SENATE BILL REPORT

SB 5527

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As of January 18, 2018

Title: An act relating to simplifying and enforcing employee status under employment laws to ensure fairness to employers and employees and address the underground economy.

Brief Description: Simplifying and enforcing employee status under employment laws to ensure fairness to employers and employees and address the underground economy.

Sponsors: Senators Frockt, Chase, Keiser, Kuderer and Conway.

Brief History:

Committee Activity: Commerce, Labor & Sports: 6/28/17.

Labor & Commerce: 1/17/18.

Brief Summary of Bill

  • Creates the Employee Fair Classification Act (EFCA), which prohibits misclassification of employees as independent contractors and creates remedies, including civil penalties and damages.

  • Defines independent contractor for purposes of the EFCA and establishes the same definition for purposes of the Minimum Wage Act, unemployment insurance, industrial insurance, and other employment laws.

SENATE COMMITTEE ON COMMERCE, LABOR & SPORTS

Staff: Jarrett Sacks (786-7448)

SENATE COMMITTEE ON LABOR & COMMERCE

Staff: Jarrett Sacks (786-7448)

Background: Employment standards and benefits generally apply only if an employer-employee relationship exists, rather than an independent contractor relationship. Various multipart tests are used to determine whether an individual is an independent contractor. For purposes of prevailing wage, industrial insurance, and unemployment insurance, a six-part statutory independent contractor test is applied. This test requires that:

In the construction industry, a seventh required element is that the individual be registered as a contractor or licensed as an electrical contractor. For industrial insurance, a threshold question is whether a person under contract brings more than their personal labor to the job. For unemployment insurance, persons outside construction may also be independent contractors under an alternative three-part test.

For purposes of the Minimum Wage Act (MWA), which also addresses overtime, a common law economic dependence test applies. The inquiry under this test is whether the worker is economically dependent on the alleged employer or is instead in business for themselves. Other wage laws also do not have statutory tests. These include the Wage Payment Act, which provides for an administrative or court action to collect wages under the MWA and other wage laws, as well as establishes other requirements. Other laws address deductions from wages and otherwise address failure to pay wages.

Summary of Bill: The bill creates the Employee Fair Classification Act (EFCA).

Prohibitions and Requirements. Under the act, the following actions by employers or other persons are prohibited:

Misclassification is designating an employee as a nonemployee. Willful is a knowing and intentional action that is not accidental or the result of a bona fide dispute.

Employers who engage independent contractors must post a notice stating that a worker has a right to be classified as an employee if the worker does not meet independent contractor requirements, and that a complaint may be filed with the Department of Labor and Industries (L&I) or in a court if a person believes misclassification occurred.

Definition of Independent Contractor. The EFCA's independent contractor tests apply to prevailing wage, wage deductions, the WPA, the MWA, unemployment insurance, and industrial insurance. An independent contractor is an individual who performs labor or services under either of two tests. One test requires that:

An alternative test requires that:

Existing statutory independent contractor tests are repealed.

Employer-Employee Relationship. An employer-employee relationship exists when an individual performs labor or services for an employer. Proof that an individual is not an employee must be established by a preponderance of the evidence. A person may be an employee of two or more employers at the same time. Bona fide independent contractors, commissioned outside salespeople, individuals employed on a casual and sporadic basis, and volunteers are not employees under the EFCA.

Enforcement. L&I may investigate violations and for any of the prohibited acts may order payment of:

Individual and class actions are authorized. If the court determines that a person, including an employer, engaged in any of the prohibited acts, the court must order payment of damages of:

A three-year statute of limitations for both administrative and court actions is tolled during any period that an employer deterred an action. A pattern or practice means that within the previous ten years, the employer was convicted for nonpayment of wages or delinquent in payment of a court-ordered or administrative assessment for nonpayment of wages.

A general construction contractor is liable for violations of an independent contractor or subcontractor only when the general exerts substantial control over the day-to-day work of the subcontractor or independent contractor.

The EFCA Account (Account) is created. Civil penalties must be deposited into the Account, which is appropriated, and monies in the Account may be used only for enforcement of the EFCA.

Appropriation: None.

Fiscal Note: Available.

Creates Committee/Commission/Task Force that includes Legislative members: No.

Effective Date: Ninety days after adjournment of session in which bill is passed.

Staff Summary of Public Testimony: PRO: Current law on independent contractors is confusing and needs standardization, especially with more people working as independent contractors. Misclassification denies workers access to the social safety net, places a burden on workers, and is harmful to good businesses that follow the law. The bill takes out elements of the current test that are subject to abuse. Misclassification affects low income workers and people of color disproportionately.

CON: The bill switches the presumption and puts the burden on employers to prove a negative. The bill should focus on specific industries rather than revamping the whole thing. This does not simplify the test. There are factors that employers do not have control over or cannot know, such as whether the contractor has filed taxes or has a separate set of books. The bill ignores legitimate disputes and captures workers that are usually considered independent contractors. The bill was not presented to the Underground Economy Task Force, which focuses on these issues.

Persons Testifying (Labor & Commerce): PRO: Joe Kendo, Washington State Labor Council, AFL-CIO; Rebecca Smith, National Employment Law Project; Andrea Schmitt, Columbia Legal Services. CON: Mark Johnson, Washington Retail Association; Bob Battles, AWB; Tom Kwieciak, Building Industry Association of Washington; Patrick Connor, NFIB Washington.

Persons Signed In To Testify But Not Testifying (Labor & Commerce): No one.