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Unclear future: State of independent contractor law in flux

Robert Tomaso and Chris Brown

Robert Tomaso, managing partner of Husch Blackwell’s St. Louis office (left) and Chris Brown, a Kansas City attorney for Venture Legal who represents small businesses and independent contractors

Ask any employment attorney about the state of U.S. independent contractor law today, and you’re likely to get a similar answer.

“It’s going in several different directions at once,” said Robert Tomaso, managing partner of Husch Blackwell’s St. Louis office.

“The federal Department of Labor had been trying to loosen up the standards to make it easier for an employer to consider a worker an independent contractor. That’s probably going to change with the election,” he said, referencing the election of President Joe Biden.

Already, the Biden White House has halted as part of a widespread regulatory freeze a final rule issued by the U.S. Department of Labor during the administration of former President Donald Trump. It would have streamlined the test for classifying independent contractors to just two core factors, pending administrative review.

Meanwhile, Tomaso said a ruling issued Oct. 27 by the Missouri Court of Appeals Western District is likely to make it harder for employers in Missouri to classify their workers as independent contractors.

In 417 Pet Sitting LLC v. Division of Employment Security, a three-judge panel unanimously affirmed a ruling by the state Labor and Industrial Relations Commission, which held that workers engaged as pet caretakers performed services for 417 Pet Sitting LLC of Springfield that constituted “employment” under state law.

The court also affirmed that the workers’ pay amounted to “wages” as defined by state law.

While they’re not directly mentioned in the ruling, key questions are raised by 417 Pet Sitting for companies that engage independent contractors, Tomaso said.

“Does the putative employer have to pay into FICA or social security?” he said. “If someone were to work more than 40 hours, are they paid overtime? Not if they’re an independent contractor.”

Ray Lampert, an attorney for the Lampert Law Office in Springfield, represented the 417 Pet Sitting company. He did not respond to a message seeking comment on the ruling.

The company asked the Missouri Supreme Court to review the case. The court on March 3 declined to do so, leaving the Western District’s ruling in place.

California’s impact

The ruling in 417 Pet Sitting came amidst a national debate on the status of independent contractors, driven largely by major tech companies such as Uber and Lyft that have asserted their drivers are not employees entitled to benefits.

California, home to both Silicon Valley and the country’s most progressive employment laws, has been central to that debate. Because of its size, the state typically influences policy nationwide and sets out requirements that affect companies in other states doing business there.

In 2019, the state’s legislature enacted AB5, a bill codifying an earlier California Supreme Court ruling. The law, which took effect on Jan. 1, 2020, set out a so-called “ABC” test for determining worker classification. Under the test, a worker will be considered an employee unless an employer can meet all three of the following conditions:

  • The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  • The worker performs work that is outside the usual course of the hiring entity’s business.
  • The person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

In response, Uber and Lyft and other companies such as DoorDash threw their support behind a ballot measure exempting app-based drivers from being classified as employees. The measure, Proposition 22, passed with nearly 60 percent of the vote in November.

Chris Brown, a Kansas City attorney for Venture Legal who represents small businesses and independent contractors, said the changing landscape in California has affected his local clients with workforces across the country.

It’s frustrating to have different standards in different states, and the adoption of a federal standard would help, he said.

“The IRS might say you have to follow these rules. But when California changes it, are we supposed to hire employees in California but contractors elsewhere, and if we do, what is the IRS going to say?” he said. “The IRS doesn’t like it when you treat the same kind of employees differently.”

While he supports a national standard, Brown said he hopes Congress will resist applying California’s ABC test nationally, as has been proposed in the Protecting the Right To Organize Act, also known as the PRO Act.

In early February, Democrats in the U.S. House of Representatives reintroduced the bill, which passed the House on party lines in 2019 but failed to advance in the Republican-controlled Senate. The bill had not advanced to a vote as of press time.

The bill has the support of Biden, who pledged on the campaign trail to sign it into law.

Brown said he is not aware of any similar legislation in Missouri, but that’s not surprising because AB5 is “a very liberal policy,” while Missouri remains a largely conservative state, he added.

Brown said he does not favor expanding the ABC test because of the burden it would place on entrepreneurs like his clients. Hiring employees requires more work for companies and also requires employers to assume greater liability, he noted.

“It just makes it harder for them to start and to hire people,” he said “That’s not good for the local economy.”

Who controls the work?

Like Brown, Tomaso said several of his clients are dealing with the changes in California law.

Tomaso said companies such as Uber, Lyft or 417 Pet Sitting — the latter of which connects customers to pet sitters through a website — are providing a marketplace for the public to engage with workers for services rather than companies employing them directly.

The 417 Pet Sitting ruling could have serious implications for Uber and Lyft in Missouri, Tomaso added.

“I think it’s a harder argument to make in light of this opinion as to whether Uber or Lyft drivers are employees of Uber and Lyft as opposed to just being engaged by a rider through the marketplace that’s created by Uber and Lyft, and in that sense, I think it’s a troubling decision,” he said.

While he said he disagreed with the court’s decision, he said he can see how it evolved.

“The Court of Appeals is bound by the record below, and the standard of review for the Court of Appeals is competent and substantial evidence. It’s a very low standard,” he said.

He said the court reached its conclusion by relying on the IRS’ 20-factor control test, which considers how much control a putative employer exerts over the work being done. The Western District in its ruling appeared to mix up whether the pet owner or 417 Pet Sitting was the potential employer, he said.

To Tomaso, the most glaring issue was the portion of the ruling discussing where a pet sitter’s work takes place. Because of the nature of pet sitting, the client engaging the service isn’t able to watch the worker providing it, he said.

“417 Pet Sitting isn’t there, so how do they control the work?” he said. “I was really surprised when I read the opinion. What the court did was, it sort of said, ‘We’re not going to focus on that issue,’ but I think the court could have focused on that issue . . . in reading between the lines, it seemed the court was conflicted about the decision, but to me, it was pretty clear.”

Tomaso said he’d like to see the state and federal government make it easier for companies to engage independent contractors.

“The IRS 20-factor test has been around forever, but reasonable minds are free to disagree on the application of about 17 or 18 of the 20 factors,” he said. “I’d like to see the legislature clean it up, I’d like to see the federal government clean it up, but I’m not sure either will happen.”