Category Archives: Contingent Workers

10.21.24
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What Does It Mean? Supreme Court Weighs in on California’s Independent Contractor Law (Sort of)

I am entertained by poorly translated things. I have no idea what this shirt means or what the designer thought it would mean. I saw this one in Italy.

I can’t help but wonder what the reaction would be if I wore this shirt in the U.S. Would people say anything to me? I was tempted to ask the wearer about it or to try to buy it from her, but I chickened out.

Last week, the U.S. Supreme Court kind of chickened out too.

A petition had been filed with the Court, asking it to invalidate California’s AB5, its stringent independent contractor law. The petition argued that the law singles out certain businesses and therefore violates the Equal Protection Clause of the U.S. Constitution.

As you may recall, AB5 is the California law that makes it much harder to maintain independent contractor status. The law presumes that most workers are employees and requires a hiring party to satisfy a three-part ABC Test to classify someone as a contractor.

The law, however, does not apply the same standards to everyone. The law exempts loads of industries and types of workers from the ABC Test, and — if we’re being honest here — the law was really targeted toward rideshare and delivery companies.

And that’s exactly what the rideshare and delivery companies argued.

In June 2024, the Ninth Circuit voted to preserve the law, and the case (called Olson v. State of California) was appealed to the U.S. Supreme Court. The Supreme Court, however, can decide which cases to hear and does not have to give a reason for declining to hear a case.

Last week, the Supreme Court declined the petition, opting not to hear the case. The Court provided no reason.

A year earlier, in July 2023, the U.S. Supreme Court denied a different petition asking it to review AB5. The earlier petition, in Mobilize the Message LLC v Bonta, argued that the law’s restrictions on freelance work violated the first Amendment.

For some companies, the Supreme Court’s decision last week not to hear the Olson case will have limited effect. The passage of Prop 22 in late 2020 exempted certain rideshare and delivery app companies from having to comply with AB5. (Prop 22 was also challenged in court and survived.) But AB5 and its ABC Test, later recodified in AB2257, remain in effect for many industries and businesses.

This most recent petition to the Supreme Court alleged that AB5 violated the Equal Protection Clause by unfairly singling out certain industries. I think the evidence is plain that this is what motivated the law, but whether that motivation rises to the level of an Equal Protection violation is another matter.

But no matter. The Supreme Court can decline to hear the appeal, and that’s exactly what it did.

AB5 remains on the books, and I can now start thinking about how I could turn all of this into a poorly translated t-shirt.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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10.14.24
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Blending In: California Passes Freelancer Protection Law, Joining Other Locales

Don’t tell anyone, but there is a motorcycle toward the front of this photo. I know, it blends right in and is hard to see because it’s camouflaged. But look carefully and you’ll see it.

I saw it recently while in Bellagio on our vacation to Italy. Yes, I have better photos, but this one helps me make a point about blending in.

The California legislature has decided to blend in too, adopting a freelancer protection bill that is similar to laws already in place in New York State, Illinois, and several cities.

California’s Freelance Worker Protection Act takes effect 1/1/2025.

The law has no bearing on the determination of whether someone is an employee or independent contractor. But if the worker is a contractor and other criteria are met, then the requirements of the law must be followed by the party retaining the independent contractor.

If you’ll be retaining a freelancer in California, here’s what you need to know. As a reward for reading to the end, I’ve included some tips and a better photo.

Applies if:

  • Retention of individual IC or single member entity,
  • Retained to provide “professional services” (as defined in Labor Code sec 2778), and
  • $250 in services to be provided within 120 days

But not applicable if:

  • The hiring party is an individual and the work is for the hiring party’s personal benefit or benefit of the family (e.g., n/a to babysitter, dog walker)

Requirements:

  • Written contact that includes:
    • Name and address of each party
    • Itemized list of services and value
    • Rate and method of compensation
    • Date when payment is due or mechanism for determining when payment is due
    • Date when IC must submit invoice to allow for timely payment
  • Payment to IC is due on the date specified in contract or, if no date is specified, then 30 days after work is completed
  • Once work is completed, hiring party cannot require freelancer (a) to accept less in payment, (b) to provide more goods or services, or (c) to grant more IP rights than agreed to in the contract

Other provisions:

  • The law does not limit existing contract law or prevent an IC from enforcing a verbal contract or recovering under promissory estoppel
  • Waivers are void
  • Retaliation prohibited
  • Civil action permitted; recovery to include attorneys fees and costs
  • Damages:
    • If IC requested and was denied a written contract, then additional $1000
    • If hiring party failed to timely pay, then 2x unpaid portion
    • Damages equal to value of contract for other violations
  • Hiring party must provide IC with a copy of the contract
  • Hiring party must retain contract for 4 years

Tips:

  • Clarify intellectual property rights in contract; don’t leave that until later or assume there is a handshake understanding of who will own the IP
  • Specify a due date for payment or a process for determining when payment is due
  • Define when the work is completed, and define it in a way that requires specifications to be met. This is to protect against poor workmanship and to try to preserve the right to pay less for a shoddy output.

And here’s a more representative photo from the Italy vacation. This is at Alpe di Suise in the Dolomites.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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10.07.24
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Don’t Look Surprised: House Committee Presses DOL for Detail on Misclassification Investigations

My impression of European electrical outlets is that they seem surprised, as if they don’t know what might be coming. I saw this one in our Airbnb in Lake Como.

Am I wrong? Didn’t think so.

The outlet should not be surprised at what’s coming. And DOL Acting Director Julie Su should not have been surprised either when she was issued a subpoena by the House Committee on Education and the Workforce.

The committee, chaired by Rep. Virginia Foxx (R-NC) has been at odds with the DOL for some time. In particular, Foxx et al. have doubts about the legitimacy of the Su-led DOL’s belief that independent contractor misclassification is rampant. The Committee believes that the DOL is being too aggressive in seeking to find misclassification in relationships that are, in reality, properly classified as independent contractor relationships.

In March, the Committee sent the DOL a series of inquiries about its enforcement efforts. But the DOL largely evaded the questions. After ongoing back and forth, the Committee has finally issued a subpoena to the DOL, demanding production of specific information about the DOL’s enforcement activities.

More specifically, the subpoena requests documents sufficient to show, since January 20, 2021:

  1. The number of instances of misclassification that Wage and Hour Division (WHD) inspectors have found.
  2. The number of misclassification enforcement investigations that WHD has initiated.
  3. The number of misclassification enforcement investigations that WHD has jointly undertaken with the NLRB.
  4. The number of misclassification enforcement investigations that WHD has jointly undertaken with the FTC.

Responses to the subpoena are due October 7th. I don’t expect we’ll see direct answers.

And when that happens, it will be no surprise.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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09.23.24
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Better Than Stealing a Car: Updates to Illinois Temp Worker Law Should Help Businesses Using Temp Labor

A Florida car thief may want to reconsider his career choice.

A Miami Beach man walked back to his Corvette after a Starbucks run, only to find a wannabe thief trapped inside. The thief became trapped inside because the car has electrical locks and no manual door handle. The car requires a key to unlock the doors.

The thief begged the car’s owner for help, but without success. The car’s owner videotaped the ridiculousness and called the police. That’s bad news for the thief.

Business owners in Illinois had much better news recently, when Gov. Pritzker signed amendments to the state’s temporary worker law. The law was last amended in 2023, when it created new burdens for businesses using staffing agency temp labor. (See here and here.)

The main problem business owners had with the 2023 amendment was that staffing agencies were required to pay temps “not less than the rate of pay and equivalent benefits” of comparable employees at the business where they were providing services. The only way staffing agencies could ensure compliance with this requirement was to obtain wage and benefit data from its client. Obviously, businesses did not want to provide that information. (A court decision struck down the “equivalent benefits” requirement.)

Under the 2024 amendment, a staffing agency can now comply with the pay requirements in two ways.

First, it can match the straight-time hourly rate of a comparator employee who works directly for the client, as before.

Second, they can now determine compensation without the need for comparator data from the client business. Under the amendment, the staffing agency can instead comply with the pay requirements by paying its workers based on Bureau of Labor Statistics data.

The pay requirements do not apply until a temp worker has worked 720 hours at the client business within a 12-month period.

The change to the law means that businesses retaining staffing agencies in Illinois will no longer be required to provide wage and benefits information about its comparator employees. The client, not the staffing agency, gets to choose whether to provide the data and, if the client chooses not to provide it (which I expect will most often be the case), the agency must use the BLS formula.

There are other changes to the law too, including amended benefit requirements, notice requirements, and the right of temp workers to decline to cross a picket line.

Staffing work might not pay great, but laws like the Illinois temp worker law seek to ensure a minimum level of pay for temp workers. The Miami Beach car thief may want to look into steady work like that instead, if he ever gets out of the Corvette.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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08.26.24
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“Relative Nature”: Can You Bear This Broad Workers Comp Test for Employee Status?

Nature can be cruel. Friends can be crueler.

A 32-year old man was attacked by a brown bear earlier this month while hunting near Cooper Landing, Alaska. The man survived the bear attack, but then his hunting buddy shot him in the leg when trying to kill the bear. Thanks, buddy!

(No, it was not Dick Cheney.)

Nature makes its way into independent contractor status tests too, sometimes — relative nature, that is. Today’s post is about a test sometimes used in workers compensation cases.

In D.C., the test for whether someone is an employee under the workers’ comp law is a “relative nature of the work test.” States that have adopted this broad test have moved away from the more common “right to control” test.

Under this test, an employment relationship is found when (1) the work being done is an integral part of the regular business of the employer and (2) the worker, relative to the employer, does not furnish an independent business or professional service.

Here’s how D.C. courts interpret the two parts.

The first part focuses on the “nature and character of the claimant’s work or business” and requires consideration of three factors: (a) the degree of skill involved in the work in question; (b) the degree to which it is a separate calling or business; and (c) the extent to which it can be expected to carry its own accident burden.

The second part of the test focuses on the relation of the claimant’s work to the employer’s business and also requires consideration of three factors: (a) the extent to which the claimant’s work is a regular part of the employer’s regular work; (b) whether it is continuous or intermittent; and (c) whether its duration is sufficient to amount to the hiring of continuing services, as distinguished from contracting for the completion of a particular job.

In states that use this type of workers comp test, more relationships will be captured than under other, more traditional worker classification tests.

But this might not be a bad thing. The benefit of workers comp coverage for businesses is that it protects them from tort liability. In industries like construction, where injuries can be serious, coverage can be helpful. The disadvantage is that workers comp is no-fault, and you’re required to pay for the coverage.

So next time you’re hunting to see whether you might need to provide workers comp coverage to your contractor or causal laborer, remember that some states have pretty broad tests. Not broad enough to get coverage if your hunting buddy shoots you in the leg, but you get the idea.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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08.12.24
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Smashing! House Committee Presses DOL to Reveal Any Changes to Its Independent Contractor Enforcement Strategy

In this video, Muhammad Rashid of Pakistan, crushes 39 cans in 30 seconds. With his head. (I like the little fist pump he gives at the end.)

Why would a person do this? To get attention, I imagine. It caught my attention.

The House Committee of Education and the Workforce may also be trying to solicit a bit of attention, but I do want to know the answers to the Committee’s questions.

On August 8, they sent this letter to Acting Secretary of Labor Julie Su, asking her for information about the DOL’s enforcement activity under its new independent contractor rule. The Committee would like the DOL to answer three questions:

1) Since January 20, 2021, how many instances of misclassification have Wage and Hour Division (WHD) inspectors found? Please provide the total number of instances across each occupation that has been subject to investigation.

2) Please provide the number of misclassification enforcement investigations WHD has initiated for each specific industry sector since January 20, 2021.

3) Has DOL initiated any investigations related to misclassification based on its coordination with the National Labor Relations Board and the Federal Trade Commission? If so, please provide the number of investigations DOL has undertaken, broken down by each specific industry segment.

Committee Chair Virginia Foxx (R-not from Virginia) writes that she asked Su these questions when Su appeared before the Committee on May 1, but Su failed to answer. The letter begins by knocking Su around a bit, alleging that the DOL with its new independent contractor rule is trying to destroy all independent contractor relationships.

Maybe yes, maybe no. I don’t know where this letter falls on the continuum of publicity stunt vs. actual relevance for policy making, but I think these are good questions. It would be hopeful for businesses to know whether the DOL’s enforcement strategy has shifted since enactment of the new rule. And if so, how.

The Committee might get the answers it seeks, or it might just be banging its head against the wall cans. But it never hurts to ask.

What Mr. Rashid was doing, on the other hand, does hurt. Or it should hurt. And if it doesn’t hurt, then maybe that tells us something too. Also, I think Mr. Rashid owes someone the cost of 39 beers.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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07.01.24
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How Long Can You Retain an Independent Contractor?

Commas are important. See, for example, Let’s Eat, Grandma and the Rachael Ray magazine blurb proclaiming that Rachael Ray finds inspiration in cooking her family and her dog. (The latter, sadly, turned out to be a fake. The real magazine blurb had the commas.)

If I had put a comma in the title above, after How Long, you may have thought this post was intended for Pro Football Hall of Famer Howie Long. It’s not. Howie played 13 seasons with the Raiders but almost certainly does not read this blog.

This post, instead, is intended for anyone who wants to know how long you can retain an independent contractor before that person becomes an employee.

Before I can provide a helpful answer, I’ll need some information first. (Just the basic facts, can you show me where it hurts?)

Question: Is the worker a 1099 independent contractor or a staffing agency’s W2 employee?

We need to know which legal issue to address. If the worker is a 1099 independent contractor, then the issue is independent contractor misclassification. In other words, is the worker really an employee, entitled to the various benefits and protections that the law gives to employees?

But if the worker is employed by a staffing agency and treated by the agency as the agency’s W2 employee, then the worker is already entitled to the benefits and protections of employment. The issue here would be joint employment. Is your business a joint employer?

If your question is about joint employment, an earlier post here addresses that question.

On the other hand, if the worker is a 1099 independent contractor, duration of assignment can be one of many factors that indirectly increases the risk that the worker is really an employee. Factors in the independent contractor classification analysis can include:

  • Is the assignment indefinite in duration, or instead for a specific project or fixed term?
  • Can the assignment be terminated at any time for any reason, or does early termination require cause or some other specified event?
  • Does your business have W2 employees who are performing the same or similar work?

If the assignment is indefinite or can be terminated at will, those are factors that weigh toward employment status. If the worker is performing the same function as employees, then the worker is going to look like an employee, and more so the longer this goes on.

But if the contractor is (1) engaged for a specific project or fixed term, and (2) the work is not something your employees are also doing, then duration is not necessarily a concern. A true independent contractor can be retained for a project that lasts many months or even years. We see this sometimes with implementation of electronic systems, like HRIS or enterprise software. Or there might be a third party contractor you’ve engaged for years to provide a repeating, project-based service that is entirely unrelated to your business, like your plumber or window washer or event photographer.

But if the work relates somewhat to your business, you may have a problem if the long duration is because of mission creep (not Mission CREEP). If the worker finished one project and then is given another and another, that starts to look like indefinite retention, which points toward employment.

If the worker is a 1099 independent contractor, duration of assignment might increase the misclassification risk, but the risk will depend more on how the other questions are answered. Duration is not directly a factor, but a longer duration may be an indication that other factors are starting to point in the direction of employment.

Further analysis would be needed.

The other question you may have is why I haven’t yet referenced the 1974 single by Ace, “How Long (Has This Been Going On),” which will now be stuck in your head the rest of the day, you’re welcome. Turns out, I learned here, that the song is not about romantic infidelity. Vocalist Paul Carrack wrote the song upon learning that bassist Terry “Tex” Comer had been secretly recording with two other bands.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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06.24.24
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Uncomfortably Numb: Minnesota’s New 14-Part Independent Contractor Test

Friday night I saw The Gilmour Project play at Northfield MGM, a smallish venue near Cleveland. Great show with plenty of Pink Floyd deep cuts and a “how did they just do that?” version of The Great Gig in the Sky with an electric guitar handling the Clare Torry solo vocals.

And, as many of you know, there is a law requiring that the last song at any Pink Floyd tribute show must be “Comfortably Numb.” There were no violations of law at this concert.

Last week I came across another law that, in a totally unrelated way, left me uncomfortably numb.

Tucked away in a 1,492-page omnibus bill that regulates, among other things, firearms law, agricultural policy, specialty dentist licensure, minerals taxes, combative sports, and broadband appropriation transfer authority, the Minnesota legislature adopted a new test for determining who is an independent contractor under state law, limited to the construction industry. Page 183.

To satisfy the test, each of 14 factors must be present. Construction includes building improvement but not landscaping services [@LKE: saved you an email].

Why am I posting about such a niche classification test? Two reasons.

First, I suffered through reading it, so I am sharing my pain.

Second, and more important, it’s a good reminder that there are so many worker classification laws out there, with different tests applying across different laws in different states and across different industries.

Minnesota is the champion of this nonsense. The state that brought us rollerblades, water skis, and diaper adhesives has 32 different tests for determining who is an employee under state workers’ compensation law, with different tests applicable to different types of work.

If you are working with large numbers of independent contractors across multiple jurisdictions, there’s a lot to know if you want to do it right. Penalties for noncompliance can be severe, including criminal penalties in some states.

Bonus tip: If you need to fall asleep, pull out that omnibus bill and skip to page 1,086 for the new regulations covering natural organic reduction vessels for human remains. Subdivision 19 prohibits the commingling of bodies in crematorium vessels. I guess that’s good. A different kind of comfortably numb maybe.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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06.17.24
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Famous Olsons? Ninth Circuit Rejects Constitutional Challenge to California’s AB 5

If I type “Olson” into google, my top results are Matt Olson, first baseman for Atlanta (makes sense since a lot of my web activity is baseball-related); James A. Olson Guitars (no idea why since the only place I play guitar is on the radio); and Major John Olson of the U.S. Space Force (also no idea why since I have never been to outer space).

The most relevant Olson for me today though is none of these. Instead, it’s a long-awaited decision in a case called Olson v California. In this case, a group of app-based gig economy companies sued the State of California, alleging that AB 5 and its ABC Test are unconstitutional.

Their argument is that the arbitrary grab bag of exceptions to AB 5 is arbitrary and that the law unfairly targets rideshare and delivery drivers.

An 11-judge panel of the Ninth Circuit heard the case en banc, and rejected these arguments.

The Ninth Circuit ruled that AB 5 is constitutional and that the legislature had a rational basis for including and excluding various types of workers from the ABC Test.

The result: AB 5 remains in place. As for rideshare and delivery app companies, Prop 22 created an exception allowing them to treat drivers as independent contractors, although the validity of Prop 22 is being challenged as well. More on that in a future post. The California Supreme Court is hearing arguments on Prop 22 and when a decision is issued, I’ll post about it. But I expect the Prop 22 will survive, just like AB 5 survived.

If I googled Olsen instead of Olson, that might have been more fun. I hopefully would have landed on Keith Olsen, who produced a number of classic rock albums, including Fleetwood Mac by Fleetwood Mac, Double Vision by Foreigner, and a Rick Springfield album with one of the all-time great album covers, Working Class Dog.

Nice tie, pup!

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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06.03.24
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I Wanna Take Your Hire: How to Control a Third Party’s Wages without Becoming a Joint Employer

When Sly and the Family Stone released “I Want to Take You Higher” in 1969, it was originally a B-side. The song took off, though, and became a Top 40 hit anyway.

The song is an upbeat ode to how music can make you feel good. Fun fact: It was used as the theme song in the Canadian children’s show, Hilarious House of Frightenstein, to introduce the show’s disc jockey, the Wolfman, who is either a fictional part-wolf part-man or a human DJ who achieved vocational excellence (and got his own TV show!) despite an untreated case of hypertrichosis.

The Family Stone wasn’t the only band that would like to take you higher. Jackie Wilson went to Billboard #1 in 1967 with “(Your Love Keeps Lifting Me) Higher and Higher.” In 1990, Damn Yankees asked, “Can you take me high enough?” in their song, “High Enough.” And, not to be outdone, Duran Duran, in 1995, released two covers of the Family Stone song, calling the second, “I Want to Take You Higher Again.”

Why all this talk about higher? Because when you’re working with a third party labor provider that provides high-demand, skilled labor, sometimes you’ll want to take their hire. (Heh heh).

The right to direct hire is often addressed in the vendor agreement. Maybe you’ll pay a finder’s fee if you direct hire within the first 3-6 months. But I was asked a more intriguing question last week that I thought was worth a blog post. (Thanks, P! You know who you are.)

Here’s the scenario, which is most likely to arise in the competition for highly skilled workers, like computer programmers: We want to direct hire, but we don’t control the market. If the third party labor provider pays a premium for in-demand roles, they might pay more per hour than we pay. That would make it hard for us to direct hire to worker.

Which leads to this question: How do we cap the wage paid by the third party labor provider (so we can offer the direct hire a raise, not a pay cut), without dictating the wages paid by the third party, which would create joint employment risks?

Excellent question! The answer is to do it indirectly. Here’s how.

Suppose you want the option to direct hire a chimneysweep but wouldn’t dare pay more than $50/hour for a chimneysweep (other than Dick Van Dyke himself, but only in his prime). Chimneysweeps are in high demand and so third party labor providers may be paying their chimneysweeps $50/hour too so they can get the best ones. It’s a competitive labor market, you know.

You don’t want to tell the third party labor provider what to pay its chimneysweeps. Dictating the wages of a third party worker is a strong indicator of joint employment.

Instead, you should agree to pay the agency $50/hour for its chimneysweeps. Then you know they are paying the chimneysweeps less than $50/hour because the agency has to be making a profit. The markup is probably 35-45%, so you could even pay the agency up to about $65 per hour and be confident the chimneysweep is not taking home more than $50/hour.

Then, if you wanted to direct hire the chimneysweep for which you are paying the agency $60-65/hour, that sweeper is likely only being paid about $42-45/hour and so his sweeping prowess could be yours for the low low price of roughly $50/hour or less. That’s how I would approach this problem.

I don’t think any bands are singing about this issue directly, but if I told you they were really singing “I Want to Take Your Hire,” you just might hear it that way next time you listen.

 

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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