Q: What is President-elect Biden's position on independent contractors (IC) versus employees? Do you anticipate that there will be more audits and reclassifications of independent travel advisors as "employees" for tax and labor-law purposes? Will there be an exemption for professional travel advisors like there is in California under AB-5?
A: The president-elect has already proposed a multipart employment reform plan that, if implemented, would much more aggressively attack alleged misclassification of independent contractors. Here are verbatim quotes from his plan:
- "Aggressively pursue employers who violate labor laws, participate in wage theft or cheat on their taxes by intentionally misclassifying employees as independent contractors."
- "Drive an aggressive, all-hands-on-deck enforcement effort that will dramatically reduce worker misclassification."
- "Fund a dramatic increase in the number of investigators in labor and employment enforcement agencies to facilitate a large scale anti-misclassification effort."
- "Establish a federal standard modeled on the ABC test for all labor, employment and tax laws."
The last bullet point's phrase, "all labor, employment and tax laws," refers to the fact that different federal agencies have traditionally used different tests for IC status, leading to confusion. For example, the IRS uses a test for withholding taxes that is different from the Labor Department's test for minimum wages, and both are different from many states' tests.
While uniformity is good in principle because it would clear up confusion, at least at the federal level, the big problem for independent travel advisors is the reference to the ABC test and the plan's favorable reference to the California version of the test:
"States like California have already paved the way by adopting a clearer, simpler and stronger three-prong ABC test to distinguish employees from independent contractors. The ABC test will mean many more workers will get the legal protections and benefits they rightfully should receive."
The California ABC test was a potential disaster for IC-host relationships. In a nutshell, the California version meant that the IC's work must be "outside the usual course of business" of the company, i.e., that the host and the IC must be in different businesses; otherwise, the state would reclassify the IC as an employee. That's why ASTA lobbied hard and successfully for an exemption last year.
While the Biden plan mentions these reforms in the context of new legislation, I believe that the new administration could adopt the ABC test by regulation, without congressional approval.
At the Labor Department, the current test was adopted by policy statement, and the outgoing administration has proposed a rule to change the policy to make it much less likely that relationships would be reclassified.
Although that proposed rule will certainly be withdrawn, the point is that there are precedents for new IC tests without congressional action.
The Biden plan makes no mention of any exemptions for any IC relationships, so ASTA will again have its work cut out for it if the new administration formally proposes that the California version of the ABC test be adopted, and host agencies will clearly need to support ASTA's efforts.