If you haven’t yet heard, there is some BIG employee misclassification news in the state of California. If you have events that you are producing in the state or have people that work in California, you may now have to operate very differently. The state of California just recently passed AB 5, which makes it practically impossible to classify your workforce as 1099 freelancers instead of part-time W-2 employees in the state. Check out this and other recent employee misclassification news below and stop by our blog in the coming days for more on AB 5 and how it will impact your event business.
What is employee misclassification? “Employee Misclassification”, in short, is the practice of illegally and improperly classifying workers as independent contractors (1099), rather than employees (part-time W2). According to the National Law Review, this practice of improper employee classification has increased by over 40% in the last 10 years, in large part due to the rise in gig economy companies like Uber that rely heavily on a network of independent contractors to operate.
The employee misclassification landscape is constantly evolving. Many states have cracked down on improper employee classification and are heavily targeting certain industries, like the event and entertainment industry, that have a long history of operating with freelancers or independent contractors. In an effort to provide the latest information to you, we have summarized some of the latest news on the subject. The costs of improper employee classification can be devastating to many businesses, so it requires our ongoing attention.
What are some recent employee misclassification headlines?
- NEW: The California State Senate Voted on AB 5, and it Passed: The passage of California’s AB 5 will make it hard for employers to misclassify employees as independent contractors resulting in potentially millions of California workers who have been kept off of payroll will now be required to have basic labor rights for the first time such as overtime pay and unemployment benefits. To get an idea of how big this is for the state of California, check this out: “When state tax investigators audited about 8,000 California businesses in 2017, they discovered that nearly half a million employees had been misclassified or otherwise left off payrolls.” Even if you do not produce events in the state of California, you need to be aware of this. Historically, where California goes, other states often follow. Check out this article and start educating yourself on AB 5 and how this will impact your event business today. Come back to our blog in the next week for more content on this significant reform and exactly what you need to know about it.
- California Independent Contractor Test Applies Retroactively: A few months ago, we gave you everything you needed to know about California’s new employee misclassification rules that went into effect on April 30, 2018. On May 2nd, a California Supreme Court ruling now holds that these rules will not only be applied to cases going forward, but also to disputes dating back to before the new ABC test was enacted. Jeffrey Horton Thomas, a management-side lawyer in the employment practice group at Akerman LLP’s California office said that ”Making the ABC test retroactive may subject businesses to liability for misclassifying workers as independent contractors even before the test was made law.”
- Lowes Agrees to $6.5 Million Settlement in CA Employment Case: Retailer accused of treating independent contractors as employees without benefits. There is no question – employee misclassification can be very costly. Here is one example of a retailer that was hiring installers as 1099 freelancers (and in turn not providing them with benefits such as overtime, vacation or sick pay, and insurance) instead of part-time W2 employees. Do any of your 1099 freelance techs install equipment? If so, you should definitely pay attention to this. In short, it was determined that Lowes controlled many aspects of their installers work – from where they performed the job, to how they dressed, how they should describe themselves, and more. The $6.5 million in the Lowes settlement will be shared with anyone who performed at least one installation job for Lowe’s in California from June 2008 through last week. Read more about this case here.
- New Jersey Task Force on Independent Contractor Misclassification Releases Report, Recommendations: Like many states, New Jersey created a “Task Force on Employee Misclassification” and this task force has recently released its report, offering 10 recommendations. “The Task Force’s report confirms that agencies will seek opportunities to investigate alleged misclassification and use the full spectrum of enforcement mechanisms available. The stakes of losing at the agency level are high and may cost businesses and owners the right to operate in the state and to continue their relationships with their partners. Potentially higher fines, legal expenditures, and risk of litigation suggest that businesses using independent workforce arrangements should consider evaluating whether their model is defensible and appropriate for the services they are outsourcing to independent contractors.” Check out the New Jersey task force’s 10 recommendations here.
How can you separate what is true from what could be a costly mistake when it comes to employee misclassification? Check out this infographic for more information. Obviously, it’s never been more important to get employee classification right. We hope you find these resources valuable in your own efforts on the subject.
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