A bill was recently introduced in the Ohio legislature which would pose an existential threat to companies that do business with independent contractors. The bill, H.B. 568, would establish a new more stringent seven-part statutory test to determine a worker’s status for purposes of several state laws.
H.B. 568 would amend the minimum wage, workers’ compensation, unemployment, and tax law by replacing the current tests used to determine whether an individual is an employee or independent contractor with a uniform statutory test. The new statutory test would provide that an individual is an independent contractor only if all of the following conditions are satisfied:
(a) The individual has been and continues to be free from control and direction in connection with the performance of the service.
(b) The individual customarily is engaged in an independently established trade, occupation, profession, or business of the same nature of the trade, occupation, profession, or business involved in the service performed.
(c) The individual is a separate and distinct business entity from the entity for which the service is being performed [plus special rules pertaining to the construction industry].
(d) The individual incurs the main expenses and has continuing or recurring business liabilities related to the service performed.
(e) The individual is liable for breach of contract for failure to complete the service.
(f) An agreement, written or oral, express or implied, exists describing the service to be performed, the payment the individual will receive for performance of the service, and the time frame for completion of the service.
(g) The service performed by the individual is outside of the usual course of business of the employer.
As compared to the common law test, which is currently used for unemployment purposes, the foregoing test would make it substantially more difficult to establish that an individual is an independent contractor. The test would not be satisfied unless the elements of the common law test, the “ABC” test – which essentially comprise conditions (a), (b) and (g) – and new stringent requirements are established.
Additionally, the new statutory test would be especially burdensome on service based independent contractors who may merely require a laptop to operate. These independent contractors may not be able to satisfy condition (d) because they may not have recurring business expenses or liabilities.
State Representatives Debbie Phillips (D) and John Rogers (D) introduced H.B. 568 on May 17, 2016. Click here for updated bill tracking information on H.B. 568 and other state legislative developments affecting independent contractors and their clients.
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