DOL Can’t Go For That (No Can Do), Appeals Joint Employment Ruling

Channeling their inner Hall & Oates, the Labor Department appealed a recent ruling by a New York federal judge that tried to invalidate the DOL’s new joint employer test.

What do I mean? I mean the DOL basically said, “I Can’t Go For That (No Can Do).”

Taking a step back — but not all the way to 1981, when the Private Eyes album was released — the DOL enacted a new test for joint employment in March 2020., which you can read about here. But in September 2020, a federal judge in New York claimed the test was invalid. DOL: No can do. The ruling is now on appeal and will be heard by the Second Circuit Court of Appeals. Expect a decision sometime in 2021.

While conducting important background research for this blog post (which consisted entirely of me listening to Apple Music’s Yacht Rock Essentials on my Sunday morning run), it struck me how similar the Hall & Oates lyrics are to Meatloaf’s “I’d Do Anything for Love (But I Won’t Do That).”

Hall & Oates: I’ll do anything that you want me to do, Yeah, I’ll do anything that you want me to (ooh, yeah), but I can’t go for that, nooo (no). No can do.”

Meatloaf: I would do anything for love, but I won’t do that. No I won’t do that.

Am I overthinking this? Are they not that similar? It was cold out. And raining. And there was a steep hill I had to get up. So I was trying to focus on something other than my aging knees. Which were probably thinking no can do.

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

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Say Say Say: How Not to Bungle an Independent Contractor Relationship

Remember the 1983 song, Say Say Say, by Paul McCartney and Michael Jackson? “Say, say, say what you want. But don’t play games with my affection.”

The songs asks for some straight talk. Be direct. Say what you mean. Or as Michael says, “What can I do girl, to get through to you. Cause I love you, baby (baby).”

1983 was a memorable year for me for music. I had a cassette called CHART ACTION 1983 that was one of my favorites. It included songs from Dexy’s Midnight Runners, Adam Ant, the Stray Cats, Bonnie Tyler, and Golden Earring.

But it didn’t have Say, Say, Say, and that was fine by me because I don’t really like the song. If it was on CHART ACTION 1983, I’d have skipped it, but the old fashioned way: forward, forward more, a little more, oops too far, rewind, rewind, forward, got it. Hungry Like the Wolf.

“Say say say what you want” would have been good advice for a Pennsylvania agency that offered interpreter and transcription services. The agency tried to run its business with an independent contractor model, but failed to say say say the right things in its agreements.

A Pennsylvania court ruled that the agency had misclassified its interpreters as independent contractors. Under PA unemployment law, the interpreters were actually employees. (“You know I’m crying oo oo oo oo oo.”)

Let’s look at where the agency went wrong.

Bad facts, tending to support employee status: The interpreters had a set of policies and procedures they had to follow, including wearing name badges. The agency did the scheduling.

Good facts, tending to support contractor status: The interpreters are not supervised, reimbursed for their expenses, or provided benefits, training, equipment, or name badges. An interpreter could refuse work at any time.

Totally unnecessary bad fact: The interpreters had to sign a non-compete agreement. That’s evidence of employment because it restricts the interpreter’s ability to work for others as an entrepreneur would do. But it turns out that, in reality, the agency didn’t care if the interpreters worked for others, and many of the interpreters did work for others.

Even worse, the non-compete included language referencing an “existing contract of employment.” Oops. Poor choice of words when you’re trying to prove there was no employment relationship. I would bet that the agency just pulled this non-compete language off the internet, without having considered the legal implications. The court focused a lot of attention on the non-compete when ruling that the interpreters were really employees.

The non-compete was a self-inflicted wound. That misstep is a good example of why you can’t just pick template agreements off the internet and expect that they’ll be sufficient.

More bad facts were on the website: Another problem for the agency was its website, which described the extensive training provided to interpreters, referred to them as “new hires,” and indicated they were all required to undergo a final performance evaluation. These facts all suggest an employment relationship.

Pennsylvania unemployment law applies a two-part test for determining whether someone is an employee or an independent contractor. To be an independent contractor, the service had to prove that it did not exercise control (a Right to Control Test) and that the interpreters were “customarily engaged in an independently established trade, occupation, profession or business.”

This could have been done correctly. Because of the independent nature of an interpreter’s work, the agency probably could have set up legitimate independent contractor relationships. This case is a classic example of how a proactive legal review could have saved the day.

If the agency had asked a lawyer for help in setting up the business the right way, this case could have gone the other way. The agency could have eliminated the non-compete agreement (which it didn’t enforce anyway), modified the website to eliminate “new hire” language and to de-emphasize training, cut back on the specific training provided, and changed the name tag requirement to a more generic requirement to provide identification.

So to the song I say say say: You may have hit #1 in the U.S. that October, but I’m not the one who really loves you.

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

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Election News: California Voters Adopt Prop 22; Kentucky Voters Elect Dog as Mayor

Zippy evaluates the candidates.

Some elections are more consequential than others. It can be tough to lose, but in Rabbit Hash, Kentucky, the candidates for mayor are probably indifferent to the outcome. Even the winner probably doesn’t do a lot of mayoring.

That’s because the mayor of Rabbit Hash is a dog. Since 1988, the mayor has always been a dog. This year’s winner is a six-month old French bulldog named Wilbur Beast. Wilbur succeeds incumbent Brynneth Pawltro, a pit bull who has served since 2016.

Click here for an adorable photo of the winner.

In other election news (in case you were wondering whether there was anything else happening in the category of elections), voters in California passed Proposition 22. Prop 22 will allow ride share and delivery drivers in California to maintain independent contractor status, so long as the app companies provide a suite of predetermined benefits. Read more here.

That means the ABC Test in AB 5 will no longer apply to ride share or delivery drivers in California. The new exemption does not apply to other industries.

Look for intense lobbying from other industries to obtain similar treatment. Hopefully Prop 22 serves as model legislation and will adopted elsewhere throughout the country.

There was intense lobbying in the Rabbit Hash race too. Wilbur Beast’s owner, Amy Noland, told CNN that the dog had done a lot of campaigning and had hosted a lot of events.

According to the Rabbit Hash Historical Society, “The people of Rabbit Hash generally elect mayors based on the candidates’ willingness to have their belly scratched.” Based on my informal survey of other recent political races, this appears to be a anomaly.

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

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Time: More than Just a Pink Floyd Song (and Here’s What Happened This Week with Independent Contractor Cases)

The day after turning our clocks ahead, we find it’s easier to get up early to not commute to work, to not drop the kids off at school, and to not be late for any meeting you’d ordinarily attend in person since there are none. Welcome to pandemic-style Standard Time.

A bit of Daylight Savings Time trivia for you: In January 1974, the whole country went on DST for what was supposed to be 16 straight months in response to the energy crisis. But the people resisted, complaining about school kids waiting for buses in the dark, and Congress repealed the Emergency Daylight Saving Time Act in October 1974.

Today, Arizona and Hawaii are the only states that do not observe Daylight Savings Time, although in a sense they do observe it but just choose not to participate, sort of like how most of us observed school dances in junior high from inside the gym but far from the dance floor.

Today’s post takes a look back in time, but only a very brief look back because I’m going to recap events from last week. It was a busy week in the courts for independent contractor misclassification issues.

  • The Texas Supreme Court heard arguments in a case invoking an independent contractor trash collector whose leg was amputated after a garbage truck ran it over. The garbageperson (sanitation worker?) had been retained through a staffing agency as a 1099 IC, and the issue was whether worker’s compensation coverage was available.
  • A pair of drivers in California lost their motion seeking a temporary restraining order against Uber, seeking to prevent the company from texting drivers to ask them to support Prop 22. (Read more on Prop 22 in last week’s post).
  • A group of cable installers in Illinois won approval to proceed as a class in a case alleging they were misclassified as independent contractors. The plaintiffs claim they were really employees under the Fair Labor Standards Act and are owed overtime pay.
  • A Missouri appeals court ruled that a company’s pet sitters were employees under Missouri unemployment law, not independent contractors. The court applied a Right to Control Test.

In 1908, the town of Thunder Bay, Ontario (then known as Port Arthur) was the first place to adopt Daylight Savings Time. Regina, Saskatchewan followed in 1914; and Winnipeg and Brandon, Manitoba adopted DST in 1916. Germany and Austria jumped on the DST bandwagon in 1916, turning the clocks ahead to minimize the use of artificial lighting. The UK and France followed shortly afterward, although I am sure if you asked, they would say they got the idea from Canada, not the Germans.

I find it confusing that we shorten Daylight Savings Time to DST, but we use EST, CST, MST, and PST to refer to Standard Time—in other words, the times when we’re not using DST.

So confusion reigns with the clocks, just as it does with independent contractor misclassification issues. I hope you enjoyed your extra hour of sleep on Sunday.

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

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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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