Preview of 2021? New Bill Would Revoke Arbitration Agreements, Raise Stakes for Independent Contractor vs. Employee Disputes

Independent contractor misclassification epic systems congressRegardless of your politics, I think we can all agree that the best part of Election Day being over is that there will be no more political ads for a while. You know what I mean: “Candidate A hates you and your family and supports legislation to tax you into bankruptcy. I’m Candidate B and I approve this message.” Or, “Candidate B hates you and your family and supports criminals and gangs. I’m Candidate A and I approve this message.” Finally and mercifully, that’s going to end for a while.

So let’s look ahead to 2020, when another vicious round of political ads will be unleashed upon your television screen, punishing all who have not yet cut the cord.

With the Democrats taking control of the House, and with several key Republican seats expected to be in play in 2020, a Democratic presidential win in two years could mean that the Democrats enter 2021 in control of both houses of Congress and the Executive Branch.

A bill recently introduced by prominent Democrats provides a hint of what would happen to recent wins for businesses in the areas of employee arbitration agreements and class action waivers.

H.R. 7109, the Restoring Justice for Workers Act, would prohibit class action waivers in employment contracts and would prohibit agreements to arbitrate future claims. The proposed law would roll back the Supreme Court’s recent Epic Systems decision and shift the balance of workplace power back toward employees.

According to a study cited in Justice Ginsburg’s dissent in Epic Systems, about 65% of companies with more than 1,000 employees have mandatory arbitration agreements. These contracts would become void.

The bill would also increase the stakes for businesses that use independent contractors. If employee arbitration agreements and class action waivers were unenforceable, then the determination of Independent Contractor vs. Employee becomes even more important. A misclassified contractor (who is deemed to be an employee) could then bring class action claims in court, rather than being restricted by contract to seeking an individual remedy through arbitration.

The bill has no chance of passage in the current Congress, but a tsunami of pro-worker legislation may be coming after the next couple of years. 

Meanwhile, enjoy the resumption of TV ads about erectile dysfunction and drugs that you should ask your doctor about even side effects include rare incurable cancers and in some cases death. These are the ads we know and love.

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

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Arbitration Agreements Save Uber From Massive Class Action

uber victory arbitration agreements 2018

Two themes are often repeated in this blog: (1) Independent contractor relationships are under attack, and (2) there are a lot of things companies can do to protect themselves, but they need to be proactive, not wait until they get sued. I’ve also tried themes relating to song titles – like here (Led Zeppelin) and here (Tom Petty) – but that’s kind of not the point I’m trying to make right now.

These two themes came together nicely this week in a major ruling by the Ninth Circuit Court of Appeals. Uber earned a big win, thanks to its arbitration agreements and a May 2018 U.S. Supreme Court decision confirming that mandatory arbitration agreements should be enforced.

Uber has been a favorite target of the plaintiffs’ bar in independent contractor misclassification lawsuits. Uber has been trying to defeat class claims by asking courts to enforce the mandatory arbitration agreements signed by most of its drivers.

That fight has been going on since 2013, when a federal court in California rejected Uber’s bid to enforce its arbitration agreements. The California judge certified a class of 160,000 drivers, then certified another subclass of drivers, creating a massive class action that Uber tried to settle for $100 million. The judge in that case rejected the settlement as too small, but Uber’s long game in court appears to have paid off.

After the judge rejected the proposed settlement, the case was to proceed; but, remember, the judge had also rejected Uber’s attempt to enforce the arbitration agreements, which would have kept the matter out of court entirely. If the arbitration agreements were enforced, the drivers would have to litigate their claims individually, one-by-one, with no individual driver’s claim worth all that much money. The attractiveness of these claims for plaintiffs’ lawyers is in the massive dollars generated by consolidating tens of thousands of individual claims into class actions. Individual arbitrations do not have much lure.

In this week’s Court of Appeals decision, the arbitration agreements were upheld as valid and enforceable. Uber will not have to face this class action of 160,000+ California drivers. The jackpot settlement of $100 million is gone, and the drivers who wish to go forward will now have to pursue their claims drip-drip-drip, one-by-one, with only small amounts of money at issue in each case.

This ruling became inevitable after the U.S. Supreme Court’s Epic Systems decision in May 2018, which held that individual employee arbitration agreements are generally enforceable and do not violate workers’ rights under the National Labor Relations Act.

Based on the Supreme Court’s ruling, the Ninth Circuit Court of Appeals had no choice but to rule that Uber’s arbitration agreements were indeed enforceable, overturning the district court judge’s 2013 decision that said they were not.

The plaintiffs tried to argue that since one of the lead plaintiffs opted out of arbitration, the entire potential class should be viewed as if everyone opted out of arbitration. But the Court was having none of that. A single class representative plaintiff doesn’t have the authority to cancel thousands of other contracts that he wasn’t a part of.

The lesson here is that arbitration agreements work. They are a potent weapon in defending against and preventing massive class action risks, especially for companies that rely heavily on independent contractors for their business model.

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

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Beware of Classwide Arbitration: Instacart Case Might Allow It

Instacart arbitration decision allowing class actions

Did that photo make you want to eat a pumpkin right now? (Probably not.)

🍿🍩🍰🍦🍨 Do these emojis make you hungry?

Does this one 🍺 make you wish the workday was over?

Fortunately for those who like instant gratification, driving services like Instacart promise to connect you with contractors who will go grocery shopping for you and will deliver the bounty to your house. This is not an ad for Instacart, though. This is a post about arbitration.

You see, like many other delivery app companies, Instacart’s drivers are independent contractors. Also like many other delivery app companies, Instacart gets sued for independent contractor misclassification. Wisely, Instacart has all contractors sign arbitration agreements.

One of the most significant benefits of arbitration agreements for companies is the opportunity to insert a clause that waives the right to bring any class/collective action claims. All claims must be brought individually — but only if that waiver language is clearly stated in the contract.

Instacart may have had an Oops!

In a pending case alleging independent contractor misclassification, the arbitrator has ruled (preliminarily) that the driver bringing the claim may bring a class/collective action. Instacart said, Whahhh?, and asked a California court to intervene and to rule that the arbitrator was overstepping his authority.

Arbitrators, though, are pretty well insulated from court review. That’s usually a plus, but it can also be a minus. For Instacart, it’s a minus here.

The California court ruled that it has no jurisdiction to intervene. It cannot review that preliminary decision by an arbitrator. Rather, a court can only review an arbitrator’s decision under very limited circumstances, mainly only after there has been an “award.” Instacart appealed but fared no better. The California Court of Appeals agreed.

The Court of Appeals, like the court below, ruled that the arbitrator’s decision to allow class arbitration is not an “award,” and the court cannot intervene. The arbitration must continue under the jurisdiction of the arbitrator. Only when the case is done will the court take a look.

This decision should serve as a reminder of two important points:

  1. In arbitration agreements with independent contractors, it is important to include a carefully drafted clause that waives the right to file or participate in a class or collective action. The clause should also state that the arbitrator has no jurisdiction to consider a class or collective action. These clauses need to be unambiguous.
  2. When parties agree to arbitrate, the arbitrator has a lot of power, and the preliminary rulings of an arbitrator are generally not subject to court review (except in limited circumstances). When you choose arbitration, you’re all in.

The case is in its very early stages, so we’ll see what happens. But there are some early lessons to be learned here. Congratulations. You made it to the end of the post. Now you can go eat.

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

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Exotic Dance Marathon Ends with $4.5 Million Misclassification Award

Dollar independent contractor misclassification millionsThe Penthouse Club of Philadelphia was hit with a $4.5 million jury award for having misclassified its dancers as independent contractors. This case was filed in 2013, and the federal court just recently entered the judgment order.

For those of you seeking business lessons from stripper lawsuits, today is your lucky day!

The dancers had alleged that they were treated as employees but not paid as employees. For example, they alleged that the club required them to work a set number of hours and days each week, required them to comply with physical appearance guidelines, and took deductions from their tips for what we’ll call special kinds of dances.

The Club fought hard for five years but could not overcome the negative facts in the case. Remember, the determination of whether someone is an employee or a true independent contractor is not based on what the parties agree. It’s based on the facts of the relationship.

This was primarily a Fair Labor Standards Act lawsuit, and so the Economic Realities Test is used. Other laws apply a Right to Control Test. Some states use a more difficult ABC Test.

Independent contractor misclassification lawsuits can be a tremendous liability, and businesses using contractors should be proactive and set up the relationship in a way that will withstand a challenge. When a business maintains control over hours, days of work, worker appearance, location of work, and other aspects of how the work is performed, the relationship starts to resemble employment.

In this case, the Club not only is on the hook for $4.5 million. They had to pay their attorneys’ fees, they’ll continue to pay their attorneys’ fees if they appeal, and they had to slog through six years of painful, time-consuming litigation that was undoubtedly a distraction from the business of running whatever type of classy joint they have going there. [Note to wife: I did not do any onsite investigation.]

We’ve seen lots of activity lately in the field of “exotic dancing.” I mean misclassification activity, and lawsuit activity, just to be clear on what I’ve been “seeing.” See other multi-million dollar misclassification awards here and here, all of which are SFW.

Businesses that use independent contractors need to evaluate the facts of the relationship and need to be proactive in setting up the facts to support true independent contractor status. Those who fail may get an extra long high-heeled kick in the rear.

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

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Epic Ruling Clears Path: Arbitration Agreements Can Save Millions in Independent Contractor Misclassification Claims

Arbitration agreements for independent contractorsToday in the Epic Systems case, the Supreme Court ruled 5-4 that in employer-employee relationships, mandatory arbitration agreements with class action waivers are lawful.

A class action waiver means that employees cannot file class actions. They must instead bring any claim individually to arbitration, one person at a time, even if there are a lot of others in the same situation.

The issue before the Supreme Court was whether the employers could require employees to sign these agreements.

  • The argument for allowing the agreements was that the Federal Arbitration Act (FAA) favors arbitration as a way to resolve disputes and says that most attempts to invalidate arbitration agreements are against the law. But there are narrow exceptions.
  • The argument against allowing the agreements was that the NLRA grants workers the right to engage in protected concerted activity, and filing class actions (they argue) is a type of protected concerted activity.

The court had to decide whether the NLRA’s right to engage in protected concerted activity created an exception to the FAA’s rule favoring arbitration. As expected, the conservative court held that mandatory employee arbitration agreements — including class action waivers — are lawfulIn other words, businesses may require their employees to sign away their right to bring class actions. Read that again slowly. It’s important.

What does this mean for independent contractor agreements?

The decision does not directly address independent contractor agreements, but the decision does say that the Supreme Court has rejected every other challenge to the FAA’s policy favoring arbitration.

It seems pretty safe, then, to assume that the Court would allow mandatory arbitration agreements, with class action waivers, in independent contractor agreements.

Should businesses include mandatory arbitration provisions in independent contractor agreements?

There are pros and cons to arbitration, and the answer depends largely on how reliant your business is on independent contractor relationships as part of the business model. In other words, are you at risk of a class action?

If yes you are, then yes you probably should. (But please consult counsel.)

Businesses that may be at risk of a widespread finding of independent contractor misclassification can use these agreements to prevent class actions from being filed. If contractors who claim misclassification have to bring their claims individually, there is a lot less money at stake and, strategically, the incentive for plaintiffs’ lawyers to take these cases is greatly diminished. Few lawyers will take a case that may be worth a few thousand dollars (or often less). Most lawyers would love a case that may be worth a few million dollars. The difference is in the numbers. Class action waivers can greatly reduce your company’s risk of a large misclassification verdict.

Other advantages of arbitration include:

  • The results of individual arbitrations can be kept confidential, unlike court decisions. That means a finding against you will not hit the social media feeds or trade publications;
  • The parties select the arbitrator, which means you can ensure that your fact finder is a lawyer or has a background in the industry or type of dispute involved;
  • There’s no risk of a runaway jury, populated by regular folks who might have an axe to grind and no sense of the value of money;
  • The dispute gets resolved quickly, with finality, and with no right to appeal (except in very limited circumstances)

But there are potential downsides to arbitrations too:

  • Filing fees can be expensive;
  • Arbitrators can be expensive too. They get paid by the hour, unlike a judge who is not being paid by either side (we hope);
  • The barrier for employees to bring a claim is lower. They don’t need an attorney, and they can initiate a claim with ease, which could mean that more individual claims would be filed than if employees had to go to court;
  • There is no right to appeal (except in limited circumstances). This is both an advantage and a disadvantage, depending on whether you win!

Arbitration agreements have pros and cons, but for businesses that make substantial use of independent contractors, an arbitration agreement with a class action waiver can be critically important in avoiding a large claim.

One final reminder: If you use an mandatory arbitration agreement, remember to include a class action waiver. That’s one of the main benefits of these agreements.

Please consult with your employment lawyer to decide whether arbitration agreements are right for your business.

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

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Arbitration Agreements: Still the Hammer You Want in Your Toolbox

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If I had a hammer, I’d hammer in the morning. I’d hammer in the evening. All over this laa-aaand. That’s a lot of free labor for somebody. And noise. No one should hammer too late in the evening.

The song could describe a national network of independent contractors in the construction field. It doesn’t, but it could. (This is how I think now. Sad. Very sad.)

Thank you, Peter, Paul, and/or Mary for helping me introduce the real hammer for companies that use lots of independent contractors: Arbitration Agreements with Class Action Waivers.

The legitimacy of requiring employees to sign arbitration agreements with class action waivers is under scrutiny by the NLRB and will be the subject of an important upcoming Supreme Court ruling in the Epic Systems case. Regardless of what the Supreme Court decides for employees, however, the Epic Systems decision is not likely to limit the use of arbitration agreements with class action waivers in independent contractor agreements.

A ruling this month by the Sixth Circuit Court of Appeals showed how useful these agreements can be for businesses. In a short decision, the Court ruled that two independent contractors wishing to bring a class action alleging independent contractor miscalssification were barred from doing so because they had signed arbitration agreements with class action waivers. If they wanted to dispute their status, they had contractually agreed to do so only in arbitration, and only through an individual (not class) claim.

These agreements work. If they are well-drafted and include provisions that help make them fair to all parties, they are enforceable in most jurisdictions and can be an effective tool for keeping your business safe from independent contractor misclassification class actions.

Businesses that rely on independent contractor labor should consider using this tool in the morning and in the evening, all over this laa-aaand.

For more information on independent contractor issues and other labor and employment developments to watch in 2018, join me in Cincinnati on March 28 for the 2018 BakerHostetler Master Class on Labor Relations and Employment Law: A Time for Change. Attendance is complimentary, but advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com, and list my name in your RSVP so I can be sure to look for you.

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

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Update: Uber’s Misclassification Cases, Arbitration, and the Supreme Court

Independent contractor vs employee Uber misclassification lawsuit arbitration agreements IMG_1111Remember the children’s game called Red Light, Green Light? One ambitious youngster is selected as the traffic cop, who randomly shouts “red light” or “green light,” requiring all the children to run and stop and start in short bursts that would cause an adult human to tear an ACL.

That’s essentially what’s happening in the big Uber misclassification case that has been pending in California since 2014. The case is called O’Connor v. Uber Technologies and is being overseen by traffic cop / federal judge Edward Chen in San Francisco. If anyone ever gets to the finish line, it will eventually be determined whether Uber drivers are properly classified as independent contractors, rather than employees.

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