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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Notification by Telex? Time to update your forms!

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Thank you Wikipedia, You know everything, making me feel so inadequate.

I recently edited a form agreement that allowed for notification “by facsimile or telex.” I deleted “telex” because, well, does telex even exist anymore? I then sent my edits back to the lawyer on the other side.

The other lawyer put it back in!

I then suggested he provide his client’s telex exchange and I asked if we could borrow his 50 baud modem and telex equipment to facilitate communications, because, um, our local antique store was fresh out of telex equipment. (I considered pushing back and insisting that all communications be in morse code but resisted. I admit to feeling pangs of regret that I didn’t push harder for the dashes and dots.)

People, update your forms!

If your independent contractor agreements and staffing agency agreements have not been reviewed since the widespread adoption of horseless carriages, it’s time for a fresh look. The risks of joint employment and independent contractor misclassification are real, and old forms almost definitely do not contain the types of clauses your business needs to protect itself.

For contracts with suppliers of labor, is your vendor accepting sole responsibility to do all of the things that employers must do, including hiring, firing, supervising, withholding taxes, tracking hours, and about a dozen other important tasks? Under many laws, you’re jointly liable if they fail, so you need robust contractual representations to shift liability.

Does your contract include sufficient insurance requirements and specific enough indemnity provisions to protect against a joint employment or misclassification claim?

Does your independent contractor agreement have specific descriptions of the types of control your business can and cannot exert? If you are not disclaiming the right to control a list of items, you’re missing a prime opportunity to turn the contract into strong evidence in your favor, in the event of a misclassification challenge.

For those of you, like me, who wouldn’t have the first clue how to telex someone, here’s what I learned on Wikipedia:

The telex network was a public switched network of teleprinters similar to a telephone network, for the purposes of sending text-based messages. Telex was a major method of sending written messages electronically between businesses in the post World War II period. Its usage went into decline as the fax machine grew in popularity in the 1980s.

The “telex” term refers to the network, not the teleprinters; point-to-point teleprinter systems had been in use long before telex exchanges were built in the 1930s. Teleprinters evolved from telegraph systems, and, like the telegraph, they used binary signals, which means that symbols were represented by the presence or absence of a pre-defined level of electric current. This is significantly different from the analog telephone system, which used varying voltages to encode frequency information. For this reason, telex exchanges were entirely separate from the telephone system, with their own signalling standards, exchanges and system of “telex numbers” (the counterpart of telephone numbers).

Telex provided the first common medium for international record communications using standard signalling techniques and operating criteria as specified by the International Telecommunication Union. Customers on any telex exchange could deliver messages to any other, around the world. To lower line usage, telex messages were normally first encoded onto paper tape and then read into the line as quickly as possible. The system normally delivered information at 50 baud or approximately 66 words per minute, encoded using the International Telegraph Alphabet No. 2. In the last days of the telex networks, end-user equipment was often replaced by modems and phone lines, reducing the telex network to what was effectively a directory service running on the phone network.

Keep your telex handy, my friends. You never know when you might need one — by contract.

© 2018 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 Joint Employment? It Depends.

Joint employment together

There are lots of ways to be together. Some are good, some less good.

Let’s compare:

  • By the end of the movie Grease, the graduates of Rydell High have decided that they “go together like rama lama lama ka dinga da dinga dong.” That, I think, is supposed to mean good.
  • In The Fox and Hound 2, a direct-to-video DisneyToon generally rated as “not terrible,” our four-legged heroes sing that they “go together like wet dog and smelly peanut butter jelly fleas on my belly.” That sounds less good.

In employment law, being together can be good or bad, depending on your perspective.

When a company retains someone else’s employees to perform work, it sometimes becomes necessary to decide whether the first company is a “joint employer” of the second company’s employees. Being a joint employer is not illegal, but it means that if the primary employer violates employment laws, a “joint employer” is liable too — even if it wasn’t primarily responisble for the unlawful act.

The test for joint employment varies depending on which law was violated and depending on the state you’re in. (Here’s a map that illustrates the madness.) For example…

In this post we discussed how you determine if someone is a joint employer under federal wage and hour law (the Fair Labor Standards Act) (FLSA).

In these posts, we discussed how you currently determine whether someone is a joint employer under federal labor law (the National Labor Relations Act) (NLRA). In this post, we discuss how and when that test is likely to change.

In today’s post, we’ll examine how you determine whether someone is a joint employer under federal employment discrimination and breach of contract law. For these laws, the test for joint employment looks to the common law of agency.

A recent decision by the federal Court of Appeals for the 11th Circuit reminds us that different tests apply to different laws. Applying the joint employment test for FLSA claims, the trial court had ruled that a citrus grower was the joint employer of migrant workers after the primary employer who hired them did not properly pay them.  (The farm-labor contractor who hired them allegedly demanded kickbacks from the migrant workers’ wages under threat of deportation. Today’s Tip: Don’t do that.)

The migrant workers had another claim too. They alleged breach of contract under federal law (the contract was part of the federal visa process), and it tried to sue both the farm-labor contractor who was demanding the kickbacks and the citrus grower at whose fields they picked delicious fruit.

For the breach of contract claim, the Court of Appeals ruled that the proper way to determine whether someone is a joint employer is to use a Right to Control Test.

There are different versions of Right to Control Tests, but they all try to determine whether a hiring party retains the right to control how the work is performed. If the answer is “yes they do,” then the hiring party is a joint employer under that law. If the answer is “no they don’t, they care about the achieving the result but not how the work is performed,” then the hiring party is not a joint employer.

This Court of Appeals decided that there are 7 factors that should be used to determine whether someone is a joint employer under federal breach of contract law. (The same test would generally apply to federal employment discrimination claims.) State laws may differ. Here are the 7 factors that this court used to determine whether someone is a joint employer under federal breach of contract law:

1. Does the alleged joint employer have the right to control how the work is performed?
2. Does the alleged joint employer provides the tools?
3. Is the work being performed at the worksite of the alleged joint employer?
4. Does the alleged joint employer provide employee benefits?
5. Does the alleged joint employer have the right to assign additional work?
6. Does the alleged joint employer have discretion over when and how long the workers work?
7. Is the work being performed a part of the alleged joint employer’s regular business?

In this case, applying the 7 factors, the Court of Appeals ruled that the citrus grower did not exert much control and therefore was not a joint employer for the breach of contract claim — even though it was a joint employer for the FLSA claim. (The FLSA uses an Economic Realities Test, not a Right to Control Test, to determine whether someone is an employer.) That’s right — different tests, different results.

The citrus grower did not want to be a joint employer because it was not part of the alleged kickback scheme and did not want to be held jointly responsible. Nonetheless, it was found to be a joint employer under the FLSA but not under the breach of contract claim. Confusing stuff.

When making music, being together seems so much simpler, although much more prone to nonsense words. Just ask the Turtles, who in 1969 were “so happy together Ba-ba-ba-ba ba-ba-ba-ba ba-ba-ba ba-ba-ba-ba.”

© 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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Is It Legal to Subcontract Out Union Work? (Ask a Song Title)

Subcontract union workI like similar but contradictory song titles. Pink Floyd has Wish You Were Here. But REO Speedwagon has Wish You Were There.

For one Puerto Rican company in the injection-molded products business, the message to its union was Wish You Were Gone (that’s Cosmo Pyke, 2017).  The company decided to outsource a portion of its injection mold production to a subcontractor but otherwise stayed in the business. The union filed an unfair labor practice charge.

The union won. The NLRB recently ruled that the company could not subcontract out work that had traditionally been performed by the union — at least not until the company had bargained over it and reached impasse. The Board ruled that once the union is performing a certain kind of work, a company’s decision to reconsider who performs this work is a mandatory subject of bargaining, so long as the company was remaining in the business. (The result likely would have been different if the company was getting out of that line of work.)

The Board noted that the company “remained an active participant in the production of injection-molded products, owned the machinery that manufactured the product, and continued to sell the product directly to the customers it served prior to its transfer of production to Alpla [the subcontractor].”

The moral of the story here is that — whether you wish the union were here, there, or gone — you need to bargain with it before subcontracting out its work. Exceptions may apply, depending on the facts and circumstances, but be cautious.

© 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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