Duff: Handyman Special or New Flavor of Opt Out?

Friday, April 6, 2018 | 0

Tennessee recently passed a law that will undoubtedly make it significantly easier for companies to classify their workers as independent contractors rather than employees, thereby lowering their operating costs and creating a class of individuals with fewer legal protections when suffering on-the-job injuries.

Michael C. Duff

Although styled a law applicable only to retired handymen and similar part-time workers, the text is much broader than this innocuous characterization suggests. When many employees may be excised from a workers’ compensation statute, it is hard for me not to see the innovation as a species of “opt out” — a law that, as a practical matter, allows de facto employers to avoid, or opt out of, background law of general applicability.

Under this so-called “gig” law, a “marketplace contractor” working for a “third party” at the direction of a “marketplace platform” is an independent contractor as a matter of law if (1) the platform and contractor agree that the contractor is an independent contractor; (2) the platform does not unilaterally prescribe specific hours of work (if the platform posts the contractor’s hours of work — at an unspecified location — that is not prescribing hours of work); (3) the platform does not prohibit the contractor from using other platforms; (4) the platform does not restrict the contractor from engaging in any other occupation or business; (5) the platform does not require contractors to use specific supplies or equipment; and (6) the platform does not supply on site supervision to the contractor.

For purposes of this bill, "marketplace contractor" means any individual, corporation, partnership, sole proprietorship, or other business entity that:

• (A) Enters into an agreement with a marketplace platform to use the platform's online-enabled application, software, website or system to be given an assignment, or otherwise receive connections, to third-party individuals or entities seeking its services in this state.
• (B) In return for compensation from the third party or marketplace platform, offers or provides services to third-party individuals or entities upon being given an assignment or connection through the marketplace platform's online-enabled application, software, website or system.

"Marketplace platform" means a corporation, partnership, sole proprietorship or other business entity operating in the state that offers an online-enabled application, software, website or system that enables the provision of services by marketplace contractors to third-party individuals or entities seeking the services.

Now, imagine a situation in which a contractor is subject to discipline if he or she does not comply with a work schedule “voluntarily” posted (somewhere). Imagine a contractor who does not in fact use other “platforms." Imagine a contractor who does not in fact engage in any other occupation or business. Imagine a contractor who in fact uses platform-provided supplies or equipment. Imagine a platform that in fact supplies offsite supervision to the contractor.

Is the contractor described in this paragraph an “employee” for purposes of traditional workers’ compensation law if he or she suffers on-the-job injury (as will inevitably happen)? He or she very well might be — especially if the (handyman?) company is providing “off-site” supervision (aka, control) — if one was utilizing a traditional control test, or an economic realities test, or the relative nature of the work test.

But it seems almost certain that the individual would not be deemed an employee under the new Tennessee test, which would be applicable to workers’ compensation cases (and, as I read the text of the law ,is not limited to “handymen” despite the protests of legislators to the contrary), and which media accounts suggest may be in the process of being implemented in other states.

Hence, we encounter the latest in a series of race-to-the-bottom gambits meant to facilitate employers’ opting out of the workers’ compensation regime.

I think of “opt out” as any mechanism allowing the employer the choice of whether to be bound by workers’ compensation legislation. Opt out can be statutorily or contractually based. Statutory opt out, as I conceive it, occurs when a state passes a law authorizing, and even facilitating, employers not to participate in workers’ compensation. It is jurisdictional in nature.

Once an employer is “approved” for release, the employer is de facto no longer under the jurisdiction of the state workers’ compensation agency. Oklahoma was the prime example of this model.

It is somewhat puzzling to onlookers why a state would both maintain a workers’ compensation system and provide employers with the legal means of escaping it. My suspicion is that it is simply not feasible, even in the 21st century, for a legislature to announce that it is abandoning a workplace injury system that has been continuously on the books in the Western world since 1884.     

Contractual opt out is easier for a legislature to defend. The argument here is that the government is simply honoring the mutual desire of parties not to be bound by background law. It is an argument based on waiver, not jurisdiction, and is nothing more than warmed-over Lochner.

Appeal to freedom of contract is why the Tennessee law solemnly recites that the “contractor” and “platform” agree that the contractor is an independent contractor. Such “agreements” have been looked upon with suspicion since the late 19th century. (I’ll discuss that fact in a later post).

One might see statutory independent contractor directives as a hybrid of the statutory and contractual opt-out model: it is created by statute but derives energy from a fictional contractual relationship.

Paring the Tennessee law down to its essence leads to the realization that any business providing virtually any service by way of “online-enabled application, software, website or system that enables the provision of services” is exempted from workers’ compensation regulation.

This is no longer a “gig” law. The breadth of the bill betrays either its expansive intentions or its frightening misdrafting. In either event, we have come a long way from Silicon Valley coders and putatively unclassifiable tech workers. I can classify a handyman.

According to some media accounts, the law was drafted at the request of Handy Inc. This makes me wonder whether it may at some point be challenged by some unfortunate injured workers under the Article 11, Section 8 of the Tennessee Constitution:

The legislature shall have no power to suspend any general law for the benefit of any particular individual, nor to pass any law for the benefit of individuals inconsistent with the general laws of the land; nor to pass any law granting to any individual or individuals, rights, privileges, immunitie  [immunities] or exemptions other than such as may be, by the same law extended to any member of the community, who may be able to bring himself within the provisions of such law. No corporation shall be created or its powers increased or diminished by special laws, but the General Assembly shall provide by general laws for the organization of all corporations, hereafter created, which laws may, at any time, be altered or repealed, and no such alteration or repeal shall interfere with or divest rights which have become vested.

I sense the potential for a substantial "special laws" argument of the type that toppled a different flavor of opt out in Oklahoma.

Michael C. Duff is associate dean for student programs and external relations, and Centennial Distinguished Professor of Law at the University of Wyoming College of Law. This entry is republished from the Workers' Compensation Law Professors blog, with permission.