As we enter the fall season we want to alert you to three notable updates and alerts: (1) proposed federal independent contractor legislation, (2) federal exemption rule litigation and recent failed push for California legislation concerning the same, and (3) new notice requirements for new hires concerning domestic violence protections
I. Proposed Federal Legislation to Address Independent Contractors
In an attempt to bring some certainty to the uncertain realm of independent contractors “ICs”), U.S. Senator John Thune (R-S.D.), a member of the tax-writing Senate Finance Committee, introduced the New Economy Works to Guarantee Independence and Growth Act (the “NEW GIG Act”) (S. 1549) on July 13, 2017. The legislation would amend the Internal Revenue Code of 1986 by providing a safe harbor based on objective tests concerning worker classification determinations and requiring increased reporting, among other things. The objective tests would focus on three areas, each of which must be satisfied for viable IC classification:
(1) General Service Provider Requirement focuses on the relationship between the “service provider” (worker) and the “service recipient” (customer) / “payor” (third-party facilitating the transaction and payment). The worker satisfies this requirement if the worker incurs his or her own business expenses, performs the service for a particular amount of time to achieve a specific result or complete a specific task, and satisfies at least one of the following four factors: (i) has significant investment in assets or training for the services rendered, (ii) is not required to perform services exclusively for the hiring party, (iii) has not been treated as an employee by the hiring party during the 1-year preceding the subject engagement, or (iv) is not paid based upon hours worked but, rather, by job or project.
(2) Place of Business or Own Equipment Requirement requires that the worker has a principal place of business, does not provide services primarily at the hiring party’s work site(s), pays fair market rent for use of the hiring party’s work site or equipment (e.g. office space, computer, phone), or provides services primarily using the worker’s own equipment.
(3) Written Contract Requirement requires that the parties sign a written contract confirming the IC relationship and that the worker is responsible for his / her / its own tax obligations, among other requirements.
In the context of the gig economy where an internet platform or app facilitates the transactions and payments between IC’s and hiring parties, that third party would also not be treated as the employer under the NEW GIG Act.
As Senator Thune states, ““While the gig economy companies have created thousands of new jobs, they’ve also faced new challenges when it comes to how the service providers are classified by the IRS. My legislation would provide clear rules so these freelance-style workers can work as independent contractors with the peace of mind that their tax status will be respected by the IRS.”
Support for the NEW GIG Act
Leaders of Uber, DoorDash, Instacart, Glam Squad, Postmates, Grubhub, Saucey, Handy, Shipt, and Hyr collectively wrote a letter to Senator Thune on August 21, 2017, expressing support for his bill. While urging Congress to include the bill in tax reform legislation, the company leaders stated that the NEW GIG Act “will enable continued growth and innovation in the ‘on-demand’ economy by clarifying the tax treatment of independent contractors who work in this important sector.” For a copy of the letter, please https://www.thune.senate.gov/public/_cache/files/188c3824-417e-48b5-9239-6af4b5dff1c6/78A9306A1CA70CFC597175E47D8189EF.thune-new-gig.pdf.
Prognostication
Federal legislation concerning independent contractors in the gig economy will almost certainly pass at some point during the current administration. In the meantime, regardless of whether the NEW GIG Act becomes law, any such federal tax reform legislation does not and will not impact the IC classification tests under federal wage and hour law (the Fair Labor Standards Act), the National Labor Relations Act, or any other federal law—and of course does not supersede state IC classification laws.
For more information from Senator Thune’s office on the NEW GIG Act, please, please https://www.thune.senate.gov/public/index.cfm/2017/7/thune-introduces-bill-to-add-certainty-to-worker-classification-rules and https://www.thune.senate.gov/public/index.cfm/2017/8/ten-innovative-technology-companies-support-thune-s-new-gig-act. We will, of course, continue to track this bill and provide client updates.
II. Salary Threshold for “Exempt” Employees
a. Federal Exemption Rule Litigation
The months-long saga of the United States Department of Labor’s (“DOL”) proposed rule expanding overtime protections to more workers (“Federal Exemption Rule”) effectively ended on August 31, 2017, when a Texas federal district court invalidated the Federal Exemption Rule. The Texas federal district court granted summary judgment against the DOL and concluded that the Federal Exemption Rule exceeded the DOL’s authority. The court concluded that by having the Federal Exemption Rule more than double the minimum salary level, the DOL “effectively eliminates a consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties,” which Congress intended to be part of any exemption determination. (State of Nevada et al. v. U.S. DOL (E.D. Tex. Aug. 31, 2017), available at http://www.txed.uscourts.gov/notable-cases.) The Texas federal district court’s order is notable because on September 5, 2017, the DOL ended its efforts to attack the decision. This effectively ends the Federal Exemption Rule.
That said, the proverbial jury is still out on the issue of a new regulations relating to the salary-level test, the duties test, and automatic updating of the salary level tests, among other things. The DOL is still accepting comments on its Request for Information on its “new” proposed exemption amendment rules until September 25, 2017. See Overtime Pay: Request for Information, https://www.dol.gov/whd/overtime/rfi2016.htm.
Expect to see some form of amended / revised exemption rules introduced in late 2017 or early 2018.
b. End of Proposed State Law(s) Impacting the Exemption Rules for Now
As California employers know, controlling California law applies stricter, worker-friendly, salary and duties tests for California employees to be exempt from overtime, meal-and-rest breaks, timekeeping, and other wage-and-hour obligations. And, for a brief moment, California employers saw proposed legislative that would have codified the Federal Exemption Rule under California law, increasing the minimum salary to $47,472/year or no less than twice the state minimum wage for full-time employment, whichever amount is higher (AB 1565). But, as the 2017 California legislative session drew to a close on September 15th, so did concerns that California employers would need to increase exempt employees’ salaries or re-classify them as non-exempt employees. Specifically, AB 1565 did not pass this legislative session as it has been marked “inactive.” That said, AB 1565 may reappear in a similar form in early 2018 given the ever-changing landscape of California employment laws.
III. Starting July 1, 2017, New Notice Requirements of Domestic Violence Protections
Employers with 25 or more employees have new workplace poster notice requirements. As background, domestic violence is well documented in American society. Under legislation passed in 2014, California seeks to protect victims of domestic violence, sexual assault, or stalking (collectively, “Domestic Violence”). Specifically, Labor Code § 230 prohibits an employer from discharging, discriminating, or retaliating against an employee who is a Domestic Violence victim and permits the employee to take time off from work to comply with a subpoena, obtain a restraining order, or obtain any other relief to ensure the health, safety, or welfare of the employee or the employee’s child (“Time Off to Go to Court”). Moreover, an employer must reasonably accommodate a Domestic Violence victim concerning his or her safety while at work. (Id. § 230(f)).
Effective July 1, 2017, Labor Code § 230.1 requires employers with 25 or more employees to allow Domestic Violence victims to take unpaid leave—no greater than 12 weeks provided to workers under the Family and Medical Leave Act—to seek medical attention or services from a domestic violence shelter, program, or rape crisis center, psychological counseling, or receive safety planning related to Domestic Violence (“Time Off to Obtain Services”).
To promote awareness of these protections, affected employers must provide new hires and current employees upon request written notice of § 230.1 rights. The Labor Commissioner has developed a form employers may use to comply these notice requirements: See, https://www.dir.ca.gov/dlse/Victims_of_Domestic_Violence_Leave_Notice.pdf (“Labor Commissioner Notice”).
Employers with 25 or more employees will want to ensure that they include the Labor Commissioner’s Notice in their new hire materials or have it readily available to employees who request it.
As you can see, every day brings a new change or challenge in the employment law arena.