Misled: Gov’t Study Claims Contingent Workforce is Shrinking. False.

Contingent workforce study resultsDespite what you might think from having attended myriad weddings, bar mitzvahs, or other parties, Kool & the Gang has songs other than “Celebration.” (I had to look this up to verify.) One such song is called “Misled.” It includes lyrics like, “She’s as heavy as a Chevy” and “So enticing, he’s sure to take a bite.”

The video hilariously begins with our hero washing his face in the sink – a surefire way, if there ever was one, to heighten suspense and draw the audience in.

Also to draw you in, the Bureau of Labor Statistics (BLS) headlined its just-released study on the contingent workforce by concluding that the number of contingent workers is declining compared to 2005. Whah?

Don’t be misled. (She is not, in fact, as heavy as a Chevy.) BLS’s methodology is flawed and confusing. The study counts only people’s primary jobs. So the hundreds of thousands of people who hold regular jobs and drive for ride sharing apps on the side? Not counted.

Why not? Great question. BLS published a whole page of Q&A, but BLS did not tackle that question, the most obvious of them all.

What does this study tell us? Not much.

We know that the number of workers in the gig economy is vastly greater than in 2005. The year 2005 was before Uber and before Lyft (and before the release of the 2007 studio album Still Kool). The contingent workforce has not shrunk since the gig economy emerged. So if you read a headline that includes the surprising conclusion that the contingent workforce is shrinking, don’t be misled.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Hoisted! Worker’s misclassification claim dooms his own lawsuit

Independent contractor claimThe phrase “hoisted with his own petard” is a Shakespearean idiom used in Hamlet, meaning “to cause the bomb maker to be blown up with his own bomb.” I know this because Wikipedia.

Sometimes this can happen in a lawsuit. Plaintiff Kyle Johnson, retained by a South Carolina firm to perform consulting services, claimed he was misclassified and should have been an employee. He alleged wage violations, wrongful termination, and various other employment law claims, most of which relied on his central premise — that he was really an employee, not an independent contractor.

His claim with the best acronym, however, was his SCUTPA claim — South Carolina Unfair Trade Practices Act. A SCUTPA claim exists where someone has taken money through deceptive trade practices in a way that negatively impacts the public interest. Johnson alleged that the defendant violated SCUTPA because it misclassified him “in order to avoid payroll taxes, overtime pay and other employment-related expenses.” This, he claimed, was against the public interest.

Not so, said the court.

If he’s an employee, as he claimed, then he can’t make a SCUTPA claim. Employer-employee disputes are private, not matters of the public interest.

Had Johnson gone along with his classification as an independent contractor, he would have had a business-to-business relationship, and he might have been able to bring his SCUTPA claim. By alleging he was misclassified and really an employee, he blew up his own claim.

A “petard” is a small bomb used for blowing up gates and walls when breaching fortifications. In Johnson’s case, it can also be used to blow up one’s own lawsuit. Boom.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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You can’t pay for English whales (the queen owns those), but you should pay summer interns – as employees, not contractors

Whale summer internships paid unpaid employee independent contractorSome things you can’t pay for. All of the whales and sturgeon that live in English waters, for example, belong to the queen. Under an English statute from 1324, “The king shall have wreck of the sea throughout the realm, whales and sturgeons taken in the sea or elsewhere within the realm, except in certain places privileged by the king.”

So if you wanted to buy an English whale this summer, you may be out of luck. U.S. business should be spending their money elsewhere — like on summer interns! Yes, let’s talk about summer interns. Paid or unpaid? Employee or independent contractor? Have I captured your attention? I knew it. Read on.

Paid or unpaid? The rules have been changing to make it easier to have unpaid interns, provided the internships have educational value and are not for the benefit of the business. This post provides some guidelines. The bottom line, though, is that it’s safest to pay your summer interns.

Employees or independent contractors? If you’re going to pay your summer interns, they’re probably your employees. It’s ok to have short-term, part-time employees. Even if your intern is working a sporadic schedule, a few days a week, a few hours a day, and just over the summer while school is out, your best move is to treat the person as your employee — not an independent contractor. That means you should withhold taxes, and the intern should complete an IRS Form W-4. (The high school kids will give you unforgettable blank stares when you ask them to declare their allowances on line 5. Try it, just for fun. Trust me.)

Your interns are learning the business. They aren’t in business for themselves. They probably meet none of the requirements for establishing independent contractor status — not under ABC Tests, not under Right to Control Tests, not under Economic Realities Tests. Not in a boat, not with a goat.

Summer is great for whale watching and internships. But be sure your interns are properly classified and properly paid. And make sure they know what they can and cannot do. They do not, for example, have “wreck of the sea throughout the English realm,” so update your onboarding materials accordingly.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Rules are Rules: Shetland Islands Should Stay in a Box, but NLRB Should Proceed with Change to Joint Employment Test

Shetland Islands joint employment

From bbc.com, putting a u in “labor” just for you!

Some rules bring clarity, but other rules are plain wacky.

In the second category we introduce Scottish member of Parliament Tavish Scott, who is trying to pass a law requiring maps of Scotland to show the actual location of Shetland, in proportion to its distance, instead of putting it in a box like U.S. maps do for Hawaii and Alaska. The problem is that the Shetland Islands are pretty far north of the rest of Scotland, a 12-hour ferry ride across ancient-sea-monster-infested waters. According to one mapping agency,  Scottish maps would be “mostly sea” under Scott’s idea.

(Danish mapmakers, still angry about the territorial addition of Greenland, could not be reached for comment.)

A better way to use rules is to bring clarity. Scots know that the Shetland Islands are far away. That’s what the box means. Less clear, however, is the meaning of “joint employment” under U.S. labor law. As we’ve seen from several earlier posts (like here, here, and here), the new NLRB is trying to change the test for “joint employment” from the broad Browning-Ferris test (indirect opportunity to control = joint employment) to a tighter, more workable standard (requiring direct control over key terms of employment).

As we wrote here, the Board is now planning to go through the rigorous formal rulemaking process for changing the joint employment test. This process allows for public comment and takes a long time, but is intended to provide long-term certainty instead of allowing the test to ping-pong back and forth depending on the makeup of the 5-member Board.

For businesses, rulemaking is a good idea. It would finally bring some certainty to the process. It would add certainty and allow companies to plan around a firmly defined standard.

Last week, Senators Bernie Sanders, Elizabeth Warren, and Kirsten Gillibrand published a letter criticizing the proposed rulemaking process because they know it will result in the standard they don’t want. The letter is basically a publicity stunt intended to please their constituents, but that’s what politicians sometimes need to do.

Just ask Tavish Scott, who represents the Shetland Islands.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Exotic Dance Marathon Ends with $4.5 Million Misclassification Award

Dollar independent contractor misclassification millionsThe Penthouse Club of Philadelphia was hit with a $4.5 million jury award for having misclassified its dancers as independent contractors. This case was filed in 2013, and the federal court just recently entered the judgment order.

For those of you seeking business lessons from stripper lawsuits, today is your lucky day!

The dancers had alleged that they were treated as employees but not paid as employees. For example, they alleged that the club required them to work a set number of hours and days each week, required them to comply with physical appearance guidelines, and took deductions from their tips for what we’ll call special kinds of dances.

The Club fought hard for five years but could not overcome the negative facts in the case. Remember, the determination of whether someone is an employee or a true independent contractor is not based on what the parties agree. It’s based on the facts of the relationship.

This was primarily a Fair Labor Standards Act lawsuit, and so the Economic Realities Test is used. Other laws apply a Right to Control Test. Some states use a more difficult ABC Test.

Independent contractor misclassification lawsuits can be a tremendous liability, and businesses using contractors should be proactive and set up the relationship in a way that will withstand a challenge. When a business maintains control over hours, days of work, worker appearance, location of work, and other aspects of how the work is performed, the relationship starts to resemble employment.

In this case, the Club not only is on the hook for $4.5 million. They had to pay their attorneys’ fees, they’ll continue to pay their attorneys’ fees if they appeal, and they had to slog through six years of painful, time-consuming litigation that was undoubtedly a distraction from the business of running whatever type of classy joint they have going there. [Note to wife: I did not do any onsite investigation.]

We’ve seen lots of activity lately in the field of “exotic dancing.” I mean misclassification activity, and lawsuit activity, just to be clear on what I’ve been “seeing.” See other multi-million dollar misclassification awards here and here, all of which are SFW.

Businesses that use independent contractors need to evaluate the facts of the relationship and need to be proactive in setting up the facts to support true independent contractor status. Those who fail may get an extra long high-heeled kick in the rear.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Do ABC Tests Matter if my Business is not in California? (Yes!!!)

ABC Test Califoirnia Dynbamex Massachusetts other states

According to Michael Jackson and his brothers (don’t forget Tito), ABC is easy as 1-2-3, and it’s also easy as do-re-mi. According to Julie Andrews, in Do-Re-Mi, once you know the notes to sing, you can sing most anything. This is not technically true, as once demonstrated by William Hung.

ABC may sound easy, and some people might think they can sing anything.  But actual compliance with ABC Tests is not easy — and yes, every business needs to think about how it would comply with ABC Tests. (For background on What is an ABC Test?, read here and here.)

ABC Tests are not just in California. Massachusetts uses an ABC Test to determine who is an employee under state wage law. New Jersey uses an ABC Test to determine whether someone is an employee or independent contractor for state wage law. Unemployment too.

For unemployment purposes, lots of states use ABC tests to determine whether someone seeking unemployment coverage was your employee or an independent contractor. These states include Connecticut, Delaware, Illinois, Indiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, Vermont, Washington, and West Virginia. There are more but I started prioritizing my list by number of electoral votes.

Because ABC Tests are stricter than ordinary balancing tests (like Right to Control or Economic Realities tests), your company may be required to make unemployment contributions for individuals who are independent contractors under most laws but are employees under your state’s unemployment compensation law. You could owe back assessments and penalties for failing to pay into the state unemployment insurance fund.

New York, Pennsylvania, and D.C. use ABC Tests for work performed in the construction industry.

Some states use even tougher multi-factor tests to determine whether an individual presumed to be an independent contractor is really an employee. Maine has an ABCDE Test, meaning each of five factors must be met (plus another 3 from a list of 7, creating a veritable menu of family-style Chinese take-out for misclassification). New Hampshire uses an ABCDEFG Test to determine whether someone is an employee subject to its workers compensation and wage and hour laws.

Congressional Democrats, including Bernie Sanders and his hair, have introduced a bill that would use an ABC Test to determine whether someone is an employee under the NLRA. The bill has no chance to become law unless (until?) the Democrats control both houses of Congress and the Presidency, but for now, it’s worth noting that there is a desire among some lawmakers to adopt sweeping changes to the definition of employee.

The point is that ABC tests are prevalent already — and they are expanding. The California decision adopting an ABC Test was issued three years after the New Jersey Supreme Court adopted a similar (but less stringent) ABC Test for its state wage and hour laws.

With more state legislatures and state supreme courts considering changing the tests, we can expect this trend to continue. We can expect more states to adopt ABC Tests, especially in states where the courts (like in California) make up ABC Tests without legislative input. For a legislature to pass an ABC Test, it takes some work, bicameral support, and usually the signature of a governor. For courts to make up new ABC Tests, however, it’s easy as 1-2-3, do-re-mi.

Business should be thinking proactively about whether their contracts, relationships, and public-facing statements (such as in websites) will allow them to support independent contractor status when an ABC Test is used to determine WhoIs My Employee?

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Epic Ruling Clears Path: Arbitration Agreements Can Save Millions in Independent Contractor Misclassification Claims

Arbitration agreements for independent contractorsToday in the Epic Systems case, the Supreme Court ruled 5-4 that in employer-employee relationships, mandatory arbitration agreements with class action waivers are lawful.

A class action waiver means that employees cannot file class actions. They must instead bring any claim individually to arbitration, one person at a time, even if there are a lot of others in the same situation.

The issue before the Supreme Court was whether the employers could require employees to sign these agreements.

  • The argument for allowing the agreements was that the Federal Arbitration Act (FAA) favors arbitration as a way to resolve disputes and says that most attempts to invalidate arbitration agreements are against the law. But there are narrow exceptions.
  • The argument against allowing the agreements was that the NLRA grants workers the right to engage in protected concerted activity, and filing class actions (they argue) is a type of protected concerted activity.

The court had to decide whether the NLRA’s right to engage in protected concerted activity created an exception to the FAA’s rule favoring arbitration. As expected, the conservative court held that mandatory employee arbitration agreements — including class action waivers — are lawfulIn other words, businesses may require their employees to sign away their right to bring class actions. Read that again slowly. It’s important.

What does this mean for independent contractor agreements?

The decision does not directly address independent contractor agreements, but the decision does say that the Supreme Court has rejected every other challenge to the FAA’s policy favoring arbitration.

It seems pretty safe, then, to assume that the Court would allow mandatory arbitration agreements, with class action waivers, in independent contractor agreements.

Should businesses include mandatory arbitration provisions in independent contractor agreements?

There are pros and cons to arbitration, and the answer depends largely on how reliant your business is on independent contractor relationships as part of the business model. In other words, are you at risk of a class action?

If yes you are, then yes you probably should. (But please consult counsel.)

Businesses that may be at risk of a widespread finding of independent contractor misclassification can use these agreements to prevent class actions from being filed. If contractors who claim misclassification have to bring their claims individually, there is a lot less money at stake and, strategically, the incentive for plaintiffs’ lawyers to take these cases is greatly diminished. Few lawyers will take a case that may be worth a few thousand dollars (or often less). Most lawyers would love a case that may be worth a few million dollars. The difference is in the numbers. Class action waivers can greatly reduce your company’s risk of a large misclassification verdict.

Other advantages of arbitration include:

  • The results of individual arbitrations can be kept confidential, unlike court decisions. That means a finding against you will not hit the social media feeds or trade publications;
  • The parties select the arbitrator, which means you can ensure that your fact finder is a lawyer or has a background in the industry or type of dispute involved;
  • There’s no risk of a runaway jury, populated by regular folks who might have an axe to grind and no sense of the value of money;
  • The dispute gets resolved quickly, with finality, and with no right to appeal (except in very limited circumstances)

But there are potential downsides to arbitrations too:

  • Filing fees can be expensive;
  • Arbitrators can be expensive too. They get paid by the hour, unlike a judge who is not being paid by either side (we hope);
  • The barrier for employees to bring a claim is lower. They don’t need an attorney, and they can initiate a claim with ease, which could mean that more individual claims would be filed than if employees had to go to court;
  • There is no right to appeal (except in limited circumstances). This is both an advantage and a disadvantage, depending on whether you win!

Arbitration agreements have pros and cons, but for businesses that make substantial use of independent contractors, an arbitration agreement with a class action waiver can be critically important in avoiding a large claim.

One final reminder: If you use an mandatory arbitration agreement, remember to include a class action waiver. That’s one of the main benefits of these agreements.

Please consult with your employment lawyer to decide whether arbitration agreements are right for your business.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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