Uniform Worker Classification Act

Summary

  There is a lack of clarity in the workforce marketplace and in the law as to which workers are employees and which ones are truly independent contractors.  Confusion as to the precise definition of an independent contractor has contributed to conflicting decisions by the courts on this matter. In addition, a worker can be subjected to various laws where he or she may be found to be an employee under one law but an independent contractor under another.  This Uniform Worker Classification Act simplifies the criteria used to define independent contractors with respect to employment, and imposes objective standards on the differentiation of independent contractors from employees.  This Act also provides for uniformity of a state’s laws where the distinction between employees and independent contractors is relevant.

Uniform Worker Classification Act

Model Policy
Section 1. {Short Title.} This Act shall be known as the Uniform Worker Classification Act.
Section 2. {Legislative Declarations.}
FINDINGS:
The Legislature Finds:
(A) Recent developments in the workforce marketplace, and in particular with the advent of the so-called “gig” economy, have highlighted the confusion that currently exists with the proper classification of workers. The distinction between employees and independent contractors is a problem that vexes not only workers and businesses, but the courts as well.
(B) Not only are the legal standards used to differentiate employees from independent contractors generally subjective in nature, but businesses and workers are subject to a variety of legal tests under different laws where a worker could be found to be an employee under one law but an independent contractor under another law, leaving the same person classified as an employee for some purposes but as an independent contractor for other purposes.
(C) It is in the best interests of this State to ensure that workers who meet the legal standard of being employees are properly classified as such and are provided, without the necessity of initiating uncertain litigation, with the legal benefits and protections to which they are entitled. Conversely, those workers who are properly independent contractors have an interest in ensuring that they have the unhindered ability to secure the benefits that such a business structure provides.
(D) It is in the best interests of workers, business, and government to have fair, objective, and uniform standards for determining who is an employee and who is an independent contractor.
(E) The purpose of this Bill is to bring uniformity in the laws and clarity, using objective standards, to the marketplace regarding the distinction between employees and independent contractors. By doing so, the State will ensure that workers who are indeed “employees” are properly classified as such and will be afforded with the legal protections that apply to such status, and that workers who desire to be, and meet the standards of being, independent contractors will be entitled to the freedoms that such a relationship provides; all of which will reduce unnecessary and costly litigation and confusion in the workforce marketplace and in the courts.

Section 3. {Included Laws/Repealer Clause.}
The purpose of this Uniform Worker Classification Act is to bring clarity and uniformity under the laws of this State with regard to differentiating employees from independent contractors in employment, and by imposing objective and uniform standards for making that distinction. Consequently, all laws where the application thereof is contingent upon the classification of a worker as being an employee or otherwise are governed, and superseded to the extent necessary, by this Act, including but not limited to ________________________ {Include citations to relevant state laws, such as workers’ compensation act, unemployment compensation act; state wage act; civil rights act, tort claims act; etc.}.

Section 4. {Classification of Independent Contractors and Employees.}
(A) A person shall be classified as an independent contractor under the laws of this State, including but not limited to those laws identified in Section 3 of this Act, if and only if:

1. The person possesses or has applied for an employer identification number or social security number, or had filed an income tax return for a business or for earnings from self-employment with the Internal Revenue Service in the previous year; and
2. The person is required by the contract with the principal to hold, pay for, and maintain during the term of the contract, any necessary occupational licenses or permits; and
3. The person satisfies five or more of the following criteria:
(a) Notwithstanding the exercise of control necessary to comply with any statutory or regulatory obligations, or obligations of contract to ensure compliance with the laws, to protect the licenses or permits of the principal, or to protect persons and/or property, the person has control and discretion over the means and manner by which the work is to be accomplished, even though he or she may not have final control over the result of the work.
(b) Except for an agreement with the principal relating to a completion schedule, range of work hours or, if the work contracted for is entertainment, the time such entertainment is to be presented, the person has control over the time the work is performed.
(c) The person is not required to work exclusively for one principal unless:
(i) A law, regulation or ordinance prohibits the person from providing services to more than one principal; or
(ii) A license or permit that the person is required to maintain in order to perform the work limits the person to working for only one principal at a time or requires identification of the principal; or
(iii) The person has entered into a written contract to provide services to only one principal for a limited period.

(d) The person exercises independent initiative in soliciting customers to purchase his or her services
(e) The person is free to hire employees or to retain assistants to assist with the work.
(f) The person signs and dates a written contract with the principal which states the principal’s intent to retain the services of the person as an independent contractor and contains acknowledgements that the person understands that he/she is:
(i) Providing services for the principal as an independent contractor;
(ii) Not an employee of the principal and is not entitled to either worker’s compensation or unemployment compensation benefits provided for the principal’s employees;
(iii) Obligated to pay all applicable federal and state income taxes on any monies earned pursuant to the contractual relationship, and that the principal will not make any tax withholdings from any payments from the principal;
(iv) Responsible for obtaining and maintaining any required governmental registrations, licenses or permits necessary for the rendering of the services; and
(v) Responsible for all expenses that he/she incurs in connection with performing the contracted for services.
(g) The person contributes a substantial investment of capital in the business of the person, including, without limitation, the:
(i) Purchase or lease of ordinary tools, material and equipment regardless of source;
(ii) Obtaining of a license or other permission from the principal to access any work space of the principal in order to perform the work for which the person was engaged; and
(iii) Lease of any work space from the principal required to perform the work for which the person was engaged.
The determination of whether an investment of capital is substantial for the purpose of this subparagraph must be made on the basis of the amount of income the person receives, the equipment commonly used and the expenses commonly incurred in the trade or profession in which the person engages.
(h) The work status of the person, or the person’s category of worker rendering services for the principal, has been analyzed by the federal Internal Revenue Service (“IRS”), and the IRS has not reclassified the person to be an employee or has not reclassified the category of workers to be employees.

(B) All workers who do not satisfy the standards set forth in subsection (A) shall be classified as employees.

Section 5. {Severability Clause.}

Section 6. {Effective Date.}