A new Arizona law (A.R.S. § 23-1601), effective August 6, 2016, attempts to help businesses to correctly determine which of its workers are employees and which are independent contractors. The issue of classifying a worker as an employee or an independent contractor has been hotly debated in recent litigation, frequently with workers, or a government agency with oversight of workplace compensation issues, alleging worker(s) were misclassified as independent contractors and thus are entitled retroactively to the benefits afforded employees (e.g., overtime, paid days off, benefits).
The new Arizona law establishes a standard permitting an independent contractor to self-identify that relationship by executing a Declaration of Independent Business Status (Declaration). The Declaration and the statute itself list four factors that must be present for the working relationship to be that of independent contractor. But that is not the end of the test: the Declaration and statute also list ten other factors of which six must exist for the working relationship to be that of an independent contractor. If the independent contractor signs the Declaration attesting that all four required factors and six of the ten optional factors are met, the law will recognize a rebuttable presumption of an independent contractor relationship.
Unfortunately, obtaining a signed Declaration that complies with A.R.S. § 23-1601 will not guarantee that the business is immune from an independent contractor misclassification challenge by workers or agencies. Rather, the existence of an executed Declaration places the burden on the independent contractor or agency claiming employee status to disprove the presumption of the independent contractor relationship created by the Declaration (a rebuttable presumption). If strong facts indicate an employment relationship, a court or government authority hearing the matter likely would look past the Declaration and examine the economic reality of the relationship. This means that businesses should not only obtain a signed Declaration from its independent contractors to be able to take advantage of the rebuttable presumption, but they should also continue to do their own independent analysis of whether the worker should be classified as an employee or an independent contractor, all on the same basis that existed prior to the enactment of A.R.S. § 23-1601.
To be clear, an independent contractor relationship may be found to exist even absent a signed Declaration, or, said another way, executing a Declaration is not required for a working relationship to be deemed that of independent contractor. In defending against a challenge, choosing not to executive the Declaration will not be considered proof that the worker is an employee rather than an independent contractor.
To help in understanding the new law, below is the Declaration that, once executed by the independent contractor, establishes a rebuttable presumption of contractor (and not employee) status:
Requirements of the Declaration of Independent Business Status:
The Declaration must be signed and dated by the independent contractor and must substantially comply with the following form:
This Declaration of Independent Business Status is made by (Contractor) in relation to services performed by the Contractor for or in connection with (Contracting Party). The Contractor states and declares the following:
1. The Contractor acknowledges that the Contractor operates the Contractor’s own independent business and is providing services for or in connection with the contracting party as an independent contractor.
2. The Contractor acknowledges that the Contractor is not an employee of the Contracting Party and the services rendered for or in connection with the Contracting Party do not establish any right to unemployment benefits or any other right arising from an employment relationship.
3. The Contractor is responsible for all tax liability associated with payments received from or through the Contracting Party and the Contracting Party will not withhold any taxes from payments to the Contractor.
4. The Contractor is responsible for obtaining and maintaining any required registration, licenses or other authorization necessary for the services rendered by the Contractor.
5. The Contractor acknowledges at least six of the following:
a. That the Contractor is not insured under the Contracting Party’s health insurance coverage or workers’ compensation insurance coverage.
b. That the Contracting Party does not restrict the Contractor’s ability to perform services for or through other parties and the Contractor is authorized to accept work from and perform work for other businesses and individuals besides the Contracting Party.
c. That the Contractor has the right to accept or decline request for services by or through the Contracting Party.
d. That the Contracting Party expects the Contractor provides services for other parties.
e. That the Contractor is not economically dependent on the services performed for or in connection with the Contracting Party.
f. That the Contracting Party does not dictate the performance methods or process the Contractor uses to perform services.
g. That the Contracting Party has the right to impose quality standards or a deadline for completion of services performed or both but the Contractor is authorized to determine the days worked and the time periods of work.
h. That the Contractor will be paid by or through the Contracting Party based on the work the Contractor is contracted to perform and that the Contracting Party is not providing the Contractor with a regular salary or any minimum regular payment.
i. That the Contractor is responsible for providing and maintaining all tools and equipment required to perform the services performed.
j. That the Contractor is responsible for all expenses incurred by the Contractor in performing the services.
6. The Contractor acknowledges that the terms set forth in this declaration apply to the Contractor, the Contractor’s employees and the Contractor’s independent contractors.
Faulkner Law Offices, PLLC can assist in preparing independent contractor agreements.