NH Department of Labor Commissioner, James Craig, took the bull by the horns this past year and, with a determination not often seen by Commissioners, brought interested parties together to craft a definition of ‘employee’ that would apply to all matters before the NH Department of Labor (NH DOL) and NH Employment Security (NH ES). Those interested parties included labor and employment attorneys, the BIA, labor unions, various trade associations, and state agency personnel. The meetings were structured in such a way as to welcome and respect all comments and criticisms. The result was a new definition of ‘employee’ used to determine whether an individual is eligible for unemployment and/or worker’s compensation benefits, can make a claim under the Whistleblower Protection law, and is protected by NH’s wage and hour law, including overtime. This new definition of ‘employee’ has been memorialized in House Bill 450 which was passed by the House of Representatives and is now before the Senate.
Why go to all this effort? The issue is simple, but has been challenging to fix. The current statutory laws (RSA 275, RSA 279 and RSA 281-A:2) defining ‘employee’ have evolved to a point where the same factual circumstances involving an independent contractor can beget different, conflicting results. In other words, a business could be complying with NH DOL’s 7-part ‘employee’ test regarding an individual, and, at the same time, be noncompliant with NH ES’s 3-part ‘employee’ test. If you were to ask NH employment lawyers whether their clients have been caught out by these inconsistent tests, you will hear a resounding affirmative answer. I have represented businesses that have had to pay unpaid unemployment security taxes to NH ES while, at the same time, NH DOL concluded that the same individual was compliant with its definition of ‘employee’ and, therefore an independent contractor. These inconsistent ‘employee’ tests come at high financial consequences for businesses: civil penalties, unpaid taxes, daily worker’s compensation non-compliance fines – to name a few. Furthermore, the possibility of inconsistent results and inherent unpredictability creates a business environment that must incorporate a level of risk even when the business is technically complying with at least one of statutory ‘employee’ definitions.
Below is the new ‘employee’ definition – remember that the presumption is that the individual is an employee and the burden is on the employer to rebut the presumption:
- The individual must satisfy all of the following five requirements: controls the detailed means and manner of the work except as to final results; has the opportunity for profit and loss as a result of the services being performed; performs services customarily engaged in as an independently established trade, occupation, profession or business (the individual may work for one entity for a 6 month period and still be in compliance); hires and pays his/her own assistant and supervises them to the extent they are employees; and is paid based on the agreed scope of work performed; and
- The individual must satisfy three of the following six criteria: have substantial investments in facilities, tools, materials, instruments and knowledge used to complete the work; is responsible for the satisfactory completion of the work and may be held contractually responsible for failure to complete the work; the parties have a written contract; the work is outside the usual course of business of the hiring unit; the work is performed outside all places of business of the hiring unit; or the Internal Revenue Service has classified the individual as an independent contractor.
HB 450 represents an effort to level the playing field in a political environment both nationally and at the state level that supports a heightened enforcement of the misclassification of employees as independent contractors. To those ends, NH DOL and NH ES cooperate in regard to reporting alleged misclassifications to each other. While NH DOL’s application of the new ‘employee’ definition will not collaterally estop a separate finding by NH ES, it would likely be taken into account – especially if the determination is being made contemporaneously, as it typically happens.
No doubt it will take practitioners, businesses, individuals, and agency personnel time to familiarize themselves with the application of the new ‘employee’ definition. However, the tenants of the new statute are familiar to everyone – they encompass existing statutory language and common law interpretation of that language. This law would enable businesses and individuals to predict the outcome of a challenge to misclassification in two important state agencies with a greater level of certainty. At the same time, state agencies will be able to continue to focus their attention on misclassification of employees knowing that the elimination of the inconsistent ‘employee’ definitions will be less likely to ensnare businesses caught in this scenario. Having a unified ‘employee’ test will increase the likelihood that inconsistent results among agencies will be avoided. For those reasons, this effort by NH’s agencies to level the playing field for businesses should be supported.