From JDSupra, Richard Reibstein discusses a bill that was passed by the New York Senate which would allow New York’s Commissioner of Labor to issue stop-work orders to companies that knowingly misclassifed employees as independent contractors. Richard writes:
The most significant development last month in the law of independent contractors was not one of the four cases we summarize below but rather a bill passed by the New York Senate. If enacted into law, it would be the first legislation in the nation to curtail IC misclassification by the use of stop-work orders. The Senate bill would authorize the state’s Commissioner of Labor to issue stop-work orders to businesses that the Commissioner of Labor has found to have “knowingly misclassified employees as independent contractors.” Under the bill, a business would have 72 hours to come into compliance and, if it does not, the Commissioner could order the company to cease all business operations at every site at which a violation is occurring. The bill, more fully described below, allows a company to apply to the Commissioner for a hearing to contest whether it violated the law, but it also provides that “[a] stop-work order shall remain in effect until the Commissioner issues an order releasing the stop-work order upon finding that the employer has come into compliance.” While the bill has a number of defects that hopefully will be ironed out by the New York Assembly or Governor should it ever be enacted, its passage would dramatically alter the legal landscape in New York and may serve as a prototype for other states addressing IC misclassification. This is yet another reason for businesses to enhance their IC compliance. Many companies have minimized their exposure to IC misclassification liability by using a process such as IC Diagnostics (TM), which provides a sustainable approach to maximize IC compliance consistent with each company’s business model.
Legislative Developments
NEW YORK SENATE PASSES STOP-WORK BILL FOR IC MISCLASSIFICATION. In March, the New York Senate passed a bill (S.1514) that empowers the Commissioner of Labor, after an investigation, to issue stop-work orders to companies found to have “knowingly misclassified” employees as ICs. The bill requires the Commissioner to notify the company of an intention to issue a stop-work order, inform the company of its right to a hearing, and provide an explanation of the factual basis for the decision to issue a stop-work order. As drafted, the bill states that the business has 72 hours to come into compliance and, if it does not, the Commissioner “shall issue a stop-work order requiring the cessation of all business operations of the [company] at every site at which the violation occurs.” The bill next provides that the “stop-work order shall remain in effect until the Commissioner issues an order releasing the stop-work order upon finding that the [business] has come into compliance …” (Emphasis added.)
Yet the bill provides that a company has the right, within 10 days after the stop-work order has been issued, to request that the Commissioner conduct a hearing to contest whether the business engaged in a violation. As the publisher of this blog was quoted by reporter Max Kutner in a Law360 Employment Authority article, “State And Local Wage And Hour Updates To Watch,” “A big problem is that it is unclear whether an employer, which has a right to contest the stop-work order in 10 days, gets a stay of the stop-work order automatically or has to go into court to get a stay.” Essentially, this bill seems to put the cart before the horse, and may arguably violate constitutional due process protections, essentially imposing a stop-work directive before a company has the right to participate in a hearing and present evidence that it is in compliance with the applicable state law test for IC status.
Another defect in the Senate bill is the absence of any good faith defense to a finding of misclassification. Does a company “knowingly” misclassify employees as ICs if it has a legitimate reason to believe that its classification of the workers is valid? These are compelling reasons why the New York State Assembly should refrain from passing a version of this bill that contains these deficiencies. Another reason is that New York already has some of the strongest penalties in the nation (double damages) for companies failing to pay minimum wages and overtime to employees found to be misclassified as ICs. Finally, the bill’s use of a stop-work order seems out of place, as such orders typically are used only by regulators to prevent safety and health violations that can cause injury, which is not the case with employment violations. In the Law360 article, the publisher cautioned that ”[t]his type of legislation may well get a toehold in state legislatures across the country, and employers should be ahead of the curve by taking steps to enhance their independent contractor compliance.”