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The Independent Contractor-Addressed Again??

January 02, 2016 05:00pm

In a prior blog I discussed “Workers’ Comp. & the Independent Contractor”. Primarily, the “What is …..” question was addressed and dealt with the “control” issue. After a Montana Supreme Court decision in 2003, “Kelly Wild vs Fregein Construction”, significantly changed the status of independent contractor exemptions, the 2005 Montana Legislature re-established the conclusive status of the IC exemption certificate. 

Called the AB test, an IC is a worker who has the IC exemption certificate and meets the following conditions when rendering service in the course of an occupation: “he or she (A) has been and will continue to be free from “control or direction” over the performance of the services, both under contract and in fact; and (B) is engaged in an independently established trade, occupation, profession or business, and further acknowledges no coverage under the Workers’ Compensation and Occupational Disease Act”.  The B requirements are satisfied by supplying sufficient documentation; the A requirement through monitoring and auditing by the Department. (Department of Labor & Industry—Independent Contractor Control Unit-(ICCU)). The validity of the IC exemption, when issued, is fortified by MCA 39-71-417(7)(a): “When the department approves an application for a independent contractor exemption certificate and the person is working under the independent contractor exemption certificate, the person’s status is conclusively presumed to be that of an independent contractor”. 

So why the heading above “….ADDRESSED AGAIN??”. Well, some of the articles I’ve been reading seem to point to a different direction in defining an “independent contractor” other than the “right to exert control over the worker”. It seems like this has all developed from Congress re-introducing the Payroll fraud Prevention Act of 2014 in an attempt to crack down on independent contractor misclassification. The Act would make misclassification of employees as IC’s a new federal labor offense. On 7/15/2015 the “Wage and Hour Division of the Department of Labor” issued guidance aimed at clarifying the distinction between “employees” and “independent contractors”. “Importantly, the DOL announced a “misclassification initiative”, pursuant to which it has entered into numerous memorandum of understanding(MOU) with states and the IRS to combat what it perceives as a significant, nationwide problem of misclassification that deprives workers of important protections such as minimum wage, overtime compensation, unemployment insurance, and workers’ compensation”. 

The following quote, by an attorney with Bello Welsh LLP, was significant when looking at Montana’s AB test: “Rejecting the “common law” employee test used by some courts in determining proper classification (which looks simply at whether the employer has the right to exert control over the worker), the DOL endorsed the “economic realities” test. Under this test, an entity suffers or permits an individual to work if, as a matter of economic reality, the individual is dependent on the entity”. Listing factors that would be analyzed to determine if an employee is dependant on the entityd, the article indicated that “no one factor is determinative”. Apparently the ultimate inquiry under the Fair Labor and Standards Act is whether the worker is “economically dependent on the employer or truly in business for him or herself. If the worker is economically dependent on the employer, then the worker is an employee”. 

So, how will this all sort out for Montana employers? What will the Department use as the guideline in determining an IC? According to the Montana Department of Labor and Industry, Montana will continue to use the IC exemption certificates to determine IC status and will continue to enforce MCA 39-71-417(7)(a). In addition, the Department will still use the AB test discussed above to determine if a certificate should be granted or revoked. The requirements for a certificate are set out in administrative rule at ARM 24.35.111. While Montana is one of the states that entered into an MOU with the U.S. Department of Labor, that MOU has been in place since 2011 and does not change Montana law.

Darnielle Insurance is available to answer your questions.

We are located at 1320 28th Street West, Billings, MT 59102.

Give us a call at 406-652-4180.

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