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Employee or Contractor? Chamber Finds Proposed Restrictions Harmful, Forms Coalition

Advocacy News – May 12, 2023

The Michigan Chamber is leading a coalition of businesses and organizations opposing legislative efforts to force employers to reclassify virtually all workers from independent contractors to employees.   

The coalition’s work is focused on legislation introduced in the Michigan House that is mirrored after legislation passed in California in 2019, which would establish an “ABC test” for independent contractors. The Michigan bills include House Bill 4390 and related bills, including HBs 4391, 4393, 43944396, 4402, 4403, and 4404. 

The Michigan proposal would require companies to establish the individual meets all three components of the ABC test in order to classify a worker as an independent contractor: 

  • A: “The individual is free from control and direction of the [hiring entity’s] in connection with the performance of the work, both under contract and in fact”; 
  • B: “The individual performs work that is outside the usual course of the [hiring entity’s] business”; and  
  • C: “The individual is customarily engaged in an independently established trade, occupation or business of the same work performed by the individual for the [hiring entity].” 

Sweeping Impact, Effect
Unlike the California law, which carves out over 109 types of workers, the Michigan bill contains no such exemptions and would impact all types of workers.

The types of workers this bill would impact include:

  • Outside salespeople
  • Independent truck drivers
  • Gig workers
  • Insurance underwriters, auditors, and risk managers
  • Medical professionals like doctors, surgeons, dentists, and veterinarians
  • Other licensed professions, including lawyers, architects and landscape architects, engineers, and accountants
  • Investment advisers
  • Individuals providing feedback to data aggregators
  • Grant writers
  • Graphic designers; freelance writers and editors
  • Real estate appraisers
  • And more. The Michigan bill could also apply to working relationships between most bona-fide business-to-business contracting relationships.

Under the ABC test, workers are presumed to be employees. The legislation would require employers to bear the burden of proof by a preponderance of evidence, that they did not misclassify an individual as an independent contractor. They must prove all the three factors of the ABC test.

The bill package contain steep penalties for the misclassification of a worker as an independent contractor. The bills make misclassifications a misdemeanor offense, punishable by a fine of not more than $1,000, imprisonment for up to a year, or both.  In addition, the bill would allow the state to order back pay and benefits and a penalty at the rate of 100% annually on the wages and fringe benefits owed, beginning at the time the business is notified that a complaint was filed and ending when payment is made. Finally, the state would be permitted to order the payment of exemplary damages of up to three times the amount of the wages and benefits that were due to the employee, if the violation is deemed flagrant or repeated, as well as attorneys’ fees, hearing costs and transcript costs. The state may assess a civil fine of up to $10,000.

Unintended Consequences – Bad for Business, Bad for Workers
The coalition will focus its time on informing lawmakers and the general public on the negative impacts this bill could have, including:

  • Higher labor and business costs. There will be additional costs associated with requiring more workers to be treated as employees, such as needing to pay unemployment taxes on those workers, purchase workers’ compensation insurance, and/or provide additional benefits such PTO or health insurance benefits. All at a time when inflation, talent shortages and more are already creating significant strain. These costs may have to be passed on to consumers or could force certain industries to automate their workforce to adjust to these changes.
  • Workers lose flexibility. By eliminating the ability to work independently, workers will lose control over how, where and when they work and/or how they carry out their duties.
  • Destroys freelance agreements and the gig economy. This bill would eliminate flexibility for workers and income-earning activities outside of standard, long-term employer-employee relationships by forcing those workers into a traditional employee-employer model.

Get Involved
If your company or organization wishes to engage with the coalition and voice support for the ability of employers to continue to use independent contractors and allow independent contractors continued flexibility, please contact Wendy Block at wblock@michamber.com.    

 

Advocacy News – May 12, 2023

The Michigan Chamber is leading a coalition of businesses and organizations opposing legislative efforts to force employers to reclassify virtually all workers from independent contractors to employees.   

The coalition’s work is focused on legislation introduced in the Michigan House that is mirrored after legislation passed in California in 2019, which would establish an “ABC test” for independent contractors. The Michigan bills include House Bill 4390 and related bills, including HBs 4391, 4393, 43944396, 4402, 4403, and 4404. 

The Michigan proposal would require companies to establish the individual meets all three components of the ABC test in order to classify a worker as an independent contractor: 

  • A: “The individual is free from control and direction of the [hiring entity’s] in connection with the performance of the work, both under contract and in fact”; 
  • B: “The individual performs work that is outside the usual course of the [hiring entity’s] business”; and  
  • C: “The individual is customarily engaged in an independently established trade, occupation or business of the same work performed by the individual for the [hiring entity].” 

Sweeping Impact, Effect
Unlike the California law, which carves out over 109 types of workers, the Michigan bill contains no such exemptions and would impact all types of workers.

The types of workers this bill would impact include:

  • Outside salespeople
  • Independent truck drivers
  • Gig workers
  • Insurance underwriters, auditors, and risk managers
  • Medical professionals like doctors, surgeons, dentists, and veterinarians
  • Other licensed professions, including lawyers, architects and landscape architects, engineers, and accountants
  • Investment advisers
  • Individuals providing feedback to data aggregators
  • Grant writers
  • Graphic designers; freelance writers and editors
  • Real estate appraisers
  • And more. The Michigan bill could also apply to working relationships between most bona-fide business-to-business contracting relationships.

Under the ABC test, workers are presumed to be employees. The legislation would require employers to bear the burden of proof by a preponderance of evidence, that they did not misclassify an individual as an independent contractor. They must prove all the three factors of the ABC test.

The bill package contain steep penalties for the misclassification of a worker as an independent contractor. The bills make misclassifications a misdemeanor offense, punishable by a fine of not more than $1,000, imprisonment for up to a year, or both.  In addition, the bill would allow the state to order back pay and benefits and a penalty at the rate of 100% annually on the wages and fringe benefits owed, beginning at the time the business is notified that a complaint was filed and ending when payment is made. Finally, the state would be permitted to order the payment of exemplary damages of up to three times the amount of the wages and benefits that were due to the employee, if the violation is deemed flagrant or repeated, as well as attorneys’ fees, hearing costs and transcript costs. The state may assess a civil fine of up to $10,000.

Unintended Consequences – Bad for Business, Bad for Workers
The coalition will focus its time on informing lawmakers and the general public on the negative impacts this bill could have, including:

  • Higher labor and business costs. There will be additional costs associated with requiring more workers to be treated as employees, such as needing to pay unemployment taxes on those workers, purchase workers’ compensation insurance, and/or provide additional benefits such PTO or health insurance benefits. All at a time when inflation, talent shortages and more are already creating significant strain. These costs may have to be passed on to consumers or could force certain industries to automate their workforce to adjust to these changes.
  • Workers lose flexibility. By eliminating the ability to work independently, workers will lose control over how, where and when they work and/or how they carry out their duties.
  • Destroys freelance agreements and the gig economy. This bill would eliminate flexibility for workers and income-earning activities outside of standard, long-term employer-employee relationships by forcing those workers into a traditional employee-employer model.

Get Involved
If your company or organization wishes to engage with the coalition and voice support for the ability of employers to continue to use independent contractors and allow independent contractors continued flexibility, please contact Wendy Block at wblock@michamber.com.