Cartels in Seattle? Court Decision May Stop Independent Contractor Drivers from Forming Quasi-Unions

Seattle uber unions cartelUsually when “cartels” are in the news, we’re hearing about El Chapo or other organized drug trafficking operations. But the word “cartel” refers to any combination of independent enterprises joining together to fix prices. The City of Seattle is trying to create ride sharing cartels. The city wants the Teamsters to represent your independent contractor ride share drivers. Really, the Teamsters.

The U.S. Chamber of Commerce is fighting back, reminding our brothers and sisters in the Emerald City that we still have federal antitrust laws. Antitrust laws prohibit the formation of cartels to fix prices. Seattle claimed it was immune from federal antitrust laws and, at first, a federal court in Seattle agreed.

But last week, the federal Court of Appeals stepped in and confirmed that, yes, the federal antitrust laws do apply, even in the Great Northwest. Here’s the ruling.

Here’s what the stir is all about.

In late 2015, Seattle passed a law creating quasi-unions for ride share drivers. We wrote about it here. The ordinance had the city overseeing the collective bargaining processes and didn’t call these collective groups “unions.” Seattle says they’re not unions. Then Seattle picked the Teamsters Local 117 to represent the independent contractor ride share drivers. Still not a union???

The law has not yet gone into effect, and its validity is in question. If antirust laws prohibit independent contractors from colluding on pricing, how can Seattle create a process to encourage independent contractors to collude on pricing?

Last week’s decision by the Ninth Circuit Court of Appeals confirms that federal antitrust laws do apply, even to cities that claim to have good intentions and great music.

The case now goes back to a federal court in Seattle to decide whether Seattle’s ordinance violates federal antitrust laws. I’m betting it does.

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

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 164 other followers

 

What is California’s new ABC Test, and What Does It Mean for Businesses?

Dynamex ABC test california

What just happened?

Last week, we reported here on the California Supreme Court’s Dynamex decision. Today’s post takes a deeper dive.

In Dynamex, the California Supreme Court adopted one of the strictest tests in the nation for determining whether a worker is an employee or an independent contractor. The new test is used to determine whether a worker is an “employee” under California’s Industrial Wage Commission (IWC) wage orders. The wage orders require “employees” to be paid minimum wage and overtime, and to receive meal and rest breaks (unless exempt). Under this new test, a lot of independent contractors might now be “employees.”

The new test is an ABC Test. Unlike the balancing tests that start with the scales set equally, the new Dynamex ABC Test begins with the presumption that any worker performing services for your business is your employee. Guilty until proven innocent.

To overcome that presumption, the business must meet all three prongs of the new ABC Test. To prove that the worker is an independent contractor (and that the California wage orders do not apply), the business must be able to show:

(A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact, and
(B) the worker performs work that is outside the usual course of the hiring entity’s business, and
(C) the worker is customarily engaged in an independently established trade, occupation, or business.

If the business fails to meet all three prongs of this test, the worker is an employee for purposes of the wage orders. Case closed. Done deal. The other factors don’t even matter.

What does that mean? You must provide the worker a minimum wage, overtime, and meal and rest breaks (subject to exemptions, if applicable). It doesn’t matter that you have an Independent Contractor Agreement, and it doesn’t matter if the worker agrees to be an independent contractor status. (Here’s why.)

What was the basis for the California Supreme Court’s decision?

The Court’s decision was based on its analysis of the definition of “employ” under the IWC wage orders. The Court concluded that this definition was intended to cover a broader range of relationships than common law employer-employee relationships.

The wage orders define employ as “to engage, suffer, or permit to work.” This language originated in 1916, with the passage of state laws designed to prevent the exploitation of child laborers. The idea was that if you allow children to work for you, you are going to follow certain legal requirements. To prevent funny business, an intentionally broad definition of “employ” was used.

Those familiar with the federal Fair Labor Standards Act (FLSA) will recall that it too uses a broader definition of “employ” than most other federal laws. The FLSA definition of employ is “to suffer or permit to work.” That sure sounds a lot like the California definition, so shouldn’t California just apply the same Economic Realities Test as used to determine whether someone is an employee under the FLSA? Oh, my dear sweet naive friend, that would be too simple. And California doesn’t like simple.

The California Supreme Court went out of its way to point out that California came up with its language first and that it never intended to follow the FLSA test. Really, it says that. So there.

In Dynamex, the California Supreme Court concluded that where the definition of “employ” is “to engage, suffer, or permit to work,” the intent is to cover a broader range of individuals than common law employees and, from now on, the way to determine whether someone is an “employee” under the “engage, suffer, or permit to work” standard is to apply the new ABC Test. The IWC wage orders use this broad definition, and so the wage orders will now apply to any relationship where an individual provides services, unless all three prongs of the ABC Test are met.

But why change now?

If you are asking yourself why the test would change now — when that same definition has been in place for 102 years, when there has been no new law passed by the California legislature, and when no new regulations have been enacted — the answer is what you tell your kids when you’re too tired to explain why: Because I said so.

Really. The Court just said so. Nothing in the law has changed. The new, strict ABC Test did not come from a new law. It came from Massachusetts. Thank you, Massachusetts. Next time just send lobster rolls.

What about the other wacky California employment laws?

Most California employment laws use a more traditional definition of employee, not the broad “engage, suffer, or permit to work” definition. Under these other laws, therefore, the test for determining whether someone is an employee is (we think) unchanged. For the most part, the S.G. Borello test should continue to apply.

The S.G. Borello test stems from a 1989 California Supreme Court decision and is a hybrid Right to Control/Economic Realities balancing test.

Under S.G. Borello, the primary question is whether the hiring party retains the right to control the worker, both as to the work done and the manner and means in which it is performed. If yes, the worker is an employee. If it is unclear, then secondary factors are considered.

Secondary factors include:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

The court or agency then mixes all of these factors into a witch’s cauldron, blends them together, sprinkles in a pinch of eye of newt, waits for the smoke to clear, and then declares that, based on an analysis of the multiple factors, the worker must be an … (insert answer here). The S.G. Borello test is a balancing test, subject to interpretation. It’s gray.

California does have some other strict tests. The Dynamex ABC Test is not the only one. For example, strict tests apply in the construction industry and for the performance of work where a license is required but not obtained. Under those scenarios, like under IWC wage orders, it’s much harder to maintain independent contractor status than it is under a law that applies the S.G. Borello test.

What about federal laws? Do those still apply too?

Hahahahahahaha! You bet they do! Employers in California are still required to follow the FLSA, which determines whether someone is an employee by using an Economic Realities Test. Yes, lucky California business owners, this means your worker could be an employee under the strict ABC Test imposed by Dynamex and therefore subject to California minimum wage and overtime rules; but, at the same time, the same worker might be a legitimate independent contractor under the Economic Realities Test and therefore not subject to federal minimum wage and overtime law. Well that’s confusing.

Right to Control Tests govern the determination of whether someone is an employee under federal tax law, anti-discrimination law, and employee benefits law. As we discussed here, it’s certainly possible to be an employee under one law but an independent contractor under another law.

With the introduction of the strict Dynamex ABC Test, that will happen more often, ensuring full employment for lawyers like me.

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

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 164 other followers

 

California’s Top Court Creates New Test for Independent Contractor vs. Employee, Re-Interprets 102-Year Old Definition

horse race dynamexA three-way horse race can be exciting. As the finish line gets closer, each horse seems to dig deeper and find a little extra something to try to pull ahead. (Or gets whipped. Whatever. Stay with me here.)

It’s been a nail-biter over the past several years, with California, New Jersey, and Massachusetts competing to see which state could create the most difficult test for maintaining independent contractor status in wage and hour cases. For years, courts have used an Economic Realities balancing test for determining Independent Contractor vs. Employee status under federal wage and hour law. Most states apply a variant of that test or apply a Right to Control Test for determining Who Is My Employee? under their wage and hour laws.

In 2004, however, the Plymouth Rockers surged ahead, passing a law that used an ABC Test to determine whether someone is an employee or an independent contractor under Massachusetts’ minimum wage and overtime laws. ABC Tests make it harder to prove that a worker is truly an independent contractor (and not an employee), as we’ll see in more detail below. In 2015, the Home of Bruce Springsteen pushed forward, with the New Jersey Supreme Court requiring businesses to Prove It All Night and adopting an ABC Test for its state wage and hour laws.

Poor California was left behind. (No Surrender?) The state that birthed the Eagles and Hotel California did not rewrite its wage and hour laws and did not adopt an ABC Test. Finding no help from the legislature, the California Supreme Court took it upon itself April 30th to whip the Golden State forward, creating a new ABC Test in its 82-page Dynamex decision.

Let’s be clear about what just happened:

  • There’s no new law.
  • There’s no new regulation.
  • There’s no new executive order.

In fact, the definition of “employ” that this decision is based upon has been the same since Year 4 of the Woodrow Wilson presidency.

But now, despite none of those things changing, there’s a new test — at least for wage and hour claims that are covered under California IWC wage orders.

An ABC Test sets a higher bar than a Right to Control Test or an Economic Realities Test. It also sets a higher bar than California’s S.G. Borello test, which is a hybrid Right to Control/Economic Realities Test that has been in place since 1989.

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

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

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

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

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

The new Dynamex test applies only to claims brought under California wage orders. These claims generally include minimum wage, overtime, and meal and rest break claims. This test does not apply to claims such as failure to reimburse expenses or failure to provide employee benefits.

Good luck out there!

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

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 164 other followers

Arbitration Agreements: Still the Hammer You Want in Your Toolbox

E39455E8-972A-4B73-BD7B-53AD1C29F259

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.

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 164 other followers

 

Selling Hot Dogs: Why the DOL Thinks It’s 2008 Again

Dol wage and hour guidance hot dogs

The year 2008 doesn’t seem that long ago. Flo Rida was atop the Billboard charts, No Country for Old Men won the Oscar for Best Picture, and Episode 1 of the 2008 season of Celebrity Apprentice (titled, “Selling Hot Dogs” [yes, really]) featured the judging panel of Donald Trump, Donald Trump Jr., and Ivanka Trump. More on Episode 1 below.

The DOL must be longing for the good old days. Earlier this month, the Wage & Hour Division quietly withdrew its 2014 Fact Sheet advising businesses how to differentiate employees from independent contractors under the FLSA.

Instead, they reposted the 2008 version. In practical terms, there’s probably no real effect. The statute and the regulations that would govern the analysis haven’t changed between 2008 and 2014. But the 2014 version (cached copy here) also included some Obama-DOL commentary, advising that “most workers” are employees under the proper analysis. The old/new 2008 version doesn’t say that.

In any event, what businesses need to know is that courts apply an Economic Realities Test when deciding Who Is My Employee? under the FLSA.

The FLSA is the federal statute requiring non-exempt employees to be paid minimum wage and overtime. It does not apply to independent contractors, which is one reason why misclassification matters. If you thought your worker was properly classified as an independent contractor, then the minimum wage and overtime requirements did not apply. If the worker was misclassified and was really an employee, your business may be held liable for failing to pay minimum wage and overtime.

And for those of you who read all the way to the end of this post hoping to be rewarded with more information about the outcome of Episode 1: Selling Hot Dogs, there’s this from Wikipedia:

Winning team: Hydra, with total sales of $52,286.
Reasons for win: Hydra used their celebrity status to drastically up-sell the hot dogs and Gene Simmons used his contacts to put impressive numbers. Piers Morgan also came up with an idea whereby anyone who paid $100 or more for a hot dog would get to have their picture taken with one of the celebrities, encouraging passers-by to make more substantial donations.

Good job, Piers. You should be proud.

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.

Can You Require Independent Contractor Drivers to Sign Arbitration Agreements?

Arbitration agreementstranspiortation industry drivers new prime v oliviera coin tossHow do you want your disputes decided? State court? Federal court? Arbitrator? Coin toss?

Ok, probably not coin toss, but that method is still used to break ties in local elections. (Spoiler alert: It was heads.)

Lots of businesses using independent contractors rely on arbitration agreements (with class action waivers) as a way to protect against a claim of independent contractor misclassification. Arbitration agreements with class action waivers prevent large groups of contractors from joining together in court to file class action lawsuits.

Instead, they have to bring any claims on their own. That means much less money is at stake in any individual case, and much of the incentive for hungry plaintiffs’ lawyers to file these claims is gone. (So sad.)

When bound by an arbitration clause, some plaintiffs have pointed out that there is an exception under federal arbitration law that applies to transportation workers. The Federal Arbitration Act, which is the federal law favoring arbitration, doesn’t apply to employees in the transportation industry.

Most courts have said this exception applies only to employees, not to independent contractors. In other words, employees in the transportation industry might not have to arbitrate their claims, but independent contractors do.

A recent court of appeals decision, though, may have changed that. The First Circuit Court of Appeals decided that the FAA transportation worker exception applies to employees and independent contractors. If true, the implications for the gig economy could be massive. Independent contractor drivers are all over the transportation industry. (Some might not be in interstate commerce, but that’s a technical argument for court, not for a blog.) Uber, Lyft, FedEx. They have all switched to using mandatory arbitration agreement with their independent contractor drivers.

The Supreme Court has agreed to decide this important issue in a case called New Prime Inc. v. Oliviera.

The Court just accepted the case last week, so we won’t have a ruling until next spring or summer, but this is an important case to watch for any business using independent contractors in the transportation industry. Will your arbitration agreements survive?

The issue accepted by the Supreme Court for review is:Whether the FAA’s Section 1 exemption, which applies on its face only to ‘contracts of employment,’ is inapplicable to independent contractor agreements.”

Note for Supreme Court Watchers: This is a separate issue from the Epic Systems case already heard by the Supreme Court, which should be decided by this June. In Epic Systems, the issue is whether the National Labor Relations Act prohibits businesses from requiring their employees to sign mandatory arbitration with class action waivers. The issues are somewhat related, but distinct. Epic Systems deals with employees’ arbitration agreements; New Prime deals with independent contractors and is limited to the transportation industry.

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.

NLRB Smells Something Rotten, Seeks Input on Major Misclassification Decision

CA5ED89A-9590-4B8C-B8C6-88EEEED7168A

Screenshot from metro.co.uk

A flight from Dubai to Amsterdam made an emergency landing last week after a fight broke out over a passenger’s excessive flatulence. The two Dutchmen sitting next to the flatulator asked him to cut it out, but he wouldn’t (or couldn’t) stop spreading his perfumery around the cabin. A fist fight broke out and the pilot diverted the flying stinkship to Vienna, where several passengers were removed. Read more here.

Something smells rotten to the NLRB as well, four months after an Administrative Law Judge (ALJ) ruled that independent contractor misclassification, by itself, can be an unfair Continue reading