Recent actions by the federal government have led to heightened scrutiny of independent contractor status across the country, according to The Legal Intelligencer.
In a recent piece from the oldest law journal in the U.S. they highlight the independent contractor misclassification case of Uber drivers in San Francisco and the potential impact it could have on the contingent workforce management system as a whole. It's an extremely important issue considering 40.4% of the U.S. workforce is made up of contingent workers or independent contractors, according to a report from the U.S. Government Accountability Office. Of this group 66% work full-time.
Independent Contractors vs. Employees
The author of the piece is James Shrimp, a lawyer who's spent most of his practice representing employers in a variety of capacities, warns, “the line between independent contractors and employees is being re-evaluated and redefined not only by courts, but also by the U.S. Department of Labor. If your business utilizes independent contractors, you must keep an eye on these developments.”
One of the things the Department of Labor did was issue an administrator's interpretation relating to independent contractor misclassification under the Fair Labor Standards Act. While the issue doesn't change the law, it does define the standard the DOL will use to determine investigation into a case.
Perhaps the biggest change, though, is in the weight courts will now place on the “control” factor. More specifically, the degree of control exercised or retained by the employer. This will now play a very small role in the classification process.
The Effects on the Sharing Economy
The main point of contention with the new policies is the potential negative effects they could have on the sharing economy. These are companies that allow individuals to borrow or rent assets or services from someone else. Uber is the prime example of this. Their entire business model could be destroyed if they're required to treat Uber drivers exactly like full-time employees. In fact, many of them exist solely because they can avoid the legal and payroll complexities of traditional businesses.
It is an issue that could affect other industries as well considering 90% of firms utilize freelance or contracted talent in some way. These companies doing so better be careful to not engage in independent contractor misclassification or they could face severe consequences in the future.