When is a worker employed? It’s more than semantics. Whether a worker is an independent contractor or an employee is a major issue that can affect the minimum wage, overtime and benefits. In recent years, the struggle for the classification of workers has intensified. Here’s what’s happening now.
The Rise of Gig Work and legal battles at the state level
Uber, Lyft, Instacart and other gig-economy platforms have changed the number of people working, and this has led to questions about worker classification.
According to the Pew Research Center, 16% of Americans have made money from gigs. Among people who had done gig work in the last 21 months, 68% said it was a side job and 31% said it was their main job. Although many people depend on gig work to make ends meet, not everyone is happy with the scheme: 34% of gig workers say that gimmick companies have been unfair when it comes to pay, and 46% say these gays have been injustice when it comes to benefits.
Some states have tried to address the problem. In California, AB created 5 strict standards for classifying workers. Voters then approved Proposition 22 to allow app-based companies like Uber and Lyft to classify workers as independent contractors, but SHRM says a judge declared the rule unconstitutional.
A similar situation is taking place in Massachusetts, where a voting initiative would allow gig drivers to be classified as independent entrepreneurs. Bloomberg Law says this initiative is being challenged in the state Supreme Court.
At the same time, in Washington, HB 2076 will provide gig workers with minimum contributions, paid sick leave and worker compensation, but it will not classify them as employees, according to Bloomberg Law.
The possibility of a new NLRB standard
At the end of 2021, the National Labor Relations Board (NLRB) invited briefs on the independent entrepreneurial standard. Specifically, the NLRB asks whether the board should follow the standard established in a case from 2019, and if not, which standard should replace it.
According to SHRM, the case in question overturned a judgment from 2014 that made the classification as an independent contractor more difficult.
The fight for a Trump administration rule
On January 7, 2021, the Trump administration published a rule for independent entrepreneurs that was supposed to take effect on March 8, 2021. The Biden administration first delayed and then withdrew the rule, but it was not over yet. According to the Insurance Journal, a federal judge in Texas revoked the resignation in March 2022. As a result, the rule is deemed to apply from March 8, 2021.
According to the National Law Review, this rule states that a worker should be classified as an independent contractor if they are in their business, and they should be classified as employees if they are financially dependent on the employer for their work. In determining this issue, two factors are given the greatest importance. The first factor is the nature and degree of control over the work, and the second is the worker’s opportunity for profit or loss. Three additional factors are given less weight: the amount of skills required, the degree of performance in the working relationship between the employee and the employer and whether the work is part of an integrated production unit.
The decision to reintroduce the rule has been praised by the Coalition for Workforce Innovation (CWI). “The withdrawal of the duly completed economic reality test was both procedurally and materially defective, and the coalition is pleased that it has been provided in accordance with the law,” CWI President Evan Armstrong said in a CWI press release. “The department’s actions undermined the highly independent workers they claimed to protect. CWI believes that the updated economic reality test adequately reflects the modern economy and looks forward to working with the Department of Labor to further support independent workers and the choices they make for themselves, their families and their livelihoods. “
The road ahead
The issue of classifying workers is far from settled, and it will continue to be discussed at both the state and federal levels.
Meanwhile, companies that are accused of incorrectly classifying workers can face expensive lawsuits and fines. In a recent example, DOL says a Las Vegas telemarketer will pay more than $ 1.4 million in early retirement pay and liquidation due to misclassification. In another example, the DOL says that a federal judge in New York has decided that a trial on misclassification can proceed despite an arbitration agreement.
Given the ongoing debate and the potential for legislative changes in the classification of workers, entrepreneurs should proceed cautiously.
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