On its surface, Protecting the Right to Organize (PRO) Act of 2021 doesn’t appear to be relevant to the farrier industry. Yet, if the proposed changes to the federal labor law pass, it could significantly change the hiring practices of some farriers in the United States.
The legislation — Senate Bill 420 and its twin House Bill 842 — expressly state that the amendments will expand “labor protections related to employees’ rights to organize and collectively bargain in the workplace.” Frankly, unless a farrier practice has 100 employees, this isn’t a consideration that will garner much attention. However, it doesn’t take long — Page 3, in fact — to determine that it is indeed relevant.
Like many bills, Section 101 of the PRO Act provides definitions of the applicable terms that are critical to the topic at hand. As one might expect of labor legislation, the word “employee” is particularly pertinent, and the definition that’s introduced in 101(b) will potentially affect how farriers hire associates, helpers and apprentices.
It’s no surprise that the federal government isn’t the only lawmaking entity that defines employee. Each state defines whether workers are employees or independent contractors using either Common Law Rules, the ABC Test, or a limited ABC Test. On the federal level, the Internal Revenue Service (IRS) follows Common Law Rules. This will change to the ABC Test should the PRO Act become law.
California is the most notable and recent state to implement the ABC Test to regulate companies such as Uber and Lyft that hire many so-called gig workers.
The ABC Test presumes workers are employees. If the hiring business management disagrees, it must prove that the worker is an independent contractor. How does one accomplish this? That’s where the ABC comes in. Three factors qualify the worker as an independent contractor. If the hiring business fails to satisfy one of the three factors, the worker’s status as an employee endures.
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 in fact.
B. The service is performed outside the usual course of the business of the employer.
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.
By contrast, Common Law Rules do not begin with a presumption that a worker is either an employee or an independent contractor. In addition, while one factor is decisive when applying the ABC Test, Common Law Rules are considered in unison. No factor is decisive over another.
“Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor,” advises the IRS. “There is no ‘magic’ or set number of factors that ‘makes’ the worker an employee or an independent contractor, and no one factor stands alone in making this determination. … The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”
The three factors that are considered under Common Law Rules are behavioral, financial and type of relationship.
Behavioral. A worker is considered an employee “when the business has the right to direct and control the worker,” states the IRS. It’s important to note that the direction and control of the worker from the business are not required. Rather, the behavioral control triggers when the business has the right to direct and control the work.
Financial. Does the business have the right to control the economic aspects of the worker’s job? Examples of this include how the worker is paid, reimbursement of expenses and the provider of tools and/or supplies.
Type of relationship. The final control examines how the worker and business perceive their relationship with one another. Are there written contracts or benefits offered to the worker? Is it a long-term working relationship? Is the worker’s job a key aspect of the business operations?
What it Means
If the PRO Act is enacted, farriers will remain classified as independent contractors. However, employees of farriers will fail to satisfy the criteria in factor B of the ABC Test. Factor B states, “The service is performed outside the usual course of the business of the employer.” Under the ABC Test, the hiring farrier and the worker provide the same service regardless of how duties are disseminated. Therefore, the farrier’s business will not be allowed to classify the worker as an independent contractor. They will be considered an employee.
In this case, federal law supersedes those on the state level. Therefore, states will be required to change their statutes if they follow Common Law Rules or a variant of the ABC Test as the prevailing method for determining whether a worker is an employee or an independent contractor.
When California enacted the ABC Test in 2020, it forced Moreno Valley farrier Tim Shannon to significantly change his business. Before the bill became law, he paid a farrier to work with him 1-2 days a week through his business and write off the expenses each year. After pouring over the numbers with his accountant, it was going to cost Shannon an estimated 30% of the employees’ pay to cover the costs associated with converting him to an employee.
“It was not economically viable for my practice, so I had to let him go,” he says. “It hit us both hard. He lost a major source of income for himself and his family. I was burdened with more work and scheduling issues.”
Shannon was forced to raise his hoof-care prices, thereby effectively pushing clients out of his appointment book to create a more manageable workload by way of attrition.
If you live in a state with the ABC Test, how has it affected your hoof-care practice? If you live in a state that doesn’t consider the B Factor of the ABC Test, how will it affect your practice? Let us know by sharing your experience in the comment field below.
- Read “Proposed Federal Legislation Promises Farrier Hiring Changes” in the July/August 2021 issue of American Farriers Journal.