Ohio H.B. 523 Redefines “Employee” To Combat Misclassification




In 2009, Ohio Attorney General Richard Cordray announced his intent to crack down on the misclassification of workers as independent contractors. According to Attorney General Cordray, paying employees off the employer’s books (whether or not the payment is “under the table”) and denying them the protections that employee status would otherwise confer, such as eligibility for workers’ compensation and unemployment benefits, “are in effect stealing from the rest of us.” The Attorney General, who at the time announced that his office would collaborate with three state agencies to smoke out the “underground economy,” estimated Ohio has lost hundreds of millions of dollars in potential unemployment compensation and workers’ compensation premiums and in state income tax revenues.

Now, the Ohio legislature has joined the act. Legislation recently introduced in the General Assembly seeks to create a generally uniform definition of “employee” for purposes of the portions of the Minimum Fair Wages Standards Law that governs the payment of the minimum wage, the Bimonthly Pay Law, the Prevailing Wage Law, the Workers’ Compensation Law, the Unemployment Compensation law, and the Income Tax Law.

The effect of this legislation, if passed, would be to replace the current method of using various, and sometimes conflicting, tests with a new, seven-point test to determine whether a worker is an employee. Under  the proposed legislation, independent contractor status is established only by meeting all of the following factors:

1. The individual has been and continues to be free from control and direction in connection with the performance of the service.

2. The individual customarily is engaged in an independently established trade, occupation, profession, or business of the same nature as the trade, occupation, profession, or business involved in the service performed.

3. The individual is a separate and distinct business entity from the entity for which the service is being performed or, if the individual is providing construction services and is a sole proprietorship or partnership, the individual is a legitimate sole proprietorship or a partner in a legitimate partnership.

 4. The individual incurs the primary expenses and has continuing or recurring business liabilities related to the service performed.

 5. The individual is liable for breach of contract for failure to complete the service in the time and manner prescribed.

 6. An agreement, written or oral, express or implied, exists describing the service to be performed, the payment the individual will receive for performance of the service, and the time frame for completion of the service.

 7. The service performed by the individual is outside of the usual course of business of the employer.

The bill would also prohibit an employer from retaliating against an individual who takes specified actions listed in the bill, such as making a complaint concerning his or her classification. The bill also prohibits an employer from compelling an individual to waive any portion of the bill or to enter into a pre-dispute waiver and establishes civil and criminal penalties for violating the bill’s provisions.

While it is early in the legislative process and impossible to predict whether H.B. 523 will be adopted, employers need to be aware of the consequences – both present and potential – of improperly classifying employees as independent contractors.

If you would like to better familiarize yourself with the factors currently used at the state and federal level in classifying individuals as employees or independent contractors, or if you would like to discuss how these proposed changes presently before the Ohio legislature affect you or your business, please contact Lester Armstrong of our Labor and Employment Practice Group at (216) 831-0042, ext. 161 or by e-mail at larmstrong@meyersroman.com.