Starving Artists Newsletter, Vol. 18 - Misclassification of Employees in the Entertainment Industry in Puerto Rico
What happened?
Some time ago, I got a disturbing call from a media client in Puerto Rico. This person worked under a collective bargaining agreement (“CBA”) as an employee; but the company had begun hiring them for other “projects” as an independent contractor. The thing is, the “projects” they were being hired for were the same roles performed as through the employment agreement. Since the company couldn’t exceed certain hours and pay under the CBA, they tried to circumvent it by labeling this person as an “independent contractor”.?
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Is it unlawful to classify an employee as an “independent contractor”?
Categorizing a worker as an employee or an independent contractor has important implications for employers. If a worker is classified as an independent contractor, the employer can avoid costs such as workers’ compensation insurance, 401k matches, and other administrative costs. As a result, employers often try to classify workers as independent contractors even though the true substance of the relationship is that of employer-employee.?
In Puerto Rico, as in the U.S., the distinction between an independent contractor and an employee is based on multiple factors, such as the degree of control the company exerts over the worker, the nature of the work, and whether the work is integral to the company's business. If the company continues to exert control over the worker in a manner consistent with an employer-employee relationship, labeling that worker an independent contractor would likely not hold up under scrutiny.
In Puerto Rico, an employer attempting to hire an employee both as an employee covered by a collective bargaining agreement (CBA) and as an independent contractor, with the aim of circumventing the CBA, would likely violate various legal principles and statutes, and could result in legal action from the union, which might file grievances, claims before the Puerto Rico Department of Labor, or even in federal court under the National Labor Relations Act (NLRA).
What does Puerto Rico law actually say?
Firstly, under Puerto Rico’s Working Hours and Days Act (Act 180-1998), there are provisions related to overtime, rest periods, and benefits for employees. If an individual is treated as an independent contractor to avoid paying such benefits, this could be viewed as misclassification. If the "independent contractor" actually operates under conditions that mirror those of an employee, the company could be liable for violating wage and hour provisions under Act 180, as well as other employment protections.
Secondly, the Puerto Rico Labor Relations Act (PRLRA) mirrors the National Labor Relations Act (NLRA) and governs labor-management relations. The PRLRA protects employees' rights to collective bargaining and prohibits employers from engaging in unfair labor practices, including those intended to undermine union agreements. Article 8 of PR Law 130 specifically addresses the prohibition of unfair labor practices and includes interference with the employees' exercise of rights, as well as any action taken to avoid compliance with the terms of a collective agreement. If a company misclassifies an employee to avoid union obligations under the CBA, this would likely constitute an unfair labor practice under Article 8(a) of Law 130, exposing the company to claims before the Puerto Rico Labor Relations Board.
Thirdly, under Act 139-1968, Puerto Rico provides guidelines for determining whether a worker is an independent contractor or an employee. The key factors include:
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If a worker labeled as an independent contractor performs the same tasks as other employees covered by a CBA, this misclassification is unlawful. The Supreme Court of Puerto Rico has consistently held that misclassification in these circumstances can result in liability for back wages, benefits, and penalties
Fourthly, under Act 17 of 1931, also known as Puerto Rico’s Wage and Hour Law, it stipulates the minimum rights and working conditions for employees, which apply unless explicitly waived by a valid CBA. Attempting to avoid paying overtime or other benefits by misclassifying an employee could constitute a violation of these minimum rights, as defined by Puerto Rican labor law.
What does the federal government say?
On March 11th, 2024, the Department of Labor’s New Rule on independent contractors officially took effect. This “New Rule” is the revised test that the DOL will use to analyze whether a worker should be classified as an employee or an independent contractor.
The New Rule is a balancing test that considers the following seven factors:
The New Rule mostly mirrors what is known as the Economics Realties Test (ERT) that was established through decades of case law. The original ERT was a six-factor test consisting of the first six factors considered under the New Rule.
prepared by: Josh Katz
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