Don’t be a Hirtle: Here’s Why You Should Avoid “Works Made for Hire” Clauses in Independent Contractor Agreements

independent contractor works made for hireDon’t shoot yourself in the foot, Adam Hirtle of Colorado Springs. It’s an expression, not a thing to do with a real firearm. According to this article, Hirtle did it because he wanted to see how it felt. Presumably: Bad.

Shooting yourself in the foot is something many companies may be doing when trying to protect their intellectual property in independent contractor agreements. Generally, there are two ways to protect copyright: “works made for hire” and assignment.

Many independent contractor agreements use both. Intellectual property clauses often say that anything created by the independent contractor is a “work made for hire,” which would mean that the company — not the individual — owns the copyright. These clauses will also typically say that anything not deemed a “work made for hire” is assigned to the company. This is supposed to be a belt-and-suspenders way to ensure that the company owns the intellectual property created by the independent contractor.

Did you know that clause can turn the contractor into an employee?

Yikes! Did your company accidentally do a Hirtle?

California law says that if a contract with an individual includes a “work made for hire” clause, that individual is a statutory employee for purposes of California unemployment law, workers compensation law, and aspects of employment law. A company that fails to comply with unemployment, workers comp, and other state employment laws may be subject to penalties, litigation, and other plagues, including but not limited to blood, frogs, lice, insects, pestilence, boils, hail, locusts, darkness, and killing of the first born.

The culprits are California Labor Code section 3351.5(c), and California Unemployment Insurance Code sections 621(d) and 686. Pharaohs not included.

The easiest way to avoid this self-inflicted wound is to impose an automatic assignment (a present assignment) of the author’s copyright to the company. Note that the assignment should be automatic. It’s not enough merely to require that the author/contractor assign the work in the future.

Under copyright law, there are some long-term differences between “works made for hire” and assigned works, relating to rights in the work after a number of years, so the assignment solution is not perfect. But it’s probably better than accidentally causing your independent contractor relationship to revert to employment under California law.

Also, just because you say that something is a “work made for hire” doesn’t mean that it is. The Copyright Act defines “work made for hire” to include works created by employees and a short list of other situations, many of which will not cover whatever you’ve retained the independent contractor to do.

Here’s the definition, from 17 U.S.C. § 101:

A “work made for hire” is—

(1) a work prepared by an employee within the scope of his or her employment; or

(2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

Intellectual property clauses should be carefully drafted. Using boilerplate language can cause unexpected pain. Don’t do it like Hirtle — just to see how it feels.

Check your intellectual property clauses.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

Which States Are Trying to Kill “Independent Contractors” to Death? (Hint: One Rhymes with Schmalifornia)

Man Killed to Death - independent contractor misclassification

Only 4:34 am and already it’s gonna be a long day in the newsroom.

The tests for Independent Contractor vs. Employee vary state-by-state, law-by-law.

In some states, it’s particularly hard to show that an independent contractor relationship is real. These states want to call everyone an employee, even if the parties have agreed to classify the relationship as an independent contractor relationship. When it comes to independent contractor classification, these are the states that are killing it to death.

Like the poor guy who was the subject of this local news story. Getting killed to death — that’s gotta be one of the worst ways to die.

The Top Three Hardest States to Be Independent Contractors, from my vantage point, are:

  • California (obviously)
  • Massachusetts (also obviously), and
  • New Jersey (there’s a new Jersey?)

That’s because each of these states applies an ABC Test when determining whether someone is an independent contractor or an employee under state wage and hour laws. California and Massachusetts use a stricter ABC Test. New Jersey’s ABC Test is not quite as demanding, but close.

If I have piqued your interest (or if you feel obligated), these posts provide more information about ABC Tests in general and more about California’s ABC Test.

This post discusses other states that use ABC Tests but for other types of laws, like workers compensation and unemployment.

And if you want to click on just one more thing, this post describes what happened when police officers in Minnesota were called to investigate a man standing motionless in the freezing cold, holding a pillow.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Strippers Say They’re Losing Their Shirts Due to Misclassification Wins

Dancers independent contractor misclassification

Strippers and gentleman’s clubs are well-known for many things. I’m referring, of course, to independent contractor misclassification lawsuits. 

Clubs often classify their performers as independent contractors and, after a string of lawsuits alleging misclassification, some clubs are shedding prior pay practices and reclassifying dancers as employees.

And everyone lived happily ever after. The end.

But this is litigation land, not a fairy tale, and plaintiffs’ lawyers still need to make money. Some of the reclassified dancers are finding that the grass is not greener on the other side of the fence. In other words, being an employee stripper (instead of an independent contractor stripper) still ain’t that great. So they sued again.

In a lawsuit filed last week in California, a group of dancers complain that when their clubs reclassified them as employees, the clubs “began implementing a new compensation system for the dancers, which substantially reduced their pay – often by a difference of hundreds of dollars or more per shift.” 

The dancers say that’s illegal retaliation. I’d say it’s math. 

The cost of doing business just increased drastically. Treating workers as employees means that the business incurs new expenses — payroll taxes, unemployment premiums, workers’ compensation coverage, possibly overtime premiums, and in California, meal and rest breaks and reimbursement for business expenses. 

The lawsuit is pending in the Superior Court for San Diego County. 

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Philadelphia on Feb. 26 or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What is the Test for Independent Contractor vs. Employee? (Jan. 2019)

what is the test for independent contractor misclassificationSeems like a simple question, but it isn’t. My question to your question is, “Why do you ask?” That’s because the test for Independent Contractor vs. Employee is different under different laws.

And worse, the tests keep changing, as we saw in Monday’s post about the NLRB’s SuperShuttle decision.

As of today, January 31, 2019, here’s where we stand:

The current tests for determining Independent Contractor vs. Employee are:

National Labor Relations Act (NLRA)

Right to Control Test (SuperShuttle version, as of 1/25/19)

Title VII, Age Discrimination in Employment Act (ADEA), ERISA

Right to Control Test (Darden version, or some variant of it, as applied circuit by circuit)

Internal Revenue Service

Right to Control Test (IRS version)

Affordable Care Act

Right to Control Test (emphasis on particular factors, based on regulation)

Fair Labor Standards Act (FLSA)

Economic Realities Test (which different courts articulate differently)

California, Massachusetts wage & hour laws

ABC Tests (strict version of Part B)

New Jersey wage & hour

ABC Test (regular version of Part B)

California state laws other than wage & hour

S.G. Borello & Sons Test (customized hybrid version of Right to Control & Economic Realities Tests), we think, for now

State Unemployment and Workers Comp Laws

Pick a card, any card. Tests vary substantially state to state. Some are Right to Control Tests, some are ABC Tests, some are entirely made-up, customized tests that require consideration of — or proof of — specific factors

Other State Laws (wage & hour, discrimination, tax)

Tests vary significantly state by state, law by law

This chart may be a helpful start, but three significant challenges remain, when trying to determine Independent Contractor vs. Employee.

  1. Fifty Shades of Gray.  These tests, for the most part, are balancing tests. Courts and agencies must weigh multiple factors. In most instances, some factors will favor contractor status and some will favor employee status. Different courts may reach different conclusions, even with the same facts.
  2. Planes, Trains, and Automobiles. Multi-state employers face the added challenge of having to deal with different tests in different states. Then, just to keep everyone on their toes, states generally apply different tests for different state laws. Sometimes different tests apply in different industries too. Transportation workers, for example, may be subject to different tests than construction workers.
  3. Into the Wild. The tests keep changing. In January 2019, the NLRB changed its test in the SuperShuttle case. In 2018, California changed its test under state wage and hour law from the S.G. Borello balancing test to a strict ABC Test. In 2015, New Jersey switched to a different version of an ABC Test for its state wage and hour law. The times they are a-changin.

What to do about it? (Free tips!)

  1. Know the tests that apply where your business operates.
  2. Construct your independent contractor relationships in a way that tends to favor the factors supporting independent contractor status. Inevitably, business considerations will get in the way, and tough decisions will have to be made about how much control can be relinquished and how the relationships need to be structured. Adjust the facts of the relationship.
  3. Use a customized independent contractor agreement that emphasizes the factors that support independent contractor status. Avoid off-the-shelf agreements. Merely reciting that everyone agrees the relationship is an independent contractor relationship is only a teeny bit helpful. “Teeny bit helpful” is not the gold standard.
  4. Re-evaluate existing relationships, and make changes from time to time.
  5. Implement a gatekeeper system to prevent operations managers from entering into contractor relationships that may be invalid. Require any retention of a contractor to be approved by a point person, who can issue spot and seek help in evaluating whether a contractor relationship is likely to withstand a misclassification challenge.
  6. Seek legal help before you get audited or sued. Now is the time to review and modify relationships to reduce the likelihood of a misclassification claim. Once a claim is made, your business can only play defense. Create your playbook now, before the defense has to take the field.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Philadelphia on Feb. 26 or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What It Means to “Suffer” in California, Independent Contractor Version

suffer or permit to work California

This article describes how gestures that are common in the U.S. can have very different meanings abroad. For example, the “ok” finger gesture is a vulgar bodily reference in Brazil, Germany, and Russia. (Not ok!) The thumbs up gesture in Greece or the Middle East can mean “up yours!” The University of Texas’s “hook ‘em horns” gesture in Italy means you’ve been cuckolded — your wife is cheating on you.

Same thing, different meaning.

To employers, California often feels like a foreign country. It has some of the most employee-friendly laws in the nation, creating migraines for multi-state employers. When it comes to interpreting legal phrases, California lives up to its reputation, especially in the Employee vs. Independent Contractor context.

Today we look at California’s definition of “employ” as it relates to determining whether someone is an employee or an independent contractor.

California’s wage and hour laws are set forth in the state’s Industrial Wage Orders, a bulky set of directives that set the rules for minimum wage, overtime, meal and rest breaks, and various record keeping requirements for California employers. These rules apply only to employees, not independent contractors, but the test for determining Who Is My Employee? in California is different than under any federal law.

California’s Industrial Wage Orders use the same language to define “employ” as used in the federal Fair Labor Standards Act (FLSA). But fittingly, the Republic of California applies a different meaning to the same phrase.

California’s wage and hour laws provide three alternative definitions for “employ”: (1) to exercise control over the wages, hours, or working conditions, (2) to suffer or permit to work, or (3) to engage, thereby creating a common law employment relationship.

The FLSA also defines “employ” as “to suffer or permit to work.”

On Monday, we described how the FLSA’s “suffer or permit” standard is applied when determining whether someone is an employee or an independent contractor.

Today’s post describes California’s test for the same phrase. It’s different. Hook ‘em horns.

Historically, California courts have rejected the federal interpretation of “suffer or permit” as not being broad enough. California courts interpret the phrase more literally. If you permit someone to work, that person is likely your employee.

In April 2018, California’s Supreme Court set up a test that cemented that expansive interpretation into law.

In Dynamex Operations West v. Superior Court, the California Supreme Court ruled that, to determine whether someone is an employee or an independent contract, an ABC Test must be used.

An ABC Test sets a higher bar than a Right to Control Test or an Economic Realities Test. It also sets a higher bar than California’s S.G. Borello test, which is the hybrid Right to Control/Economic Realities Test that California had been using since 1989 to answer the Employee vs. Independent Contractor question.

California’s ABC Test starts with the presumption that, for claims covered under California wage orders, every worker is an employee. Then, to prove otherwise, the business retaining that worker must prove (all 3):

(A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact, and

(B) the worker performs work that is outside the usual course of the hiring entity’s business, and

(C) the worker is customarily engaged in an independently established trade, occupation, or business.

Fail just one part, and the worker is an employee under California wage and hour law. This new test is even stricter than most other states’ ABC Tests, which usually include two ways that Part B can be satisfied.

As of now, the Dynamex test applies only to claims brought under California wage orders, we think.  These claims generally include minimum wage, overtime, and meal and rest break claims. So far, this test does not appear to apply to claims such as failure to reimburse expenses or failure to provide employee benefits.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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G-L-O-R-I-A! California Court says to use different tests for different IC misclassification claims

California independent contractor misclassification tests

If someone were to ask whether you like the song, “Gloria,” you’d be right to ask, “Which version?”

There’s the version written by Van Morrison and recorded by his band Them, later covered by Patti Smith, The Doors, and a gaggle of others. That’s the version that goes, “G-L-O-R-I-A, Gloooooria!” (I’m gonna shout it out every day.)

Then there’s the version recorded by Laura Branigan in 1982, originally written in Italian by Umberto Tozzi. (Fun fact!) You know that one — “You’re always on the run now. Running after somebody, you gotta get him somehow.”

Of course the right answer is that you prefer the first version, but my point is that there are multiple versions of “Gloria.” Same name, different song.

This is the same approach California courts seem to be taking with the state’s test for Independent Contractor vs. Employee. Same question, different tests. Many of you will recall the April 2018 Dynamex decision, in which the California Supreme Court adopted a strict ABC Test for determining whether a worker is an employee under California’s Industrial Wage Orders.

But the Dynamex decision did not address whether the new ABC Test would be used to determine whether someone is a contractor or an employee under California’s other state labor laws. Now we know.

The answer, according to a California Court of Appeal decision last week, is that there’s room for both “G-L-O-R-I-A” and “You’re always on the run now.” (You’re welcome, Laura Branigan.)

In last week’s case, called Garcia v. Border Transportation Group, the court considered an eight-count complaint brought by a taxicab driver who had been treated as an independent contractor. The driver claimed he should have been treated as an employee and that various state laws, which apply only to employees, were not followed. The court ruled that different tests apply to different claims.

The Court ruled that the claims brought under California’s Industrial Wage Orders had to be evaluated under the Dynamex ABC Test and, for these claims, the driver had to be considered an employee. The claims subject to the Dynamex test were the claims alleging unpaid wages, failure to pay minimum wage, failure to provide meal and rest periods, failure to furnish itemized wage statements, and the unfair competition (UCL) claims arising out of the wage order violations.

On the other hand, the driver’s claims for wrongful termination in violation of public policy, waiting time penalties, and the UCL claims stemming from these allegations had to be evaluated under the more traditional S.G. Borello balancing test, which includes elements of a Right to Control Test but incorporates other factors too, making it a hybrid test. Under the S.G. Borello standard, the Court ruled that the driver was properly classified as an independent contractor.  (The plaintiff alleged failure to pay overtime too. Typically, overtime claims are governed by the Industrial Wage Orders, but the overtime rules do not apply to taxicab drivers.)

For those who like score cards, here is a list showing (a) the claims that were filed, and (b) which test must be used to determine Independent Contractor vs. Employee under each claim, according to the Garcia case. I have color-coded the claims because it looks pretty:

1. Wrongful termination in violation of public policy. (Lab. Code, §§ 923 [employees may organize], 6310 [retaliation for an OSHA complaint], 6400 [duty to provide a safe work environment], 1102.5 [whistleblower protection].)  S.G. Borello balancing test

2. Unpaid wages under the wage order. (Cal. Code Regs, tit. 8, § 11090.)  Dynamex ABC Test

3. Failure to pay minimum wage. (Lab. Code, §§ 1182.12 [minimum wage], 1194 [right of action], 1194.2 [liquidated damages], 1197 [duty to pay minimum wage].)  Dynamex ABC Test

4. Failure to pay overtime. (Lab. Code, §§ 510 [overtime], 1194 [right of action].) – Not applicable

5. Failure to provide meal and rest breaks. (Lab. Code, §§ 226.7 [rest periods], 512 [meal breaks].) Dynamex ABC Test

6. Failure to furnish accurate wage statements. (Lab. Code, §§ 226 [wage statements], 226.3 [civil penalties], 2699 [PAGA penalties].) Dynamex ABC Test

7. Waiting time penalties. (Lab. Code, §§ 201−202 [wages and leave due upon departure], 203 [penalties].) S.G. Borello balancing test

8. Unfair competition (UCL), based on the foregoing violations. (Bus. & Prof. Code, § 17200 et seq.; Lab. Code, § 2699 [PAGA penalties].) Dynamex ABC Test for the alleged violations of the wage order; S.G. Borello balancing test for the other claims

 

That’s the state of the law at this moment, but of course the California Supreme Court could weigh in again later as to whether S.G. Borello should still be used at all.

The explanation given in the Garcia case, though, for why the different tests should be used for different claims makes perfect sense. The definition of employee in Dynamex is broader than in the other statutes, as the California Supreme Court explained in the Dynamex decision.

So there you have it. Different definition of employee, different tests.

Shout it out all night!

Shout it out every day!

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Truckers Fight to Preserve Independent Contractor Status, But Appellate Rulings Create Uncertainty

independent contractor driver trucking faaaa

Big Mutha Truckers was a 2002 video racing game in which four sibling truckers compete to make deliveries in fictional Hick County, with the most successful driver inheriting the family business. I had never heard of the game until now, but apparently it  was not very successful and is panned thoroughly by whoever spent precious life-minutes writing a comprehensive Wikipedia entry about this game, time that the author sadly will never be able to recover.

The real life trucking industry has its own problems, and they extend far beyond Hick County. The independent contractor owner-operator model, which has been common in the transportation industry for decades, is under attack. The situation is most critical on the West Coast, and owner-operator drivers are taking action to protect their livelihood — and their independent contractor status.

The Coalition for Independent Truckers announced the formation of a new Independent Contractor Ambassador program. The program’s mission is to protect the independent contractor/owner-operator model in the trucking industry. It aims to educate policymakers, the media, and the general public on the value of the independent  contractor model.

Three recent court decisions will it more difficult for these drivers to preserve their independent contractor status.

Last week, the Third Circuit Court of Appeals ruled that Illinois* state wage laws may be applied to professional motor carrier drivers, even though federal law is supposed to override state laws that are “related to” motor carrier prices, routes, or services.

Earlier this month, The Ninth Circuit Court of Appeals ruled that California’s meal and rest break laws may be applied in the motor carrier industry, despite federal law that seems to pre-empt state law in that field.

The Federal Aviation Administration Authorization Act (FAAAA) prevents states from enacting laws that are “related to” motor carrier prices, routes, or services. It seems hard to imagine that California’s mandatory meal and rest breaks (at issue in the 9th Circuit case) would not affect services and routes. Illinois wage law (at issue in the Third Circuit case) seems like a closer call.

Other federal courts have ruled that states cannot apply their wage and hour rules to motor carrier drivers because of FAAAA preemption. For example, a the First Circuit Court of Appeals previously ruled that Massachusetts’ ABC Test could not be applied to owner-operator drivers, since the state law test was preempted by the FAAAA.

But these new decisions from the Third and Ninth Circuits go the other way, saying that the state laws at issue do not sufficiently “relate” and therefore are not preempted by the FAAAA. These rulings create uncertainty and inconsistency across the industry, with different rules applying to interstate drivers in different locations. That’s what the FAAAA and other federal transportation laws aim to prevent.

This is an issue to watch. The Supreme Court may soon be called upon to resolve the circuit split. The national transportation industry relies heavily on the use of independent contractor owner-operators. These two appellate decisions make it increasingly difficult for legitimate independent contractor owner-operators to maintain their independent contractor status. Instead, these professional drivers may be subjected to reclassification as employees under some state laws, despite working in an industry that federal law tries to pre-empt,

Keep an eye on this one. Unlike Big Mutha Truckers, this saga will not be derailed by “repetitive gameplay, dated graphics, and lackluster sound.”

*Not an error. Yes, the case was decided in the Third Circuit, even though it relates to Illinois law.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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