Gig Workers (Independent Contractor Issue) Flashcards
What is the initial concern for employers dealing with Gig Workers?
Misclassification of a gig worker as an independent contractor. and they are really an employee
Consequences for misclassifying an employee as an independent contractor can be severe:
- back pay for overtime wages,
- liquidated damages,
- federal income tax liability and
- IRS penalties,
- FICA contributions, and
- interest
- Local Employment Taxes
What are tests should be familiar with if I see a scenario with a gig worker in Texas on the exam?
- Texas has a Test that will allow for Gig Workers to NOT BE AN EMPLOYEE if they meet certain criteria
- Also, under Federal Law:
- DOL (FLSA) - Announced April 2019 “Economic Realities” Test
- NLRB Published a Memorandum April 2019
NOTE: The legal definition of an independent contractor changes depending on the jurisdiction and between federal statutes, such as Title VII of the Civil Rights Act and the Fair Labor Standards Act (FLSA), and federal agencies, such as the Internal Revenue Service (IRS), the Equal Employment Opportunity Commission (EEOC), involved. Differences also exist depending on the state and local agencies involved.
The existence of an “Independent Contractor Agreement” or an IRS 1099 form is not dispositive of whether a worker is an independent contractor or an employee. Generally, gig economy independent contractors exercise independent business judgment over how to complete their work and are paid by completed task, instead of by hours worked.
What does NLRB say about Gig Workers, what test does it apply?
What factors were important in how NLRB classifies RIDE SHARE Gig Workers?
The National Labor Relations Board (NLRB) published a memorandum (NLRB Div. of Advice, No. 13-CA-163062 (Apr. 16, 2019)) listing non-exhaustive factors under the COMMON-LAW AGENCY TEST. These factors include:
Workers’ ability to set their own schedules;
Workers’ ability to choose where they work;
Workers’ ability to choose whether they work for a company’s competitor;
Workers’ ability to refuse projects from the employer at their discretion;
Whether workers provided their principal instrumentality and tools;
Whether workers are responsible for their own chief operating costs;
Whether workers signed contracts expressly characterizing their relationship to the employer as independent contractors; and
Whether the employer paid benefits or leave, or provided holiday pay to workers.
As applied to the rideshare and taxicab industry, the NLRB memorandum determined that rideshare drivers were properly classified as independent contractors because of:
- the extent of the company’s control over the manner and means by which drivers conduct business and
- the relationship between the company’s compensation and the amount of fares collected.”
- The NLRB also determined that “the level of company control should be assessed in the context of its effect on entrepreneurial activity.”
The Texas Workforce Commission (“TWC”), the agency responsible for administering unemployment benefits and assessing unemployment taxes, recently adopted a rule (“Rule”) pursuant to which certain workers who provide services through app-based businesses and websites cannot be considered “employees” for unemployment insurance purposes.
What is the normal rule they use and how is it changed for Gig Workers or as they referred to it ______ _______??
Historically, the TWC used a 20-factor test to differentiate between employees (who are eligible for unemployment insurance benefits) and independent contractors (who are not). The 20-factor test focuses on the nature and extent of control that the putative employer exercises over the worker. Under the Rule, “marketplace contractors” who provide services for third parties through a “marketplace platform” are not employees of the marketplace platform—irrespective of their status under the 20-factor test, so long as the required conditions are satisfied.
Applicable Definitions
Under the Rule, MUST MEET 3 DEFINITIONS:
A “digital network” is defined as “an online-enabled application, software website, or system offered by a marketplace platform for the public to use to find and contact a marketplace contractor to perform one or more needed services.”
A “marketplace contractor” means “any individual, corporation, partnership, sole proprietorship, or other entity that enters into an agreement with a marketplace platform to use the platform’s digital network to provide services to third-party individuals or entities seeking the type of service or services offered by the marketplace contractor.”
A “marketplace platform” is defined as a business entity operating in the state that:
- uses a digital network to connect marketplace contractors to third-party individuals or entities seeking the type of service or services offered by the marketplace contractors;
- accepts service requests from the public only through its digital network, and does not accept service requests by telephone, facsimile, or in person at physical retail locations; and
- does not perform the services offered by the marketplace contractor at or from a physical business location that is operated by the platform in the state.
Marketplace Contractor Test - 9 REQUIRED CONDITIONS
In addition to meeting the definitions summarized above, there are nine conditions that must be satisfied in order for a marketplace contractor to fall under the Rule. If all nine conditions are met***, the marketplace contractor will not be considered an employee of the marketplace platform and, therefore, ***will not be eligible for unemployment insurance. The nine conditions are as follows:
- All or substantially all of the money paid to the marketplace contractor is based on a per-job or per-transaction basis.
- The marketplace platform does not unilaterally prescribe specific hours during which the contractor must be available to accept service requests from the public (including third-party individuals and entities) submitted through the marketplace platform’s digital network.
- The marketplace platform does not prohibit the marketplace contractor from using a digital network offered by any other marketplace platform.
- The marketplace platform does not restrict the contractor from engaging in any other occupation or business.
- The marketplace contractor is free from control by the marketplace platform as to where and when the contractor works and when the contractor accesses the marketplace platform’s digital network.
- The marketplace contractor bears all, or substantially all, of the contractor’s own expenses that are incurred by the contractor in performing the service or services.
- The marketplace contractor is responsible for providing the necessary tools, materials, and equipment to perform the service(s).
- The marketplace platform does not control the details or methods for the services performed by the marketplace contractor by requiring the contractor to follow specified instructions on how to perform the services.
- The marketplace platform does not require the marketplace contractor to attend mandatory meetings or mandatory training.
4 Exceptions
The following services are excepted from coverage under the Rule:
- services performed by an individual in the employ of a state or any political subdivision of the state, or in the employ of an Indian tribe;
- services performed by an individual in the employ of a religious, charitable, educational, or other nonprofit organization;
- services performed by marketplace platforms “regulated as Professional Employer Organizations and professional employer services” under Texas law; and
- services performed by “temporary employees” and “temporary help firms,” as defined under Texas law.
What is the Department of Labor test for Gig Workers?
Similarly, the Department of Labor (DOL) imposed an
“Economic Realities Test” in April 2019 to determine whether a gig economy worker is properly classified as an independent contractor. The test considers:
- The employer’s degree of control over the work performed;
- The permanency of the relationship;
- The relative investment of the worker in the project;
- The worker’s opportunity for profit/loss; and
- The integration of the worker into the employer’s workplace.
As these factors emphasize, the DOL test focuses on the extent to which a worker is economically dependent on the employer.
