Independent Contractor

On September 11, 2019, the California Senate passed Assembly Bill 5 (A.B. 5), which – if signed into law – will codify the so-called “ABC Test” utilized by the California Supreme Court in Dynamex v. Superior Court of Los Angeles to hold that the company’s delivery drivers were employees, not independent contractors, for the purpose of applying California Department of Industrial Relations Wage Orders. The bill, which California Governor Gavin Newsom is expected to sign, will have major implications on so-called “gig economy” workers, potentially leading to many being reclassified as employees rather than independent contractors.
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In an August 27, 2014 decision, the Ninth Circuit U.S. Court of Appeals ruled that FedEx Ground misclassified approximately 2,300 California package delivery drivers as independent contractors from 2000 to 2007, resulting in the failure to pay certain wages and reimbursements for business-related expenses. For businesses that make use of independent contractors as part of their regular workforce, the decision, Alexander v. FedEx Ground Package System, Inc., furnishes current guidance into how courts in the Ninth Circuit can be expected to apply California’s “right to control” test in determining whether workers are appropriately classified.
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Employers in construction and landscaping industries should be aware that on July 23, 2013, Illinois Gov. Pat Quinn signed two bills that add significant teeth to enforcement under the Illinois Employee Misclassification Act (the Act). The Act imposes penalties upon those employers that improperly misclassify employees as independent contractors. Gov. Quinn estimates that the State of Illinois loses upwards of $700 million in payroll and other employment-related taxes as a result of this misclassification.

House Bill 923 (Public Act 98-0105) will require contractors in the construction industry to report to the Illinois Department of Labor all payments made to any individual, sole proprietor or partnership not classified as an employee for work performed for the contractor. Such payments must be reported to the Department on or before January 31 following the taxable year in which the work was performed. The report must include the name, address and federal employer identification number of each individual, sole proprietor, or partnership performing the work, as well as for the contractor for whom the work was performed. Payments for the provision of equipment and materials must also be included in the report. The amount of the payments will be confidential and exempt from public disclosure, but the names, addresses and FEIN’s of the contractor, individual, sole proprietor or partnership contained in the reports will be subject to disclosure pursuant to a Freedom of Information Act request.
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