Signs of Trouble: California Ruling Raises Stakes for Ride Share

Please, no.

When governments try to help people, they don’t always get it right. The British Conservative party just wants to help. Or does it? This would be a rather sinister way to get rid of the homeless problem, don’t you think?

Same problem with the battle over whether ride share drivers are employees or independent contactors. Good intentions have unintended consequences. The California Attorney General claims to be helping drivers with his lawsuit against the ride share companies. But the state’s effort fails to recognize the massive unintended consequences.

In August, a California court issued a preliminary injunction requiring the major ride share companies to reclassify all California drivers as employees. The ruling was based on the California law (AB 5) and its ABC Test, which presumes that anyone performing services is an employee, unless three strict factors are met.

The August ruling was temporarily placed on hold while an appeals court reviewed it.

But on Thursday, the appeals court reviewed it and agreed that the ruling was proper. The stakes have been raised, and the future of ride share in California may now hinge on what happens with Prop 22, which is on the ballot right now in California.

Despite what the judges and the California Attorney General may think, ride share companies can’t just flip a switch and make all drivers employees. The logistics and expenses associated with making that change call into question whether the effort would even be worth it. When the initial court decision requiring reclassification came out in August, there were rumblings that ride share in California might shut down entirely, at least temporarily, while the companies re-evaluate and decide whether to re-tool.

The one saving grace would be Proposition 22.

As explained here, a Yes vote on Prop 22 would allow ride share companies to continue to classify drivers as independent contractors so long as they provide a suite of benefits and guarantees described in the proposed law. These would include:

  • Earnings Minimum. The measure would require app-based companies to pay at least 120 percent of the minimum wage for each hour a driver spends driving—but not time spent waiting for requests.
  • Health Insurance Stipend. The measure would require rideshare and delivery companies to provide a health insurance stipend of about $400 per month to drivers who regularly work more than 25 hours per week (not including waiting time). Drivers who average 15 driving hours per week but less than 25 driving hours would receive half as much.
  • Medical Expenses and Disability Insurance. The measure would require that companies buy insurance to cover driver medical expenses and provide disability pay when a driver is injured while driving.
  • Rest Policy. The measure would prohibit drivers from working more than 12 hours in a 24 hour period for a single rideshare or delivery company.
  • Other. The measure would require that rideshare and delivery companies have sexual harassment prevention policies and conduct criminal background checks and safety training for all drivers. It also would prohibit discrimination in hiring and firing.

The measure would also prevent cities and counties from passing further restrictions on driver classification.

The core problem with the Independent Contractor vs. Employee question is that, under U.S. law, the choice is binary. You’re one or the other. And even if ride share companies wanted to provide more benefits for drivers (and they have said they do), they are constrained by the current laws. The more companies do for the drivers, the more likely it is that the law will view those well-intentioned efforts as evidence that the drivers are really employees. This dilemma fits squarely within the box of “no good deed goes unpunished.”

Prop 22 offers a middle ground. Drivers would get more protection and benefits, and ride share companies would be protected from claims that providing those protections and benefits converts the drivers to employees. This type of law should serve as a model for how to deal with the Independent Contractor vs. Employee question–not just in California but nationwide. The choice should not be binary.

Thursday’s decision by the appeals court raises the stakes, and voters in California will decide the outcome in less than two weeks.

The homeless population in Britain thankfully has more time.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Thanks, Electric Grandma! When Laws Collide, ABC Test Falls (This Time, at Least).

In 1982, a trio of children and their father had no grandma but desperately needed one. So, according to IMDB, they got “a very special robot grandmother to assist them.” It was futuristic fun and all the hijinks that accompany that sort of thing but, at its core, this was a simple clash of incompatible laws.

The Laws of Nature said “No Grandma,” but the Laws of Biomedical Engineering as Modified by 1980s Television Science Fiction said “Yes!”

This week’s post is also about what happens when two laws are incompatible, but we’ll steer clear of trying to figure out which part of grandma’s backside in the TV ad has father smiling in that way that makes me uncomfortable.

In Massachusetts, a group of 7-Eleven franchise owners sued 7-Eleven, Inc., claiming they should have been classified as employees of 7-Eleven, Inc. under the Massachusetts Independent Contractor Law. The Mass IC law is the strictest in the nation (take that, California!) and imposes an ABC Test that lacks the exceptions enjoyed by a select few Golden Staters.

Under the Mass IC law, “an individual performing any service” for another is presumed to be an employee. To avoid that conclusion, the alleged employer must prove all three parts of a strict ABC Test:

(A) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

(B) the service is performed outside the usual course of the business of the employer; and

(C) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

The plaintiffs claimed that they were employees under Part A of the Mass IC Law because 7-Eleven exerted control over how they ran their stores.

But 7-Eleven said the type of control exerted was the type of control required under the Federal Trade Commission’s Franchise Rule and the 154-page Compliance Guide that instructs franchisors on what they need to do.

A federal district court agreed with 7-Eleven. The court ruled that the Mass IC Law and the FTC’s Franchise Rule were incompatible when it came to franchising, and the federal rule carries the day.

Case dismissed.

Other courts have agreed, even in California, that when the type of control exerted is required under another law, that is not the type of control that converts someone to an employee. The “required control” argument can be a powerful defense to a claim of independent contractor misclassification.

There has been a lot of concern in the franchising world that the increased adoption of ABC Tests and other laws designed to convert everyone into an employee may put the entire franchise model at risk. This decision, while certain to be appealed, should be somewhat reassuring to franchisors that the franchise model can survive, even in the face of the strictest of ABC Tests.

Meanwhile, The Electric Grandmother was nominated for a 1982 Primetime Emmy for Outstanding Children’s Program, and Maureen Stapleton went on to do voiceover for the non-electric grandmother in Snow Cat, showing her versatility in playing both electric and non-electric grandmothers.

Snow Cat, according to IMDB, was a “series of children’s videos with awesome original songs about awesome trucks.” In case you needed something to watch tonight.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Shout It Like a Helium-Filled Gator: Don’t Limit Your Arbitration Agreements to Work-Related Disputes

Fig. 3. Atmosphere exchange during the experimental procedure without handling the subject

A team of researchers studying the vocalizations of Chinese alligators have won an Ig Nobel Prize for their method. They put the gators in helium-filled tanks and observed variations in their calls.

Sign me up.

I want to write papers with sentences like this one: “High-energy frequency bands in the bellows of the Chinese alligator were shifted towards higher frequencies when the animal vocalized in the heliox condition.”

My writing, for better or worse, is more focused on agreements. Here’s something to remember when writing arbitration agreements.

One of the main benefits of an arbitration agreement is the ability to prohibit class action lawsuits. When using arbitration agreements with employees or independent contractors, don’t forget to include the class action waiver. (There are pros and cons to mandatory arbitration, but we’ll leave that for another day.)

Too often, the scope of arbitration agreements is too narrow. Many agreements require arbitration of work-related or employment-related claims only.

Go broader. Expand your range, but without using helium.

In this case, a group of drivers alleged that a rideshare app company mishandled a data security breach. The drivers tried to bring a class action.

The court instead required them to seek relief one-by-one, in individual arbitration actions. That’s because their agreements required them to arbitrate disputes with the company and prohibited class litigation. The arbitration agreement here was broad enough to cover data breach claims.

Quick side note on what the legal dispute was really about: The drivers argued that the agreements were unenforceable. They pointed to the transportation worker exception in the Federal Arbitration Act (FAA). The FAA generally protects the enforcement of arbitration agreements, but it doesn’t apply to transportation workers in interstate commerce. The dispute was whether drivers who pick up passengers at airports for local rides are acting on interstate commerce because the passengers and their luggage flew in from other states. The district court said no, that these local drives are not interstate commerce, and the Ninth Circuit Court of Appeals agreed.

For our purposes, the lesson here is to be thoughtful about the scope of claims subject to arbitration. Go broader than just work-related claims. A data breach can be an expensive class action to defend if thousands of people are affected. Any single individual arbitration, however, is probably not worth the effort for a plaintiff’s lawyer. The damages for an individual arbitration will be too small to make it worth pursuing.

(The “go broad” concept has limits, and there are some claims that should be carved out of arbitration agreements, so I don’t want to overstate the point.)

Anyway, be creative and thoughtful when drafting agreements. Be sure the scope of covered claims is sufficiently broad. Careful planning can avoid class actions — or just maybe it can win you an Ig Nobel Prize.

Bonus track: Here’s audio of a helium-induced alligator bellow.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Whaddaya Call It? DOL Proposes New Independent Contractor Test

Soda or pop? Pill bug or roly poly? What you call things depends on where you live. In 2014, the New York Times published this 25-question dialect quiz that will tell you, with startling accuracy, where you or your parents are from.

The test is fun, and you can see how words and dialects vary from region to region.

But some things should not vary from region to region — federal laws.

The Fair Labor Standards Act (FLSA) has one definition of “employ,” but when it comes to deciding who is an employee and who is an independent contractor, different courts in different states apply different standards.  The DOL is trying to fix that.

Under a proposed new rule, released on September 22, the same test would be used in all parts of the country, regardless of whether you call your lunch sandwich a hoagie, sub, or grinder.

Click here for the rest of the post, originally posted on BakerHostetler’s Employment Law Spotlight blog.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Avoid the Crocs! Here Are the New Rules for Reporting Independent Contractor Payments

Not an alligator. Photo by Leigh Bedford. Reptilian factoids by Wikipedia.

It’s important to follow directions. Not convinced? Ask the 52-foot humpback whale that took a wrong turn on its way to Antarctica earlier this month and ended up in Australia’s East Alligator River.

Ironically (and I do not use that term lightly)* the East Alligator River has no alligators in it. It is infested with an estimated 10,000 crocodiles, so that’s still bad for the whale and, from the whale’s perspective, probably just a technicality.

*More on irony below.

As for following directions, that brings us to the IRS. Starting with the 2020 tax year, directions have changed when it comes to reporting payments made to independent contractors. Rather than Form 1099-MISC, payments will now be reported on Form 1099-NEC. That’s an acronym for Non Employee Compensation.

IRS instructions say that payments must be reported on Form 1099-NEC if they meet the following four conditions:

  • You made the payment to someone who is not your employee.
  • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
  • You made the payment to an individual, partnership, estate, or, in some cases, a corporation (but usually not payments to a corporation).
  • You made payments to the payee of at least $600 during the year.

Payments to corporations generally do not have to be reported on Form 1099-NEC, but payments for attorneys’ fees and a few other odds and ends do.

To determine whether your payments meet the $600 threshold, here’s what the IRS says you should count:

Enter nonemployee compensation (NEC) of $600 or more. Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee, and fish purchases for cash. Include oil and gas payments for a working interest, whether or not services are performed. Also include expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee. Federal executive agencies that make payments to vendors for services, including payments to corporations, must report the payments in this box. See Rev. Rul. 2003-66.

You can fund more detailed instructions here. In case you skimmed that too quickly, yes, the IRS instructions really do say “fish purchases for cash.” I didn’t sneak that in there to make sure you were paying attention.

Whales, alligators, and crocodiles are not fish, so you can purchase them freely for cash without reporting the expenditures on a Form 1099-NEC.

I don’t know whether the wayward baleen escaped the river, but I do want to know how that turned out.

*So … back to irony. There’s a term so often misused. It is irony that the East Alligator River has no alligators. It is not irony if there’s rain on your wedding day (sorry, Alanis Morissette, but no doubt you know this by now.) But it is irony that Morissette’s song is called Isn’t It Ironic when all of the supposed examples of irony in the song are examples of bad luck or coincidence, not irony. So yes, it is ironic, but only in that unintended meta kind of way.

On a personal note, I experience personal hygiene irony about once a week when getting ready for bed, when I occasionally get floss stuck in my teeth. And now you know that about me.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Joint Employment Test Gets Muddied Again: Federal Court Rejects New DOL Test

Muddy Waters is how you want your blues, not how you want your laws.

A federal district judge in New York last week kicked up a lot of mud in an area of the law that had finally seen some clarity – the definition of “joint employment.” Now we’re back in the muck.

Click here to read all about it, and let me know if you; like to subscribe to the BakerHostetler Employment Law Spotlight Blog, where I originally posted this week’s post.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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California’s AB 5 Has Been Repealed, Sort Of.

Rain rain go away, come again another day.

When Zeus sends his thunderbolts into Cleveland, Zippy gets scared. The snow, wind, and rain don’t bother her, but the thunder and lightning cause her to shake. Usually she hides in the shower.

Seeking shelter from the storm (apologies to Robert Zimmerman) is what California businesses are doing too. Assembly Bill 5 (AB 5), codifying the ABC Test for determining who is an employee, has been in effect since January 1, 2020.

On Friday, a new law repealed and replaced it. This new law, AB 2257, passed both chambers in the California legislature unanimously and was signed into law September 4 by Gov. Newsom. It contains an urgency clause, which means it takes immediate effect. So AB 5 is gone.

Great news for businesses, right? Not exactly.

AB 2257 moves the ABC test to a different part of the California Labor Code– new Sections 2775 through 2787–and cleans up some of the confusing and poorly considered language in AB 5. It does not, however, provide relief from the ABC Test for most large businesses.

The revisions make it easier for entertainers, freelance writers and photographers, and digital content aggregators to maintain independent contractor status. It scraps the arbitrary 35-article limit for freelance writers to maintain independent contractor status. It allows entertainers to perform single event gigs without becoming employees. It cleans up some other language too, but it does not make substantial changes that would excuse large businesses from the ABC test.

For example, subsection 2750.3(f) of AB 5 addressed whether an exception applies for work requiring a license from the Contractors State License Board (CSLB). The exception, with its multi-part test, is unchanged. It just moves to a new section of the Labor Code, new Section 2781.

One small glimmer of hope comes from some clarifying language for the business-to-business exception. That exception still does not apply for work that requires a CSLB license. To fall within that exception (meaning that the ABC Test would not apply), one of the requirements is that the work must be performed for the benefit of the contracting business, not its customers. Under the revised law, that requirement goes away if “the business service provider’s employees are solely performing the services under the contract under the name of the business service provider and the business service provider regularly contracts with other businesses.” For grammarians who despise double negatives, this is an exception to the exception. You’re welcome. What it means is if your subcontractor has its own employees, operates as its own business, and performs work not requiring a CSLB license, it may be easier to meet the business-to-business exception, thereby avoiding the ABC test.

So where does that leave us? On one hand, the fact that the bill passed both chambers unanimously shows a recognition that AB 5 had some serious flaws. But on the other hand, the fixes that both chambers thought were appropriate are of minimal help to large businesses. It’s like unleashing a horrible lab-created supermonster, then deciding that its eyelashes should be less curly. The largely-superficial changes in AB 2257 are mainly designed to help maintain independent contractor status for individuals who truly run their own businesses, particularly in the entertainment, journalism, and digital content fields.

This new law obliterates AB 5 in name, but not in function.

Like the blanket I gave Zippy, this move by the California legislature is not likely to provide any shelter from the storm. The ABC Test in California remains alive and well. Whether you grab a blanket or hide in the shower, the ABC Test is here to stay.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Cut Off This, But Not That! Here’s Today’s Independent Contractor Tip

In 1877, the Police News reported the story of a dancer’s amputated leg sold at auction. But the story might not be as it seems, says Dr. Bob Nicholson, who studies news clippings from the Victorian era and is a fun follow on twitter.

Cutting off legs might not be a good way to raise money, but cutting independent contractors off from certain privileges may save your busienss money.

Whenever possible, cut off contractors from doing things that link them to your business. They should appear to the public as independent businesses, which hopefully they are.

To prevent contractors from portraying themselves in a way that may make them seem like employees, consider adding a clause like this one to your independent contractor agreements:

Contractor shall not use the Company’s name or logo in any of Contractor’s marketing or publicity materials, on clothing or other attire, on business cards, on a website, on social media, or in any other manner, unless the Company has granted permission in advance, in writing.

Sometimes you need your contractors to display your company logo, such as if they are being sent to customers’ homes for an installation. In those circumstances, consider adding “INDEPENDENT CONTRACTOR” in prominent language on any clothing that includes your company’s logo or name.

Proactive steps like this can help bolster your defense against misclassification claims. For balancing tests like the Right to Control Test and the Economic Realities Test, every good fact helps, and every bad fact hurts. Put as many brick on the good facts side of the scale as you can.

And if things don’t work out, you can always use this neat trick with your parasol to keep away bears.

Thanks again, Dr. Bob!

 

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Never Surrender: Appeals Court Grants Reprieve for Ride Share App Companies; Focus Turns to Prop 22.

Album cover: Boy in the Box.
Label: Aquarius in Canada, EMI America in the U.S.
Sleeves: Definitely rolled up if you could see them.

Thank you to Canadian singer Corey Hart for providing the theme to this week’s post. The Number 3 song this week in 1985 opens with, “Just a little more time is all we’re asking for.” The song, of course, is Never Surrender.

Last week we wrote about the preliminary injunction granted by a California Superior Court, preventing ride share app companies statewide from continuing to classify drivers as independent contractors. We called that ruling “Act I” because the matter was headed to appeal.

As expected, the matter was immediately appealed. Now it’s time to queue up Canada’s Juno Award winner for 1985 “Single of the Year“:

Just a little more time is all we’re asking for.

‘Cause just a little more time could open closing doors.

In a more musical world, those would have been the opening lines to the Motion for Stay in the Court of Appeals. Regardless, the motion was granted, and the ride share app companies are not going to reclassify anyone quite yet.

If the stay was not granted, the ride share app companies had threatened to shut down in California.

Oral arguments are scheduled for mid-October, which means a decision is months away. As we expected in last week’s post, the real action is on Proposition 22, on the ballot this November.

If Proposition 22 passes, the new ABC Test in Assembly Bill 5 (which went into effect Jan. 1, 2020) would not apply to workers in the app-based rideshare and delivery business. Instead, those workers could stay classified as independent contractors, but the app-based companies must ensure that the drivers receive a predetermined level of compensation and benefits, including:

  • Earnings Minimum. The measure would require app-based companies to pay at least 120 percent of the minimum wage for each hour a driver spends driving—but not time spent waiting for requests.
  • Health Insurance Stipend. The measure would require rideshare and delivery companies to provide a health insurance stipend of about $400 per month to drivers who regularly work more than 25 hours per week (not including waiting time). Drivers who average 15 driving hours per week but less than 25 driving hours would receive half as much.
  • Medical Expenses and Disability Insurance. The measure would require that companies buy insurance to cover driver medical expenses and provide disability pay when a driver is injured while driving.
  • Rest Policy. The measure would prohibit drivers from working more than 12 hours in a 24 hour period for a single rideshare or delivery company.
  • Other. The measure would require that rideshare and delivery companies have sexual harassment prevention policies and conduct criminal background checks and safety training for all drivers. It also would prohibit discrimination in hiring and firing.

The measure would also prevent cities and counties from passing further restrictions on driver classification.

Here’s the webpage for Yes on 22. Keep a close eye on the results of the vote because it will probably determine the future of ride share in California.

And don’t forget to wear your sunglasses at night.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Something Is Rotten in the State of California? Ride Share Misclassification Ruling Is Merely Act I

CA flag pole

“To be or not to be” are the opening words of a soliloquy by Prince Hamlet. With that, I have exhausted what I remember about Shakespearean plays without consulting Wikipedia. Having consulted Wikipedia, I can confirm that this soliloquy occurs in Hamlet, Act III, Scene 1.

A lot happens in Act III and beyond, and if you stopped reading Hamlet after Act I, you’d miss most of the action, including assorted plotting, scheming and mayhem.

Last week in California, a different kind of mayhem began in a major case involving alleged independent contractor misclassification. In California v. Uber, a state superior court judge granted a preliminary injunction, requiring ride-sharing app companies to reclassify California drivers as employees. But this order might not be the poisoned blade it seems to be. Either the ruling is a substantial blow, or it’s much ado about nothing. For now, it’s too early to tell. We’re still in Act I. Like in Hamlet, the real action will be in the later acts.

Read the rest of the post here, on BakerHostetler’s Employment Law Spotlight Blog.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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