by Todd Lebowitz

No Clash: Supreme Court Rules Cases Must Be Stayed When Sent to Arbitrtaion

Darling, you got to let me know
Should I stay, or should I go?

These lines open the 1981 hit single “Should I Stay or Should I Go” by the Clash. Slight correction, according to Genius lyrics, the opening lines of the song are “Oh! Hola!” which is kind of fun.

Should I stay or should I go is the question the Supreme Court answered last week regarding arbitration cases. In January, we previewed this pending case.

The case involves independent contractors who sued, alleging misclassification. The contractors had signed individual arbitration agreements, and the business successfully moved to compel arbitration. If there is an arbitration agreement, the Federal Arbitration Act (FAA) will generally apply (subject to some exceptions), and the district court must refer the case to arbitration.

This technical question then arises: Does the court dismiss the case or merely issue a stay?

It matters. A dismissal can be immediately appealed. An order to stay typically is not appealable.

The Supreme Court ruled that, under the FAA, a court is required to stay a case when granting a motion to compel arbitration. The court cannot dismiss the case.

So, stay. Not go.

This outcome is required under the text of the statute. The effect is that an order granting a motion to compel arbitration is not immediately appealable. The federal court case gets stayed, not dismissed; so there is no appeal. If you’re the party moving for arbitration, that’s good.

On the other hand, if a motion to compel arbitration is denied, the party moving to compel arbitration can appeal — even though the case remains with the district court. That’s because the FAA and case law allow for this immediate appeal.

So here’s the decision tree for how things must proceed after a motion to compel (MTC):

1. If MTC is granted, the court case gets stayed. The losing party cannot immediately appeal.

2. If MTC is denied, the case remains in court, but the losing party can immediately appeal.

There is no longer an option for the court case to be dismissed when the MTC is granted.

Turns out then, it’s not really true that If I go there will be trouble, If I stay it will be double. At least not if we’re talking about motions to compel arbitration. Something tells me, though, that’s not what the Clash were singing about.

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05.13.24

by Todd Lebowitz

Can You See It? NLRB Fights to Restore New Joint Employer Rule

This past weekend, the solar storm was supposed to be strong enough that we could see the aurora borealis in Cleveland. At 11:30 Friday night, my family went to the Polo Fields in nearby South Chagrin Metropark to see for ourselves.

Lots of others had the same idea, and the fields allowed us an unobstructed view of the sky, where we saw…. nothing really.

We read that iPhones capture light better than our eyes, so we too photos of the blank sky. Turns out there’s some truth to that. I took the photo above, which makes it appear that I saw a nice light show. But I didn’t. I took a photo of what appeared to me to be dark sky. So it was there, but I couldn’t see it.

The NLRB also wants us to see something that isn’t there.

Last week, the NLRB filed an appeal in the Fifth Circuit Court of Appeals, asking the court to reinstate its new joint employer rule.

A quick rewind, for context: In 2023 the NLRB tried to implement a new rule for determining whether joint employment exists. The rule would have made it much easier to find joint employment, including in situations where most of us never would have thought joint employment would exist. On March 8, 2024, a federal judge in Texas vacated the rule, just days before it was scheduled to take effect. You can read more about that decision here.

So with this latest filing, the NLRB is trying to revive the rule, but the NLRB faces an uphill battle in a largely conservative Fifth Circuit.

For now, the NLRB rule remains dead. It’s possible that could change, depending on how the Fifth Circuit rules.

But if you take an NLRB-issued iPhone to the courthouse in New Orleans that houses the Fifth Circuit Court of Appeals and snap a photo, you just might see a glimpse of the rule, invisible to the naked eye. Or maybe that’s just a picture of gumbo.

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04.29.24

by Todd Lebowitz

Think Big: Ninth Circuit Provides Another Reason to Engage Entities, Not Individuals, in Independent Contractor Agreements

The world’s largest passenger elevator is inside the Jio World Center building in Mumbai, India. It can hold 235 people and is designed to cater to large gatherings, such as weddings or convention attendees.

The elevator has glass windows, offers panoramic views of the gardens below, and features a crystal-studded ceiling. It has two sofas so passengers can relax while ascending the maximum five floors at the slow but deliberate rate of 1 meter per second.

Thinking big doesn’t just work when building elevators. It also works when building independent contractor agreements.

Here’s what I mean.

When lots of contractors are being retained, an important feature to include in independent contractor agreements is the requirement to arbitrate disputes on an individual basis, with a waiver of class claims. Under the Federal Arbitration Act (FAA), arbitration agreements and class action waivers are generally valid and enforceable.

But there’s that pesky transportation exemption in Section 1 of the FAA, which says that the FAA does not apply to transportation workers. The Supreme Court recently issued its decision in Bissonette v. LePage Bakeries, holding that to determine whether the transportation worker exception applies, you need to look at what the worker does, not what industry the worker is in. But this post isn’t about Bissonette. It’s about a Ninth Circuit decision issued a few weeks earlier.

The Ninth Circuit ruled that the transportation exemption applies only to individual workers, not to entities. Why does that matter? Well, is your independent contractor agreement with an individual or an entity?

If it’s with an individual, and the worker is engaged in transportation work related to interstate commerce, the transportation worker exception of the FAA might apply, which means the FAA and all of its protections for mandatory arbitration agreements would not apply.

But, according to the Ninth Circuit, if your arbitration agreement is with a business entity, then the transportation worker exception does not apply, since it is inapplicable to business-to-business disputes. That means the FAA does apply.

Engaging small businesses, even single member LLCs, can offer a number of advantages when trying to protect independent contractor status. This recent Ninth Circuit decision offers another advantage, better protecting the parties’ ability to require arbitration of disputes and waivers of class claims.

So when engaging independent contractors, remember to think bigger than the individual. If you can contract with an entity, even a single member LLC, you might be better off — for lots of reasons, even if none of them come with a sofa or panoramic views.

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04.22.24

by Todd Lebowitz

Still Dead: Senate Votes to Void NLRB Joint Employer Rule

A Brazilian woman brought her Uncle Paolo to a bank branch so he could sign a loan document for her. Uncle Paolo was in a wheelchair and couldn’t seem to grip a pen, despite the woman’s best efforts to get him to cooperate.

But Uncle Paolo had good reason not to grip the pen and sign. You see, Uncle Paolo was dead. The woman brought the deceased to the bank in a wheelchair, thinking that — well, I don’t know she was thinking.

The bank called the police, and the woman was arrested. Uncle Paolo, reportedly, is still dead. The best part? There’s video.

Also still dead is the NLRB’s recent joint employer rule, struck down by a federal judge on March 8th.

Congress just took action to try to make it deader.

On April 10, the Senate voted 50-48 to invalidate the NLRB rule, following a 206-177 vote by the House.

President Biden has indicated he would veto the resolution, but the fact that the resolution received support from moderate Democrats, not just Republicans, may be a sign of how far out of touch the NLRB’s rule really was. Two Democratic Senators and eight Democratic members of Congress voted for the resolution.

Assuming the district court decision survives on appeal, the NLRB rule will remain dead, and the Congressional vote doesn’t make any difference anyway. That’s because dead is dead.

Tell that to the Brazilian woman in the video.

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04.08.24

by Todd Lebowitz

It’s No Eclipse Myth: FTC Considers Alleging Independent Contractor Misclassification Claims

I’m taking today off for the eclipse. The Federal Trade Commission never takes the day off. More on that below. But first, some fun facts, courtesy of exploratorium.edu.

-> In Vietnam, legend has it that a giant frog swallows the Sun. Its master, the lord of Hahn, then convinces the frog to spit it out.

-> In Javanese mythology, the god of darkness, Batara Kala, swallows the Sun. Javanese villagers try to make Batara Kala release the Sun by offering sacrifices and beating drums.

-> In Andean mythology, a puma devours the Sun. To prevent the Sun’s death, the puma must be frightened away by the screams of children and the cries of animals.

I don’t feel the need to ask my children or animals to scream away the eclipse, but I may do some crying and screaming on my own if the FTC has its way and starts getting involved in independent contractor classification disputes.

According to a recent speech by FTC Commissioner Alvaro Bedoya, the FTC may consider trying to bring independent contractor misclassification claims.

Misclassification has always been viewed as an issue of employment and tax law. But according to Bedoya, the FTC may choose to see misclassification as an unfair competition issue, thereby granting it jurisdiction (so he says) to bring enforcement actions of its own.

In his published remarks, Bedoya outlined several examples of egregious misclassification that would not pass muster under any law. Then he used these extreme and unusual examples as reasons why the FTC should get involved in pursuing misclassification wrongdoers. He argues that the FTC should get involved because misclassifiers are engaging in unfair competition, in violation of section 5 of the FTC Act.

But if the examples he gave already violate the FLSA and NLRA and state laws, why does the FTC need to pile on? It doesn’t.

Bedoya acknowledged that the DOL and the NLRB “are doing everything they can to stop it.” But then in the next sentence he said he thinks the FTC should “step up to the plate” too.

We have already seen that the FTC is trying to flex its muscle on issues like noncompete agreements, seeking to expand its authority beyond the traditional antitrust arena. Fighting misclassification might be the next battle the FTC wants to take on.

Businesses should remain vigilant and know that misclassification claims can come from lots of different places. Soon we may need to add the FTC to that list.

I think for now he’s just testing the waters and floating the idea to see what kind of support it might garner. I doubt the FTC truly has the jurisdiction or authority to enforce worker misclassification, but that doesn’t mean it won’t try — just like it’s trying to prohibit noncompete agreements by calling them a tool of unfair competition.

We’ll watch what the FTC does, but if it gets more aggressive on this issue, I may need to gather some children and animals to try to scream the FTC away.

I would not go so far as to offer sacrifices or beat drums. I’ll leave that to the ancient Javans.

If you’re in the line of totality, enjoy the eclipse!

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04.01.24

by Todd Lebowitz

Stumpy’s Demise: How Do Most Claims of Independent Contractor Misclassification Arise?

Last weekend, I didn’t post because I was in D.C., where I had my first tour of the cherry blossoms. One of the most beloved trees at the Tidal Basin is this poor shrub of a tree affectionately known as Stumpy.

Stumpy looks dead, but every March he (he?) sprouts a cheery hat of blooming cherry blossoms. But this bloom will be Stumpy’s last. Because of repeated flooding around the Tidal Basin, the sea wall is being raised, which will require the chopping down of 150 trees.

While Stumpy is in for a rude surprise after the bloom, companies using independent contractors can plan in advance to avoid their own demise.

I was asked recently what are the most common ways that claims of independent contractor arise. I thought, that’s a good blog post topic. So here goes.

Here are the most common way that a claim of independent contractor misclassification can arise:

Individual lawsuit
Class action lawsuit
Government audit, random – IRS, DOL, state DOLs, state tax agencies
Government audit, based on complaint – IRS, DOL, state DOLs, state tax agencies
Former IC files for unemployment. Employer denies IC was an employee, but the agency investigates and concludes the worker was misclassified. Typically, the agency will then assume all similarly situated ICs were also misclassified and the employer failed to pay into the unemployment system for the lookback period (probably 3-4 years) and will then issue a large bill for unpaid assessments, often six figures+.
Workers’ compensation claim, same scenario as for unemployment

There are also unexpected and odd situations that can arise, like here.

A similar list for Stumpy might look like this:

Most likely ways that Stumpy might meet his demise:

Chainsaw
Axe
Lightning strike
George Washington’s chopping method of choice if he could tell a lie
Typhoon

Ok, typhoon seems unlikely. I assume it’ll be a chainsaw.

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03.18.24

by Todd Lebowitz

The Rats are High?! Illinois Judge Partially Strikes Down Temp Staffing Law, Granting Win to Staffing Firms and Their Clients

According to this NBC News story, the New Orleans police department headquarters is in such bad condition that not only are there rats everywhere, but the rats are eating the marijuana from the police evidence lockers.

“They’re all high,” the police superintendent testified in a recent hearing. (Skip to 1:45 of the video. Showing great respect, she calls them “major rodents.”)

Staffing firms and businesses in Illinois were saying “Rats!” when Illinois amended its temp staffing law in late 2023, but now they might be feeling a bit of a high.

The 2023 amendment required staffing firms in Illinois to pay their temps wages and provide benefits that were equivalent to those received by similarly situated workers of the client business where they were placed. The law caused a decline in temp staffing use in Illinois, as businesses understandably didn’t want to disclose their wage and benefit structure to staffing firms.

Last week a federal judge provided some relief, entering an injunction that prevents part of the law from taking effect.

A group of staffing agencies had filed the federal lawsuit, arguing that the state law requirement to pay equivalent benefits was unlawful and preempted by ERISA. The judge agreed, finding that ERISA is intended to promote a consistent national approach to employee benefits and that Illinois could not use state law to impose benefit requirements on staffing agencies.

Section 42 of the amended state law is titled “Equal pay for equal work,” and it requires agencies to pay temporary employees who work at a particular site for more than ninety days within a year at least the same wages and “equivalent benefits” as the lowest paid, comparable, directly-hired employee employed by the third-party client. 820 ILCS 175/42. Or, instead of providing equivalent benefits, agencies could pay “the hourly cash equivalent of the actual cost benefits.”

The law also required the staffing agencies’ clients to provide the agencies with “all necessary information related to job duties, pay, and benefits of directly hired employees” to allow agencies to comply.

Illinois businesses using staffing agencies will still be required to disclose pay information, and the requirement that staffing workers receive equivalent pay remains in effect. But the benefits portion of the law will not be enforced.

Action Item: Staffing agency agreements in Illinois may need to be updated to account for the removal of this requirement. Clients of staffing agencies should not longer be required to disclose employee benefit information.

Now about those rats. They’re eating the marijuana in evidence lockers?! I wish they had rat-cam video of that.

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03.11.24

by Todd Lebowitz

Court Vacates New NLRB Rule

No quips or musical references today. Just hard news, and here it is. If you do not already subscribe to BakerHostetler labor and employment alerts but would like to, drop me an email.

https://www.bakerlaw.com/insights/court-vacates-new-nlrb-joint-employer-rule/

03.04.24

by Todd Lebowitz

Don’t Horse Around: Here Are Three Agreements You Should Have on Your Shelf

Police in Wejherowo, Poland arrested a 19-year-old man for stealing a horse. The man was caught after neighbors reported that he was trying to lead a horse up the stairs to his third floor apartment.

Why would someone do that? Apparently he was trying to conceal the horse and thought his apartment would make a good hiding place. (After all, who would look in a third-floor walk up for a missing horse?) But getting the horse to the apartment was the man’s undoing.

He didn’t think through his plan. Don’t be like that man. Today’s post is to help you think through your plan in advance, but in the context of retaining non-employee labor, not stealing a horse.

I generally recommend having three types of agreements in your stable of documents. (Heh heh, see what I did there?) Each serves a different purpose and contains different features, even though there is often some overlap.

1. Independent Contractor Agreement. This should be crafted for use with solo independent contractors (1099s), regardless of whether there’s a single member LLC or a sole proprietorship.

The goal here is limit the risk of misclassification, that is, a finding that the worker is really your employee.

The agreement should identify and memorialize the facts that support IC status, such as that the company retains no right to control how the work is done, where it’s done, when it’s done, steps, sequence, etc.

If there are lots of ICs doing the same thing, individual arbitration agreements with class waivers can be highly useful to include too, as they reduce the downside risk of misclassification.

2. Vendor Outsourcing Agreement. This document is for when a function is entirely outsourced, such as in the hospitality industry, where it is common to outsource the housekeeping function.

There are two goals here.

One goal is to memorialize the facts that will help avoid a finding of joint employment. These workers should be managed independently of your company’s employees and should not be directly supervised by your managers.

The second goal is make it difficult for a disgruntled worker of the vendor to allege joint employment, and there are various tools in the toolbox to help accomplish this objective.

3. Staffing Services Agreement. This document is to be used when a third party provides staff augmentation services or other workers who are commingled with your employees or supervised by your managers. In this scenario, there’s a reasonable risk of joint employment.

We want to use the contract to build defenses.

First, we want to lay the groundwork for a claim against the vendor if the vendor fails to pay its employees in accordance with the law.

Second, we want to throw obstacles in the way of anyone who might want to bring a joint employment claim. Individual arbitration agreements with class waivers are helpful in that regard.

If you’re working with a staffing agency, the form they provide you is not likely to help limit your legal risks. It’s always better to start with your own form.

Don’t Horse Around

Agreements provided by your vendors are unlikely to provide you with any meaningful protections. Different agreements have different purposes, and these three agreements should each be used in different situations.

It doesn’t work to use a staffing agreement with outsourced employees, and it doesn’t work to use an independent contractor agreement with outsourced labor employed by the vendor. Those workers aren’t independent contractors at all; they’re employees of the vendor. The legal risk you’re trying to address is whether you’re a joint employer. That’s a very different legal question than whether the worker is misclassified.

So be sure to use the right kind of agreement for the right kind of situation.

That means planing ahead and having the right forms on hand, ready to go. As our friend in Wejherowo learned the hard way, you’ve got think all the way through your plan in advance.

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02.26.24

by Todd Lebowitz

Hold On: Court Delays NLRB Rule, But More Detailed Ruling Will Follow

I could think of a few songs called “Hold On” – Yes and Wilson Philips were the two that first came to mind. But I had no idea how popular a song name that was.

According to Wikipedia, there are at least 17 albums called Hold On and 311 songs with that name. Who knew?

“Hold on” is the theme of today’s post because that’s what a federal court in Texas decided to do with the NLRB joint employer rule. Judge H. Campbell Barker pushed back the effective date of the rule from Feb. 26 to March 11.

But that doesn’t mean the rule will go into effect March 11.

In the meantime, the judge is considering the arguments presented by both sides and may invalidate the rule entirely. I believe the delay is to buy time to draft a thorough opinion. Whatever the ruling is, it will be appealed to the Fifth Circuit.

For now, employers should review their agreements with vendors supplying labor (e.g., staffing agencies, outsourced functions) and use this opportunity to button them up. Here are ten things that should be in your staffing agency agreements but probably aren’t.

Employers should also review the degree of control they exercise over outsourced labor. On one hand, staffing workers who are intermingled with regular employees and supervised by employer managers are likely in a joint employment relationship already. But with outsourced workers, steps should be taken to avoid joint employment. The new NLRB rule would make it harder to avoid joint employment, and employers should take steps to minimize control over outsourced workers.

Who Is My Employee?

Exploring Independent Contractor Misclassification & Joint Employment Issues

Author Archives: Todd Lebowitz

No Clash: Supreme Court Rules Cases Must Be Stayed When Sent to Arbitrtaion

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Can You See It? NLRB Fights to Restore New Joint Employer Rule

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Think Big: Ninth Circuit Provides Another Reason to Engage Entities, Not Individuals, in Independent Contractor Agreements

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Still Dead: Senate Votes to Void NLRB Joint Employer Rule

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It’s No Eclipse Myth: FTC Considers Alleging Independent Contractor Misclassification Claims

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Stumpy’s Demise: How Do Most Claims of Independent Contractor Misclassification Arise?

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The Rats are High?! Illinois Judge Partially Strikes Down Temp Staffing Law, Granting Win to Staffing Firms and Their Clients

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Court Vacates New NLRB Rule

Don’t Horse Around: Here Are Three Agreements You Should Have on Your Shelf

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Hold On: Court Delays NLRB Rule, But More Detailed Ruling Will Follow

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