State and federal governments have significantly changed the contract and full-time employment guidelines. Employing increased scrutiny and penalties, the laws are especially tough on the incorrect classification of workers as independent contractors.
Federal changes already in effect
On January 9, 2024, the U.S. Department of Labor under the Biden administration issued a final rule that could significantly impact the classification of workers across various industries, including trucking, manufacturing, healthcare, and app-based services. This rule, which went into effect on March 9, is expected to increase business labor costs and stipulates that workers should be treated as employees rather than independent contractors if they are “economically dependent” on a company.
Differing views on the changes
The rule replaces a previous regulation from the Trump administration. It reinstates a long-standing court standard that assesses several factors, such as the degree of control a company has over a worker and the centrality of the worker’s role in the company’s business. This change aims to improve enforcement against the intentional misclassification of workers, a practice that can undercut labor costs at the expense of workers’ rights and benefits.
Critics claim that the changes will limit workers’ earning opportunities, lead to confusing litigation and potentially support labor unions by shifting more workers into employee status, as independent contractors are not eligible for union membership.
Advocates emphasize its importance in securing labor protections for vulnerable workers. They point out that misclassification can harm both employees, who miss out on legal protections, and law-abiding businesses that compete against those skirting labor costs through misclassification.
While companies like Uber, Lyft, and DoorDash have stated they do not expect the rule to alter their operations significantly, trade groups have expressed concerns about its enforcement. According to estimates, reclassifying gig workers as employees could lead to a substantial loss of income for millions.
Here in California
Governor Gavin Newsom passed several laws that strengthened the protections for California’s workers. As of January 1, 2024, if a court or the Labor and Workforce Development Agency finds out a company has wrongly labeled a worker as an independent contractor on purpose, they can fine the company between $5,000 and $15,000 each time it happens. If a company keeps making this mistake, the fines can go up between $10,000 and $25,000 per violation. These fines are on top of any other ones the company might face. A company that gets caught must also put a notice on its website for a whole year that states they misclassified workers and say they’ve made changes to stop this from happening again.
The Labor Commissioner also has more power to enforce these rules. They can determine if a violation has happened, look into complaints, provide temporary solutions while still investigating, give out citations, and even take legal action.
If workers want to take their employers to court over these issues, they have a choice. They can either ask for damages or go after the civil penalty through the Private Attorneys General Act (PAGA), but they can’t do both.
It is crucial to review employment policies
These changes make it essential for employers and employees to review their employment agreements to ensure compliance. Those with questions can discuss the details of their company’s situation with a labor law attorney to determine the best course of action.