States would be required to adopt California’s restrictive version of the “ABC” test that gets tough on independent contractor misclassification for purposes of determining eligibility for unemployment insurance benefits under federal legislation proposed April 14 by two Senate Democrats.

While the Unemployment Insurance Modernization Act has garnered less attention than other Biden administration efforts to restrict the classification of individuals as independent contractors, it would have significant impacts on employers should it come to fruition, according to a JD Supra blog post by law firm Fischer Phillips.

“If adopted, this proposal would have nationwide implications for employers,” the post stated. “While it would only amend state unemployment insurance law — and would not directly apply to other areas of the law such as wage and hour or employment discrimination law — it would erect significant barriers for employers in utilizing independent contractors.”

The 106-page bill, proposed by Senators Ron Wyden (D-Oregon) and Michael Bennet (D-Colorado), aims to reform the country’s unemployment insurance system, which has struggled during the Covid-19 pandemic.

“Our proposal would help ensure benefits cover the basics, minimize the glaring disparities between state programs and create a permanent benefit for self-employed workers,” Sen. Wyden stated when announcing the legislation. “Importantly, it would also prevent another race to the bottom where state after state cuts its program to the bone. If we don’t fix unemployment insurance now, the system will be even more broken when the inevitable next recession hits.”

As of late March 2020, the CARES Act has provided new and expanded unemployment protections to those who are not ‎typically eligible for state unemployment benefits, including self-employed individuals such as independent ‎contractors and gig workers as well as those who, but for reasons arising out of Covid-19, were fully or ‎partially unemployed.‎ Law firm Locke Lord LLP discusses the extensions in a JD Supra blog post.

The main components of the new proposal consist of the following, according to Fischer Phillips:

  • Updates to the current federal-state extended benefits program to enact an “automatic stabilizer” that would automatically add additional weeks of benefits when unemployment rises.
  • New requirements for state unemployment insurance programs to increase benefits and provide coverage to more workers.
  • The establishment of new federal programs, including a Jobseeker Allowance that would be available to unemployed workers not covered by the traditional unemployment insurance system. This $250 weekly benefit would be available to self-employed “gig workers” and those new to the labor market.
  • Upgrades to unemployment insurance technology and changes to financing of such programs, which include programs to streamline delivery of benefits while enhancing cybersecurity and fraud prevention in the system.

The proposed legislation’s section on employee status is where California’s version of the ABC test comes into play. It states an individual performing any service shall be considered an employee and not an independent contractor for the purpose of the State law, unless:

(A) The individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service; and

(B) The service is performed outside the usual course of the business of the employer; and

(C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.

Passage of the bill is questionable at best, even after legislative negotiations. FreightWaves reported the American Rescue Plan received no Republican support in the Senate but was passed through the Reconciliation process, requiring only a simple majority. However, the Unemployment Insurance Modernization Act would require 60 votes to pass the Senate, making passage an “uphill climb.”

AS previously reported in CWS 3.0, employers are skittish about tapping independent contractors as a talent source. This proposed legislation is one more signal that independent contractor classification is a focus of the Biden administration and an issue that will be at the forefront for at least the next few years.