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New Federal Covid-19 Legislation And Its Dramatic Impact On Independent Contractor Status: How Have Things Changed?

The independent contractor “legal world” is quickly transforming in many ways! It is hard to keep up with the flood of new laws and court cases impacting independent contractor status on both the Federal and State levels.

FEDERAL COVID-19 LEGISLATION AFFECTING INDEPENDENT CONTRACTORS: Recently Congress passed two major bills (signed into law by President Trump) which included benefits historically reserved for employees but now suddenly expanded by these two surprising laws to also include self-employed individuals (also known as independent contractors or gig workers).

COVID-19 related unemployment insurance benefits have been made available to independent contractors under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Paid sick and family leave has also been made available to independent contractors under the Families First Coronavirus Response Act (“FFCRA”).

CARES ACT: Under the CARES Act, enacted into law on March 27, 2020, independent contractors will be entitled to Federal Pandemic Unemployment Assistance (PUA) if the independent contractors are able and willing to work or telework for pay, but are unable to do so due to the obstacles and economic stresses related to the COVID-19 pandemic. PUA is available not only if such independent contractors are “unemployed” but also if “partially unemployed.” PUA is available to independent contractors retroactively from January 27, 2020 through December 31, 2020.

FFCRA: Under the FFCRA, enacted on March 18, 2020 and effective April 1, 2020, both paid sick time under the Emergency Paid Sick Time Act, and expanded family and medical leave under the Emergency Family and Medical Leave Expansion Act are available not only to employees, but (very surprisingly!) also to eligible independent contractors.

Paid sick leave is available to independent contractors for up to ten (10) days where the independent contractor is unable to work or telework because the independent contractor is subject to a government quarantine or order of isolation related to COVID-19; has been advised by a health care provider to self-quarantine; or is experiencing symptoms of COVID-19 and is seeking medical attention. It is clear that Congress viewed many independent contractors as needing significant financial help.

UNEMPLOYMENT INSURANCE BENEFITS: Now that Congress has provided an emergency form of financial help for freelancers, gig workers, and other independent contractors, state departments of unemployment insurance (across America) have for the most part struggled to quickly create online processes to provide such unemployment insurance benefits to independent contractors.

Strangely, most state departments of unemployment insurance require independent contractors to first apply for unemployment benefits as if they were employees, and then, only when DENIED by their state’s department of unemployment insurance because they are found to be non-employees, are they able to proceed with the process to submit documentation that they are self-employed (i.e., independent contractor) and have suffered a loss of income. Yes, a very awkward process!

COMPANIES ARE RECEIVING NOTICES OF CLAIM ON INDEPENDENT CONTRACTORS: As a result of independent contractors being “forced” to apply for unemployment insurance benefits as if they were employees, companies are receiving Notices of Claim from state departments of unemployment insurance about workers they regard as independent contractors. Clearly the independent contractor claimants have no choice but to apply for unemployment insurance benefits as if they were really employees. What a confusing situation for all involved!

By not responding in an effective manner to an unemployment insurance Notice of Claim about a worker regarded by the company as an independent contractor, companies using independent contractors will likely receive a determination from the state department of unemployment insurance that the claimant is really an employee of that business.

Such a legal finding of employee status can create enormous potential legal risks and liabilities for companies that have not been paying unemployment and payroll taxes on the money paid to individuals treated as independent contractors.

TIMELY AND THOUGHTFULLY REPLY TO NOTICES OF CLAIM: Any company who receives a Notice of Claim (for unemployment insurance benefits) on an independent contractor should thoughtfully and fully respond in a timely manner. Even being one day late with a protest response may take away a Company’s right to protest a Notice of Claim.

The Company should explain in detail why the unemployment insurance claimant is not an employee but rather is an independent contractor. Each state has its own legal definition of independent contractor status. Be aware of your state’s “legal test” for independent contractor status under that state’s unemployment insurance law. Design your protest response to prove legally that the unemployment insurance claimant is in fact an independent contractor under your state’s “legal test” for independent contractor status. Attach any available proof of independent contractor status to your written response (protest) such as the independent contractor’s business card, the IRS Form 1099 you issued that independent contractor, print-outs from the independent contractor’s website, any advertising done by the independent contractor, etc.

If you do not aggressively respond to these unemployment insurance Notices of Claim by independent contractors, you may find in the future that your ability to defend the independent contractor status of your workers has been severely damaged! For example, if your company is audited by your state’s department of unemployment insurance in the coming years, the agency may attempt to use these “COVID-19 era” unemployment insurance decisions as the legal basis to find your independent contractors to be misclassified (i.e., they should have been classified as employees).

We do not know exactly what will be the legal long-term result of all these independent contractors getting unemployment insurance benefits in this COVID-19 era. No one knows at this juncture. We are in unchartered waters. Play it “safe” and vigorously defend the independent contractor status of your workers. Answer (protest) each Notice of Claim (by independent contractors) for unemployment insurance benefits with great seriousness and detail.

For assistance with figuring out the best course of action in view of these dramatic new laws regarding unemployment insurance benefits, contact Attorney Nancy Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

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