On August 6, 2016, the Arizona State Legislature enacted the “Declaration of Independent Business Status” law (“DIBS”). The DIBS added Chapter 10 to Title 23 of the Arizona Revised Statutes (Arizona’s “Labor” statute). In short, DIBS allows certain Arizona companies (referred to in the statute as an “employing unit”) to obtain a declaration from those individuals they deem “independent contractors” (rather than employees) so that a rebuttable presumption exists that the relationship is in fact one of independence. Obtaining a declaration under the DIBS is discretionary and the statute states expressly that compliance with the law and the execution of a declaration of independent business status are not mandatory in order to establish the existence of an independent contractor relationship. Further, the failure of a party to execute a declaration in compliance with the DIBS does not create any presumptions and is not admissible to deny the existence of an independent contractor relationship.
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So What Does the DIBS Provide For?
Under the new law, any employing unit contracting with an independent contractor may prove the existence of an independent contractor relationship [for the purposes of the statute] if: a) the independent contractor executes a declaration of independent business status which complies with the DIBS; and b) the employing unit acts in a manner substantially consistent with the declaration.
If a declaration is signed, it creates a rebuttable presumption of an independent contractor relationship between the independent contractor and the employing unit with whom the independent contractor contracts.
What is Required to be Included in the Declaration?
The DIBS provides that a declaration signed by an independent contractor must substantially comply with the following form:
“This declaration of independent business status is made by (contractor) in relation to services performed by the contractor for or in connection with (contracting party). The contractor states and declares the following:
- The contractor acknowledges that the contractor operates the contractor’s own independent business and is providing services for or in connection with the contracting party as an independent contractor.
- The contractor acknowledges that the contractor is not an employee of the contracting party and the services rendered for or in connection with the contracting party do not establish any right to unemployment benefits or any other right arising from an employment relationship.
- The contractor is responsible for all tax liability associated with payments received from or through the contracting party and the contracting party will not withhold any taxes from payments to the contractor.
- The contractor is responsible for obtaining and maintaining any required registration, licenses or other authorization necessary for the services rendered by the contractor.
- The contractor acknowledges at least six of the following:
- that the contractor is not insured under the contracting party’s health insurance coverage or workers’ compensation insurance coverage.
- that the contracting party does not restrict the contractor’s ability to perform services for or through other parties and the contractor is authorized to accept work from and perform work for other businesses and individuals besides the contracting party.
(c) that the contractor has the right to accept or decline requests for services by or through the contracting party.
- that the contracting party expects that the contractor provides services for other parties.
- that the contractor is not economically dependent on the services performed for or in connection with the contracting party.
- that the contracting party does not dictate the performance, methods or process the contractor uses to perform services.
- that the contracting party has the right to impose quality standards or a deadline for completion of services performed, or both, but the contractor is authorized to determine the days worked and the time periods of work.
- that the contractor will be paid by or through the contracting party based on the work the contractor is contracted to perform and that the contracting party is not providing the contractor with a regular salary or any minimum, regular payment.
- that the contractor is responsible for providing and maintaining all tools and equipment required to perform the services performed.
- that the contractor is responsible for all expenses incurred by the contractor in performing the services
- The contractor acknowledges that the terms set forth in this declaration apply to the contractor, the contractor’s employees and the contractor’s independent contractors.”
Can the Independent Contractor’s Status Still be Challenged?
Yes. The DIBS states expressly that the law does not affect any investigatory or enforcement authority related to the determination of the independent contractor or employment status of any relationship as provided by Arizona’s Labor statute or federal law. However, the new law states that except in limited circumstances relating to the enforcement of health and safety laws, “any supervision or control exercised by an employing unit to comply with any statute, rule or code adopted by the federal government, this state, or a political subdivision of this state or any requirement of licensing, professional or ethical standards may not be considered for the purposes of determining the independent contractor or employment status of any relationship or individual for the purposes of this Title.”
What About Federal Law?
The DIBS is an important tool for Arizona employers who wish to clarify their relationship with independent contractors in an effort to avoid liability for non-compliance with state labor laws. However, it unfortunately may have little or no bearing on an employer’s potential liability under various federal laws that govern the employment relationship. Interestingly, while the acknowledgments provided for under section 5(a)-(j) of the form declaration in the DIBS seem to parallel many of the factors applied by federal agencies and courts when analyzing an “independent contractor” relationship, it is unlikely that such agencies or a court will merely accept the declaration. Why is this so? Because, even when parties have a signed independent contractor agreement that contains similar acknowledgments, regulatory agencies and courts have found that such agreements are not determinative of the relationship. Instead, most tests applied by the U.S. Department of Labor, the Internal Revenue Service, the Equal Employment Opportunity Commission, and the National Labor Relations Board, require a case-by-case analysis based on the realities of the relationship. Thus, despite the existence of a written independent contractor agreement [or now a DIBS declaration], a more thorough inquiry will be conducted under federal law to determine if, in fact, the relationship is truly an independent one.
Nevertheless, compared to employers in other states who are struggling to legally use the independent [or “GIG”] workforce, Arizona employers have been handed a small gift in the DIBS and should utilize it in all of their truly independent relationships.