California May Tip The Scales, When It Comes to Tipping Independent Contractor Drivers

IMG_1078Should ride-hailing services (like Uber and Lyft) be required to offer a tip option if you pay by credit card? A proposed California law says yes.

A.B. 1099, passed by the California Assembly and headed to the State Senate, would require modification of these mobile apps to support credit card tipping. The bill, in its current form, takes no position as to whether these drivers are independent contractors or employees, instead calling them “workers,” but the proposed law is another attempt to legislate controls on the gig economy, rather than letting free market forces play out.

Gov. Jerry Brown has not taken a posiiton on the bill, and it may or may not survive in the California Senate.

California has been a hotbed of litigation for ride-hailing and delivery driving companies, and this latest development shows that State Governments are not afraid to further constrain how companies that use independent contractor drivers run their businesses.

In fact, we saw similar scale-tipping recently in Florida (see blog post here), but that was in an effort to protect ride hailing companies and these companies’ efforts to protect the classification of their drivers as independent contractors.

Keep an eye out for more legislation, especially at the state level, in an attempt to recalibrate the market forces that have brought us the gig economy.

When an Employee Double-Dips On a Paycheck, Who Pays?

Remember this?

Suppose the chip is a check, and the employee tries to cash it twice? Who would you rather be, Costanza or Timmy?

Staffing agency clients are increasingly pointing to a fraud committed by disloyal short-term employees. They cash a paycheck on their mobile app, then deposit the paper check a second time for duplicate payment. The check clears twice. Who must pay?

While this problem can arise in many scenarios, including with regular W-2 employees, it seems to be occurring more frequently with staffing agency employees, PEOs, temps, and other short-term workers. So let’s take a look.

I found a few good blog posts covering this subject (for those wanting more detail, try here or here), but here’s the bottom line:

The Check 21 Act, passed in 2004, addresses what happens when a bank allows its customers access to a mobile deposit app. When a customer electronically deposits a check, the bank creates an electronic image of that check, called a “substitute check.” This is what you sometimes see when you view your statement online. It’s negotiable, like a live check.

The original live check, however, still exists too. A fraudster who acts quickly enough can sometimes cash both. Under the Check 21 Act, the bank that creates the “substitute check” — the bank that allowed its customer access to the mobile check cashing app — is the bank that bears responsibility for any loss from the twice-cashed check.

This makes sense. Because that bank’s customer is the fraudster who double dipped, that bank is also in the best position to recoup the funds from the double-dipper.

Staffing agencies, payroll agencies, or PEOs who issue a twice-cashed check are sometimes asked to make good on the same payment twice. They shouldn’t be. If the double dipping occurred through an electronic “substitute check,”, they can point to the Check 21 Act, specifically 12 USC §5004, and argue that the double-dipper’s bank is properly accountable.

Note:  The Check 21 Act only applies to electronic double dipping. If an employee claims to have lost an original live check and obtains a substitute, then cashes both checks, different rules apply.

Five (More) Signs Your Independent Contractor May Be Properly Classified

IMG_1079Last week I posted Five Signs Your Independent Contractor May Be Properly Classified. While I feel pretty good about the post, I also feel like there’s more where that came from. So here goes.

Five More Signs Your Independent Contractor May Be Properly Classified:

  1. The contractor has its own employees. Since contractors are in business for themselves, they should be free to hire their own employees. If they actually do, chalk up a few points.
  2. The contractor pays its own expenses. One indicator of a legitimate independent contractor relationship is that the contractor, if a sound businessperson, will earn a profit but, if a poor businessperson, will incur a loss. The profit/loss determination is often a function of how well the contractor prices its services. If you reimburse a contractor for all of its expenses, the risk of loss is generally removed. Legitimate independent contractors should be bearing some risk.
  3. The contractor works from its own office space. The flexibility to work wherever and whenever suggests proper classification as an independent contractor.
  4. The contractor works using its own tools and equipment. That’s more evidence that the contractor is running its own business and has more opportunity to incur a net loss.
  5. The contractor carries its own insurance. When a contractor carries the types of insurance typically carried by a business, the contractor is likely operating as a business. Look for General Commercial Liability and Workers Comp coverage.

Remember, the tests for determining Who Is My Employee? vary by law, and most test are balancing tests, so no single factor is likely to be determinative. Relationships with these five features, however, are more likely to have the scales tilted in favor of recognizing independent contractor status.

Joint Employment Is Like Taking Steroids By Accident

athlete-joint employment - staffing agency - 1840437_1920It seems like every month another professional athlete is caught using a prohibited substance. The typical script (after getting caught) is to blame the maker of a supplement. “I should have more carefully checked the label,” or “I had no way of knowing what was in that synthetic elephant urine.”

Fair or unfair, every athlete knows that he/she is responsible for what goes into the athlete’s body, whether the juicing was intentional or not.

The same rule applies to companies who use staffing agencies.

When workers are deemed to be joint employees, both the staffing agency and the company that benefits from the services are responsible for failures to follow employment law. It doesn’t matter who made the mistake.

Under the FLSA, for example, employers must pay non-exempt employees a minimum wage, must pay for all hours worked, must pay overtime, and must properly calculate overtime rates. Sometimes this is hard. Two traps that ensnare even the most sophisticated employers are the challenge of accounting for off-the-clock work (checking email by cell phone, for example), and calculating the base hourly rate when there are bonuses and other forms of compensation provided.

Joint employment means joint liability. If the staffing agency responsible for paying employees makes an error, both companies are on the hook. That means a company can be responsible for hundreds of thousands of dollars in damages  — including back pay, attorneys’ fees, and liquidated damages — for errors it had no control over.

When the potential exists for a finding of joint employment, be careful when selecting  vendors who supply workers. Here are three tips:

  1. Be sure any vendors who supply workers are reputable, competent, professional, and reliable. (Four tips in one! you’ll thank me later)
  2. Be sure they stand behind their obligations with a suitable (and specific) indemnity clause.
  3. Be sure they are sufficiently insured.

Remember, under the FLSA (and many other laws), your company may be jointly liable for a staffing agency’s mistakes — even if you had no control over their pay practices.

Using staffing agency workers is like taking a performance supplement. It may enhance the bottom line and improve overall performance, but any funny business is your responsibility.

It doesn’t matter who put the horse steroid in your protein powder. If you ingest it, you are responsible for it.

Labor Dept Withdraws 2015-16 Joint Employment, Independent Contractor Guidance

IMG_1084

Did the new Labor Secretary of Labor finally throw employers a bone? I think so, but it’s too early to tell whether it’s delicious bacon-flavored or some generic processed meat flavor.

On June 7th, the Department of Labor (DOL) announced it was withdrawing the 2015 and 2016 informal guidance on joint employment and independent contractors.

Read the full post here, on BakerHostetler’s Employment Law Spotlight blog.

5 Signs Your Independent Contractor May Be Properly Classified

IMG_1076In March, we posted Five Signs Your Contractor May Be Misclassified (with Bob Seger lyrics!). Today we look at the other side of the same coin. While there is no sure fire, (Silver) bullet (Band) proof assurance that your contractor relationship will withstand a legal challenge, there are some facts that tend to strongly support legitimate independent contractor status.

Here are 5 signs your independent contractor may be properly classified.

  1. The contractor has an LLC or Corporation. When the IRS or DOL performs an independent contractior misclassification audit, the first thing it is likely to ask for is a list of who received 1099s in the past year. Receipt by individuals suggest possible misclassification. Companies are less of a flag.
  2. The contractor has other clients. The true hallmark of an independent contractor is that the person is in business for him/herself. Having other clients is a strong sign that the contractor is running a legitimate independent business.
  3. The contractor advertises its services in the marketplace. This may take the form of having a web page, flyers, even Facebook ads. Anything that suggests that the contractor is running a business and seeking buyers of its services is strong evidence in support of legitimate independent contractor status.
  4. Your relationship with the contractor is project-based or for a fixed term. Open-ended relationships resemble at-will employment. While a fixed-term relationship can still exist in employment, it’s better than indefinite. Best of all, though, is a project-based engagement. Retain the contractor for a particular project. When the project ends, the relationship ends. Period.
  5. The contractor is not a former employee of your company. Companies sometimes rebrand former employees as contractors. That’s generally too cute. Receipt of a W-2 and 1099 by the same person is a big fat red flag.

Remember, the tests for determining Who Is My Employee? vary by law, and most test are balancing tests, so no single factor is likely to be determinative. Relationships with these five features, however, are more likely to have the scales tilted in favor of recognizing independent contractor status.

Franchises Continue to Fight Joint Employment Claims

IMG_1074.JPGAre franchisors responsible for the wage and hour violations of their individually owned franchisees?

This question continues to vex the courts. (Vex! Great Scrabble word!) Despite the promise of more pro-business policies from the current administration, lawsuits filed by employees against franchisors show no signs of slowing down. Here’s why.

When employees allege wage and hour violations against individually owned franchisees (your local store), such as a failure to properly pay overtime, the employees usually try to convert that lawsuit into a class action.

For plaintiffs’ law firms bringing these lawsuits, the bigger the class, the better. Storewide is good; statewide is better; nationwide is best. If we colonize Mars, interplanetary class actions are sure to follow.

In an effort to find the deepe$t pocket$ and create the largest possible class, plaintiffs’ firms often sue not only the individual stores that had the allegedly unlawful practice, but also the national franchisor — even if the franchisor had little or no control over local pay practices.

Court are then asked to evaluate the role that franchisors play in the day-to-day operations of individually owned franchised locations.

Franchisors argue that they are allowed to establish and enforce brand standards to ensure consistency of products across the country. A roast beef sub in Truth or Consequences, New Mexico should taste the same as a roast beef sub in Walla Walla, Washington.

Plaintiffs, on the other hand, generally point to franchisors’ corporate manuals and national standards as evidence of an employer-employee relationship between the national franchisor and employees of the individually owned store.

These battles continue to wage throughout the country, with large national franchisors being sued. Some courts have sided with franchisors, finding that the need to establish uniformity of product and appearance is the very nature of what a franchise is — rather than being evidence of joint employment. Other courts have been more sympathetic to plaintiffs and have allowed franchisors to be drawn into the fray.

Companies using a franchise model can proactively reduce the risks of joint employment by carefully deliniating what they can and cannot control, with respect to the operation of individually owned stores. Thoughtful planning can help franchisors to avoid lawsuits ot to mount a successful defense against class certification.

The franchise model remains under attack. Franchisors should plan accordingly and act preemptively to best position themselves to avoid or defend these types of claims.