Source: https://independentcontractorcompliance.com/2013/12/03/major-change-in-law-of-independent-contractors-the-new-york-commercial-goods-transportation-fair-play-act/
Timestamp: 2019-04-21 17:17:41+00:00

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Posted on December 3, 2013	by Richard J. Reibstein, Esq.
Reprinted with permission from the November 27, 2013 edition of the New York Law Journal ©2013 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact ALMReprints.com, 877.257.3382 or reprints@alm.com.
A new bill that will significantly limit the use of independent contractors to deliver commercial goods in New York is awaiting signature by Governor Andrew Cuomo. Businesses that currently treat as independent contractors some or all drivers who have commercial driver’s licenses and deliver commercial goods to their customers will have to reclassify such individuals as employees unless the drivers meet one of two tests. Both of these tests are far more challenging to meet than the common law test currently used in New York to determine if a worker is an employee or independent contractor.
The New York State Commercial Goods Transportation Industry Fair Play Act (S5867-2013; A5237b) was passed with bipartisan support by both the Senate and Assembly. It purportedly was passed in view of the perceived misclassification of many drivers as independent contractors instead of employees. Instead of simply increasing the penalties for misclassification and/or enhancing regulatory enforcement of the current common law test for independent contractors (as some states have done), the New York Legislature chose to join a number of other states in enacting a new statutory test that will considerably reduce the number of independent contractors delivering commercial goods in New York.
The first is a three-pronged requirement frequently referred to as the “ABC test,” which is used by well over a dozen states in their wage, unemployment, and/or Workers’ Compensation laws. Under that test, the business treating a driver with a commercial driver’s license as an independent contractor must show three things: (A) the driver is free from control and direction in performing the job, both under his or her contract and in fact; (B) the transportation/delivery service is “performed outside the usual course of business for which the service is performed;”2 and (C) the driver is “customarily engaged in an independently established trade, occupation, profession, or business” involving the transportation or delivery of commercial goods.3 The three factors are conjunctive; they must all be shown to satisfy the ABC test.
The Commercial Goods Transportation Industry Fair Play Act will also impose criminal liability upon employers who are found to have willfully violated the new law.9 A first offense is punishable as a misdemeanor and may include imprisonment of up to 30 days or a fine of up to $25,000. A subsequent offense exposes the employer to up to 60 days’ imprisonment or a fine not to exceed $50,000.
The Commercial Goods Transportation Industry Fair Play Act will become effective 60 days after signature by the governor.14 By that date, each commercial goods transportation contractor must post in a conspicuous location on its site a notice prescribed by the Labor Commissioner.
The first test for establishing independent contractor status under this new law is the ABC test—a statutory scheme currently in use in a number of other states. The language in Prong (A) of that test (that the driver is free from control and direction in performing the job, both under his or her contract and in fact) is comparable to the common law test, which considers an array of factors that directly or indirectly bear on the question of direction and control over the manner of performing the services. Merely satisfying the common law test, though, will no longer be sufficient in the commercial goods transportation industry. Once the law is enacted, any such business that wishes to treat drivers who possess commercial driver’s licenses as independent contractors must also satisfy Prongs (B) and (C). Those two factors, each of which are similar in nature to two of the many factors traditionally considered under the common law test applicable to almost all other industries, will each be separately determinative of independent contractor status under the ABC test.
The language of prongs (B) and (C), however, are rather obtuse and ambiguous; indeed, it is not uncommon for courts in one state with an ABC test to interpret prong (B) or (C) in a wholly different manner than do the courts in other states. Thus, because there are virtually no court decisions in New York interpreting prongs (B) or (C), it is unknown whether the ABC test will be construed narrowly or broadly by the New York courts. It is therefore uncertain at present whether it will be easier or harder for some commercial goods transportation contractors to overcome the presumption of employment by satisfying the ABC test instead of the separate business entity test.
The separate business entity test found in the New York Commercial Goods Transportation Fair Play Act is generally similar to a comparable law that took effect in October 2010: the New York Construction Industry Fair Play Act.16 That law, which sought to curtail the misclassification of employees as independent contractors in the building and construction industry in New York, likewise creates a presumption that a person providing construction services is an employee unless the construction business can establish all three factors of the ABC test or show that the person is a separate business entity.
finally, while the construction law requires the separate business entity itself to furnish all tools and equipment necessary to provide the service, that factor has been eliminated from the commercial goods law, thereby suggesting that a commercial goods transportation contractor may provide one or more of the tools and equipment used by the separate business entity.
It was generally believed that the Construction Industry Fair Play Act was so strict that it may have eliminated the use of independent contractor status for workers in the construction industry. See, e.g., R. Reibstein et al., “NYS Construction Industry Fair Play Act: An End to Independent Contractors?” NYLJ Sept. 9, 2010. By virtue of the legislative changes made in the final version of the Commercial Goods Transportation Industry Fair Play Act, this new law will not likely eliminate the use of all independent contractors having commercial driver’s licenses in the transportation and delivery industry in this state, although it will undoubtedly limit considerably those persons who would otherwise qualify for independent contractor status.
It is likely that few companies currently using independent contractors to deliver or transport commercial goods to their customers are in a position today to satisfy either the ABC or the separate business entity tests. Such businesses are likely to require some degree of restructuring, re-documentation, and re-implementation of their relationships with drivers who have commercial driver’s licenses if they wish to continue to treat them as independent contractors and remain in compliance with the law.
While most of the 11 prongs in the separate business entity test are rather straightforward, a number of them require considerable familiarity with independent contractor compliance law in order to formulate a structure that will comfortably meet the requirements of each of the 11 prongs. An independent contractor agreement that is drafted by merely incorporating the wording of the statutory definition for independent contractor or a separate business entity is unlikely to provide anything except a false sense of security. Indeed, as expressly noted in the first factor in the ABC test, the law examines the parties’ relationship “both under his or her contract and in fact” (emphasis added), and regulators and the courts routinely discount contractual language that is inconsistent with the parties’ actual day-to-day practices. Thus, a “one-size-fits-all” approach to compliance with this new law is unlikely to serve a client’s interests, especially because of the conjunctive nature of both tests, where a failure to satisfy even a single prong can create substantial civil and criminal misclassification liability.
For example, prong (A) in the ABC test and the first factor in the separate business entity test are very similar, requiring that the driver be “free from direction or control” over the means and manner of performing the service. By its very nature, this threshold factor under both tests is extraordinarily comprehensive in scope and may implicate an array of different facts pertinent to whether the driver meets the first prongs of either of the two tests. For this reason, it is recommended that a multi-factor analysis be utilized, such as the “48 Factors-Plus” used as part of IC Diagnostics™.
The 60-day hiatus between the date when the new law is signed by the governor and when it becomes effective seems particularly short for businesses that currently treat drivers with commercial driver’s licenses who deliver or transport their commercial goods as independent contractors. First, such businesses must determine if they are able to restructure their relationship with such drivers to conform to the requirements of the ABC or separate business entity tests. Second, if such businesses conclude that they are able to do so, the process of restructuring, re-documenting, and re-implementing is by no means a simple task, and it has taken the authors of this article 60 or more days to do so for some clients seeking to enhance their independent contractor compliance—either as a proactive step or in anticipation of a new law such as the Commercial Goods Transportation Industry Fair Play Act.
Thus, a commercial goods transportation contractor that wishes to retain its independent contractor relationships with drivers who have commercial driver’s licenses delivering or transporting goods to its clients should promptly begin to take steps to attain compliance. It is unrealistic, however, for government regulators in New York to expect businesses covered by the new law to get into compliance so quickly where the rules have been changed so dramatically for the entire industry, including a new requirement that drivers must own or lease the delivery vehicle. If the driver does not currently own or lease the vehicle, that requirement alone (with the resulting need to register and insure the vehicle) may take as much as 90-120 days to organize, including completion of all required paperwork. Hopefully, state regulatory bodies will afford businesses an informal transition period, beyond the 60-day period set forth in the new law, to achieve compliance, or the Legislature will modify the law to make it effective in 120-180 days after enactment. In fact, it is unlikely that most of the commercial goods transportation contractors in New York will even learn about the new law for some or all of the short 60-day transition period.
Many businesses affected by this new law in New York also operate in other states. Class action lawsuits against transportation companies misclassifying drivers as independent contractors have mushroomed in the past few years, and both state and federal governmental regulators have likewise been active in cracking down on delivery companies that are regarded as misclassifying drivers as independent contractors under applicable state and federal laws. The New York Commercial Goods Transportation Industry Fair Play Act may be a useful alert for such businesses to determine if they need to enhance their independent contractor compliance throughout their network of commercial drivers in states across the country.
12/3/13 Note by Authors: In the event Governor Cuomo does not sign the bill by 12/31/13, the bill must be resurrected in the Legislature and a new vote by both houses will be required. The composition of the New York Senate and Assembly does not change, however, until 1/1/15; therefore, the passage of the bipartisan bill in its present form or virtually identical form in 2013 or 2014 is highly likely. Any period of time prior to the Governor’s signature of the bill should ideally be used by commercial goods transportation contractors to “ready” themselves for complying with the anticipated new legislation.
12/31/13 Note by Authors: On December 30, 2013, the bill was formally “delivered” to the Governor, who has 30 days to sign the bill in its present form or with any “chapter amendments” made by the Legislature upon suggestion by the Governor.
1. N.Y. Labor Law §862-b.
2. A number of states with “ABC” laws add to prong (B) an alternative: “or…is performed outside of all the places of business of the enterprise for which such service is performed.” See, e.g., N.J.S.A. 43:21-19(i)(6)(A)(B)(C).
3. N.Y. Labor Law §862-b (1).
4. N.Y. Labor Law §862-b (2).
5. The full list of the 11 factors are found at N.Y. Labor Law §862-b (2)(A)-(K).
6. N.Y. Labor Law §862-c (3).
7. N.Y. Labor Law §862-d (3).
8. N.Y. Labor Law §862-d (2).
9. N.Y. Labor Law §862-d (4).
10. N.Y. Labor Law §862-d (5).
11. N.Y. Labor Law §862-d (8).
12. N.Y. Labor Law §862-d (6). Notably, however, the new law (in Section 4) provides that the presumption of employment provisions in §862-b shall not be applicable under the New York State tax law. Thus, the common law test for determining independent contractor status shall continue to apply for purposes of the tax laws in New York.
13. N.Y. Labor Law §862-e.
14. Section 5 of the Commercial Goods Transportation Fair Play Act.
15. N.Y. Labor Law §862-c.
16. That law was codified in the New York Labor Law as Article 25-B and is found in Section 861.

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