Independent Contractors Just Won’t Go Away: New Arizona Laws Attempt to Clarify this Tricky Business

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In Arizona, new laws on employment relationships and independent contractors have recently been passed, an article in The National Law Review reports. Until recently, the emphasis by governmental entities (e.g., NLRB, DOL, IRS, States, et al) has been almost exclusively on enforcement, while civil suits have increased in the context of the “gig economy.” Whether these new laws will really have prophylactic benefit for businesses and contractors in Arizona remains to be seen. At the very least, however, these Arizona laws seem to be another signal, in a lot of noise, that policy makers and other interested parties are beginning to grapple with this sticky wicket of worker classification.

One of the new Arizona laws “will allow employers contracting with an independent contractor to prove the existence of such a relationship by having the independent contractor sign a declaration.” According to National Law Review article, the declaration, which is optional, would include stipulations, in addition to others, that:

  • The business does not exercise control over the contractor’s methods or processes used to provide the service,
  • The business does not restrict the contractor in performing services for or through other parties,
  • The contractor does in fact provide services to other parties,
  • The contractor is paid for service delivered (not salaried or hourly) and does not receive benefits.

The article also ambiguously explains, “under the new law, the execution of a declaration creates a rebuttable presumption that an independent contractor relationship exists.”

The second of the new laws is at least as interesting as the first. According to the article, that law categorizes “independent contractors as individuals or entities using a qualified marketplace platform’s digital platform to provide services to third-party individuals.” Independent contractor status is conferred if payment for services is for substantially all of the services performed and there is a written contract in force between the two parties. The contract must include seven provisions ranging from the stipulation that services are provided by an independent contractor, not an employee, to the stipulation that either party may terminate the contract given reasonable notice.

Not surprisingly, neither of these new laws affects the application of federal laws. And again ambiguously, the article notes that these laws “do not otherwise effect any investigatory or enforcement authority related to the determination of independent contractor or employment status of any relationship.”

Based on the above, it appears it is not at all clear if these new laws — intended to be prophylactic — are really no more than a palliative measures. However, they certainly are another example of new activity in the public policy arena alongside others. At the federal level, there have been congressional hearings and also advocacy of reform by Virginia Senator Mark Warner. In addition, after being discontinued 10 years ago, funding has been reinstated by Congress for the BLS survey of contingent workforce/alternative work arrangements. Finally, there has been discussion of the concept of “dependent contractor,” as well as advocacy by interested private parties, such as MBO Partners and its proposal for the institution of a new “worker certification” called Certified Self-Employed (CSE).

Where all of this will lead is hard to say, but it seems to us like the most promising ways to accomplish clarification and legitimization are carve outs or exemptions for specific classes of workers and industries, where an independent contractor status can be reasonably clarified (such has occurred in certain industries before). The new Arizona laws attempts to accomplish this by focusing on work arrangements in its own state jurisdiction. Still, to put on the hat of the pessimist (or perhaps the realist), even these approaches may for now remain without teeth given the force of federal employee protection laws and the federal government’s reliance on payroll taxes.

So, we can ask if the emergence of the gig economy and business’ competitive necessity for a more flexible workforce and access to independent talent provide an impetus for meaningful policy actions and changes to make independent contractor status more defensible and less risky for businesses? Ask we may, but it would be a fool’s errand to hazard a prediction. In the meantime, amidst the sound and fury and the entanglement and inertia of existing laws, independent contractors are just not going away anytime soon either.

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