Nevertheless, the tightening of the economic reality test could have a negative impact on some current employees, who could be reclassified as independent contractors in a way that would result in lower total compensation, but would not receive intangible benefits, such as additional flexibility, in return. [167] The EPI and like-minded commentators believe that these workers would “do the same work for significantly less pay than an independent contractor” and that this group of workers includes most, if not all, workers affected by this rule. The ministry agrees that some workers could be affected in this way, but believes that such cases are likely to be rare, as two necessary conditions limit the number of such workers. The Department considers that it has chosen the least onerous, but still cost-effective, method to clarify the distinction made by the RSA between employees and independent contractors. While the Regulations will result in regulatory initiation costs, the Department believes its proposal would reduce the overall burden on organizations by simplifying and clarifying the analysis to determine whether a worker qualifies as an employee or independent contractor under the RSA. The ministry believes this rule, once inducted, will reduce the time organizations spend determining whether an employee is an independent contractor. In addition, the additional clarification Start Printed Page 1246 could promote innovation and security in business relationships. The AFPF agreed “that the Department appropriately analyzed possible alternatives and selected the least onerous option under the Unfunded Mandates Reform Act, 1995.” The vast majority of substantive submissions agreed with proposed section 795.105(a). An anonymous commentator suggested that the department interpret the LSF`s minimum wage and overtime pay requirements as applying to independent contractors, as the law`s “policy statement” in 29 U.S.C. 202 “suggests that the purpose of the FLSA is to protect workers.” The Department does not adopt this interpretation because the federal courts of appeal have consistently ruled and it has consistently stated that “the wage and hours of work requirements of the RSA do not apply to true independent contractors.” Karlson, 860 F.3d to 1092; See also, for example, Parrish, 917 F.3d to 384; Saleem, 854 beginning printed page 1178F.3d at 139-40; Express delivery in sixty minutes, 161 F.3d to 305; see also Portland Terminal, 330 U.S., at p. 152 (indicating that the RSA “was clearly not intended to stamp all persons as employees”). As noted in the NPRM, codifying a common law test of review used for the purposes of at least some other federal statutes would create a simpler legal system for regulated entities interested in obtaining services from an independent contractor, thereby reducing confusion, compliance costs and legal risks for businesses interested in doing business with independent contractors.
Businesses would not need to understand and apply any other job classification standard for the purposes of the RSA. Therefore, the introduction of the common law test of review would likely increase ongoing cost savings for regulated entities, due to increased clarity and fewer litigation than the final regime. On the other hand, it could impose burdens on workers who prefer to be workers subject to the protection of the RSA. In addition, the Supreme Court has interpreted the term “suffer or permit” in section 3(g) of the RSA to provide a broader definition of employment than the common law. See, for example, Darden, 503 U.S., at p. 326; Portland Terminal Co., 330, pp. 150-51. 254. See Dynamex, 416 p.3d 1; Assembly Bill (“A.B.”) 5, c. 296, 2019-2020 Reg. Sess.
(Cal. 2019) (codification of ABC test in Dynamex); A.B. 2257, c. 38, 2019-2020 Reg. Sess. (Cal. 2020) (excluding certain occupations, occupations and sectors from the ABC test coded by A.B. 5). The ABC test comes from state unemployment insurance laws, but some state courts and lawmakers have recently expanded the test to settle disputes between workers and independent contractors under state wage and hour laws.
See Keith Cunningham-Parmeter, Gig-Dependence: Finding the Real Independent Contractors of Platform Work, 39 N. Ill. U. L. Rev. 379, 408-11 (2019) (discussion of the origins and recent expansion of the ABC test). Jackson et al. (2017) [92] and Lim et al. (2019) [93] use tax information to estimate the prevalence of stand-alone contracts. In general, studies that use tax data tend to show an increase in the prevalence of stand-alone contracts over time.
The use of tax data has some advantages and disadvantages over survey data. Benefits include large sample sizes, the ability to link reported information across different datasets, reduced biases such as reporting bias, records of all activities throughout the calendar year (CFS refers to only one week), and involvement of primary and secondary independent contractors. The disadvantages are that the status of independent contractor must be derived; There is likely under-reporting bias (i.e., some workers do not file taxes); Researchers generally attempt to meet the IRS definition of independent contractor, which does not reflect the scope of independent contractors under the RSA; and estimates include misclassified independent contractors. [94] A major disadvantage of using tax data for this analysis is that the detailed source data is not publicly available and, therefore, the analyses cannot be directly verified or adapted if necessary (e.g., to describe the characteristics of independent contractors, etc.). The Department used the Small Business Administration`s size standards, which determine whether a business qualifies for small business status, to estimate the number of small businesses. [259 260] The Department then applied these thresholds to the 2012 U.S. Census Bureau Economic Census to obtain the number of establishments with employment or sales or revenues below the threshold for small businesses in the industry. [261] These ratios of small and large farms were then applied to more recent 2017 Economic Census data on the number of farms. [262] Next, the ministry estimated the number of small governments, defined as having fewer than 50,000 inhabitants, from the 2017 census. [263] Overall, the Department estimates that there are 6.4 million small institutions or governments.
According to the CWS`s relatively narrow definition of independent contractor:Start Printed Page 1217 The Scantland court`s discussion of the control factor included the fact that “so do [t]he technicians are. licensed, due to constant false invoicing, fraudulent invoicing, theft,. [and] consistently low quality control scores” as evidence that the control factor in employees` preferred classification. 721 F.3d to 1314 (11th Cir. 2013). [26] However, employees and independent contractors are routinely fired for fraud, theft and substandard work. Such dismissal therefore does not constitute evidence of whether and whether the dismissed workers were in business for themselves, as opposed to economic dependence on the potential employer. On the other hand, dismissals for non-compliance with mandatory schedules or for non-compliance with close supervision would be conclusive, since people who do business for themselves are generally not required to work and monitor closely. Basically, the question of “why” workers were laid off is very important. Several commentators asked the Department to revise paragraph 795.105(c) to establish a rebuttable presumption of independent worker or contractor status if the two fundamental factors point to the same classification. Such a presumption would be rebuttable only by `strong evidence to the contrary among the three [other factors]`.
Ata. According to the ATA, a rebuttable presumption “will further reduce the possibility that courts will apply and assess the three additional factors in an unnecessary and potentially selective manner to achieve preferred policy outcomes, which in some cases has raised concerns with respect to the current test.” As explained by NPRM, the Department considered a rebuttable presumption based on the alignment of the two fundamental factors, but did not propose it because it was concerned that a formal presumption might be unnecessarily complex or burdensome.