Independent Contractor Misclassification and Compliance News June 2022

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

1. United States Supreme Court says Arbitration Agreements can Compel Arbitration of California’s PAGA Claims

Until this week, California businesses that use arbitration agreements were not able to require that employees arbitrate claims brought under California’s Private Attorneys General Act (PAGA). Under PAGA, an employee can bring a claim against their employer for violations of California labor laws as a representative of themselves and other current and former employees.

California businesses that use arbitration agreements have been able to require arbitration of all claims except PAGA claims. For businesses that use independent contractors, arbitration agreements have allowed the business to avoid class action lawsuits alleging misclassification of workers as independent contractors but the arbitration agreements did not apply to PAGA claims. For example, businesses using independent contractors were subject to PAGA claims that the business did not issue a pay stub in accordance with California labor laws.

This month, the United States Supreme Court said that an employee must arbitrate an individual PAGA claim if the employee signed an appropriate arbitration agreement. Once the individual employee’s PAGA was going to be resolved by arbitration, the Court said that the individual did not have standing to continue the PAGA claims on behalf of other current and former employees.

This is a huge development for employers in California and businesses in California. Employers and businesses are now able to enter arbitration agreements with employees and independent contractors and avoid class action lawsuits.

Please note that in 2010, California enacted a statute that prohibits employers from requiring workers to agree to mandatory arbitration (AB51). AB51 was immediately challenged but was upheld by the Ninth Circuit Court of Appeals. Many commentators think that if appealed to the United States Supreme Court, the Court will say that the Federal Arbitration Act (FAA) preempts AB51. Until appealed or repealed, California employers may not require employees to sign an arbitration agreement.

2. Massachusetts Supreme Judicial Court Says Two Gig-App Ballot Measures May Not Go Forward

The Massachusetts Supreme Judicial Court said that two initiative petitions that addressed the classification of gig workers as independent contractors could not proceed and be on the ballot because they violated the Commonwealth’s constitutional requirement that a ballot measure must only contain one subject.

The Court said that the questions contained at least two subject matters: the treatment of gig workers as independent contractors by the network or app companies and third parties’ rights to sue if injured by a driver. The Court said that a voter could reasonably want to allow drivers to be independent contractors under the Commonwealth’s labor laws but also want injured parties to be able to sue the app or network companies.

3. United States Department of Labor Plans to Issue New Independent Contractor Rule

The United States Department of Labor (DOL) announced its plans to issue a new rule regarding the classification of workers as employees or independent contractors under the Fair Labor Standards Act (FLSA).

In the last days of the Trump administration, the Trump DOL issued a rule making it easier for businesses to classify workers as independent contractors. The Biden DOL delayed and then withdrew the rule but the actions by the Biden DOL were challenged in court and a Federal District Court said that the Biden DOL’s actions did not comply with the Administrative Procedures Act and reinstated the Trump DOL rule. The Biden administration is appealing the District Court’s decision.

In the meantime, the Biden DOL has started the process to issue a new rule. The Biden DOL has scheduled public forums for employers and employees to express their view on the standards for determining if a worker is an employee or independent contractor.

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.