The Ohio Supreme Court Just Made It Much Harder to Win a Misclassification Dispute

In the middle of the Bering Sea sit two islands, Little Diomede (U.S.) and Big Diomede (Russia). They sit less than three miles apart, but Big Diomede is 21 hours ahead. That’s because the International Date Line straddles the two. This would make scheduling play dates nearly impossible, but fortunately no one lives on Big Diomede. Little Diomede is home to about 115 brave (and very isolated) souls.

The Diomedes are a great example of being close but still so far away. The Ohio Supreme Court gave us another example in a worker misclassification dispute earlier this month. Ohio companies should pay close attention to this surprising — and bad — decision.

In this case, the Bureau of Workers’ Compensation (BWC) had determined that an underground-cable installation company had misclassified its workers as independent contractors rather than as employees.

The BWC looked back 5 years and handed the company a bill for $350,000 in back assessments for failing to pay into the workers compensation system. Companies pay into the system for employees, but not for contractors. The company appealed, arguing that under Ohio’s Right to Control Test, the installers were properly classified as contractors, meaning the back assessments were not warranted. The company provided evidence showing that the Right to Control factors tilted in favor of contractor status.

The Ohio Supreme Court reviewed the evidence and did not disagree with the company. You’d think, therefore, that they’d reverse the BWC decision, and the company would be relieved from paying the back assessments.

Nope.

The company was close, but oh so far from winning its appeal. That’s because the deck is stacked heavily against companies when it comes to challenging the BWC on worker classification determinations.

The Ohio Supreme Court ruled that, under Ohio law, so long as there is “some evidence” that could support the BWC’s conclusion, the BWC’s decision was untouchable. This is insane.

In every case involving a balancing test — like the Right to Control Test used here — there will be at least some evidence supporting employee status and some evidence supporting contractor status. The point of the test is to weight the competing factors and see which direction the scales tilt.

But according to this ruling, Ohio law grants the BWC an absurd level of deference. The decision appears to say that a court must accept the BWC’s conclusion, even if the scales tilt the other way, so long as there is “some evidence” to support the BWC’s findings.

For Ohio businesses using independent contractors, this ruling means trouble. The BWC is, of course, incentivized to find misclassification because it means more money for the state. After this ruling, companies appear to have little recourse for challenging the BWC, even when the BWC is wrong.

Ohio companies should immediately evaluate their misclassification risks. If a contractor gets hurt and brings a workers comp claim, the BWC will look for misclassification. If the BWC finds it, the BWC will not only grant workers comp coverage for the injured contractor, it will issue back assessments against the company for failing to pay into the workers comp system — with a look back of five years.

Back assessments can also be triggered by an audit.

Same for unemployment. An unemployment claim by a contractor can lead to the same result, with Ohio Job & Family Services making the misclassification call. Back assessments would issue in that scenario too for failing to pay into the unemployment fund.

This ruling goes against the whole point of having a balancing test. I might have expected this level of deference from California or New York, but not Ohio. This ruling was issued by a Republican-majority Supreme Court.

Like the Diomedes Islands, what appears close can be so far away. Your business might be able to show all the reasons why your contractors are properly classified, but it doesn’t even have to be a close call for you to lose. If BWC finds misclassification and there’s merely “some evidence “ to support its conclusion, you might as well be arguing your point in Russian, the language of all zero inhabitants of Big Diomede.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

No Laughing Matter: Here’s Why States Think Your Independent Contractors Are Misclassified

The best twitter account you’re not yet following is Depths of Wikipedia @depthsofwiki, which finds all the crazy fascinating stuff on Wikipedia that you wish you had time to look for.

Such as this gem from last week:

I didn’t know who Chrysippus was, but this is top shelf information. He died of laughter after witnessing a donkey eat his figs?!

That would make for one f***d-up game of Clue.

Here’s something that’s not a laughing matter.

Ever wondered why states seem so aggressive in fighting against companies that classify workers as independent contractors? Ok, yeah, there’s the crowd-pleasing pitch that they’re looking out for the little guy, and workers are being denied benefits, and companies are cheating the systems, etc.

But also comes down to money. State governments claim they are losing hundreds of millions of dollars a year in unpaid taxes and unpaid contributions to unemployment and workers compensation funds. This policy brief by the National Employment Law Project cites to 30 state law studies with varying estimates of losses to state coffers.

Are these studies accurate, or are they merely self-serving reports designed to justify misclassification audits? Probably some of both, but the point is that it doesn’t matter. Whether motivated by workers’ rights or bolstering state coffers, states are doing two things to make it harder to classify workers as independent contractors.

First, several pending state bills would make it harder to classify workers as independent contractors.

Second, states are taking enforcement seriously. Through audits and lawsuits, the states are going after companies directly.

For companies, defending against state action can be a lot harder than defending against private lawsuits. State prosecutors and agencies claim to be fighting for the little guy, and they tend to get dug in with their positions. State prosecutors and agency enforcers get paid the same salary, win or lose, and it can be harder to persuade them that your company’s classifications are legitimate and that they should be spending their limited time and resources elsewhere.

Plaintiffs’ lawyers, on the other hand, are business people and are generally more open to business solutions that are driven by a cost-benefit analysis of how best to use their limited time and resources. A strong set of facts supporting independent contractor classification can lead to a victory in court or can create leverage for a favorable settlement with private litigants. Private settlements can also be reached with no admission of wrongdoing.

The lesson here is that enforcement efforts by state governments are no laughing matter. While a donkey trying to eat your figs may be drop-dead hilarious, an enforcement action by the state isn’t so funny. But it can still kill your business.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Here’s a Bizarre Lawsuit, Plus Tips for Avoiding Misappropriation Trade Secrets

A couple in Uttarakhan, India, has sued their 35-year old son for $650,000 on the grounds that he failed to provide them a grandchild. The monetary claim reflects the amount they supposedly invested in him over the years, apparently viewing him as some sort of horse stud when they paid for his education and wedding.

Their petition explains, “We killed our dreams to raise him” and “despite all our efforts, my son and his wife have caused mental torture by not giving us a grandchild.”

In the business world it seems more reasonable to demand a return on your investment in someone. But that has limits too.

Last week in Virginia, a jury awarded $2 billion to a software company for misappropriation of trade secrets, finding that a rival had paid a disloyal employee of the victim company to steal trade secrets and pass them along. Investing in someone to steal trade secrets is not kosher. Unlike the “no grandbabies” case, that seems like solid ground for a lawsuit.

While the theft of trade secrets appeared intentional here, it’s possible to acquire a rival’s confidential information unintentionally too. The risk may be especially high when you’re retaining an independent contractor who has expertise in an industry and who has likely worked for various competitors in the same space.

When retaining independent contractors, businesses should take steps to ensure they are not going to be acquiring confidential or trade secret information from the contractor.

Here’s an easy tip to help protect your company from inadvertently acquiring confidential or trade secret information from a competitor: Include in your independent contractor agreement a clause that prohibits the contractor from using any confidential or trade secret information from any past client or employer. Prohibit the contractor from incorporating any such information into any work that the contractor creates for your business.

The same type of clause can be inserted into your employment agreements.

While intentionally stealing a rival’s trade secrets is obviously a no-no, an accidental taking or an accidental incorporation of such information into your software or other systems can also create liability. Taking a clear stand that you prohibit that sort of thing will help avoid a problem later. And, if something bad does occur (assuming you didn’t solicit the improper disclosure), you’ll be in a much better place to defend against a misappropriation claim.

As for the Uttarakhan man and his wife, I don’t know what the best defense is to that sort of claim. But I do know the next family get-together is likely to be a bit uncomfortable.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Not Dead Yet: Arbitration Agreements May Sit Dormant, But They Can Still Save You From a Class/Collective Action

Not dead yet. @SCMPNews

This spring has been a bad time for injured civilians who prefer not to be buried alive.

In Peru last month, a funeral procession was interrupted when the 36-year old car accident victim was heard banging on the lid of her coffin, trying to get out. Days earlier the woman had been pronounced dead, in what turned out to be an unfortunate mispronunciation.

In Shanghai, a nursing home mourned the passing of an elderly resident, who was placed in a body bag and sent to the mortuary. As seen in this video taken by a bystander, the mortuary workers unzipped the bag and found the man still moving. He was transferred to a hospital, which seems to me like a more appropriate place for someone still alive.

People may go quiet, but that doesn’t mean they should be treated as dead. The same holds true for individual arbitration agreements. They may exist quietly in the background, but courts can’t just ignore them, as a recent Fifth Circuit Court of Appeals decision made clear.

A plaintiff alleged violations of the Fair Labor Standards Act (FLSA), claiming she was misclassified as an independent contractor and therefore was denied overtime pay. She asked the court to treat her lawsuit as a collective action, claiming that other contractors were also misclassified and were also denied overtime pay. In FLSA cases, plaintiffs have to opt in to join the class. The district court approved the distribution of opt-in notices to similarly situated contractors, letting them know about the lawsuit and their right to participate.

The defendant opposed the notices, pointing out that the contractors had all signed individual arbitration agreements that included class action waivers. They couldn’t opt in, the defendant argued, so they should not get the notice. When the court approved the notices anyway, the defendant filed a writ of mandamus with the Fifth Circuit Court of Appeals, asking the appeals court to intervene and stop the notices from going out.

The Fifth Circuit granted the writ and stopped the notices from going out. The Court of Appeals ruled that the arbitration agreements required all disputes to be resolved through individual arbitration, and therefore the contractors could not opt in to the lawsuit. Since they could not opt in, they could not be sent notices inviting them to opt in.

It’s unusual for a Court of Appeals to grant a writ of mandamus. But here, the Court of Appeals recognized that the arbitration agreements were very much alive, even if the contractors who signed them were silent in the background.

This case is a good reminder of the value of individual arbitration agreements with class action waivers. A well-drafted arbitration agreement will require all claims to be resolved on an individual basis and will include a waiver of the right to participate in any class or collective action. The agreement should also deprive the arbitrator of jurisdiction to preside over a class or collective action.

Businesses that rely on independent contractors should check their agreements and consider adding robust, carefully-drafted arbitration clauses.

Arbitration agreements can sit silently in the background for years, but that doesn’t mean they are dead.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Don’t Get in Over Your Head: Set Up a Gatekeeper

Last month in Washington State, at a trailhead on the Olympic Peninsula, a woman dropped her cell phone in a pit latrine. Yes, that’s a flushless outhouse. The woman tried to retrieve the phone using a dog leash, then tried to use the dog leash to support herself as she reached down into the stinky muck. Dog leashes, however, are not meant for such endeavors, and — yes, this really happened — the leash failed. The woman fell head first into the latrine.

Making the best of a shitty situation, the woman found her phone, which she then used to call for help. The fire department rescued her, and the dispatch operator will be telling the story of that intake call forever.

The lesson here is: Know when to get help.

That lesson also applies to your company’s independent contractor relationships. Today’s tip is to set up a Gatekeeper System.

If your company is like most businesses, it’s simpler to contract with outside labor than to hire new employees. Operations managers or a procurement team are the people most likely to approve contracts for services. Because there are no employees being engaged in these contracts, the contracts don’t go to Human Resources, and they probably don’t get reviewed by Legal.

But every contract for services carries a risk that the individuals providing the services may be misclassified. Even if treated as independent contractors, those workers might be your employees under federal or state law. Or, if they’re being treated as employees of the business you contract with, they might be your joint employees. Both scenarios – independent contractor misclassification and joint employment – present legal risks.

But your operations managers or procurement team have not been trained to recognize those risks. They likely have never considered that the people providing those services might be deemed your company’s employees.

To protect against these risks, set up a Gatekeeper System. That would be a policy that says, anytime we retain non-employees to provide a service, there must be a written contract and it must be reviewed by a specific individual, the gatekeeper.

The gatekeeper will be trained to issue-spot and to recognize circumstances that may present an elevated risk of misclassification or joint employment. The gatekeeper can raise concerns with the legal department. Or maybe the gatekeeper is part of the legal team.

Setting up a Gatekeeper System is easy. It’s just a policy requiring a specific layer of review whenever non-employees are retained to perform a service. Make sure everyone authorized to enter into contracts for the business knows of the policy. Then train your gatekeeper to issue spot and to escalate for further analysis when necessary.

The point is that someone needs to know to look out for these risks. You can only protect yourself against the risks you have identified. Once you get sued or hit with an audit, it’s too late.

Just like it was too late for our friend the Washington hiker, who should have asked for help a bit earlier — before getting in over her head.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Beware of Snakes: Court of Appeals to Decide Whether Student-Athletes Are Employees under FLSA

Snakes have been in the news lately. A Maryland man was recently found dead in his home, killed by a venomous snake bite. This might seem surprising, until you learn that the same man kept 124 pet snakes in his house, including rattlesnakes, cobras, black mambas and a 14-foot-long Burmese python.

I also learned this week of a horrifying tourist attraction in Manitoba called the Snakes of Narcisse, where you can view “tens of thousands of red-sided garter snakes as they slither to the surface from their winter dens.” Tourists can view the dens and the snakes’ “mating balls,” in which “one [unlucky] female is surrounded by up to one hundred males.” Brackets are mine, since this can’t be fun for the snakestress, no matter how many cocktails are involved.

According to Quizlet, six colleges and universities have snakes for mascots. I won’t spoil the surprise. You can click here for the big reveal.

For student-athletes at these six schools, plus those at every other non-snake-themed college, there’s a Third Circuit case that’s worth watching.

The Third Circuit has agreed to hear a case that poses the following question: “Whether NCAA Division I student athletes can be employees of the colleges and universities they attend for purposes of the Fair Labor Standards Act solely by virtue of their participation in interscholastic athletics.

If the Third Circuit says yes, student-athletes may be entitled to millions of dollars in back wages under the FLSA. A ‘yes’ ruling would be deadly venom to just about every non-major sports program, since schools have no budget to pay wages to student-athletes. Very few programs in very few sports actually make money.

For those who brought this suit and think they are advocating for the student, be careful what you wish for. If the Third Circuit rules that student-athletes are entitled to be paid, college sports are largely dead. Women’s sports would take the biggest hit, as would every other program that isn’t a top-tier college football or basketball program raking in the cash.

This is a case to watch closely. If student-athletes are entitled to be paid, there would no longer be any distinction between amateurs and professionals. The whole concept of the student-athlete — and almost all of college sports — would go the way of the Round Island Burrowing Boa. That’s an extinct snake that used to live in Mauritius, says wikipedia.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

It’s a Mistake? Too Bad. NLRB Might Soon Make Misclassification an Automatic Unfair Labor Practice

Cover art from the single, released on Epic Records

In the early 80s, I had two cassettes by the Australian band Men at Work — Business as Usual, released in 1981, and Cargo two years later.

Cargo includes the single, “It’s a Mistake,” a satirically upbeat Cold War-inspired song in which a soldier tries to figure out whether the Cold War is about to turn hot. The video features too-short shorts, bad lip syncing, and old ladies hitting the band members with umbrellas on the battlefield, all of which leads to an accidental nuclear launch, triggered when an officer tries to stub out his cigar in an ashtray but hits the wrong button.

All in all — a good song, a mediocre video, and a strong commentary on the politics of the day.

A recent move by the NLRB’s General Counsel revives the “It’s a Mistake” narrative, this time in the context of independent contractor misclassification. There are no accidental nukes involved, but the move is definitely politically motivated.

If the General Counsel has her way, the Board will rule that independent contractor misclassification is an automatic unfair labor practice (ULP), even if it’s a mistake.

To reach that conclusion, the Board would have to overturn its 2019 decision in Velox Express, in which the Republican-controlled Board ruled that misclassifying a worker, by itself, is not automatically a ULP.

The GC’s actions are no surprise. In mid-2021, she issued a strategy memo announcing that one of her strategic (political) priorities was to get Velox Express overturned during her tenure. With the NLRB now featuring a 3-2 Democratic majority, she’s likely to prevail.

What does this mean for companies that use independent contractors?

It means the stakes are higher. If Velox Express is overturned, misclassification of independent contractors would likely become an automatic ULP, even if the classification was well-intentioned. Essentially, there would be strict liability for misclassification.

Traditional remedies for ULPs include back pay and reinstatement, which could mean forced reclassification as employees. The GC has been pushing to further expand the scope of available remedies because, hey, why not.

If your business is hit with a ULP and forced to reclassify workers under the NLRA, good luck trying to maintain independent contractor status under wage and hour laws or other laws.

A reversal of Velox Express, therefore, may have sweeping ramifications, making it much harder to maintain independent contractor status across a broad range of federal and state laws.

The consequences of this expected reversal will be serious — not quite on the scale of nuclear devastation, but worse than old ladies hitting you on the head with an umbrella.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Hold Your Horses! A Court of Appeals May Have Granted Independent Contractors the Right to Strike and Organize

On June 4, 1923, jockey Frank Hayes rode 20-1 long shot Sweet Kiss to victory at Belmont Park. While that seems impressive, what made the win even more memorable is that at some point during the race, poor Frank died. He somehow stayed on the horse and ended up in the winner’s circle. Or six feet under it. It was his first (and last) win as a jockey.

Jockeys are in the news again, and we’ve got another surprise finish. But this one has implications far beyond the racetrack.

Click here for the rest of the story, originally posted yesterday on the BakerHostetler blog, Employment Law Spotlight.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

“We Won’t Get Fooled Again”: Senate Rejects Weil (& Join Me Tuesday for a Free Webinar)

(Action shot from the Senate floor!)

Those who have seen me present on independent contractor issues know that I like to incorporate song references by The Who. There are so many song titles and lyrics that help the presentation flow.

On Tuesday, it’s my turn to co-present at the annual BakerHostetler Master Class on Labor Relations and Employment Law. The session is called Answering Tough Questions About Independent Contractors, Joint Employment and the Contingent Workforce, Using Songs by The Who. The session is free, 2-3p ET on April 5. Register here.

If you join me, you’ll get gems like this when we update you on 2022 developments, such as David Weil’s nomination to serve as Wage and Hour Administrator of the DOL:

Democrats: Meet the new boss, same as the old boss.

Republicans: We won’t get fooled again.

David Weil was the Wage and Hour Administrator in the DOL during the Obama Administration. He published two Administrator’s Interpretations expressing the view that most independent contractors were misclassified and that joint employment should be much easier to establish. He wrote about the problems with the “fissured workforce,” meaning the expansion of non-traditional, non-employee labor. He was not a friend of the business community and especially disliked by the franchising community.

In 2021, Biden nominated him to reclaim that post.

Last week, the Senate voted 53-47 to block the nomination.

In the independent contractor space, it’s been a busy few months for the DOL, and I would imagine the administration would like to fill this role as quickly as possible.

Last month, a federal court took issue with the Biden DOL changing its tune on the Trump DOL’s test for independent contractor misclassification. The court declared The Song Is Over and rejected the Biden DOL’s change, reinstating the Trump-era test for worker classification under the Fair Labor Standards Act (FLSA). More details here.

In January, the DOL and the NLRB signed a Memorandum of Understanding in which they agreed to share information to combat independent contractor misclassification.

Join me and my colleagues Margaret Rosenthal and Vartan Madoyan on Tuesday for more updates, tips, previews, and Who-themed lyrics. There’s no charge to attend. I’m Free.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Bobcat vs Python: Franchisors Stuck with ABC Test, Says Mass. Court

Yes, this is the actual clip!

I just got back from Miami, where this happened. According to The Miami Herald, a very badass bobcat was caught on video taunting a 120-lb python by swatting at it and eating its eggs. Despite giving up 100 lbs to the python, the bobcat reigned supreme. Unbeknownst to our friends in the animal kingdom, there are easier ways to get an omelet.

This week’s post is also about fighting over who reigns supreme. But this battle is between the FTC Franchise Rule and the ABC Test for determining independent contractor vs employee status. Sounds exciting? (I know!)

In Massachusetts, there is a strict ABC Test for determining employee status. This is the hardest ABC Test to meet in the US. It is the same as California‘s test but lacks the exceptions found in California law.

ABC Tests have been viewed in the business community as a threat to the franchising model of doing business. On one hard, franchisors must exert control over their franchisees to ensure brand consistency. On the other hand, exerting control is a sign of employment and could turn a franchisee into the franchisor’s employee.

In Patel v. 7-Eleven, the Massachusetts Supreme Judicial Court was asked whether the ABC Test can be used to determine employment status in a dispute between a franchisor and franchisee. The franchisor, 7-Eleven, argued that the state law test is incompatible with the FTC Franchise Rule and should therefore be disregarded in the franchise context.

The Court ruled that the ABC Test still applies, reversing the earlier decision I wrote about here, in this super fun but now outdated Electric Grandma-themed post.

The Court explained that the FTC Franchise Rule deals with control over the “method of operations,” not control over the method of “performing service”:

“[C]ontrol over the franchisee’s method of operation” does not require a franchisor to exercise “control and direction” in connection with the franchisee’s “performing any service” for the franchisor — the relevant inquiry under the first prong of the ABC test. That the election under the FTC Franchise Rule and the first prong of the ABC test employ the same word — control — does not create an inherent conflict. Indeed, “significant control” over a franchisee’s “method of operation” and “control and direction” of an individual’s “performance of services” are not necessarily coextensive.

I dissent. (Can I do that?)

The lines get awfully blurry awfully fast. The differences the Court relies on are subtle differences. In many respects, control over the operation seems to requires control over how services are performed. Your burger at one franchise looks and tastes the same as your burger at another franchise because the method for making that burger has to be essentially the same. It’s true that the franchisor doesn’t control a franchisee’s schedule or hiring process. But how well will a jury understand that the franchisor’s control is over the “operation,” but not over the “services”?

The Court’s ruling does not mean franchisees in Massachusetts are going to be considered employees now, but it does make it more challenging for a defendant/franchisor to explain the subtle distinctions in types of control.

I don’t know who in this scenario is the bobcat and who is the python, and I certainly don’t know who would be the one eating the eggs. But like the python vs. bobcat confrontation, there’s a definite clash here, and it’s an uncomfortable and confusing situation for everyone. The Massachusetts Supreme Court certainly didn’t do anything to make it easier to apply the ABC Test, and independent contractor misclassification remains a serious risk for franchisors who comply with franchising requirements.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge