Workers as Independent Contractors: Worth the Risk?

October 17, 2019

Topics: Independent Contractors

Companies who classify certain workers as independent contractors continue to face tougher challenges from the courts, legislatures, and of course plaintiffs’ lawyers.  Classifying a worker as an independent contractor has never been riskier – and if a worker is misclassified, companies may be liable under applicable state and federal wage and hour laws for minimum wage, overtime, and other record-keeping violations and potentially, significant tax consequences.

This year, various legislatures, courts, and government agencies expanded the scope of tests to determine a worker’s status as an employee vs. independent contractor, making the terrain even more challenging. In some states, many legal protections to independent contractors are even the same as for employees.

I.  California codifies the ABC test and the presumption that workers are employees.

Beginning on January 1, 2020, California workers are presumed to be employees for purposes of California labor laws, unemployment insurance and workers’ compensation, unless the employer can demonstrate:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

All three factors of this “ABC” test must be present to establish independent contractor status, making it harder for California companies to classify such workers.  Section (B) poses particular problems for employers looking to use contractors, as it is a very narrow interpretation.  This new law comes with its own complex set of exemptions, which will apply retroactively.  Moving into 2020, California businesses should continue to closely review their independent contractor classifications and “gig” workers.

Other states like New Jersey have also moved in a similar direction to California.

II.  New York State and City Independent Contractors Are Now Protected under the New York State and City Human Rights Laws.

New York State and New York City have also recently expanded the definition of an independent contractor under various new laws.

  • In 2018, the New York State Human Rights Law was extended to protect non-employee service providers against sexual harassment.
  • Effective October 11, 2019 the New York State Human Rights Law protects independent contractors from all forms of unlawful discrimination or harassment when the company or its supervisors “knew or should have known” that the independent contractor was subjected to unlawful discrimination or harassment and failed to take immediate and appropriate corrective action.
  • On September 12, 2019 New York City passed a bill which expanded the scope of the NYC Human Rights Law to cover freelance and independent contractor workers. Moving forward, an independent contractor may file complaints under the NYC Human Rights Law alleging discrimination or harassment based on race, gender, sexuality, religion, age, disability, and other protected categories under the law.

With the ever-changing landscape of issues facing companies who use independent contractor workers, it is important to review the status of all workers, determine whether they are properly classified, and weigh the pros and cons, if any, associated with such classification.