G. Borello balancing test to a strict ABC Test. In 2015, New Jersey switched to a different version of an ABC Test for its state wage and hour law. The times they are a-changin.

What to do about it? (Free tips!)

  1. Know the tests that apply where your business operates.
  2. Construct your independent contractor relationships in a way that tends to favor the factors supporting independent contractor status. Inevitably, business considerations will get in the way, and tough decisions will have to be made about how much control can be relinquished and how the relationships need to be structured. Adjust the facts of the relationship.
  3. Use a customized independent contractor agreement that emphasizes the factors that support independent contractor status. Avoid off-the-shelf agreements. Merely reciting that everyone agrees the relationship is an independent contractor relationship is only a teeny bit helpful. “Teeny bit helpful” is not the gold standard.
  4. Re-evaluate existing relationships, and make changes from time to time.
  5. Implement a gatekeeper system to prevent operations managers from entering into contractor relationships that may be invalid. Require any retention of a contractor to be approved by a point person, who can issue spot and seek help in evaluating whether a contractor relationship is likely to withstand a misclassification challenge.
  6. Seek legal help before you get audited or sued. Now is the time to review and modify relationships to reduce the likelihood of a misclassification claim. Once a claim is made, your business can only play defense. Create your playbook now, before the defense has to take the field.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Philadelphia on Feb. 26 or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Can Independent Contractors Sue for Employment Discrimination?

diaper independent contractor discrimination

The answer brings to mind the one must-have item for the thousands of crazies who spend 12 hours in Times Square waiting for the ball to drop every New Years’ Eve with no available public restrooms:

Depends.

Under federal anti-discrimination law, an individual generally needs to be an employee to bring an employment discrimination claim. Laws like the Age Discrimination in Employment Act (ADEA) and Title VII of the 1964 Civil Rights Act require employment status to file a lawsuit. Race discrimination claims, on the other hand, can potentially be brought under a different statute.

State laws, however, vary. Some states permit independent contractors to bring “employment discrimination” lawsuits; other states do not.

A recent decision by the Washington Supreme Court serves as a reminder that in the Great Northwest (home of Mount St. Helens and Blaine Peace Arch Park [which I visited  last month and got to run around and around the obselisk that marked the international border]), an independent contractor can bring a state law claim for discrimination “for the making or performance of a contract for personal services.”

The Pennsylvania Human Relations Act also prohibits discrimination against independent contractors.

On the flip side, state anti-discrimination laws in Ohio and Florida protect only employees, not independent contractors.

To determine whether independent contractors are protected under anti-discrimination laws, the answer truly is: It depends.  It depends on the type of alleged discrimination and depends on the state whether the alleged discrimination occurred.

None of this is to say that companies in states like Ohio or Florida should discriminate against contractors. In fact, where facts of any individual case are particularly egregious, common law claims might be recognized by courts uncomfortable with the idea that there is no remedy, even if the state’s anti-discrimination statute does not permit the claim. Although I live on the defense side, I still say: Do the right thing.

And if you should ever find yourself in Times Square on New Years’ Eve, passing the hours until the ball drops, I say this: Bring your adult undergarments. There’s no place to pee.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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