BEFORE THE DEPARTMENT OF LABOR AND INDUSTRY

                                   OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 24.11.2407 and 24.35.203 and the adoption of New Rule I pertaining to independent contractors

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NOTICE OF AMENDMENT AND ADOPTION

 

            TO: All Concerned Persons

 

            1. On September 10, 2021, the Department of Labor and Industry (department) published MAR Notice No. 24-35-376 pertaining to the public hearing on the proposed amendment and adoption of the above-stated rules at page 1109 of the 2021 Montana Administrative Register, Issue Number 17.

 

            2. The department held a public hearing in Helena on October 8, 2021, over the Zoom videoconference and telephonic platform at which members of the public commented. Written comments were received during the public comment period.

 

            3. The department has thoroughly considered the comments made. A summary of the comments and the department's responses are as follows:

 

COMMENT 1: Multiple commenters stated that implementation of Senate Bill 367, section 2, was properly effectuated by this rulemaking.

 

RESPONSE 1: The department acknowledges the comments.

 

COMMENT 2: One commenter questioned whether New Rule I would effectuate, in the normal course, independent contractor status based entirely on documentation other than an independent contractor exemption certificate.

 

RESPONSE 2: The comment is acknowledged, and the ambiguity is noted. The intention of New Rule I(1)(c) is to provide protection for those employers who sought to verify independent contractor status who were, through no fault of their own, misled into believing the worker to be an independent contractor.  However, the conclusive presumption of the independent contractor exemption certificate (ICEC) of 39-71-417, MCA, and the requirement to have an ICEC before working as an independent contractor pursuant to 39-71-419, MCA, are unchanged by recent legislative amendments.  To clarify this ambiguity, the department adopts the amendments set forth below.

 

COMMENT 3: A commenter argued that these rule amendments contradict section 1 of Senate Bill 367 based on an interpretation of the bill that the department is prohibited from finding employer status due to lack of an independent contractor exemption certificate.

 

RESPONSE 3: The comment is acknowledged; however, the department disagrees with the interpretation.  First, the department notes that the amendment to 39-51-203(4), MCA, prohibits a determination of employee status "based solely on not having an independent contractor exemption certificate" (emphasis added).  Solely means only.  By considering factors beyond the lack of independent contractor exemption certificate, to include those issues contained within New Rule I, the department implements the plain language of the amendment to consider more than solely the lack of ICEC.  This interpretation further carries forward the intention of the legislature in establishing the ICEC program to ensure consistency and uniformity in determinations of independent contractor status.  Applying different tests for worker status to unemployment insurance than to workers' compensation could lead the same worker to be an independent contractor for purposes of unemployment insurance, but an employee for purposes of workers' compensation.  This was not a stated intention of the 2021 Legislature, nor is it necessitated by Senate Bill 367.

 

            Second, section 1 of Senate Bill 367 amended 39-51-203(4), MCA, to include a provision barring a finding of employee status "based solely on not having an independent contractor exemption certificate."  Section 39-51-201(15) defines an independent contractor as an "individual working under an independent contractor exemption certificate provided for in 39-71-417."  This section was not amended by the legislature.  In McCone Cnty. v. ICCU, 2021 MTWCC 19, ¶ 24, the Montana Workers' Compensation Court expressly interpreted 39-51-201(15), MCA, to require that, for a worker to be an independent contractor, they must be working under an ICEC—the common law AB Test was expressly held to be insufficient to confer independent contractor status.  The legislature's decision to amend 39-51-203(4), MCA, but not to amend 39-51-201(15), MCA, must be given effect.

 

            In addition, the department must attempt to read all of these statutes in harmony. See 1-2-101, MCA ("Where there are several provisions or particulars [in a statute], such a construction is, if possible, to be adopted as will give effect to all.").  Adopting the commenter's interpretation of 39-51-203(4), MCA, would render superfluous 39-51-201(15), MCA.  This the department is without discretion or authority to do.  To effectuate all plain language of the law, the department recognizes through the adoption of New Rule I that there are instances in which equity and fairness to hiring agents must outweigh the strictest interpretations of law.  It is these instances which the rule seeks to contour.  In short, where a hiring agent is surprised due to misrepresentations by the worker, bad information being obtained, timing of ICEC application, or the expiration of an ICEC, the department will apply the common law AB Test to determine whether the working relationship is that of employee-employer or independent contractor-hiring agent.

 

COMMENT 4: One commenter expressed that Senate Bill 367, section 2 places the burden on the worker to prove status, while the rules appear to place the burden on hiring agents.

 

RESPONSE 4: The department acknowledges this interpretation inherent within the rule.  However, no change is necessary for two primary reasons.  First, the language of Senate Bill 367 is clear as to the burden of proof within 39-71-419(1)(e), MCA: "The burden of proof that an independent contractor is certified rests with the independent contractor and not the hiring entity."  Plainly, where there is a question about whether a worker has an ICEC, the burden to prove the existence of the ICEC rests with the worker.  Because the language is clear, there is no need for administrative rulemaking on the subject.  See 2-4-305(2), MCA ("Rules may not unnecessarily repeat statutory language.").

 

            Second, this rulemaking, as noted above, seeks to effectuate the intention of Senate Bill 367 to limit surprise by a hiring agent in becoming an "accidental" employer.  As a result, the rule seeks to bar workers from using the burden shifting framework as a weapon against employers.  A simple example: A worker falsely claims to have an ICEC.  The hiring agent, relying on the claim, puts the worker to work.  The worker is injured on the job.  A savvy worker may simply concede they could not meet their burden of proof, having never held an ICEC.  This concession would arguably entitle the worker to benefits.  By contrast, the rule recognizes that it may not be in the worker's interest to prove themselves to be holding an independent contractor exemption certificate.  As a result, the hiring agent may also take steps to protect themselves from liability.

 

COMMENT 5: One commenter argued that the provisions of ARM 24.11.2407 stricken by this rulemaking should be retained because they operate as a "bright line for employers."

 

RESPONSE 5: The department disagrees that retention of the language is necessary to provide employers with a bright line.  As amended, ARM 24.11.2407 is substantially shortened, while continuing to apply the appropriate tests for determining worker status.  New (1) refers readers to ARM Title 24, chapter 35.  This chapter contains the independent contractor rules for the department.  As a result, the amendment serves several functions.  First, it shortens the administrative rules, making them easier to read and work with.  Second, it prevents potential conflict between rules, by limiting the necessity to amend multiple rules whenever independent contractor questions arise.  Third, the amendment is in keeping with Executive Order No. 1-2021, "Executive Order creating the red tape relief advisory council to implement regulatory reform."

 

            4. The department has amended ARM 24.11.2407 and 24.35.203 as proposed.

 

            5. The department has adopted NEW RULE I (ARM 24.35.204) with the following changes, stricken matter interlined, new matter underlined:

 

            NEW RULE I (24.35.204) MISREPRESENTATIONS REGARDING INDEPENDENT CONTRACTOR STATUS (1) through (1)(b) remain as proposed.

            (c) the hiring agent took affirmative steps to verify the worker's independent contractor status, verified the worker to be an independent contractor by holding an independent contractor exemption certificate, and has documentation of the same; or

            (d) remains as proposed.

 

            AUTH:   39-51-301, 39-51-302, 39-71-203, 39-71-417, MCA

            IMP:      39-51-201, 39-51-203, 39-71-419, MCA

 

/s/ QUINLAN L. O'CONNOR Quinlan L. O'Connor Alternate Rule Reviewer	/s/ LAURIE ESAU Laurie Esau, Commissioner DEPARTMENT OF LABOR AND INDUSTRY

 

 

            Certified to the Secretary of State February 15, 2022.