Earlier today, April 30, 2014, New York State Labor Commissioner Peter M. Rivera issued a press release where he announced new standards for determining whether a commercial truck driver operating in New York is an employee or an independent contractor. The standards were issued in the wake of the recent enactment of the New York State Commercial Goods Transportation Industry Fair Play Act.
The Fair Play Act went into effect on April 10, 2014 following the Legislature’s passage of technical corrections that Governor Cuomo had requested. A comprehensive review and analysis of the new law was first published in our article in the New York Law Journal on November 27, 2013; our blog post on March 18, 2014 elaborated upon the important technical amendments made to the new law; and our recent blog post on April 2, 2014 offered readers insights into how to comply with the new law.
New York has been at the forefront of the federal and state crackdown on independent contractor (IC) misclassification, and the new law is therefore likely to serve as an impetus for other state legislatures to introduce similar law covering drivers of large commercial vehicles transporting commercial goods.
One cautionary note, however, is that the new standards are not consistent with the plain language and legislative intent of the Fair Play Act, as discussed below.
New York’s Enforcement Mechanism
New York has maintained an active, coordinated enforcement structure for enforcing laws governing ICs; its Joint Enforcement Task Force on Employee Misclassification has been active since 2007 and has been given responsibility to enforce the Transportation Industry Fair Play Act, according to today’s press release.
The Joint Enforcement Task Force is a partnership between the New York State Department of Labor, the Workers’ Compensation Board, the State Department of Taxation, the State Attorney General’s Office, and the Comptroller of the City of New York. According to the press release, the Joint Task Force members reportedly identified nearly 24,000 instances of employee misclassification, discovered more than $333.4 million in unreported wages, and assessed nearly $12.2 million in unpaid Unemployment Insurance contributions. The Joint Task Force’s last report was issued at the end of February and was the subject of our February 28, 2014 blog post.
The Fair Play Act Defines Who Is An Employee in the Transportation Industry
As noted in our prior article and blog posts, the Fair Play Act covers any driver with a state issued driver’s license where the driver operates a motor vehicle with a gross vehicle weight rating (GVWR) of over 10,000 pounds. Those drivers not covered because they operate vehicles with GVWRs of 10,000 pounds or less are discussed below.
A driver covered by the new law is presumed to be an employee unless the company utilizing his or her services can demonstrate that the driver meets the three-part test for ICs or the 11-part test for a separate business entity. The three-part IC test is a type of “ABC” test similar to IC laws in about half of the states, and requires the business to show that drivers who are retained to transport commercial goods in the state are: .
A. free from control and direction in performing the job, both under contract and in fact;
B. performing services outside of the usual course of business for the employer; and
C. engaged in an independently established trade, occupation or business.
Unlike most of the ABC laws in other states, however, the Fair Play Act alters the B prong, making it more difficult to prove IC status than in other states.
Alternatively, a business can comply with the new Fair Play Act by showing that the driver operating the covered commercial vehicle is a “separate business entity,” measured by an 11-factor test – and all 11 of the factors must be shown. Those factors are discussed in our prior blog posts on the new law. The 11 factors in the new law are listed below in the Endnote to this blog post.
The Prescribed Notice that Must Be Posted Now
Under the Transportation Industry Fair Play Act, each commercial goods transportation contractor must post in a conspicuous location on its site a notice prescribed by the Labor Commissioner. That notice has now been issued, and can be accessed at http://www.labor.ny.gov/formsdocs/ui/IA998.pdf.
The notice includes a newly established toll-free hotline for employee misclassification and an e-mail address (email@example.com) to file complaints, which the poster says can be made anonymously.
A failure to post the notice can result in a fine of $1,500 for a first offense and $5,000 for a subsequent offense. The poster also summarizes the penalties for misclassifying drivers as 1099ers or paying them off the books: $2,500 per misclassified driver for a first offense and $5,000 per misclassified driver for additional violations.
The State’s “Fact Sheet” on the Fair Play Act Lists Penalties for Violation of the New Law and Regrettably Misstates the 11 “Separate Business Entity” Factors
The New York State Department of Labor also issued a two-page “Fact Sheet” on the new law, which can be accessed at http://www.labor.ny.gov/formsdocs/wp/P760.pdf.
The Fact Sheet also lists the array of the penalties in the law for misclassifying covered drivers as ICs, including the liability for unpaid unemployment insurance and workers’ compensation contributions and premiums as well as unpaid payroll taxes. In addition, it includes references to the personal liability provisions of the law for certain shareholders and corporate officers who knowingly permit violations to occur, as well as the criminal penalties that can be imposed upon employers for willful violations of the law.
Regrettably, the Fact Sheet includes a list of the 11 “separate business entity” factors, but the list is significantly different than the words in the statute and, therefore, should not be relied upon. For example, the third factor is “the business entity has a substantial investment of capital in the business entity, including but not limited to ordinary tools and equipment” (emphasis added), but the Fact Sheet misstates the third factor as requiring the business entity to “Have invested substantial capital in its business entity beyond ordinary tools and equipment” (emphasis added). So, while the legislators and governor were clear that a substantial investment in ordinary tools and equipment was enough to satisfy this factor, the Labor Department says it is not. This type of “disconnect” at the state administrative level is not uncommon when dealing with ICs; we find that many state labor departments and administrative decision-makers across the country have issued guidelines and adjudicative decisions that are contrary to the plain language of the statutes and/or court decisions interpreting those laws.
The Newly Re-Issued Courier and Route Driver Guidelines for Messengers and Drivers Not Covered by the Fair Play Act
Finally, the New York State Department of Labor re-issued its so-called “Guidelines for Determining Worker Status in the Messenger Courier Industry.” Those Guidelines cover messenger couriers and route salespersons that are not covered by the Fair Play Act.
The newly re-issued Guidelines can be accessed on the Labor Department’s website at http://www.labor.ny.gov/formsdocs/ui/IA318.24.pdf.
How to Comply with the Fair Play Act
Our most recent blog post on the Transportation Industry Fair Play Act offers readers three steps to comply with the new law. Those steps can be challenging to accomplish, but for most businesses in the commercial goods transportation industry, compliance is readily attainable. More importantly, non-compliance is so potentially costly that even companies that believe they may be complying with the law are wise to take steps to further enhance their IC compliance in New York and in other states in which they operate.
The 11 factors in the “separate business entity” test are listed in the new law as follows:
(a) the business entity is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the commercial goods transportation contractor for whom the service is provided to specify the desired result or federal rule or regulation;
(b) the business entity is not subject to cancellation or destruction upon severance of the relationship with the commercial goods transportation contractor;
(c) the business entity has a substantial investment of capital in the business entity, including but not limited to ordinary tools and equipment;
(d) the business entity owns or leases the capital goods and gains the profits and bears the losses of the business entity;
(e) the business entity may make its services available to the general public or others not a party to the business entity’s written contract referenced in paragraph (g) of this subdivision in the business community on a continuing basis;
(f) the business entity provides services reported on a Federal Income Tax form 1099, if required by law;
(g) the business entity performs services for the commercial goods transportation contractor pursuant to a written contract, under the business entity’s name, specifying their relationship to be as independent contractors or separate business entities;
(h) when the services being provided require a license or permit, the business entity pays for the license or permit in the business entity’s name or, where permitted by law, pays for reasonable use of the commercial goods transportation contractor’s license or permit;
(i) if necessary, the business entity hires its own employees without the commercial goods transportation contractor’s approval, subject to applicable qualification requirements or federal or state laws, rules or regulations, and pays the employees without reimbursement from the commercial goods transportation contractor;
(j) the commercial goods transportation contractor does not require that the business entity be represented as an employee of the commercial goods transportation contractor to its customers; and
(k) the business entity has the right to perform similar services for others on whatever basis and whenever it chooses.