New York Gov. Andrew Cuomo recently signed a new law, effective March 1, 2014, that will punish businesses in the transportation and delivery industries that misclassify workers who deliver commercial goods as being independent contractors. The New York Commercial Goods Transportation Industry Fair Play Act applies to all "commercial goods transportation contractors," which are defined as New York sole proprietorships, partnership, corporations, or other business entities that compensate commercial drivers who have a commercial driver's license to transport goods in New York State. The new law creates a presumption that any person operating a commercial motor vehicle with a gross vehicle weight rating (GVWR) of more than 10,000 pounds performing transportation services of commercial goods for a commercial goods transportation contractor is an employee and not an independent contractor unless one of two tests is satisfied. The first test determines whether the worker is an independent contractor while the second determines whether the worker qualifies as a separate business entity.

The Independent Contractor Test (this is the tough “ABC” test already found in more than 10 states): requires that all of the following three factors must be satisfied:

  • The individual is free from control and direction in performing the job, both under his or her contract and in fact;
  • The service must be performed outside of usual course of business for which the service is performed; and
  • The individual is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the business at issue.

The Separate Business Entity Test: is an even more stringent test that requires that all of the following 11 factors to be satisfied:

  • The business entity is performing the services free from the direction or control over the means and manner of providing the service, subject only to the right of the commercial goods transportation contractor to specify the desired result;
  • The business entity is not subject to cancellation or dissolution upon severance of the relationship;
  • The business entity has a substantial investment of capital in the business entity, including but not limited to ordinary tools and equipment;
  • The business entity owns or leases the capital goods and gains the profits and bears the losses of the business entity;
  • The business entity has an option to make its services available to the general public or the business community on a continuing basis;
  • The business entity includes services rendered on a Federal Income Tax Schedule as an independent business or profession;
  • The business entity performs the services pursuant to a written contract, under the business entity's name, specifying their relationship to be as independent contractors or separate business entities;
  • When the services being provided require a license or permit, the business entity pays for the license or permit in the business entity's name or, where permitted by law, pays for reasonable use of the commercial goods transportation contractor's license or permit;
  • If necessary, the business entity hires its own employees, subject to applicable qualification requirements or federal or state laws, rules or regulations, pays the employees without reimbursement from the commercial good transportation contractor and reports the employees' income to the Internal Revenue Service;
  • The commercial goods transportation contractor does not require that the business entity be represented as an employee of the commercial goods transportation contractor to its customers; and
  • The business entity has the right to perform similar services for others on whatever basis and whenever it chooses.

Penalties for Violating the New Law

Any New York business violating the law may be subject to civil penalties of up to $1,500 for a first violation and up to $5,000 for a subsequent violation within a five-year period. Willful violations (when the company knew or should have known that it was committing a violation) can result in monetary fines of up to $2,500 per worker for the first violation and up to $5,000 per worker for subsequent violations within a five-year period. The law also adds potential criminal liability for those who are found to have willfully violated the law.  A first offense is punishable as a misdemeanor and may include imprisonment of up to 30 days or a fine of up to $25,000. Any subsequent offense exposes the employer to up to 60 days' imprisonment and a fine not to exceed $50,000. Where the commercial goods transportation contractor is a corporation, each shareholder owning 10 percent or more of the company and each officer "who knowingly permits the corporation to willfully violate" the new law shall be personally liable for the civil and criminal penalties upon conviction.  In addition, controlled group liability will be imposed upon any "substantially owned affiliated entity."

The Message for Employers

New York has adopted a tough approach to worker misclassification in the trucking industry. To avoid costly compliance failures, trucking businesses that employ “independent contractors” should work closely with experienced counsel to determine if such workers need to be reclassified in light of the new, more stringent requirements.