Update on Employee Classification and Independent Contractors: Will there Be Progress this Week?

The House Commerce Committee will seek to finalize legislation this week to reform employee classification statutes to help address concerns that the current law stifles the use of independent contractors. As the Committee continues to work with an extensively modified version of H.773 (see past posts for context), several outstanding issues could still derail a final proposal. Nevertheless, there are some promising changes on the table.

With regard to the tests for determining who is an employee and who is an independent contractor for the purposes of workers’ compensation and unemployment insurance, the key developments in possible consensus between the Committee, Department of Labor, and business organizations so far are:

  • Possible agreement to allow independent contractors to pass the “like business” test if they are actively registered with the Secretary of State as their own business.
  • Possible agreement to delete language in current law requiring independent contractors to have multiple clients to avoid being classified as an employee (although this is an area where agreement still needs to be confirmed this week).
  • Possible agreement to delete new language previously proposed by the Department in H.773 that would have prohibited hiring multiple independent contractors for the same work (the current working draft would only require notification to the Department if multiple independent contractors are hired, but there might be consensus to remove the notification requirement as well).

In addition, there is possible consensus on providing for independent contractors to document waiving workers’ compensation for themselves but also making it more clear that if they do so a company hiring them is not required to include them in their workers’ compensation policy and that if an injury occurs the independent contractor would only have recourse to a traditional personal injury claim, in which case liability would depend on the specific circumstances of the claim.

An area of continued disagreement between the Department and AIV (and our business organization allies) is a provision originally addressing “coercion”. As introduced, H.773 would prohibit “coercing” employees into becoming independent contractors. As a practical matter, this language could expose employers to penalties simply because affected employees object to an employer turning to independent contractors to help address operational costs. This would be an unacceptable erosion of employer rights in managing their own operations.

Discussions between the Department and AIV have instead moved the focus toward penalizing misclassifying employees as independent contractors. However, as of this writing the Department wants employers held to strict liability – subject to penalties even if they misclassify by mistake. AIV is pushing for liability only if an employer “willfully and knowingly” misclassifies its employees. There are also outstanding questions about the burden of proof in such cases. Given that willful action is commonly required for penalties in other areas of statute, we are cautiously optimistic that our position will prevail but it is not guaranteed.

The above is just a summary of the central issues being debated, and the overall bill has a number of provisions with several areas for potential disagreement and impasse. Nevertheless, as with past posts we are still cautiously optimistic about what the Commerce Committee will ultimately approve. However, organized labor is clearly planning on turning to the Senate, where there are a number of Senators who generally oppose employers on labor issues in key committee positions, to oppose or hijack any House proposal; organized labor has stayed out of any meaningful negotiations to date.

Ultimately, engagement by employers around the state will be critical in getting any meaningful reforms through the Senate and into actual law. Members interested in more information or options for engaging on this issue are encouraged to contact us at info@aivt.org.

You can also click here to register for online access to our recent Human Resources Seminar, which addressed employee classification and other key issues for this year, as well as related information and resources.