On May 2, 2022, Governor Brian Kemp signed a bill providing detailed guidance for Georgia employers regarding how to classify employees vs. independent contractors for purposes of contributions to unemployment. Specifically, HB 389 amends the definition of employment, stating that unless an exception applies, services performed by an individual for wages are deemed employment unless the individual is free from control or direction over performance of such services. The amendment provides the following factors for determining whether an individual is free from control or direction and whether the individual:
- Is not prohibited from working for other companies or holding other employment contemporaneously;
- Has the discretion to set their own work schedule;
- Is free to accept or reject work assignments without consequence;
- Is not prescribed minimum hours to work or, in the case of sales, does not have a minimum number of orders to be obtained;
- Receives only minimum instructions and no direct oversight or supervision regarding the services to be performed, such as the location where the services are to be performed and any requested deadlines;
- When applicable, has no territorial or geographic restrictions;
- Is not required to perform, behave, or act or, alternatively, is compelled to perform, behave, or act in a manner related to the performance of services for wages which is determined by the Commissioner of Labor to demonstrate employment; and
- Is customarily engaged in an independently established trade, occupation, profession, or business.
It is unclear whether all of the above-listed factors must be met in order for the individual to be considered an independent contractor, or whether the factors should be weighed in a balancing test.
HB 389 also adds two exceptions to the definition of employment. First exempted from the definition are music industry professionals who provide services under a contract as long as that contract meets certain requirements. Additionally, to fit within the exception, the music industry professional must regularly exercise discretion and independent judgment in the performance of the services provided for in the contract.
The second exception relates to services performed or facilitated through a “network company” (defined as a rideshare network service or a business entity that maintains an online-enabled application or platform used to facilitate delivery services in Georgia). The exception applies when the network company has a written contract with the service provider that expressly provides that the network company shall not:
- Unilaterally prescribe specific dates, times of day, or a minimum number of hours during which a service provider must be logged in to the application or platform;
- Terminate such contract if the service provider does not accept, or require the service provider to accept, any specific transportation or delivery service request, although the company can require the service provider to accept a certain percentage of requests;
- Restrict the service provider from performing the same services through other network companies, except at the same time; and
- Restrict the service provider from working in any other lawful occupation or business.
Companies who misclassify employees as independent contractors, and therefore are not contributing to unemployment for those individuals, may receive a fine for such misclassification ranging from up to $2,500 (if the employer has under 100 employees) to $7,500 (if the employer has 100 or more employees) for each misclassified individual.
Classification of independent contractors is an important issue that can have consequences for employers under numerous laws and regulations, including under federal wage laws, tax laws, and, as here, state unemployment law. Although HB 389 is limited to the Georgia unemployment context and is generally consistent with other applicable standards, it is important for employers to be aware of this issue broadly and to ensure all workers are properly classified. As a practical matter, if an individual meets the definition of employee under any applicable legal standard, that person must be classified as an employee for all purposes. In addition, while consistent with the factors Georgia courts have previously considered when determining whether an individual is properly classified, HB 389 is notable as the Georgia legislature has now enumerated specific factors with respect to the control or direction inquiry.
Overall, the companies who are likely to feel the biggest impact from HB 389 are technology companies that meet the definition of a “network company” and engage workers in Georgia (for example, ride share or other delivery services). These companies may consider this exception a positive development for the industry, albeit in a relatively limited area. However, to benefit from the exception described above, such companies need to ensure any contracts and relationships they have with independent contractors in Georgia comply with the requirements of HB 389.
HB 389 took effect on July 1, 2022.