The West Virginia House of Delegates has adopted a bill changing the legal definitions of when a worker in the state is an employee or an independent contractor.
The bill is described by supporters as clarifying the definition of an employee and that of an independent contractor and providing West Virginians more freedom to take work as independent contractors and have more control over how they spend their time.
People speaking against the bill say it makes it easier for employers in West Virginia to classify someone as an independent contractor and deny them workplace protections and benefits. They also said the bill opens businesses and employers to lawsuits under federal law if they fail to correctly classify and pay people working for them.
House Judiciary Chairman Moore Capito, R-Kanawha, described the bill as looking to the future of labor in West Virginia, saying the younger West Virginians entering the workforce weren’t interested in being tied down as employees.
“I can tell you the next generation of worker wants predictability, wants the freedom to contract independently,” said Capito. “They don’t want to be an employee. They don’t want that relationship. They want this independent contractor relationship.”
Delegate Barbara Fleischauer, D-Monongalia, called SB 272 “a terrible bill” that has the goal of taking away employee protections from West Virginians so their employers could save money.
“If you are offered the job and you are told you have to sign a contract to get a job, most people in our state are going to sign that contract not realizing they are wiping out years of employee protections,” Fleischauer said.
People classified as employees are entitled to protection under occupational and labor laws, insurance and other state benefits, including employers withholding state and federal taxes.
Independent contractors bear the brunt of the work of collecting and paying taxes, and they don’t get certain legal protections, like Workers’ Compensation or unemployment benefits, in exchange for the work they do.
SB 272 establishes a 4-part test, an update from the current 3-part test in state law, to determine if someone is an independent contractor.
The current test is less detailed than the test tentatively approved by the Legislature Wednesday, but both tests articulate how much control a business or employer has over a person working for them.
The four parts of the test approved by the House Wednesday require employers to consider:
- whether there’s a contract meeting certain standards,
- whether a person has to file income taxes and provides their services to a business entity,
- how much control a person has over the “manner and means” of their work, and
- whether the circumstances meet at least three criteria having to do with the amount of control a person has over the time they spend working, where they work, who they work for, how they can market their work, whether they can hire subcontractors, whether the IRS has audited them and classified them as an employee in federal law, and whether that person is responsible for maintaining their own licensure and permits for their services.
House Government Organization Committee Chairman Brandon Steele, R-Raleigh, said the bill it provided freedom for people to work as independent contractors for companies like Uber or GrubHub and set their own schedules.
“What this bill represents to me is the ultimate freedom that everybody in West Virginia has,” Steele said. “That is the freedom to direct your labor, the freedom to be in control of your own destiny, and the freedom to not just engage in what you want to engage in, but also design your business to your life.”
The bill West Virginia passed is similar to model legislation drafted by the American Legislative Exchange Council, more commonly referred to as ALEC. The group is a conservative-leaning non-profit organization known for writing model legislation for state lawmakers to use throughout the country.
West Virginia Center on Budget and Policy Executive Director Kelly Allen said the bill legally sanctions worker misclassification and would be “the worst bill for workers’ rights enacted in the country.”
“West Virginia’s workers already have the ability to work as independent contractors if they so choose,” Allen said. “What this bill does is upend the employer-employee relationship and allow businesses to unilaterally shift risk and costs onto workers, taking away basic labor protections like minimum wage, unemployment insurance, and workers’ compensation. It disadvantages responsible business owners, encourages a race to the bottom, and will result in less good jobs and economic security for West Virginians.”
In December, legislative auditors filed a report showing they found that employee misclassification was “rampant” in the state, leading to a loss of $824,000 to $1.1 million in personal income tax revenue from 2014 to 2018.
The report found misclassification of employees was not a problem unique to West Virginia, a point that Delegate Kayla Young, D-Kanawha, said showed the bill will do little to protect working West Virginians and leaves employers and business owners open to substantial financial penalties under federal law if they misclassify employees.
“I know it aims to fix the problem here in West Virginia, but it totally disregards that we still have to follow the federal guidelines,” Young said. “This bill doesn’t help the federal problems. The federal government needs to fix that.”
Legislative auditors said one of the key reasons for the misclassification was that WorkForce West Virginia only has one auditor working to ensure employers in the state are properly classifying their employees.
“While some worker misclassification is unintentional, many employers have an incentive to misclassify their workers in order to reduce their labor costs,” according to the report.
Because the House adopted amendments the bill will have to return to the Senate, where a different version of the bill was adopted on Feb. 19. If senators agree with the changes the House made, the bill will go to Gov. Jim Justice for his consideration.