New Arizona Laws Seek to Clarify Independent Contractor Status

Arizona’s new Declaration of Independent Business Status (DIBS) law went into effect on August 6, 2016. Arizona employers can now clarify their relationships with independent contractors under certain circumstances. For purposes of state law, employers may confirm the independent contractor relationship by having workers sign declarations that create a rebuttable presumption that an independent contractor relationship exists. However, while a DIBS declaration can provide clarity under state law—particularly in situations of misclassification claims when former workers apply for unemployment benefits—it likely does not affect the federal independent-contractor tests used by the U.S. Department of Labor, the Internal Revenue Service, or the National Labor Relations Board.

DIBS amends Title 23 of the Arizona Revised Statutes by adding two new statutes A.R.S. § 23-1601 and A.R.S. § 23-1602. The new section 23-1601 provides a declaration form that outlines several factors—six of which an independent contractor must declare to confirm its independent contractor relationship with the contracting party:

1. 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.

2. 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.

3. 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.

4. The contractor is responsible for obtaining and maintaining any required registration, licenses or other authorization necessary for the services rendered by the contractor.

5. The contractor acknowledges at least six of the following:

(a) That the contractor is not insured under the contracting party’s health insurance coverage or workers’ compensation insurance coverage.

(b) 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.

(d) That the contracting party expects that the contractor provides services for other parties.

(e) That the contractor is not economically dependent on the services performed for or in connection with the contracting party.

(f) That the contracting party does not dictate the performance, methods or process the contractor uses to perform services.

(g) 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.

(h) 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.

(i) That the contractor is responsible for providing and maintaining all tools and equipment required to perform the services performed.

(j) That the contractor is responsible for all expenses incurred by the contractor in performing the services.

6. 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.

Notably, using a DIBS declaration is discretionary and inures to the benefit of the contracting party. While using a DIBS declaration creates a rebuttable presumption that an independent contractor relationship exists, failing to use a DIBS declaration does not raise a presumption that an independent contractor relationship does not exist. Section 23-1602 of the new law further provides that “any supervision or control exercised by” the contracting party to comply with federal or state statute, rule, code, licensing requirement, or professional or ethical rule may not be considered as evidence when determining if an employment or independent contractor relationship exists.

The new law will help Arizona employers clarify the often murky realm of employer/worker relationships.