On January 10, 2014, Governor Andrew Cuomo signed into law the New York Commercial Goods Transportation Industry Fair Play Act (adding Art 25-C to the NYLL). The Act takes effect on March 11, 2014. The new law targets New York State employers that misclassify workers in the commercial goods transportation services industry as independent contractors rather than employees. The Act amends the New York Labor Law to create a presumption that any individual who performs commercial goods transportation services for a commercial goods transportation contractor shall be classified as an employee. Under the Act, a "commercial goods transportation contractor" is any sole proprietorship, partnership, corporation, limited liability company, association, or other legal entity authorized by law to do business within New York State that compensates commercial drivers who have a commercial driver's license to transport goods in the state of New York. The presumption will apply unless the worker meets certain, specific criteria to be considered an independent contractor or is a separate business entity. The Act sets forth criteria to determine whether or not an individual falls under one of these two exceptions to the employee classification presumption.
To be classified as an independent contractor the worker must meet all three of the following criteria: (1) the individual must be contractually and factually free from control and direction when performing the job, (2) the service must be performed outside the usual course of business for which the service is performed, and (3) the individual must be customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.
In order to be considered a separate business entity under the Act, an eleven prong test must be met. The separate business entity test applies to "any sole proprietor, partnership, corporation or entity." A person is considered a separate business entity from the commercial goods transportation contractor if all of the following criteria are met:
- "The business entity is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the commercial goods transportation contractor for whom the service is provided to specify the desired result or federal rule or regulation;
- The business entity is not subject to cancellation or destruction upon severance of the relationship with the commercial goods transportation contractor;
- The business entity has a substantial investment of capital in the business entity, including but not limited to ordinary tools and equipment;
- The business entity owns or leases the capital goods and gains the profits and bears the losses of the business entity;
- The business entity has an option to make its services available to the general public or the business community on a continuing basis;
- The business entity includes services rendered on a Federal Income Tax Schedule as an independent business or profession;
- The business entity performs services for the commercial goods transportation contractor pursuant to a written contract, under the business entity's name, specifying their relationship to be as independent contractors or separate business entities;
- When the services being provided require a license or permit, the business entity pays for the license or permit in the business entity's name or, where permitted by law, pays for reasonable use of the commercial goods transportation contractor's license or permit;
- If necessary, the business entity hires its own employees, subject to applicable qualification requirements or federal or state laws, rules or regulations, pays the employees without reimbursement from the commercial good transportation contractor and reports the employees' income to the Internal Revenue Service;
- The commercial goods transportation contractor does not require that the business entity be represented as an employee of the commercial goods transportation contractor to its customers; and
- The business entity has the right to perform similar services for others on whatever basis and whenever it chooses."
Commercial goods transportation contractors who violate the Act will be subject to a civil penalty of up to $1,500 for the first violation, and up to $5,000 for a subsequent violation within a 5 year period. If willful (known or should have known), the penalty increases to $2,500 "per misclassified employee" for the first violation and $5,000 per employee for subsequent violations within a 5-year period. The Act also provides for criminal penalties (30 days imprisonment and fines up to $50,000) for willfulness. If the commercial goods transportation contractor is a corporation, any officer or shareholder of the corporation who owns or controls at least 10% of the outstanding stock and who knowingly permit the corporation to willfully violate the Act are subject to both civil and criminal penalties. A willful conviction can result in a commercial goods transportation contractor being precluded from bidding on public contracts. Finally, all contributions and penalties under other statutes (unemployment, workers' compensation, taxes, etc.) may become due.
Like the Construction Industry Fair Play Act, there also is a posting requirement.
If a transportation contractor's workers do not meet one of the above tests, now is the time to reclassify these workers as employees in New York.
This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.
Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.