Independent Contractor Misclassification and Compliance News November 2023

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. New York Passes Freelancers Isn’t Free Act and Illinois Passes Freelance Worker Protection Act

On November 22, New York Governor Kathy Hochul signed into law the “Freelance Isn’t Free” Act which provides protections, rights, and opportunities for recourse to freelance workers. The act is based on New York City’s Freelance Isn’t Free law which was passed in 2017.

Since the passage of New York City’s 2017 law, a number of cities have passed ordinances protecting freelancers including Seattle (2022), Minneapolis (2020), Los Angeles (2023), and Columbus (2023). Earlier this year, Illinois became the first state to pass a law, the Freelance Worker Protection Act, protecting freelancers which goes into effect July, 2024.

New York’s Freelance Isn’t Free Act takes effect May 20, 2024 and applies to contracts signed after that date. The Act requires a written contract between the hiring party and a freelancer which contains the following:

1. the name and mailing address of both the hiring party and the freelance worker;
2. an itemization of all services to be provided by the freelance worker, the value of the services to be provided pursuant to the contract, and the rate and method of compensation;
3. the date on which the hiring party must pay the contracted compensation or the mechanism by which such date will be determined; and
4. the date by which a freelance worker must submit a list of services rendered under such contract to the hiring party in order to meet any internal processing deadlines of such hiring party for the purposes of compensation being timely rendered by the agreed-upon date.

New York’s Freelance Isn’t Free Act follows on the heels of Illinois’ Freelance Worker Protection Act (FWPA). Like all statutes and ordinance protecting freelancers, FWPA requires a written contract between the contracting party and the freelancer. The contract must contain the following:

1. the name and contact information of both the contracting entity and the freelance worker, including the mailing address of the contracting entity;
2. an itemization of all products and services to be provided by the freelance worker, the value of the products and services to be provided under the terms of the contract, and the rate and method of compensation;
3. the date on which the contracting entity must pay the contracted compensation or the mechanism by which such date will be determined, which shall be no later than 30 days after the products or services are provided; and
4. the date by which a freelance worker must submit a list of products or services rendered under such contract to the contracting entity, if such a list is required in order to meet any internal processing deadlines of the contracting entity for the purposes of compensation being timely rendered by the agreed-upon date.

The unique aspect of the Illinois statute is that it requires a hiring party to pay a freelancer no later than 30 days after the services are provided. Other ordinances typically say the contract must include the date the freelancer will be paid or the mechanism for determining when the freelancer will be paid. The Illinois statute is effective July 1, 2024.

2. National Labor Relations Board (NLRB) Issues Final Rule on Joint Employment and then Postpones its Effective Date

Earlier this year, the NLRB announced that it returned to a standard for determining whether a worker was an employee or independent contractor. This standard would determine if the worker was protected by the National Labor Relations Act (NLRA). The standard did not emphasize a worker’s entrepreneurial opportunity, unlike some prior decisions by the NLRB. In this decision, the NLRB extended the protection of the NLRA to more workers by making it more likely that a worker would be considered an employee and therefore be protected by the NLRA.

The NLRB recently issued a final rule for determining joint employer status for the purposes of the National Labor Relations Act (NLRA):  Standard for Determining Joint Employer Status (“Final Rule”). This ruling again extends the protection of the NLRA by making it more likely that a company receiving services from a worker would be considered a joint employer and thus more likely that an employee would be protected under the NLRA.

A company (for example, a staffing or consulting firm) is clearly the employer of its employees. The company pays wages, withholds taxes, and provides the employee with a W-2 tax form at the end of the year. The question of joint employment arises when another company (for example, the staffing firm’s or consulting firm’s client) exercises enough control over the worker. If a company receives benefits of the services of a worker, has the authority to exercise control over the worker, and the worker is employed by another firm, the company might be a joint employer.

The determination of joint employer status is important for companies who hire a staffing or consulting firm that engages independent contractors because the hiring company may be considered a joint employer of the staffing or consulting firm’s independent contractors if the independent contractors are misclassified. If a company is found to be a joint employer, then the workers are protected by the NLRA and organizing and other collective action is protected.

The Final Rule says that two or more employers are joint employers if they share or codetermine matters governing employees’ essential terms and conditions of employment. The Final Rule defines both “share or codetermine” and “essential terms and conditions of employment.” It says to “share or codetermine” means for a company, “to possess the authority to control (whether directly, indirectly, or both), or to exercise the power to control (whether directly, indirectly, or both), one or more of the employees’ essential terms and conditions of employment.”

Earlier NLRB decisions required a company to actually exercise control or said the company just had the authority to control. The Final Rule settled on the company having the authority to control. The Final Rule defines the “essential terms and conditions of employment” as:

1. wages, benefits, and other compensation;
2. hours of work and scheduling;
3. the assignment of duties to be performed;
4. the supervision of the performance of duties;
5. work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
6. the tenure of employment, including hiring and discharge; and
7. working conditions related to the safety and health of employees.

The effective date of the Final Rule was originally set to be December 26, 2023. However, on November 16, 2023, the NLRB announced that the effective date of the Final Rule was postponed to February 16, 2023. The NLRB said it extended the effective date of the Final Rule to facilitate resolution of legal challenges with respect to the rule. Shortly after the Final Rule was announced, it was challenged in federal court  by a coalition of business groups led by the United States Chamber of Commerce.

Companies who work with staffing firms and consulting firms should consult counsel to see if they would be considered a joint employer under the Final Rule and, if so, make sure that they comply with the NLRA.

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.