From MBO Partners, a recap of the top stories of 2018:
As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. 2018 was a fascinating year for independent contractor compliance. Here’s a look at the top five stories.
1. California Supreme Court Adopts ABC Test for Classifying Workers
Perhaps the biggest change in 2018 for independent contractors was the California Supreme Court decision in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County, Charles Lee et al, Case No. S222732 (Dynamex). Dynamex changed the world for independent contractors and the companies that engage with them in California. The California Supreme Court adopted the ABC test for determining if a worker is an employee or independent contractor.
Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
The ABC test is widely regarded as the toughest standard to meet for classifying workers as independent contractors. While stating that the test would still allow independent contractors like plumbers and electricians, the court did not provide meaningful guidance for many other situations.
Since the decision, courts have said that the Dynamex standard should be applied retroactively, that the ABC test only applies to wage order claims, and that the ABC test does not apply when considering whether two entities are joint employers. In one prominent news story, some barbers have quit rather than be reclassified as employees.
Business organizations have called on the legislature to address Dynamex to allow more workers to be classified as independent contractors. Until the legislature acts, there is likely to be a lot of litigation as businesses, workers, and courts try to understand and apply the new standard.
2. United States Supreme Court Confirms that Class-Action Waivers in Arbitration Agreements are Valid/Enforceable
In Epic Systems Corporation v. Lewis (Epic), the United States Supreme Court upheld the validity of class-action waivers in arbitration agreements. Those who challenged class-action waivers in arbitration agreements claimed that section 7 of the National Labor Relations Act (NLRA) said that employees had the right to be “engaged in other concerted activities for the purpose of …mutual aid or protection” and that a class-action lawsuit was a prime example of a concerted activity for the purpose of mutual aid. Supporters of class-action waivers in arbitration agreements pointed to the Federal Arbitration Act (FAA) and its clear support for enforcing arbitration agreements.
The United States Supreme Court said that class action waivers in arbitration agreements are enforceable under the FAA and do not violate the NLRA. This is good news for companies that engage with independent contractors because it means that arbitration agreements with independent contractors that contain class action waivers are valid. All companies that engage with independent contractors should include an arbitration clause with a class action waiver in their agreements.
Read the full story at Top Independent Contractor Compliance Stories from 2018 | MBO Partners