While cleaning out the garage Saturday, I heard the Cars’ song “Magic,” which contains this nifty lyric: “Summer, It’s like a merry go round.” I then went down the rabbit hole of looking for the video, which features a collection of bizzaro characters at Rik Ocasek’s freakish pool party, including this probable leader of a religious cult.
The lyric stood out, though, because this summer is like a merry go round for joint employment. The rules are about to change again to make it much easier to establish joint employment under the FLSA.
I’ll keep this post short for two reasons:
It’s beautiful outside and so I should not be inside on my laptop, and
The real news on joint employment is coming sometime this week, but it’s not out yet as of Sunday midday when I am writing this.
Here’s what we know:
In March 2021, the Biden Administration indicated it would be rescinding the Trump joint employer rule, which made it hard to establish joint employment.
Last week, the White House announced that it had concluded its review of the new joint employer rule, which will be published imminently.
After it’s released, I’ll write more about it, quite possibly with another screenshot from a Cars video. Or “You Might Think I’ll screenshot another video. Maybe not. Like you, I am on the edge of my seat. But unlike you, that’s because I’m getting up to go outside. I’ll post more when we see the final rule.
In 18th Century Europe, common methods for trying to revive drowning victims included throwing the victim onto a trotting horse, dunking in freezing water (ironic?), and my personal favorite, blowing tobacco smoke into the rectum.
These were creative ideas and sometimes they actually worked. The bouncing motion from being on a trotting horse could force air in and out of the lungs, like modern CPR. Tobacco smoke contains nicotine, which causes the brain to release epinephrine, which helps to stimulate the heart to contract.
It’s fun now to look back at how people tried to solve problems when they didn’t know what would happen.
The biggest unknown in the world of independent contractor misclassification is what would happen if rideshare and delivery companies were forced to reclassify all drivers as employees. A well-funded startup in Dallas is attempting to find out.
As reported here, a new rideshare service called Alto just completed a $45 million round of Series B funding. Alto’s model is to use all W-2 drivers and company-owned vehicles. The service currently operates only in Dallas, Houston, and Los Angeles, and has announced plans to switch to all-electric vehicles.
Will it work? Who knows.
Is it a viable business model? Who knows.
But in some ways, it’s a test case to see how an industry dominated by the independent contractor model might operate if forced to use all W2 workers. Yes, I know the taxi industry is another comparable. But it hasn’t exactly thrived since the emergence of rideshare. I’m pretty sure that’s not the model that rideshare would look to if force to pivot.
As the old proverb goes, necessity is the mother of invention. For those keeping score at home, Mothers of Invention was also the name of an experimental rock band in California once fronted by Frank Zappa and which featured tracks such as “My Guitar Wants to Kill Your Mama.” But that’s for another day.
For now, the rideshare industry continues to operate with its independent contractor model under siege. Widespread conversion of driver contractors to employees would be difficult and would introduce massive disruption in the industry. We’ll see what happens. In the meantime, let’s continue to innovate. Sometimes, even being thrown on a trotting horse can be helpful.
This article in The Fox Magazine lists five things you can buy that are portable, even though you wouldn’t think they could be. The list includes toilets, massage chairs, saunas, neck fans, and bedrooms. The description of a portable bedroom goes like this:
Another brilliant innovation from the country that brought us the toilet in a suitcase, you can now buy a portable bedroom which comes folded up in a series of cabinets that look just like regular closets and dressers. Simply open the cabinet and fold out your bed for a super comfortable night’s sleep.
Um, no thanks.
If this article is revised next year, one surprising addition to the list could be Health Benefits for Massachusetts Independent Contractors. A new bill, inspired by California’s Prop 22, has been introduced in the Massachusetts legislature. To my surprise, the three co-sponsors are Democrats.
The bill, H. 1234, would create a exception to the strict ABC Test in Massachusetts, but only in the rideshare and delivery industries.
If the bill passes, rideshare and delivery platform companies would be required to offer occupational accident insurance and pay into a portable benefit account for drivers.
In exchange for doing so, these companies would gain assurance that drivers on their platforms are independent contractors under Massachusetts state law. The normal ABC Test would not apply. Platform companies would also be required to follow a few other basic guidelines in their interactions with drivers, including that:
Drivers can decide when to work and not work;
Drivers’ access to the platform cannot be terminated for declining a specific rideshare or delivery request;
Drivers can provide services on multiple platforms; and
Drivers can also work in another lawful occupation or business.
The bill is supported by the Massachusetts Coalition for Independent Work (and, of course, by the gig companies), and it is opposed by the Boston Independent Drivers Guild.
If passed, this would mark a significant exception to the strict ABC Test in Massachusetts, which currently presumes all working relationships to be employment, unless:
(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.
Unlike California’s AB 5 (later rewritten as AB 2257), the Massachusetts law does not currently have exceptions for certain industries. Rideshare and delivery services would be the first industries carved out of the Massachusetts ABC Test.
The bill is in the early stages of being considered. It has been referred to the Joint Committee on Financial Services for further consideration. We’ll keep an eye on this one. It’s much more intriguing to me than a portable bedroom or sauna.
Money Get away You get a good job with good pay and you’re okay Money It’s a gas Grab that cash with both hands and make a stash New car, caviar, four star daydream Think I’ll buy me a football team
Pink Floyd just gets it. When I was a young lawyer, someone described civil litigation to me as just moving piles of money from one party to another. But that cynical view tells only part of the story. It excludes the emotion, frustration, stress, and workload involved in defending disputes and in dealing with the consequences, which can include destroying an entire business model.
For businesses making widespread use of independent contractors, all of these concerns are about to get worse.
President Biden’s proposed FY2022 budget includes expanding resources to combat independent contractor misclassification. The Administration’s “commitment” to combatting misclassification is spelled out pretty unambiguously on page 15:
The Administration is also committed to ending the abusive practice of misclassifying employees as independent contractors, which deprives these workers of critical protections and benefits. In addition to including funding in the Budget for stronger enforcement, the Administration intends to work with the Congress to develop comprehensive legislation to strengthen and extend protections against misclassification across appropriate Federal statutes.
The President’s proposal includes $14.2 billion for DOL enforcement efforts, including to “address the misclassification of workers as independent contractors.” This represents a $1.7 billion increase from 2021.
Expect the Department of Labor to place much greater scrutiny on independent contractor relationships than during the Trump Administration. The nomination of David Weil to head up the Wage and Hour Division signals that the President is serious about this enforcement priority. Weil served in the same role under Obama, and he made independent contractor misclassification a focal point of his enforcement efforts.
If your independent contractor arrangements have not been closely examined recently, it’s time for a check up. $14.2 billion for enforcement efforts is a lot of money. I think I’d buy me a football team.
Did you know that Monaco’s flag looks the same as the flag of Indonesia? The differences are subtle. The Indonesian flag is wider, with a width-to-length ratio of 2:3, compared to Monaco’s 4:5; and Monaco flies a slightly darker shade of red. The flag above is Monaco’s. Fans of Indonesia, don’t be fooled by that pushy sales clerk at the flag store.
Now take your screen and flip it 180 degrees. That’s the flag of Poland. Its proportions are 5:8.
Sometimes, things look the same, even when they’re not. True with flags. Also true with “contract workers.”
When a client starts talking about its “contract workers,” the first thing I want to know is what they mean. Are you talking about 1099 independent contractors? Staffing agency workers employed by a staffing agency? Or your own W2 employees with contracts to work for specific period of time?
Each is as different as Monaco and Indonesia.
If discussing 1099 independent contractors, we’re talking about workers that no one is treating as an employee. The legal risk here is independent contractor misclassification. In other words, are laws being broken by not treating these workers as employees?
If discussing staffing agency workers, we’re talking about someone else’s W2 employees. The issue here is not whether these workers are anyone’s employees. We already know they’re the staffing agency’s employees. The legal issue here is whether these workers are joint employees. In other words, are they employees of both the staffing agency and your company?
If discussing your own W2 employees with contracts for a definite period, we’re probably discussing contract terms and we’ll probably need to see the contract. These are employees but not employees at-will.
The flags of Monaco and Indonesia may look the same, but the countries and their laws are very different. Same thing here. These three types of “contract workers” are as different as a European principality with a population of less than 40,000 and a Southeast Asian chain of islands with a population larger than every country on earth except China, India, and the United States.
Yes, Indonesia really does have the world’s fourth largest population. Fun fact! (And one of the world’s most common flags, tied with Monaco and Poland, as you now know.)
If you’re asked about “contract workers,” be sure you know what you’re being asked about. Any of these three types of worker can be called “contract workers,” but they’re very different, and the legal issues involved are very different too.
Crash Test Dummies is a band from Winnipeg that I really like — especially the 1993 album, God Shuffled His Feet. It’s full of thoughtful questions asked in a booming deep voice. The song In the Days of the Caveman takes a look back, with some keen observations added for good measure:
In the days of the caveman And mammoths and glaciers Bugs and trees were your food then No pajamas or doctors
See, that’s all true and probably not something you had thought about before.
President Biden has given us another reason to look back and reconsider some things you hadn’t thought about in a while. Last week, Biden nominated David Weil to serve as Wage and Hour Administrator. Weil served in the same role under Obama, so we’ve seen that movie too.
Here are some highlights from Weil’s last stint as W&H Administrator:
Administrator’s Interpretation 2016-1: Joint Employment under the FLSA, which I wrote about here when it was issued. Weil embraces the broadest possible view of joint employment. The Trump Administration’s DOL rescinded this guidance in 2017.
Administrator’s Interpretation 2015-1: Applying the FLSA’s “Suffer or Permit” Standard to Independent Contractor Classification, which I wrote about here. Weil advocates an expansive view of employment, declaring that “most workers are employees under the FLSA’s board definitions.”
Here’s what we can expect from Weil 2.0:
Increased enforcement activity by the DOL against companies using independent contractors.
Right now, claims generally arise through lawsuits, and class/collective actions present the most danger. The risk of class claims can be limited with arbitration agreements and class waivers. But arbitration agreements provide no defense against a DOL action. Those agreements don’t bind the government. Expect the DOL to go after companies that make extensive use of independent contractors.
Increased enforcement activity by the DOL on joint employment claims.
Remember, unlike independent contractor misclassification, joint employment is not illegal. Joint employment is a problem when a primary employer (such as a staffing agency or vendor/subcontractor) fails to comply with some aspect of the FLSA and its wage payment rules. Under a broad theory of joint employment, the company benefitting from the services is going to be liable for the errors of the primary employer, even though the alleged joint employer had no control over the primary employer’s wage practices.
New regulations on independent contractor classification and joint employment.
The standards and test keep changing, depending on who holds the White House. One step the Wage and Hour Division can take to try to make its views more permanent is to adopt its views as formal regulations, not just Administrator’s Interpretations. This is what the Trump DOL tried to do for both independent contractor misclassification and joint employment. Expect a strong push by the DOL to adopt new regulations that make it harder to maintain independent contractor status and easier to find joint employment.
The bottom line is that we’re going back in time. Maybe not so far back that bugs and trees were your food then, but back to 2015 and 2016 interpretations of the FLSA. Expect no pajamas or doctors.
What to do about it? Businesses that rely on independent contractors should tighten their agreements now. Businesses that engage staffing agencies should review those contracts now.
This is one of my favorite optical illusions. The spheres here are all beige. They are not red, green, or purple. Look closely and you’ll see. David Novick, a professor of engineering at UTEP, explains the illusion here.
It’s fun to be fooled with optical illusions. But it’s not fun to be fooled with federal immigration law.
Companies retaining independent contractors should remember these key points for I-9s and immigration law compliance:
1. Properly classified independent contractors do not need to complete I-9 forms.
2. Misclassified independent contractor — that is, those who are really employees under federal law — are employees and should have a completed I-9. A multi-factor test is used to make this determination. According to federal regulations, these factors should be considered:
Who supplies tools or materials;
Whether the worker makes services available to the general public;
Whether the worker works for a number of clients at the same time;
Worker’s opportunity for profit or loss as a result of labor or services provided;
Worker’s investment in facilities for work;
Who directs the order or sequence in which the work is to be done; and
Who determines the hours during which the work is to be done.
3. Federal law prohibits individuals or businesses from contracting with an independent contractor to provide services in the U.S., knowing that the contractor is not authorized to work in the U.S. [8 U.S.C. 1324a(a)(4)]
4. Staffing agency temps employed by the staffing agency must complete I-9s as employees of the staffing agency. Contracts with staffing agencies should make clear the staffing agency accepts this obligation. If an agency sends a bunch of undocumented temps to your worksite, you might get an unscheduled visit from ICE, which is not a good look.
For those keeping a list at home (wait, that’s just me?), you can add immigration law noncompliance to the list of Things That Can Go Badly When Independent Contractors are Misclassified.
When my kids were younger, we used to play a guessing game. The questioner would think of someone, real or imaginary. The object was to figure out who. We’d go around the table, and each person gets one question that could only be answered with yes or no, then they’d get one guess. Then it goes to the next person to ask one and guess one.
The best strategy was to ask broad questions first: Is the person real? Is the person alive? Then narrower: Have I ever met the person?Is it someone in our family? It usually took about 10 questions for someone to figure it out, even if the answer was obscure or fictional.
The running gag in our house, though, was that sometimes the answer would be “half-man, half-goat.” I don’t remember how that started, but it’s still a thing in our house. Is it half-man, half-goat? Yes.
This creature has many of the great powers inherent to goats (can butt heads without feeling pain, eats paper cups), but it can’t do everything a goat can do because it’s also saddled with being half-man.
Arbitration agreements can be like that too, especially when included in independent contractor agreements. Arbitration clauses can require independent contractors to arbitrate all disputes, including misclassification claims. One of the great powers of an arbitration clause is the power to require claims to be resolved individually, with each party waiving the right to file class or collective actions. Another great power is to keep the proceedings mostly confidential, in contrast to a court proceeding, which is open to the public.
But one thing arbitration agreements can’t do is bind governmental agencies. A recent decision from the Ninth Circuit Court of Appeals reminds us that if the Department of Labor (DOL) claims that a business is misclassifying its independent contractors, that dispute is not subject to arbitration. The DOL can escalate the dispute to court.
The Ninth Circuit ruling reminds us that the DOL is not a party to the arbitration agreement and, therefore, cannot be bound by it. Government agencies also have different interests than private litigants. When the government files suit, it can aim to deter similar misconduct and “vindicate a public interest.” Like a bureaucratic superhero.
This outcome is no surprise. In 2002, the Supreme Court ruled that the EEOC was not bound by an arbitration agreement and could pursue relief outside of arbitration for the same reason. The same rule applies for the DOL.
The lesson here is to remember that arbitration agreements can be valuable in many ways, but they’re also a bit (just a bit) like playing with only half a goat. They can’t do it all. When drafting independent contractor agreements, arbitration clauses can be helpful, but they can’t prevent all lawsuits–especially those filed by a government agency.
It’s all about branding, fellas. Republicans have introduced bills with clever acronyms before. Examples include:
JAWS Act (Justice Attributed to Wounded Sharks)
BEER Act (Brewers Excise and Economic Relief Act); and
EL CHAPO Act (Ensuring Lawful Collection of Hidden Assets to Provide Order), to require El Chapo to forfeit assets from the drug trade.
But I’m puzzled by the more recent lack of effort.
Seeking to counter the Democrats’ boldly named PRO Act (Protecting the Right to Organize), Republicans have introduced the SLoB Act (Save Local Business).
Seriously? That’s the best that your marketing team could do?
The SLoB Act would narrow the definition of joint employment. To find “joint employer” status, proof would be required of direct, actual, immediate, and significant control over essential terms and conditions of employment, such as hiring, firing, pay, benefits, supervision, scheduling, and discipline.
That would be terrific for franchising and for all businesses that use outsourced labor, such as through staffing agencies. The SLoB Act would amend both the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA). For those of you who recall the Browning-Ferris escapades, this bill would repeal the loosey-goosey joint employment standard the NLRB tried to adopt in 2015, later repealed, unrepealed, and appealed. The bill would codify a tougher test, making it much harder to prove joint employment.
The SLoB Act will not pass, at least not in this Congress. It is unlikely to have any Democratic support. But it has a letter of support signed by 65 leading industry groups, including the U.S. Chamber of Commerce, the American Trucking Association, the National Franchise Association, and the Society for Human Resource Management.
I like the bill, but I’d have gone with a better acronym. Such as…
JERKY Act (Joint Employment is Really Kinda Yucky)
EJECT Act (Editing the Joint Employment Control Test)
JESUS Act (Joint Employment Should be Used Sparingly).
I think the last one would garner the most support, no matter what the bill was about. No one wants to go on record opposing Jesus.
Remember when TV news was on at 6 p.m. and 11 p.m. and that was it? Every once in a while, there would be a Breaking News! alert, and it was always something really important. They wouldn’t interrupt Diff’rent Strokes for just anything. (Bonus points if you remembered there was an apostrophe in the title instead of the first ‘e.’)
But now, with 24-hour news on a dozen stations, everything is Breaking News! – even this story about a New Mexico man who went grocery shopping, then returned to his car to find 15,000 bees in the back seat. (Man walks back into store, returns jar of honey.)
The Breaking News! you’re reading about today is the Department of Labor’s (DOL) latest announcement, rescinding its proposed rule for determining independent contractor status under the Fair Labor Standards Act (FLSA).
Click here for the rest, posted by me on Friday on the BakerHostetler Employment Law Spotlight blog.
By Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.