EU Court Expands Penalties for Independent Contractor Misclassification

UK england independent contractor misclassification

Crikey! Across the pond, worker misclassification is a hot topic, and the European Court of Justice (ECJ) has turned up the heat on companies using independent contractors.

In a closely watched case, the ECJ ruled that a commission-only sales contractor who was  misclassified was entitled to receive payment for four weeks of annual holiday pay for the entirety of his engagement, 13 years, covering 1999 to 2012.  The case is King v Sash Window Workshop Ltd., decided 29/11/2017 (US translation: 11/29/2017).

In the US, back pay in misclassification cases is often limited to two or three years. Statutes of limitation generally limit how far back a worker can go when seeking a recovery. But what about Europe?

Let’s see. The European Court acknowledged that UK law allows four weeks of annual leave and does not allow unused weeks to be carried over to the following year. Ok, that’s a good start and suggests back pay should be limited.

So when a salesman like Mr Conley King alleges that he was denied four weeks of annual leave for a 13-year period, shouldn’t the recovery be limited? The most he could ever have is four weeks, right? In the US, the recovery likely would be limited, either because a court would apply the no-carryover rule or because the statute of limitations would limit the recovery to two or three years of lost leave.

Not so under UK and EU law, the European Court ruled.

The court awarded the salesman pay for four weeks of paid leave for all 13 years. That’s a 42-week paid vacation. Call my travel agent, honey. We’re going around the world!

The court ruled that, while a UK business may prevent carryover of unused holiday leave for its workers, its failure to offer holiday leave required a different result. Since the business prevented the worker from using any of his four weeks of leave in each of his 13 years, the business was now on the hook for the full four weeks for all 13 years that it deprived the worker of his paid holiday leave.

The case now goes back to a UK Court of Appeal.

Meanwhile, the decision raises the stakes on European companies who misclassify workers as independent contractors. The lookback period for lost benefits may now be unlimited, with statutes of limitation being ignored.

US companies with overseas independent contractors should pay close attention to those relationships. If the independent contractor status of those relationships is challenged, the business may be liable for substantially more past benefits than previously thought. That may mean rough seas ahead.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Ding-Dong, the Witch is Dead! NLRB Overrules Browning-Ferris

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Remember the good old days, way back in 2014? You recall the time — back when David Letterman was still on the air and it was not yet illegal in New York to take a selfie with a tiger.

Yes, that was life before 2015, when the NLRB waved its magic wand, rewrote the definition of joint employment, and forced several of the planets to spin out of orbit. The Board’s decision in Browning-Ferris erased decades of precedent and caused bloggers everywhere to vomit profuse amounts of text and doomsday predictions.

For those of you who missed the news in 2015 (understandable if you spent the year focused on following the saga of Winston, the Aussie python who swallowed salad tongs), allow me to offer this quick refresher: The 2015 Browning-Ferris decision declared that, under federal labor law, a business would be considered a joint employer if it retained the right to exercise even a teeny tiny bit of control, and even if it never actually exercised that control.

Good news, citizens of earth! The planets realigned on Thursday, when the Board reversed its 2015 decision and reverted back to the old standard. The new standard is the old standard. (Got it?)

Effective December 14, 2017, here is the standard for determining joint employment under the National Labor Relations Act:

For all these reasons, we return today to pre-Browning-Ferris precedent. Thus, a finding of joint-employer status shall once again require proof that putative joint employer entities have exercised joint control over essential employment terms (rather than merely having “reserved” the right to exercise control), the control must be “direct and immediate” (rather than indirect), and joint-employer status will not result from control that is “limited and routine.”

From today forward (or at least until the next administration reconfigures the Board and they go back to the old-new-old Browning-Ferris standard), businesses will not be deemed joint employers under the NLRA unless (a) they actually exercise control, (b) the control they exercise is over essential employment terms, and (c) the control is direct and immediate. Here is the decision, titled Hy-Brand Industrial Contractors.

This is a practical, workable standard, just in time for the holidays. Thank you, Santa.

Now if only we could get Pluto back on the roster of planets.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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New Year’s Resolution: 5 Tips to Limit Risks of an Independent Contractor Misclassification Claim

new years resolutions independent contractor misclassification 2018You know deep down you’re not really going to run a triathlon or learn Mandarin in 2018, so how about a New Year’s Resolution that’s more realistic? Here are 5 things businesses can do to limit their risks of an independent contractor misclassification finding:

  1. Review and edit contracts. Independent Contractor Agreements should be customized for the specific retention, highlighting actual facts that would be helpful in opposing a challenge to independent contractor status.
  2. Review and modify facts. Almost every independent contractor relationship can be strengthened by finding ways you can give up control or memorialize ways that you do not ever intent to exercise control. Does it really matter what times of the day your contractor works? If you set hours and don’t need to, change that fact. Then memorialize it in the contract.
  3. Use a Vendor Qualification Questionnaire. Qualify your contractors before retaining them. Make them represent to you that they are really in business for themselves, have other clients, are not economically dependent on getting work from you, etc. These representations can be useful if the contractor — or the government — ever challenges the contractor’s classification by claiming the relationship is really employment.
  4. Assign a gatekeeper. You may have contractors that you don’t even know about because managers in parts of the business have retained outside help rather than ask permission to hire new employees. Create a process that requires managers to obtain permission from a particular person before retaining any outside labor.
  5. Be proactive. Examine the facts and circumstances of your independent contractor relationships now. Know where you stand on the risk scale. Then assess how you can make changes to better protect your business against a claim of independent contractor misclassification. There are almost always steps that can be taken proactively to limit your risks. Be ready.

These are steps every business can take either internally, or with a little outside help. You’ve probably heard Ben Franklin’s axiom, “An ounce of prevention is worth a pound of cure.” Ol’ Ben was giving fire safety advice to his fellow Philadelphians in 1736, but the advice holds true as well when evaluating independent contractor relationships in 2018. Take steps now to reduce risks, and place your business in a better position to extinguish any claims of misclassification.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Can You Pay a Bonus to Your Independent Contractors?

“I want my money!” — Pearl, in The Landlord.

If you haven’t seen this Will Ferrell short video from 1997, take a look. Pretty funny.

Everyone wants their money. Method of payment is one of many factors used to evaluate whether an independent contractor is properly classified or instead is an employee.

Payment by the hour is permitted, but this method of payment more closely resembles employment. Payment by the project, regardless of time spent working, is most appropriate for an independent contractor relationship.

Other methods will do, though, and a fixed payment by the day, the week, or the month can be workable too. Method of payment is just one of many factors in the analysis of Independent Contractor vs. Employee.

Incentive pay for contractors is permitted too. Some examples of bonuses that may be appropriate include:

  • Incentive for early completion of a project;
  • Incentive for achieving certain project-based goals;
  • Incentive for accepting additional gigs.

The more closely the incentive can be tied to the project, the better. If properly classified, independent contractors are in business for themselves, and project-based retentions are most indicative of legitimate independent contractor relationships. Similarly, incentives should be project-based whenever possible.

One final tip: Terminology matters. “Bonus” sounds like something an employee would receive. Try offering “incentive payments” instead.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Are Santa’s Elves Employees or Independent Contractors?

elves independent contractors or employeesFor roughly 200 years, Santa has been retaining seasonal help at his Arctic Circle workshop. His undersized non-union workers toil in an icy land that sits beyond the jurisdiction of U.S. employment laws, a wise move by Mr. Claus and his attorneys.

While children around the world ask silly questions like, Can I visit the elves? and What do elves eat? and How do they work so fast?this blog asks the serious question that all adult businesspeople want to know: Are elves employees or independent contractors?

Spoiler alert for the children: The answers are No, Caribou, and Amphetamines.

The adult question takes some analysis. Let’s peek behind the wintry curtain.

We know the elves are seasonal workers. The last few months of every year, they work their tiny asses off, manufacturing a few billion toys in a well-hidden workshop. Some small businesses make the mistake of thinking that short-term work means the worker can be classified as an independent contractor, but employment can be short-term too. If the other facts show control, economic reliance, etc., the elves will be employees. Doesn’t matter if the elves go back on the dole every January 1 for lack of work.

What about control? We know Santa gets a long list of demands from children, and many of these are detailed. Kids aren’t making vague requests for any old cell phone. They want the iPhone X with 256 GB of storage and an unlimited data plan. Santa needs to make sure the toys are build to spec. The elves cannot freestyle here. Santa supervises his staff, maintaining the right to control how they do their work.

Looking at other factors in the Right to Control Test, it’s really not a close call. The elves are told where to work (at Santa’s 10 billion sf workshop), when to work (23 hours a day, plus one hour in the yard for exercise), and they’re monitored every step of the way (little known fact: Mrs. C spends most of December knitting in front of a wall of security monitors). If Pete the Elf puts the wrong wheel on Little Johnny’s tricycle, you think Santa would stand for that? Heck no. The elves have no discretion. They work hard and are closely monitored. The only reason Santa’s workshop is not considered a sweatshop is that it’s in the Arctic.

Fortunately for the jolly taskmaster, U.S. wage and hour law doesn’t apply to enterprises at the earth’s geographic poles. Elves would surely be considered employees, not independent contractors, if the Fair Labor Standards Act applied. The Economic Realities Test determines whether elves are employees or contractors for minimum wage and overtime law, and this is an easy call. Elves are economically reliant on St. Nick to earn a living. You don’t see elves earning extra cash selling rasta beads at Jamaican resorts in February, do you? No. Elves earn all their green making toys up north.

Elves are employees, not independent contractors, even though they perform all their work in a few short months. The rest of the year they drink tiny cocktails and surf tiny waves in the tropics.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Be Kind, Rewind: Here’s Why the Browning-Ferris Joint Employment Standard Is Going to Be Reversed

AF6DB19D-A636-4AB4-BFA8-7D592D57137FRemember when you used to go to the video store to rent VHS tapes and there was that little sticker on the tape cheerfully reminding you to “Be kind! Rewind!”  I know, half of you have no idea what I am talking about, but there used to be these things for watching movies before Netflix — no, not DVDs, before that — no, no, not cave drawings, after that.

Anyway, take my word for it. The point was, when you were done with your movie, you were supposed to rewind the tape so the next viewer could start over, back at the beginning of the film. It was the courteous thing to do.

With last week’s confirmation of Peter Robb as the new General Counsel of the NLRB, the pieces are now in place for a rewind of the 2015 Browning-Ferris joint employment decision, which made it much easier under federal labor law to find joint employment. The 2015 decision changed the standard so that indirect and tangential control was sufficient to establish a joint employment relationship, rather than the previous standard requiring a more direct exercise of control.

The changed standard was a product of two factors: (1) a majority-Democratic, pro-union NLRB, and (2) a Democratic, pro-union NLRB General Counsel. A few weeks ago, the NLRB was reconstituted to bring back a Republican majority. Last week, a new General Counsel was confirmed. To overstate how this works, the General Counsel decides which cases to bring to the Board. The Board then decides those cases.

With these two recent developments, it’s almost time to Be Kind (to Businesses) and Rewind, back to the pre-2015 joint employment standard.

It will take some time, but it now seems almost inevitable that at some point during the next couple of years, the right case will be brought to the Board (courtesy of Mr. Robb), and the new Republican-majority Board will vacate the 2015 standard and return to the requirement that direct control must be shown before a business can be deemed a joint employer under federal labor law.

It’s too early right now for businesses to disregard Browning-Ferris. For now, it’s still the law, and Administrative Law Judges are likely to follow it (although that too may change, with the Browning-Ferris decision currently on appeal).

Anyway, stay tuned for further developments. And meanwhile, please fix the blinking green “12:00” on the face of your VCR.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Here’s a Tip a Cartoon Cat Would Love: Try This Edit to Your Independent Contractor Agreements

Independent contractor misclassification cat“Whenever he gets in a fix, he reaches into his bag of tricks!” Yes, boys and girls, I am talking about Felix the Cat, whose magical bag of tricks could be transformed to get him out of any treacherous situation. Don’t you wish you had one of those?

Well, I won’t share mine, but I can offer this tip, which may help you avoid a treacherous situation.

This weekend I was reading a California decision on independent contractor misclassification. (I do other, more fun things in my free time too, so don’t make fun. Ok, you should make fun a little.) While analyzing Right to Control factors, the court ruled that the worst fact for the business was that it could terminate the contractor at will. The ability to terminate a relationship at will, the court ruled, was the “ultimate” form of control! Really? I agree it’s a factor among many, but the “ultimate factor”? Come on.

Anyway, this problem is easily avoided with some creativity. Allow me to reach into my bag of tricks.

If your relationship with a contractor is for an indefinite time period and you rely on work orders to describe each project, consider a one-year term instead. No, not a one-year term with auto-renewals unless the parties give notice. That’s too close to an indefinite term. Allow the one year term to expire. But…

Add a provision that, after the one-year term expires, if you offer a new work order and if the contractor accepts a new work order, then acceptance of that new work order constitutes an agreement to renew the independent contractor agreement for another year.

This variation on the auto-renewal approach requires the parties to take an affirmative act to renew the agreement — the offer and acceptance of a new work order. And this approach also allows you to maintain that the relationship with the contractor is project-by-project (one work order at a time).

The main agreement does not have to be terminable at will. No need for that. If each project is defined by a work order and you’re not satisfied, then don’t offer any new work orders. The agreement itself does not have to be terminated.

If your independent contractor’s tasks are not defined by work orders, then this solution might not work for you. But if your contractor picks up work one work order at a time, this can be a helpful little maneuver.

No guarantees here, but I like this approach better than the indefinite agreement. Contracts of indefinite duration are definitely a negative factor in the Independent Contractor vs. Employee analysis, even though most courts would not be as fixated on that fact as this particular court was.

Now I am going to turn my bag of tricks into a helicopter.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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