Independent Contractor Misclassification and Compliance News: November, 2018

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. California to Decide if Employees Who Only Work Part of the Work Week in California are Subject to California Labor Laws

Flight attendants and pilots have raised a question about whether California labor laws, some of the most employee-friendly in the country, apply when an employee only works part of the work week in California. Flight attendants and pilots who worked 10-20% of their time in California have asked the California Supreme Court to decide if they are subject to California labor laws.

This issue is interesting to employers but is especially interesting to companies who engage with independent contractors who spend most of their time in other states. For example, if a California company hires an independent contractor in New York and the independent contractor travels to California to make a presentation or deliver a finished product, is the worker an independent contractor while they work in New York and an employee when they work in California? This issue becomes particularly problematic after the recent Dynamex decision which adopted the stringent ABC test for classifying workers as independent contractors in California. Companies are eagerly awaiting the decision by the California Supreme Court.

2. Arbitration Agreements Waiving Class Action Lawsuits are Enforceable in Independent Contractor Agreements

Earlier this year, the United States Supreme Court resolved a conflict between the Federal Arbitration Act (FAA) and the National Labor Relations Act (NRLA). The NLRA gives workers the right to organize and “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Workers argued that a class action waiver in an arbitration agreement infringed on their rights under the NRLA. Employers argued that the FAA said that arbitration agreements were enforceable even with a class action waiver. In Epic Systems Corp v. Lewis, 183 S. Ct. 1632 (2018), the United States Supreme Court sided with the FAA and said that arbitration agreements were enforceable.

Recently, the question arose whether arbitration agreements with class actions waivers were enforceable against independent contractors who claimed they were misclassified. If there was any doubt, the Sixth Circuit Court of Appeals said that the arbitration agreements were enforceable under the Epic decision.

Companies who engage with independent contractors should include arbitration clauses that include a waiver of class actions in their independent contractor agreements.

3. Barbers Quit Over State Ruling on Independent Contractors

The Sacramento Bee reported that barbers at Bottle & Barlow quit rather than be classified as independent contractors. Earlier this year, in a landmark case, the California Supreme Court adopted a new test for determining if a worker in an independent contractor or employee— the ABC test. The ABC test requires a company to show:

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

For barbershops, this presented a problem. A barbershop could never show that a barber performs work (cutting hair) that is outside the usual course of business of the barbershop (cutting hair). As a result, it is impossible to classify barbers as independent contractors despite a long history of doing so. The barbers at Bottle & Barlow did not want to be classified as employees and quit instead.

The Supreme Court’s decision has led many to appeal to the legislature to adjust or clarify the standard for classifying workers as independent contractors. While the legislature did not act in 2018, there are many urging them to in 2019.

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