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DOL and State of California Target Independent Contractor Classifications; 9th Circuit Provides More Ammunition

The U.S. Department of Labor (DOL) and the California Labor Commissioner jointly announced that the DOL's Wage and Hour Division and California's Labor and Workforce Development Agency (LWDA) have entered into a memorandum of understanding (MOU), regarding the "improper classification" of workers as independent contractors.  The MOU purports to seek "to protect the rights of employees and level the playing field for responsible employers by reducing the practice conducted by some businesses of misclassifying employees."

The MOU with California is the 12th such memorandum for the DOL, with Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington previously having entered into similar agreements. Independent contractor classification has come under attack for a variety of reasons, not the least of which is the inapplicability of various labor and employment laws to independent contractors. While the MOU doesn't permit or bind either agency to any additional expenditures, the agencies have agreed to exchange information as practicable and when possible and to assist each other's outreach and education efforts. 

The MOU was announced just one day after the 9th Circuit Court of Appeals issued its decision in Ruiz v. Affinity Logistics Corporation, vacating a lower court's ruling that a group of employees were properly classified as independent contractors. In Affinity Logistics, the District Court had given effect to a contractual choice of law provision and applied Georgia law which contains a presumption of independent contractor status. California law, contrary to Georgia law, presumes employee/employer status and places the burden of proof on the party alleging independent contractor status. The 9th Circuit, however, disagreed with the District Court's resolution of the choice of law question, finding that California law should apply notwithstanding the parties' contractual selection of Georgia law, because the Georgia law conflicts with what the 9th Circuit found was a fundamental California public policy. The 9th Circuit based its decision on its determination that California had a greater interest than Georgia in the outcome of the case because the work at issue was done in California. While the 9th Circuit remanded the case to the District Court to reexamine the independent contractor issue, the decision underscores that it is becoming more difficult for companies to have independent contractor arrangements in California affirmed by the courts.

The Affinity Logistics decision and the signing of the MOU, in combination with recently enacted California Legislation increasing the penalties for misclassifying employees previously discussed in our blogs and alerts, are strong reminders that classifying workers as independent contractors, especially in California, is a decision that should be discussed with experienced counsel.

© 2021 BARNES & THORNBURG LLPNational Law Review, Volume II, Number 45
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