By: Mark H. Dellinger, Danielle M. Waltz, and Blair Wessels
On March 11, 2021, the West Virginia Legislature completed legislative action on Senate Bill 272, the West Virginia Employment Law Worker Classification Act. The Employment Law Worker Classification Act (the “Act”) establishes a single, statewide standard to evaluate whether an individual providing services to a business is an independent contractor or a bona fide employee. The Act will now head to Governor Jim Justice, who is expected to sign the Act into law.
The new law will be codified at § 21-5I-1 et seq. and will amend certain existing sections of the West Virginia Code, including wage payment and collection in § 21-5-1 et seq., workers’ compensation in § 23-2-1a, and unemployment compensation in § 21A-1A-16. In addition to these amended Code sections, the Act will also apply to the West Virginia Human Rights Act, codified at § 5-11-1 et seq. Under the Act, an individual will be classified as an “independent contractor” if the conditions in § 21-5I-4 are satisfied. If the individual does not satisfy all the criteria established in § 21-5I-4(a), then the individual’s classification shall be determined by the test set forth in Internal Service Revenue Ruling 87-41.
The first condition is that the person must sign a written contract with the principal that “states the principal’s intent to engage the services of the person as an independent contractor.” W. Va. Code § 21-5I-4(a)(1). The contract must include acknowledgements that the person understands that he or she (1) is providing services as an independent contractor; (2) will not be treated as an employee of the principal; (3) will not be provided workers’ compensation or unemployment benefits by the principal; (4) is obligated to pay all applicable federal and state income taxes, and that the principal will not make any tax withholdings; and (5) is responsible for the majority of supplies and other expenses incurred in connection with performing the contracted services.
The second condition is that the person has filed, or is contractually required to file, with respect to fees earned from the work performed for the principal, an income tax return with the appropriate federal, state, and local agencies for a business or for earnings from self-employment. W. Va. Code § 21-5I-4(a)(2)(A). A person can also satisfy this condition by providing services through a business entity registered with a “doing business as” per state or local law.
The third condition is that the person “actually and directly controls the manner and means by which the work is to be accomplished, even though he or she may not have control over the final result of the work.” W. Va. Code § 21-5I-(a)(3). With respect to this condition, any safety improvements shall not be considered when evaluating a person’s status as an employee or independent contractor. For purposes of this section, “safety improvement” shall mean “any device, equipment, software, technology, procedure, training, policy, program, or operational practice intended and primarily used to improve or facilitate compliance with state, federal or local safety laws or regulations or general safety concerns.” This condition will be satisfied even if the principal provides orientation, information, guidance, or suggestions about the principal’s products, business, services, customers and operating systems, and training.
The fourth condition is that the person must satisfy three or more of the following criteria: (1) the person has control over the amount of time personally spent providing services; (2) the person has control over where the services are performed; (3) the person is not required to work exclusively for the principal, unless a law, regulation, or ordinance prohibits the person from providing services to more than one principal, or a license or permit limits the person’s ability to work for only one principal; (4) the person is free to exercise independent initiative in soliciting others to purchase his or her services; (5) the person is free to hire employees or to contract with assistants, helpers, or substitutes to perform all or some of the work; (6) the person cannot be required to perform additional services without a new or modified contract; (7) the person obtains a license or other permission from the principal to utilize any workspace of the principal’s to perform the work; (8) the IRS has not reclassified the person to be an employee; (9) the person is responsible for maintaining and bearing the costs of any required business license, insurance, certifications, or permits to perform the services; or (10) the person satisfies the definition of “direct seller” under Section 3508(b)(2) of the Internal Revenue Code of 1986. W. Va. Code § 21-5I-(a)(4)(A)–(J).
Section 5 details the Act’s limitations. The Act does not apply to certain areas of the law, such as whether a person is an independent contractor or an agent of a principal for determining whether the laws of agency apply with respect to issues of vicarious liability. The Act also does not apply to organizations or persons subjected to the provisions of West Virginia Code § 17-29-11.
Prior to the enactment of this legislation, the standards for determining independent contractor status were not uniform or predictable as different statutes used different tests. Reaching an incorrect determination as to independent contractor status can have significant legal and financial consequences both for the business as well as the individual. The Act will bring much needed clarity to businesses and individuals with respect to their legal obligations under these statutes moving forward.