Last week, after final negotiations and unanimous approval the previous week and testimony over much of the legislative session, the House Commerce Committee introduced H.867, making a number of reforms to employee classification and related statutes. The bill draws upon provisions and principles in H.773 and H.378, and was shaped in large part through negotiations between the Department of Labor and AIV, with the backing of other business organizations, and support from key legislators from both major parties.

Organized labor representatives also had input in the final bill. However, they chose not to make many suggestions for improving the bill’s development and have instead chosen to foment opposition to the bill’s progress. Opposition raised by organized labor caused enough rancor last week to have floor debate on the bill postponed so that further testimony can be taken by the House General, Housing, and Military Affairs Committee this week. Although House General does not have direct jurisdiction over the bill and at this time will not be taking official possession of the bill, it is seen as a committee that leans toward organized labor and is being used as a forum for continued debate over issues already addressed in House Commerce.

AIV will be provided further testimony before House General Wednesday.

Employer Action Critical

Although H.867 does not address fully every issue of concern regarding classification of employees and independent contractors, it does make significant improvements and passage of such legislation is long overdue. There is reason for cautious optimism that the bill can be passed by the House, but House passage and especially any positive action in the Senate will require supportive engagement from employers and independent contractors across the state.

Members are strongly encouraged to contact us at info@aivt.org to learn more about your options for engaging on this issue. If you use or hope to use independent contractors in the course of your operations, passage of H.867 is critical to such operations.

Contacting your House Representatives is encouraged. You can contact your Representatives by leaving messages with the Sergeant-at-Arms Office at 802-828-2228 or 800-322-5616.  You can also send a fax (be sure to identify which Representative you are trying to reach) to 802-828-2424.

To identify your Representatives and find additional direct contact information, you can click here.

Overview of H.867

H.867 amends the current definition of an employee to more accurately reflect what truly makes an independent contractor “independent.”

Updating the Definition of Employee/Independent Contractor

The bill takes elements from the current law’s definitions to explicitly define an “independent contractor” as an individual who:

• is free from the direction and control of the employing unit, both under the person’s contract of service and in fact;
• controls the means and manner of the work performed;
• operates a separate and distinct business from that of the person with whom it contracts;
• holds itself out as in business for itself;
• offers its services to the general public; and
• is not treated as an employee for purposes of income or employment taxation with regard to the work performed.

If someone meets the definition of an independent contractor, that person is not considered an “employee” of their client under one of two circumstances.   Either:

• the individual or partner owner is an independent contractor who performs work that is distinct and separate from that of the person with whom the individual or partner owner contracts; or
• the individual or partner owner is an independent contractor and is either actively registered as a business with the Vermont Secretary of State or actively registered as a business in the state or country of domicile.

Key Changes from Current Law

• Creates a positive definition of independent contractor.
• Removes the statutory requirement that an independent contractor have multiple clients to avoid being classified as an employee.
• Provides registration as a business with the Secretary of State as an option for satisfying the “like business” test, which has been one of the biggest obstacles to independent contractors.
• Provides for a new waiver for independent contractors to document that they have waived any statutory claim to their client’s workers’ compensation plan and instead have only recourse to personal injury claims under current law and conditions.
• Uses parallel construction in the workers’ compensation and unemployment insurance tests, making them effectively the same test.

The bill includes a new posting requirement for employers to provide their employees and independent contractors with information about classification definitions and what they can do if they believe they are being misclassified. It also creates a new penalty up to $5,000.00 if an employer misclassifies employees as independent contractors in order to avoid workers’ compensation obligations, but employers would have an opportunity to show that the misclassification was inadvertent or excusable.

 Intent for More Rational Definitions and Clear Choices

By making the definitions of who is and who is not an “employee” more realistic and understandable, H.867 seeks to clarify choices and responsibilities based on current principles.

H.867 should make it easier and more clear for clients to choose for themselves:

• whether they want to offer to cover an independent contractor in their workers’ compensation policy,
• whether they only want to hire independent contractors who can show they have their own workers’ compensation policy, or
• whether they want to choose to hire an independent contractor without a workers’ compensation policy knowing that, just as under current law, they could be liable for a personal injury claim if there is an accident and they are at fault.

In the same way, H.867 makes it much easier and more clear for independent contractors to choose for themselves:

• whether they only want to work for a client if the client agrees to choose to cover them under their workers’ compensation policy,
• whether they want to have their own personal workers’ compensation policy, or
• whether they want to forego having their own workers’ compensation policy and are willing to document for their clients that they are waiving any claim to their client’s policy, while retaining their right to making a personal injury claim if their client is at fault.

Other Provisions

The bill makes changes to how officers of an LLC are treated under workers’ compensation similar to the changes for independent contractors, makes permanent the Employee Classification Task Force made up of agency leads and charged with studying and reporting on further classification related issues and proposed reforms, and strengthens the authority of the Department of Labor to investigate workplaces (although AIV successfully advocated for better standards protecting employers from undue disruption).

A more comprehensive summary of the bill’s provisions will be provided in an upcoming post as warranted, but members are welcome to review the text of the bill as introduced by clicking here or to contact us for more information by emailing info@aivt.org.