Home Health & Hospice Week

Labor Law:

Apply Independent Contractor Designation Carefully After Regulatory Change

Compliance for claiming contractor status is a ‘moving target,’ attorney warns.

If you think avoiding burdensome overtime requirements by classifying workers as independent contractors is a good idea, you may need to think again.

Earlier this month, the Department of Labor pulled its Trump-era rule regarding independent contractor classification, signaling its intention to focus on this area (see HCW by AAPC, Vol. XXX, No. 17). “Misclassified employees often are denied access to critical benefits and protections they are entitled to by law, such as the minimum wage, overtime compensation, family and medical leave, unemployment insurance, and safe workplaces,” the DOL says on its website. “Employee misclassification generates substantial losses to the federal government and state governments in the form of lower tax revenues, as well as to state unemployment insurance and workers’ compensation funds.”

With that rule now gone, independent contractor status will once again be determined using previous guidelines from the DOL and Internal Revenue Service, notes attorney Liz Zink-Pearson with law firm Pearson & Bernard in Edgewood, Kentucky. “Although they are similar, it has caused, more often than not, litigation to determine if a worker is indeed an independent contractor,” Zink-Pearson tells AAPC.

A DOL Wage and Hour Division Fact Sheet from July 2008 spells out the “economic reality” factors that providers can use to determine independent contractor status, notes attorney Carolyn Horton with law firm Clark Hill in Grand Rapids, Michigan, in online analysis. (See box, p. 147, for the seven factors.)

“Unlike the test explained in the January rule, the economic realities test does not weigh any single factor or pair of factors more heavily than another,” Horton points out. “Additionally, this list is non-exhaustive, providing only a list of factors the U.S. Supreme Court has deemed significant to the analysis and thereby leaving courts and employers to consider other scenario-specific facts in determining independent contractor versus employee status,” she explains.

“One of the challenges with the economic realities test is that it is quite subjective,” laments attorney Angelo Spinola with law firm Polsinelli in Atlanta. “Two different decision-makers can look at the same set of facts and reach conflicting decisions based on their individual viewpoints,” Spinola tells AAPC.

Result: “This makes compliance a moving target for the 1099 models,” Spinola cautions.

With the Trump-era rule withdrawn, “employers will have less clarity as to how courts and the Department will determine independent contractor status under the [Fair Labor Standards Act],” expect attorneys James Paretti, Jr., Dane Steffenson, Robert Pritchard, and Michael Lotito with law firm Littler Mendelson. “Courts have used a variety of different tests, making predictability and consistency, partic­ularly for national employers, difficult,” the Littler attorneys say in online analysis.

In Zink-Pearson’s view, “the tests boil down to how much control the employer has over the work that the worker performs,” she believes.

Don’t forget that state rules and regulations may override the national ones, points out attorney Jacob Tosti with law firm Bowditch & Dewey in Framingham, Massachusetts.

For example: “The more stringent ‘ABC’ independent contractor test required under Massachusetts state law remains in force,” Tosti highlights in online analysis. Under that law, “a business who wants to treat a worker as an independent contractor rather than an employee still must show that the work: is done without the direction and control of the employer; is performed outside the usual course of the employer’s business; and is done by someone who has their own, independent business or trade doing that kind of work,” he details.

Many states apply the ABC Test, points out attorney Aaron Goldstein with law firm Dorsey & Whitney in Seattle. “States applying some version of the ABC test include California, Connecticut, Delaware, Illinois, Indiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, Vermont, Washington, and West Virginia,” he says in online analysis.

“The California ABC rule … basically negates any possible independent contractor status” for home care workers, Zink-Pearson judges.

Under the Biden administration, industry veterans expect to see a crackdown on the issue of misclassifying workers as independent contractors. “It is clear that the Biden administration holds the same view on 1099 models as the DOL did during the Obama administration, which forecasts a challenging road ahead,” Spinola predicts.

Just since March, the DOL has announced three separate home care cases where the combined back wages and fines reached into the millions (see HCW by AAPC, Vol. XXX, No. 17).

“Employers should expect the Department to vigorously and aggressively enforce wage and hour standards under the FLSA, and businesses using independent contractors would be wise to closely review their procedures and practices with an eye toward the DOL’s likely hostility toward the business model,” the Littler attorneys urge.

“Our firm has always discouraged home care agencies from using independent contractors as caregivers. The risks have always outweighed the benefits — even under the former rule,” offers attorney Eileen Maguire at Gilliland, Maguire & Harper in Indianapolis.

“In providing home care services, a marketing advantage is to give clients peace of mind with respect to the significant oversight, training and control the agency has with the caregivers they place in the client’s home,” Maguire tells AAPC. “Exercising such control over a caregiver creates an employer-employee relationship, which requires compliance with the FLSA, among other federal and state laws,” she says.

“For home health & hospices, if the worker is an individual, it is often very difficult to prove that he or she is an independent contractor because agencies bring work to the table, determine services to be provided, and must supervise the work in most cases,” Zink-Pearson says.

Exception: Usually “if the contractor works for another company — such as a therapy staffing company — that worker can safely be classified as an independent contractor unless that worker works almost exclusively for the company hiring the staffing group,” Zink-Pearson allows.

What’s next: Don’t be surprised to see the DOL under the Biden administration propose stricter rules around independent contractors, given the rise of gig economy employers such as Uber, DoorDash, etc. “The big concern with this change is whether the DOL will issue a new rule now that mirrors the California ABC rule,” Zink-Pearson says.

“The expectation that the Department will take a more aggressive approach towards enforcement of worker classifi­cation laws, and dramatically narrow the class of workers who may be properly classified as independent contractors under the law” is “worrisome,” the Littler attorneys judge.

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