The U.S. Department of Labor proposed its new rule that would increase the likelihood that contract workers, or “gig workers,” would be classified as employees. This regulatory shift could compel organizations to extend employee-level protections and benefits to contract workers, including minimum wage and overtime pay laws, and require unemployment insurance contributions. Employers who contract “gig workers” will need to analyze their business models in conjunction with the new rule to determine whether changes are needed. In this blog, we will analyze how states are currently navigating the regulatory landscape surrounding contract workers, as well as highlight noteworthy cases that demonstrate diverging interpretations of the rules governing the determination of contractor versus employee status.

Everchanging State Legislation

Across various states, the intricate contractor-employee discourse is unfolding, capturing the attention of corporate compliance officers. In California, the “ABC” test put forth in Dynamex Operations West, Inc. v. Superior Court, was signed into law. This test begins creates a presumption that a person who performs work for an employer is an employee unless an employer can show that: (1) the work is completed absent the direction or control of the employer; (2) the work is completed outside the employer’s usual course of business; and (3) the work is completed by a person who has established their own independent trade or business performing that type of work. The law has since faced many challenges, including seeking the protection of app-based food delivery and rideshare companies from the new laws, and the case of Castellanos v. State of California, which upheld the constitutionality of most of the new protective laws but deemed some parts invalid. The battle on this worker classification issue continues in the state, as the Supreme Court of California recently granted a petition for review of the Castellanos decision.

West Virginia and Oklahoma have pursued a more restrictive stance on the classification of workers as employees. In recent years, both states have introduced their own adaptations of the American Legislative Exchange Council’s (“ALEC”) “Uniform Worker Classification Act.” This legislation seeks to establish a unified definition of worker status, superseding all other existing definitions within each state’s employment laws, to ensure consistency. In West Virginia, for example, workers are conclusively presumed to be independent contractors if they meet several listed criteria. Further, workers who do not meet the requirements to be conclusively presumed independent contractors would not automatically be presumed to be employees, with a few exceptions.

In today’s dynamic regulatory environment, corporate compliance officers must remain vigilant. The shifting landscape, exemplified by varying state approaches like California’s ABC test and West Virginia’s Uniform Worker Classification Act, presents evolving risks. It is crucial for compliance officers to closely monitor legislative changes and court rulings to protect their organizations from potential misclassifications and compliance gaps. By proactively assessing and adapting compliance strategies, you can ensure your company excels in compliance, minimizing and avoiding risks.

Regulatory Compliance Decisions

The National Labor Relations Board (NLRB) has issued a number of recent decisions that provide some guidance on the determination of worker status and the consequences for employers for misclassification. In Velox Express, Inc. and Jeannie Edge, the NLRB was presented with the issue of whether misclassification of a worker as an independent contractor is an independent violation of the National Labor Relations Act (NLRA, or “the Act”). In Velox Express, the NLRB found that misclassification does not, in and of itself, amount to a violation of the NLRA. Further, the Board explicitly recognized that worker classifications are “among the most difficult and disagreement-prone that the Board is called upon to make” and that “the Act is not the only relevant law” that needs to be considered.

 

Just this past summer, in The Atlanta Opera, Inc. and Make-Up Artists and Hair Stylists Union Local 798, IATSE case, the NLRB issued another decision that may have a significant impact on employers that utilize independent contractors. In that case, the NLRB returned to a 2014 standard previously used to determine the status of workers as independent contractors. In doing so, the Board overruled its more recent January 2019 decision in SuperShuttle DFW, Inc. and Amalgamated Transit Union Local 1338. Specifically, the NLRB held that entrepreneurial opportunity for gain or loss is no longer the “animating principle” of the test for determining independent contractor status, stating instead such opportunities should be considered “along with the traditional common-law factors.”

 

Conclusion

As you can see, there is a lot left to be decided with respect to the contractor versus employee debate. While some states presume that workers are employees until proven otherwise, there are a number of states seeking to enact laws that would create a presumption that workers are independent contractors. Still, other states are making efforts to carve out additional protections for gig workers, while leaving their state classification tests unchanged, at least for the time being. As the employment legal landscape continues to change, it is critical that legal professionals stay up to date on emerging federal and state legislation and case law to effectively guard against compliance risks.

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