New Employment Laws to Note: NY Salary History Ban and CA Revised Independent Contractor Test

Last month, my colleagues reported on the changes to New York discrimination laws and minimum wage and overtime exemption requirements that took effect at the start of the year—two of several significant, new employment legal initiatives of which U.S. employers and employees should be aware. Two others of particular note that took effect in January are the subject of this discussion: the prohibition of employers from requesting salary history information of New York candidates and employees, and the redefinition of what constitutes an independent contractor versus an employee for employers with workers in California.

New York State Bans Requesting Salary Histories from Applicants and Employees

On January 6, 2020, New York State became the newest geographical region to ban businesses from asking prospective employees, as well as current employees, about their salary or wage histories. The purpose of the law is to prevent further gender-based wage discrimination. Previously, New York City had passed a similar law, which only applied to applicants, but unlike the New York City law, the New York State law applies to current employees as well as applicants. The New York State law prohibits employers from refusing to interview or hire a candidate, or to keep employed or promote a current employee, based upon salary history, a refusal to provide salary history, or an employee or applicant’s filing of a complaint alleging a violation of the newly enacted law. Both public and private employers are restricted from requesting past salaries or wages or from using that information for decision-making purposes as to whether to offer a job to a candidate, set an employee’s salary, or give an employee a raise.   

The New York State law does not, however, prevent applicants or employees from voluntarily disclosing their salary or wage histories to an employer or prospective employer, which they may wish to do, for example, to support a request for a higher salary than was offered by the employer. Nor are employers precluded from revising salaries under the law or asking candidates or employees about their salary expectations. The salary history ban applies to those workers whose jobs will be based in New York State even if the interviewing or negotiations occur outside the state. New York joins other states such as California, Washington, Alabama and New Jersey, which have similar laws on the books.

California Sets Narrow, Three-Part Test for Distinguishing Employees from Independent Contractors

Generally speaking, companies pay more for employees than for independent contractors. For employees, employers typically pay for vacation days as well as retirement and insurance benefits on behalf of their employees, including health insurance and contributions to state unemployment compensation and workers’ compensation insurance funds. These worker benefits and company expenses are usually not included in the case of independent contractors. In California, beginning last month, Assembly Bill 5 (A.B. 5) took effect, which is a statute aimed largely at ensuring that employers in gig economies do not misclassify their California workers as independent contractors as opposed to employees, thereby avoiding the provision of protections and benefits that are mandated or typically only provided for employees.

The law, which could have a severe financial impact on gig-economy companies like Uber and Lyft, sets out a three-part test that limits employers from classifying workers as independent contractors unless they show that the workers (1) are free from the control and direction of the hiring entity in performing the work, both in the contract for performance and in fact; (2) are performing work that is outside the usual course of the company’s business; and (3) customarily do the work they do for the company as part of a trade, occupation or business of the same nature independent of the company.

It is expected that Part 2 of the test is likely to give the most challenge to companies seeking to classify workers as independent contractors—certainly to the extent that the workers are being utilized by the companies to perform their regular business.   

Prior to A.B. 5 taking effect, California businesses were subject to a variety of tests for determining employee status, depending on the law in question. But now, one test applies to the majority of employers doing business in California for their California-based workers, and the new law significantly narrows the scope of work for which businesses may classify workers as independent contractors instead of employees and thus reap the financial savings of doing so. The year 2020 is expected to see an increase in legal claims by California workers arguing that, under the new stringent standards, they were misclassified as independent contractors.

It should be noted that some exceptions are built into the statute, which cover certain workers such as architects, lawyers, medical providers, securities broker-dealers, fishermen, grant writers, fine artists, manicurists and graphic designers. However, such exceptions apply solely to application of the three-part test for those occupations, and default the workers covered by the exemptions to determination under another classification determination test set up in 1989 under the California Supreme Court’s decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations.

A.B. 5 and its aftermath are being watched closely by other states, as New York lawmakers are weighing the passage of similar legislation to cover employers doing business in New York for their New York-based workers. 

Ethan Krasnoo Discusses NY Salary History Ban and CA Revised Independent Contractor TestThis article is intended only as a general discussion of these issues. It is not considered to be legal advice or relied upon. For more information, please contact RPJ Attorney Ethan Krasnoo, who counsels both companies and individuals on employment, entertainment and media, First Amendment, and data privacy matters. Mr. Krasnoo is admitted to practice in New York State, the U.S. District Courts for the Southern and Eastern Districts of New York, the U.S. Court of Appeals for the Second Circuit, and U.S. Tax Court. Attorney Advertising.