The year 2017 was notable for a shift in the laws regarding independent contractors, and it may change again. The California Supreme Court is now hearing a case involving a delivery company called Dynamex Operations West. The state’s high court may decide to change the state-law test for determining whether a worker is an employee or an independent contractor (IC). This is a case to watch, and why every company who utilizes ICs should sign up for free info on the NTA website (www.ntassoc.com).
One of the most challenging tests for IC status is the so-called ABC test, which is most prevalent among state unemployment and workers’ compensation laws. About half of the states have ABC laws governing ICs, but each state interprets their laws differently. Two state Supreme Courts in 2017 fine-tuned their ABC tests to make the use of ICs more attainable for companies.
In March 2017, the Connecticut Supreme Court concluded that a business does not fail the “C” prong of the ABC test, which requires that a worker is “customarily engaged in an independently established trade, occupation, profession or business,” simply because the worker chooses to provide services only to a single company, especially where the contractor has the freedom to provide services to other companies.
In June 2017, the Vermont Supreme Court held that a Limited Liability Company (LLC) is a distinct legal entity; therefore, an owner of an LLC is not an individual under the ABC test when the state seeks to assess taxes upon their business. These types of decisions, from the highest state courts, signal a greater recognition that state IC laws should not be applied with a pre-ordained determination that the workers in question are employees.
Far more than any two companies in the nation, FedEx and Uber have for years occupied the headlines regarding their use of ICs. But, 2017 was a pretty good year for both of them, in terms of legal developments. FedEx Ground has been the subject of more IC misclassification lawsuits than any other U.S. company. Two court decisions were issued a couple years ago, by the Ninth and Seventh Circuits, which concluded that the wording in FedEx’s own IC agreement created an employment relationship as a matter of law, which forced FedEx to settle for nearly $500 million.
However, in 2017, FedEx prevailed on what many believe to be the most important legal challenge it faced – a unionization effort by the Teamsters to organize its Ground Division drivers. In March 2017, the United States Court of Appeals for the D.C. Circuit issued a decision striking down a ruling by the National Labor Relations Board (NLRB) that single-route Ground Division drivers were employees and not ICs. This was the second time that FedEx sought review by the U.S. Court of Appeals where the NLRB had sided in favor of the Teamsters.
In Uber’s case, it received perhaps its most meaningful success not before a court but before an arbitrator. In February 2017, a well-regarded former judge issued an arbitration decision finding that the preponderance of the evidence favored Uber’s position that, under the California wage laws, drivers who use the Uber app have more in common with ICs than employees.
The Trump Administration appears to be leveling the playing field for ICs, too. Toward the end of the Obama Administration, the Department of Labor (DOL) issued enforcement guidelines under the Fair Labor Standards Act that conveyed its view that the DOL disapproved of the use of ICs. It didn’t take long for Trump’s new Secretary of Labor, Alex Acosta, to withdraw that formal guidance on ICs – in fact, he did so only six weeks after being confirmed by the U.S. Senate.
In November 2017, President Trump appointed a new General Counsel to the NLRB following the expiration of the term of Richard Griffin, the General Counsel appointed by President Obama. Peter Robb, the new General Counsel, quickly discarded a number of Griffin’s initiatives, including his 2016 memorandum dealing with ICs. This memo had been viewed as an endorsement of the view that misclassification of employees as ICs was, in and of itself, a violation of the National Labor Relations Act.
For the past ten years or so, an overwhelming number of legislative initiatives have attempted to curtail the use of ICs. But, most of the legislative actions under President Trump have sought to recognize the importance of ICs and the emergence of the gig economy (an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements).
On May 15, 2017, a New York City law called the Freelance Isn’t Free Act went into effect. That local law created rights for ICs who have not been paid the fees to which they are entitled. Another new law in 2017 recognizing that IC relationships should be encouraged rather than curtailed arose in the context of the ride-sharing industry in Florida. In May 2017, the Governor of Florida signed the Transportation Network Companies Act. The new law essentially created a safe-harbor from IC misclassification liability for companies like Uber and Lyft.
However, IC misclassification class action suits continue to produce multi-million-dollar settlements, as 2017 saw a host of large settlements, including: a $27 million settlement between Lyft and its drivers; an $8.75 million settlement between Postmates and couriers who make their deliveries; a $5 million settlement between nine San Francisco nightclubs and exotic dancers; a $4.65 million settlement between Instacart and shoppers who shop, purchase and deliver groceries to their customers; and a $1.48 million settlement between Atlas Van Lines and truck and moving drivers.
Although the playing field may be leveling out a bit now, every company that uses ICs as a key part of its business or to supplement its workforce should ask the following questions: Does our business model lend itself to the use of ICs? If so, are our IC relationships structured in a manner that maximizes compliance with applicable laws governing ICs? Does the language in our IC agreements minimize misclassification risk, or does it actually create liability? Have we implemented our IC relationships in a manner that is consistent with this type of relationship? What can we do to make our IC relationships even more defensible to class action lawsuits and administrative proceedings?
Those questions may require an investment of time and resources to answer, but it is important that you take the time to do it. An old British saying – “Penny wise, pound foolish” – pretty much sums it up. If you make decisions based on small amounts of money that end up causing bad situations and costing large amounts of money (British pounds), that would be foolish. If you need help dealing with your Independent Contractor relationships or would like us to review and asses your contracts, give us a call at (562) 279-0557 or visit www.ntassoc.com today.