the good, the bad and the ugly: recent developments on ... · independent contracting. november 29,...

The Good, the Bad and the Ugly: Recent Developments on Independent ContractingNovember 29, 2018

Lori BrownCEO, [email protected]

@labrown1419

Former Littler Shareholder Former General

Counsel/Head of HR of Global Security Organization

Follow Us on Twitter: @Compliance_HR

CHR Webinar November 2018 2

1. Q & A Box on your screen (questions are confidential – visible to presenters only)

2. E-mail me at [email protected] –monitored throughout today’s presentation (attendees will not be mentioned by name or company)

3. E-mail Tammy at [email protected]

Answering Your Questions


mailto:[email protected]

1. Full slide presentation (pdf format)2. Link to recorded audio presentation3. Littler White Paper on Dynamex

4. ComplianceHR Free Trial Code: Independent Contractor

What You’ll Receive


I. The Good – DOL’s new Field Assistance Bulletin II. The Bad – California’s Dynamex decision III. The Ugly – The IC compliance challenge and how to solve it

OBJECTIVES FOR TODAY’S SESSION:


Tammy McCutchenVP Strategy, [email protected]

@TDMcCutchen

Littler Principal Former Administrator, US-DOL,

Wage & Hour Division A leading authority on federal and state wage

and hour laws who now represents and counsels management clients in connection with all types of labor and employment matters

Regularly serves as a consulting or testifying expert witness in wage-hour collective and class actions


Today’s Featured Speaker

Critical Benefits and Protections Depend on Employment Status Minimum Wage & Overtime Family & Medical Leave Workplace Safety (OSHA) Civil Rights Laws Unemployment Insurance Workers Compensation Affordable Care Act Right to Unionize (NLRB)

Loss of Tax Revenue

Studies estimate that the federal government loses between $2.7 to $4.3 billion annually

States studies have shown millions in annual losses of tax, unemployment and workers’ compensation revenue Ohio, $498 million Pennsylvania, $281 million Massachusetts, $278 million Illinois, $216 million

Why is Independent Contracting Under Attack?


Federal agencies, state agencies, unions and other employee advocates focused on stopping “wage theft”

Pressure From All Sides


A Perfect Storm

IRS

DOL States Agencies

Unions

• Too many results-oriented legal tests create compliance challenges

• Results of litigation and agency action often are not predictable

• The results often do not conform to the expectation of either party


Employee or IC: Defining the Problem

Federal law alone has three different tests for determining IC status

Layered on top of these, states may have up to six different tests under different laws


Over 100 Different Legal Tests in the US

IRS 20-Factor Test

FLSA Economic

Reality Test

DardenCommon Law Test

Over 100 State

Law Tests

1. No instructions – ICs do not receive instructions as to how to accomplish a job

2. No training – ICs do not receive training from the company

3. No integration – The company’s operations do not depend on the service of IC

4. Services do not have to be rendered personally –ICs have the right to hire others to assist them

5. Control their own assistants -- ICs control the work activities of their assistants

6. Not a continuing relationship7. Work hours are set by the IC8. Time to pursue other work – An IC is not required to

work full-time for the company9. Job location – Unless the services cannot be

performed elsewhere, an IC has the right to choose where the work will be done.

10. No requirements on the order or sequence of work – ICs have control over how a result is accomplished

11. No required reports – ICs are not required to file interim or progress reports

12. Payment for the result – ICs re paid by the job, not based on time spent performing the work

13. Business expenses – ICs are responsible for their incidental expenses

14. Own tools – ICs provide their own equipment/tools15. Significant investment – An IC’s investment in

his/her trade is bona fide, essential, and adequate16. Possible profit or loss – ICs bear the risk of

realizing a profit or incurring a loss17. Working for multiple firms – ICs are free to work for

more than one firm at a time18. Services available to the general public – ICs

make their services available to the general public19. Limited right to discharge – ICs are not terminable

at will, but only for breach of contract20. Liability for non-completion – ICs are liable for

failing to complete the job in accordance with the contract


IRS 20-Factors Test

1. The skill required

2. The source of the instrumentalities and tools

3. The location of the work

4. The duration of the relationship between the parties

5. Whether the hiring party has the right to assign additional projects to the hired party

6. The extent of the hired party's discretion over when and how long to work

7. The method of payment

8. The hired party's role in hiring and paying assistants

9. Whether the work is part of the regular business of the hiring party

10. Whether the hiring party is in business

11. The provision of employee benefits

12. The tax treatment of the hired party


Darden Common Law Test

1. The extent to which the services rendered are an integral part of the principal's business.

2. The permanency of the relationship.

3. The amount of the alleged contractor's investment in facilities and equipment.

4. The nature and degree of control by the principal.

5. The alleged contractor's opportunities for profit and loss.

6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.

7. The degree of independent business organization and operation.


FLSA Economic Reality Test

“In sum, most workers are employees under the FLSA’s broad definitions. The very broad definition of employment under the FLSA as “to suffer or permit to work” and the Act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.”


Administrator’s Interpretation 2015-1

Economic dependence is the test

No single factor governs

The total activity or situation controls

Immaterial facts Where work is performed

Absence of a formal employment agreement

licensing by state/local government

The time or mode of pay

Fact Sheet 13


The following practices do not defeat independent contractor status: Conducting background checks (criminal history, credit checks, licensing) Requiring ICs to have a TEIN, liability insurance or a performance bond Screening and recommending ICs based on the client’s parameters and preferences, when hiring and

firing is the client’s decision Facilitating communication between the contractor and client Providing advice on typical or market pay rates to the contractor and client Charging the client a one-time fee for matching it with the contractor Collecting timesheets and performing payroll-related functions such as calculating amount owed to the

contractor, making tax deductions and issuing checks Providing ICs with an option to purchase discounted equipment or supplies

DOL Field Assistance Bulletin 2008-4


www.dol.gov/whd


May be multi-factor balancing tests or conjunctive tests with multiple required elements

Some state laws have a presumption of employee status; but in other states, if a contract provides that the worker is an IC, that creates a presumption of IC status

The “ABC” Conjunctive TestA. The contractor is free from control and

direction by the company;B. The services to be performed by the

contractor are either outside the usual course of the company’s business or will be performed outside of the company’s place of business; and

C. The contractor is customarily engaged in an independently established trade, occupation, profession or business.


State Tests

Free 7 Day TrialE-mail: [email protected] Code: Independent Contractor

Adopted the Massachusetts’ version of the ABC test, under which workers are presumed to be employees unless all three of the following conditions are met:

A. The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

B. The service is performed outside the usual course of the business of the employer; and,

C. The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

California Dynamex Decision



Maine’s test for wage-hour, workers comp and unemployment has 5 mandatory requirements plus an additional 3 out of 7 requirements must be met.

Wisconsin’s unemployment test for has 5 mandatory requirements plus an additional 6 out of 9 requirements must be met.

The Most Difficult IC Test?It’s Not California



Uncertain and unpredictable results under multiple federal and state tests has lead to increased litigation, even in industries that have used independent contractors for decades

Drivers Financial services reps Real estate agents Professionals Media content providers Construction workers Fitness instructors NFL cheerleaders Exotic dancers


The Result


Results based on Littler study of 1,773 reported federal and state court decisions


Who is Winning?



The award-winning joint venture that combines the subject matter expertise of Littler with the

revolutionary software of Neota Logic.

The first of its kind suite of intelligent applications delivering expert guidance at internet speed and scale.


Let’s Check it Out!

Footer for the document here 24


CHR Webinar November 2018

“Navigator IC allows us to provide our clients with a deep detailed

assessment at a speed that prevents impacts to their business

operations.”

- Vice PresidentManaged Services Provider


Compliance Moves Fast. You Can Too!


Do not classify individual workers or former employees as ICs

Do not engage ICs to perform the same work as employees

Do not engage ICs for full-time work over a long period of time

Do not prohibit ICs from working for other companies

Do not provide training, instruction or otherwise attempt to control how work is performed

Do not provide tools or equipment

Do not reimburse for business expenses

Do not conduct performance reviews –limit review of IC work to safety, quality control and compliance with contract specs


Avoid the Red Flags


Compliance Made Easy….Why Wait?



Questions?

Free 7 Day TrialE-mail: [email protected]: Independent Contractor

Thank you!Don’t forget about your free trial!

Email us at: [email protected] Code: Independent Contractor [email protected] [email protected]

the good, the bad and the ugly: recent developments on ... · independent contracting. november 29,...

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