Biden Plan could change worker classification test

Dean Harris

During his campaign, President Joe Biden issued a comprehensive plan for strengthening worker organizing, collective bargaining and unions.  

The Biden Plan proposed sweeping changes to protect American workers or increase the regulatory burden on employers, depending on your perspective. Biden’s actions just a few days into his presidency signal upcoming changes that will affect the way employers do business. This article will touch on one recent change.  

The Biden Plan devotes considerable discussion to addressing the misclassification of employees as independent contractors. The plan proposes making worker misclassification a substantive violation of law under federal employment and tax laws, increasing the number of federal investigators in labor and employment agencies to address misclassification and enacting a uniform test for distinguishing independent contractors from employees.

Federal agencies and different states impose various similar, but separate, tests for independent contractors. Enacting a single standard could help employers more accurately and consistently classify workers correctly.

 But the Biden Plan proposes to adopt the so-called ABC Test, a standard more restrictive than many of those in place, most of which examine the economic realities of an organization’s relationship with the worker.  Under the economic realities test,  the totality of the circumstances are examined to determine whether a worker is so dependent on the organization with which the worker is connected the worker is, in fact, an employee. The Internal Revenue Service applies an 11-factor test to determine whether a worker is an independent contractor or employee.  

The ABC Test requires that all of three elements be met for an organization to classify a worker as an independent contractor:

 A. The worker 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.

B. The worker performs work outside the usual course of the hiring entity’s business.

C. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

Both  A and C are already included in the statutory test of the Colorado Workers Compensation Act and Colorado Employment Security Act, although the Colorado Supreme Court, in Industrial Claim Appeals Office v. Softrock Geological Services Inc., announced Colorado would examine the totality of the circumstances in classifying workers and that no single factor or set of factors is dispositive in unemployment insurance cases.

On Jan, 7, the U.S. Department of Labor announced a new final rule that would have simplified the economic realities test effective March 8. But on Inauguration Day, President Biden signed an executive order freezing new and pending regulations for further study, including the new economic realities test rule. In addition, the new administration promptly withdrew two DOL Wage and Hour Office opinion letters applying the new economic realities test to determinations of whether tractor truck drivers and food distributors are employees or independent contractors.

So where does this leave employers? While the new rule is only frozen, not withdrawn, it’s highly unlikely the Jan. 7 final rule will ever resurface. For now, the patchwork of old independent contractor tests remain in effect.  

In light of President Biden’s promises to work with Congress to impose the more restrictive ABC Test through legislation and increase investigations into worker classifications, employers shouldn’t sit idly by.

Employers should carefully examine the status of workers classified as independent contractors.  Employers can’t classify as independent contractors workers over whom the organization exercises supervision or control and who do not engage in an independent trade, business or trade.  

The Employers Council offers members several tools for making this determination, and I’m available to discuss worker classification with members.