Worker misclassification: State legislation moves through House as federal Labor Department sets out new guidelines

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As the North Carolina legislature debates legislation to control misclassification of employees as independent contractors, the federal labor department has signalled it also is taking a tough stand on employee misclassification.

In Raleigh, a House panel voted to remove exemptions for courier services such as FedEx. Exemptions for newspaper delivery people and taxi cab drivers have also been lifted from the bill.

“An uncommon coalition of labor groups and business associations formed to promote the legislation, after an investigative series by The News & Observer of Raleigh last fall reported that employee misclassification costs the state $467 million annually,” the Associated Press has reported.

“Lawmakers in both chambers have amended the legislation several times in response to public comments. House members debated in another committee meeting last month whether a $1,000 penalty on employers who misclassify employees is too harsh.”

However, House supporters have recently encouraged swift action to move the bill through the chamber and to the Senate for approval. “Changes, they said, could come next year after lawmakers have time to review the law’s initial impact,” AP reported.

“If we start tinkering with it we face the unintended consequence of screwing it up,” said Rep. Chuck McGrady, R-Henderson, The House Appropriations Committee will next review the changes before sending it to debate on the House floor.

Meanwhile, The Carolinas Associated General Contractors (CAGC) reports that the amendments to the bill reflect the association’s wishes.

“The House Judiciary II subcommittee charged with further review and analysis of HB 482, voted to approve the most recent Proposed Committee Substitute containing all of the recommendations made by CAGC as well as the business coalition working together on this bill — NC Chamber, Homebuilder’s Association, Retail Merchants, etc. CAGC has been very involved in negotiating this bill through both the House and Senate and working with other stakeholders to balance all interests,” CAGC reported. ”

“Once approved by the House, perhaps as early as next week, the bill will be sent to the Senate for concurrence. Because the House bill is slightly different than the bill the Senate passed earlier this year (SB 694 — sponsored by Senator Buck Newton), the Senate will likely vote not to concur and the bill will then be referred to a conference committee to work out the differences.”

“Because CAGC has successfully negotiated our position in both the House and Senate, we are fairly confident that the final negotiated bill will support the interests of our members.”

Federally, the Associated Builders and Contractors (ABC) reports that the Labor Department has issued new guidelines targeting worker misclassification.

“In the Administrator’s Interpretation and an accompanying blog post, Wage and Hour Division administrator Dr. David Weil laments the “problematic trend” of deliberate misclassification and considers the guidance part of a “multi-pronged approach” to combat the phenomenon,” ABC Newsline reported.

“Weil’s interpretation asserts an admittedly “expansive” definition of employment under the Fair Labor Standards Act (FLSA), noting that its ‘economic realities test’ is far broader in scope than the common law control test used by the IRS. While the six-part test is meant to establish the economic dependency of a worker, Weil makes clear that no single factor is determinative, no part should be given undue weight, and that its application should entail qualitative analysis rather than a quantitative checklist. Notably, Weil asserts that any agreement relating to independent contractor designation, however mutual, ‘is not relevant to the worker’s status.'”

ABC reports that Weil believes proper classification hinges entirely on the relationship’s economic realities.

“If the worker is economically dependent on the employer, then the worker is an employee. If the worker is in business for him or herself (i.e., economically independent from the employer), then the worker is an independent contractor.”

“While this guidance stops short of a formal rulemaking, it signals an emerging hostility toward the independent contractor model and an aggressive new posture towards enforcement of the existing rules,” ABC reports. “Contractors are encouraged to review the interpretation, its prescribed tests and their associated examples, several of which involve the construction industry.”

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