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New “Independent Contractor” Issue Under Delaware Employment Law: Is a Future Delaware FLSA Statute Coming?

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I previously wrote about the new Delaware sexual harassment law that becomes effective January 1, 2019. For a discussion about that, see my article available here. As I stated in that article, it may be significant that, for the first time, Delaware’s employment practices law now addresses “independent contractors.” For now, the significance of the term, for purposes of the employment practices law, is limited to counting employees, to determine if sexual harassment training obligations exist (i.e., employers having 50 or more employees in Delaware, which does not include “independent contractors,” must provide two types of training). However, the issue of “independent contractors” may be more nuanced and worthy of attention than it first appears. This article discusses some “independent contractor” issues, under Delaware law, which employers should consider.

As a starting place, it is worth mentioning some of what existed in the initial legislation that did not make it to the final law. An initial copy of the legislation can be found here. That bill proposed creating claims, in the employment practices law, which applies to employers and employees, for independent contractors. Although many independent contractors do business in the name of their business, had the bill become law, and independent contractor would have been able to file a charge of discrimination and sue under the employment practices statute.

That would have been a major development and change to Delaware’s employment practices law. Many argued that such would have majorly confused the state of employment law in Delaware, which has an enforcement mechanism meant only for the employee/employer relationship. As that change to the employment practices law was pulled back, one could see wheels turning for how the same concept could be codified (perhaps elsewhere) to apply in the independent contractor context. Of course, reasonable debate exists about pros and cons of such expansion. Indeed, nobody should expose anybody else to sexual harassment. That is not the debate. Many simply argue that the relationship between those in an independent contractor relationship is one that is best left to private parties to negotiate and not legislated such that statutory liability exists. More generally, many argue that not everything that is wrong should be made unlawful or that claims in court should be created for everything that is wrong, even really wrong – like sexual harassment, especially since both criminal law and civil law already exists for types of harassment that rise to the level of offensive touching and the like.

In any event, as it applies to employers, the new effort to include “independent contractor” issues in the employment practices act raised concern for what was next. To support that convention, the bill initially had a detailed definition of “independent contractor” that included an analysis of: (1) the degree of the employer’s right to control the manner in which the individual’s work is to be performed; (2) the individual’s opportunity for profit or loss depending upon the individual’s managerial skill; (3) the individual’s investment in equipment or materials required for the individual’s task or employment of helpers; (4) whether the services rendered by the individual requires a special skill; (5) the degree of permanence of the working relationship between the individual and the employer; and (6) whether the service rendered by the individual is an integral part of the employer’s business.

That definition caused many to guess that this was a prelude to an effort to create legal liability under Delaware law for an employer allegedly misclassifying an employee as an independent contractor – thus creating more opportunity for suit, which is expensive even when classification decisions can survive scrutiny. Suits for misclassification can already exist under federal law, through the Fair Labor Standards Act (“FLSA”). And most employers have quite enough to deal with in complying with that law, which is not as intuitive as things like non-discrimination. The concern that a Delaware version of FLSA might be coming down the pike, which inevitably would have its own wrinkles, had many employers on edge – simply because compliance already is difficult and expensive and having yet one more law to navigate makes many want to check out of business altogether.

That concern did not die with the change to the legislation. Indeed, although the above-discussed claim for independent contractors and definition of independent contractor did not make it into the law, the law does still define “independent contractor,” apparently only for the purpose of counting employees to determine if training obligations exist. But the concern for what might be next is amplified by the fact that the definition of “independent contractor” that made it into the employment practices law incorporates by reference the definition of that term found in the Delaware Workplace Fraud Act.

The Workplace Fraud Act (at least presently) applies only to employers in the “construction services” industry. “Independent contractor” mean an individual who: (1) performs the work free from the employer’s control and direction over the performance of the employee’s services; (2) is customarily engaged in an independently established trade, occupation, profession or business; and (3) performs work which is outside of the usual course of business of the employer for whom the work is performed. Under the Workplace Fraud Act, there is legal liability for misclassification, and such misclassification is considered “fraud.” Detailed regulations (available here) came out in September 2017 and caused some concern and a lot of discussion within that niche; but largely went unnoticed by others, because it did not apply beyond the niche. The regulations give seven examples (which the Department of Labor notes is “by no means exhaustive”) of scenarios in which an employer misclassifies.

Now that the issue of “independent contractor” has, for the first time, been inserted into the employment practices law (which is applicable to employers regardless of industry), with the same meaning as in the Workplace Fraud Act, more employers should take note of the regulations that went largely unnoticed. For now, the significance of the term for purposes of those not in the construction services industry is limited to counting employees, to determine training obligations. But time will tell if something more is done to make “independent contractor” issues in play under Delaware’s employment practices law.

My prediction is that various developments of Delaware law are on the horizon, where effort will be made to expand laws beyond the narrower reach of how they were passed (e.g., in addition to the above, expanding to private employers the law requiring pay for birth/adoption leave, which was passed in 2018, becomes effective spring 2019, and presently applies only for State employers). Indeed, the Delaware “Blue Wave” during this past election is nearly certain to bring with it a legislative initiative that approaches “best for Delaware” from a perspective that many employers might feel is not “best for employers.” Who is “right” is beyond the scope of my purpose in writing.

Employers who care to stay ahead of the curve and perhaps even get involved in the legislative process by having their voice heard before legislation becomes law should seek out employer advocacy groups. As Connolly Gallagher represents both employers and employees, we will continue both to help businesses navigate the increasingly-nuanced area of labor and employment law and also to help employees avail themselves of the increasing avenues made available to them through federal and Delaware law.

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