Employees are expensive. It’s little surprise market forces incentivize companies to search for a way to get the same work out of people without paying for holidays, accommodating disabilities, and paying overtime, among countless other requirements. Imagine if you could save all this money within the law and avoid the risk of employment discrimination lawsuits. With all these savings your company could lower the price of your services/goods and edge out the competition. Figure out how to replace the lion’s share of your workforce as independent contractors and you could be living the dream, right?
Well, if your current company is currently staffed entirely by “independent contractors,” then madam/sir I am happy to meet with you to discuss both your unique staffing model and your likely immediate need for outside legal services. Very rare is the government contractor that truly has “no employees” (though we’ve seen a few try).
That said, statistics show that there are currently an estimated 40 million independent contractors in America. Clearly not everyone who takes money from you in exchange for a service should be called your employee. But where is the line between my contracting with a freelance plumber and a commercial company drawing billions in revenue from hundreds of thousands of its drivers? As we’ve discussed in prior blog posts, the government contracts industry is rife with the use (and abuse) of independent contractor status; and federal regulators have been tightening the screws on the use of the status. This past year, arguably more than ever, the courts and legislators across the country are wrestling with the employee/independent contractor distinction with messy results.
Federal courts have increasingly grown skeptical of massive independent contractor agreements but don’t seem sure how to address it given the long precedent defining the relationship. One way is to decrease the incentives of an independent contractor relationship like the 1st Circuit recently did in Oliveira v. New Prime, Inc., restricting the use of mandatory arbitration agreements on independent contractors. In California, the court forced an extra $15 million out of Lyft in a settlement agreement designed to avoid the costly test of their independent contractor classification.
Coast to coast, states are trying to get a handle on independent contractors too. New York’s recent “Freelance Isn’t Free Act” requires that all entities that engage a freelance worker for $800 or more in services execute a written agreement. Where Nevada is attempting to tackle the problem industry by industry rather than with general rules. Not everyone wants to put breaks on the independent contractor train though. Alaska and Florida have more clearly defined boundaries in favor independent contracting status, though it may just add problems for employers still wrestling with federal regulations on the same issues.
Perhaps the most hopeful part of the confused situation, is this wide variation in responses. There will certainly continue to be growing pains as the legal standards develop, but the unique effects of these policies may offer a chance to evaluate which can keep independent contractor status alive and appropriately limited.
About the Author:
Tyler Freiberger is an associate attorney at Centre Law & Consulting primarily focusing on employment law and litigation. He has successfully litigated employment issues before the EEOC, MSPB, local counties human rights commissions, the United States D.C. District Court, Maryland District Court, and the Eastern District of Virginia.