Is the Gig Economy on Life Support? New York Proposes Process for Sweeping Changes to Worker Classification

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Proposed New York Legislation

In his 2020 budget proposal, Governor Andrew Cuomo proposed creating a 9-member marketplace worker classification task force to address seismic changes to the way independent contractors and other gig economy workers are classified. This task force will have until May 1, 2020 to propose legislation that addresses: wages; health and safety protections; specific categories of benefits; worker classification; criteria to determine if a worker is an employee; collective bargaining; anti-discrimination; opportunity; and privacy concerns. If the task force fails to make significant legislative proposals by May 1, 2020, the New York State Department of Labor will be authorized to promulgate regulations addressing these issues.

Governor Cuomo’s announcement follows a season in which multiple forms of legislation were proposed creating limitations on employer uses of independent contractor classification for workers. New York’s venture into the controversial terrain of regulating the gig economy follows on the footsteps of legislation passed in California and New Jersey.

Prior to the introduction of A.B. 9508 and S.B.7508, which are the budget bills in which Governor Cuomo proposed his marketplace worker classification task force, another bill, S.B. 6699, proposed modifying certain sections of the New York Labor Law to codify an “ABC” test. This proposed legislation would squarely place the burden on employers to demonstrate independent contractor status by satisfying three prongs: (1) the person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for performance of the work and in fact; (2) the person performs work that is outside the usual course of the hiring entity’s business; and (3) the person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. S.B. 6699 was referred to the Senate Committee on Labor on January 8, 2020. https://www.nysenate.gov/legislation/bills/2019/s6699.

In 2015, Governor Cuomo laid the foundation for his current push by creating a Joint Task Force on Worker Exploitation and Misclassification. As part of this effort, New York’s Department of Labor, Attorney General’s Office, Department of Taxation and Finance, Workers’ Compensation Board, Workers’ Compensation Fraud Inspector General and New York City Comptroller’s Office have increased their level of cooperation to address misclassification of workers including extensive enforcement.

Current Status of New York Law

Currently, the New York State Department of Labor (“DOL”) has concentrated its inquiry on whether a worker is an independent contractor or employee by focusing on whether the worker is free from: (1) supervision; (2) direction; and (3) control in the performance of their duties—essentially the envisioned ABC factors. The employer bears the burden of proving that an individual is an independent contractor. The DOL has identified several signs of independent contractor status, which include but are not limited to: the individual has an established business; advertises in electronic and/or print media; buys an ad in the yellow pages; uses business cards, stationery and billheads; carries insurance; keeps a place of business; pays own expenses; assumes risk for profit or loss; sets own schedule; negotiates own pay rate; offers services to other business; is free to refuse work; and may choose to hire help. The DOL views these factors in their totality.

In addition, New York City enacted the Freelance Isn’t Free Act, which requires that companies in New York City provide independent contractors with a written contract and provide that timely payments are made in accordance with the terms of the contract. Contracts must be in writing, specify the work to be performed, the amount of pay for the work and the payment date.

While New York’s independent contractor requirements already impose significant burdens on employers, if the enacted legislation in California and New Jersey are any preview as to the scope of Governor Cuomo’s task force proposals, employers may face significant liability for misclassification that will substantially change the nature of New York’s gig economy.

California AB 5

The impetus for New York’s legislative agenda was the recent passing of California’s AB 5 targeting app-based companies such as Uber and Lyft. AB 5 codified the “ABC Test” that was set forth by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903. The ABC Test presumes workers to be employees unless an employer can establish three factors: (1) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (2) that the worker performs work that is outside the usual course of the hiring entity’s business; (3) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. For a more detailed assessment of California AB 5 see our September 13, 2019 Legal Alert, AB 5, Codifying Dynamex and Broadening the ABC Test's Application, Passes California Legislature.

New Jersey 

New Jersey passed a series of five laws referred to as the “Misclassification Package,” which are intended to address misclassification of independent contractors by empowering the New Jersey Department of Labor’s authority to enforce wage and hour and tax laws. The five laws address: (1) stop work orders; (2) joint, several and individual liability; (3) additional penalties; (4) retaliation cause of action & posting; and (5) sharing of confidential tax information among governmental entities. For more information regarding the New Jersey misclassification laws, please see our January 21, 2020 Legal Alert, The Gig is Up – New Jersey Misclassification Laws Create Extreme Risk for Anyone Utilizing Independent Contractors.

Takeaways

Governor Cuomo and the Legislature are signaling groundbreaking changes to the gig economy and companies’ ability to utilize independent contractors. In advance of anticipated heightened enforcement, companies would be wise to look to their existing independent contractor relationships to ensure they comport with current laws and regulations. FordHarrison will be carefully monitoring the task force’s progress as well as any proposed legislation and providing regular updates.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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