February 18, 2016

Jessica is a website developer.  After years of working for a company, she leaves that employ to open her own website development business.  After some time, she finds great success in obtaining contracts with various entities to do website design work.  One of these entities is her former employer.  That former employer contracts with her to do work on their website, newsletter, and blog.  The only direction she receives from that company is a deadline to get the job done, and the content that is to be used.  How and when the items are completed are her decisions. 

Do Vermonters know that because Jessica had done this type of work for her former employer in the past, she must be classified as an employee of the company now? 

Do Vermonters know that, although Jessica has hung her own shingle and contracts with several other entities, that she cannot be considered an independent contractor in this case?

This is the new dilemma we are facing as a state.


As both native Vermonters and Vermonters by choice know very well, our state has a long tradition of independence.  One manifestation of that independence throughout the years has been in work. 

For greater flexibility and autonomy, and greater control over their destinies, many Vermonters have chosen to work for themselves, and be what we now call independent contractors.

Over the course of years, this style of work has sometimes come into conflict with our various labor laws – specifically in workers compensation and unemployment insurance – because of how we, in Vermont, define employer.  In the past, this conflict has mostly arisen in the construction industry – with general contractors hiring sub contractors to do specific parts of the job.  The Department of Labor then determines through an audit that that subcontractor should have been classified as an employee.

To be clear, the goal has always been to be sure that businesses are following the laws and that employees are being treated fairly; that when an individual works for somebody, and is, in fact, an employee, that that person is employed as such by the business and covered under workers compensation and unemployment insurance.

However, this conflict has now reared its head in our new economy as well.  This new 21st century economy is fast growing, but is very different.  Instead of the traditional economy of an employer with many employees, in many ways it is an independent workforce coming together to collaborate on projects.

Couple this with the sharing economy, and we’ve got a new kind of independent workforce around which we must tailor our laws. 

We must ensure that we protect the traditional workforce and employer and employee relationships and protections, while at the same time encourage and grow this new, independent workforce and sharing economy.

Every state in the country is trying to address this issue, but I would like Vermont to lead the charge as much as possible.  If we can position ourselves as the place to come to work both independently and collaboratively, and do so successfully, we can attract this new workforce and start to address our significant demographic challenges.

One way to do this is to establish a common definition for independent contractor under both workers compensation and unemployment insurance.  This would do three things:  1) alleviate some of the incredible confusion among employers surrounding the various definitions; 2) encourage and grow the independent workforce; and 3) ensure that those who should be classified as employees are classified as such by their employers.

Specifically, my proposal would explicitly define an independent contractor by requiring that six criteria be met:

1) The individual has the essential right to control the means and progress of the work except as to the final results.

2) The individual is customarily engaged in an independently established trade, occupation, profession, or business.

3) The individual has a substantive investment in the facilities, tools, instruments, materials, and knowledge used by him or her to complete the work.

4) The individual has the opportunity for profit and loss as a result of the services being performed for the employer.

5) The individual hires and pays his or her employees, if any, and supervises the details of the employees’ work.

6) The individual makes his or her services available to the general public and is able to accept work for entities other than the employer, whether or not he or she chooses to do so.

In addition, at least two of the following five criteria have to be met as well:

1) The individual is responsible for satisfactory completion of the work and may be held contractually responsible for failure to complete the work.

2) The parties have a written contract that defines the relationship and gives the individual contractual rights in the event the contract is terminated by the employer prior to completion of the work.

3) Payment to the individual is based on factors directly related to the work performed and not solely on the amount of time expended by him or her.

4) The work is outside the usual course of business for which the service is performed. 

5) The individual has elected to file taxes as an independent contractor with the federal Internal Revenue Service.

The House Commerce and Economic Development Committee, on which I serve, has spent much of the last two weeks on this issue.  I am really hopeful we will come to consensus on something meaningful that we can move forward.