Teacher, don’t you fill me up with your rules (fn1)
Brownsville Station was a rock band formed in Ann Arbor in 1969. (Go Blue!) Their biggest hit, Smokin’ in the Boys Room, reached #3 on the Billboard charts and was later covered by Motley Crue. The song was Motley Crue’s first Top 40 hit. Apparently LeeAnn Rimes covered the song too in an album called Nashville Outlaws: A Tribute to Motley Crue, which is I guess was her tribute to a tribute to Brownsville Station.
Business groups in New Jersey and Illinois have also been pleading don’t you fill me up with your rules – in particular, rules related to the use of temp workers.
As discussed here and here, these two states passed temporarily worker laws that required temps to be paid wages and benefits equivalent to the regular workers they are supplementing.
Those rules are both in effect, but there are still several moving parts you should know about.
In Illinois, a judge struck down the portion of the law that required payment of equivalent benefits, ruling that this portion of the law was preempted by ERISA. Illinois lawmakers are now considering options to amend the law to require the payment of the value of benefits, if not the benefits themselves.
In New Jersey, the law took effect, but there’s an active lawsuit in which staffing and other business groups have challenged the law. The case is pending. New Jersey Staffing Alliance et al. v. Fais et al., No. 1:23-cv-02494, D. N.J.
For now, these two temporary work laws remain in effect, except for the benefits aspect of the Illinois law. But the situation remains fluid. It also would not be surprising if other states enacted similar laws. Companies using temp labor should continue to monitor these developments.
fn1 – Everybody knows that smokin’ ain’t allowed in school.
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.
About six months ago in Cambridge, Ontario, Sonny Ayres was born, the fifth child of parents Britteney and Chance. But Sonny was no ordinary baby. He weighed 14 1/2 pounds. (Yes, for the benefit of those moms reading this and looking aghast, he was delivered by c-section.)
According to Guinness (the book, not the beer), the heaviest recorded birth was 22 pounds, in 1879 in Seville, Ohio. That baby lived just 11 hours.
A different kind of weighing was at issue in a recent decision by the Third Circuit Court of Appeals, determining independent contractor status.
The issue was whether three plaintiffs who owned Pepperidge Farm distribution routes should have been considered employees under Pennsylvania’s wage and hour laws. The district court granted summary judgment for Pepperidge Farm, ruling that they were not employees, and the drivers appealed.
The drivers argued that the court should not have granted summary judgment because the job of weighing the evidence is supposed to be left to the jury. But, as the Third Circuit explained, it is the judge’s role to weigh the relevant legal factors. The judge can apply the undisputed facts to the relevant legal factors and can make a legal determination whether each factor supports employment or independent contractor status. And that’s exactly what the Third Circuit did here.
Applying a ten-factor Right to Control Test, the court determined that 8 of 10 factors supported independent contractor status, and so the plaintiffs were properly classified as contractors, not employees.
The plaintiffs argued that Pepperidge Farm set parameters and expectations for the distribution routes, thereby exerting control. The Third Circuit, however, explained that setting parameters and expectations is consistent with either independent contractor or employee status. The control factor tilts toward employee status when the hiring party sets parameters and expectations and directs the time, place, and manner of performance.
In this case, the right-to-control factors supported independent contractor status because the drivers determined the time, place, and manner for performing deliveries. The drivers bought and sold routes, organized their own distribution businesses, hired their own employees, set their own hours, and made deliveries when and how they chose.
This case is a good reminder of what type of control is relevant in the right-to-control analysis and what type of control is not. Some control is exerted over every relationship, whether it’s independent contractor or employment. The trick is knowing which type of control can be exerted without tipping the scales.
Pepperidge Farm prevailed in this case because it did not reserve or exercise the kind of control that supports employee status. And for that, we say Weigh to Go!
Police in Wejherowo, Poland arrested a 19-year-old man for stealing a horse. The man was caught after neighbors reported that he was trying to lead a horse up the stairs to his third floor apartment.
Why would someone do that? Apparently he was trying to conceal the horse and thought his apartment would make a good hiding place. (After all, who would look in a third-floor walk up for a missing horse?) But getting the horse to the apartment was the man’s undoing.
He didn’t think through his plan. Don’t be like that man. Today’s post is to help you think through your plan in advance, but in the context of retaining non-employee labor, not stealing a horse.
I generally recommend having three types of agreements in your stable of documents. (Heh heh, see what I did there?) Each serves a different purpose and contains different features, even though there is often some overlap.
1. Independent Contractor Agreement. This should be crafted for use with solo independent contractors (1099s), regardless of whether there’s a single member LLC or a sole proprietorship.
The goal here is limit the risk of misclassification, that is, a finding that the worker is really your employee.
The agreement should identify and memorialize the facts that support IC status, such as that the company retains no right to control how the work is done, where it’s done, when it’s done, steps, sequence, etc.
If there are lots of ICs doing the same thing, individual arbitration agreements with class waivers can be highly useful to include too, as they reduce the downside risk of misclassification.
2. Vendor Outsourcing Agreement. This document is for when a function is entirely outsourced, such as in the hospitality industry, where it is common to outsource the housekeeping function.
There are two goals here.
One goal is to memorialize the facts that will help avoid a finding of joint employment. These workers should be managed independently of your company’s employees and should not be directly supervised by your managers.
The second goal is make it difficult for a disgruntled worker of the vendor to allege joint employment, and there are various tools in the toolbox to help accomplish this objective.
3. Staffing Services Agreement. This document is to be used when a third party provides staff augmentation services or other workers who are commingled with your employees or supervised by your managers. In this scenario, there’s a reasonable risk of joint employment.
We want to use the contract to build defenses.
First, we want to lay the groundwork for a claim against the vendor if the vendor fails to pay its employees in accordance with the law.
Second, we want to throw obstacles in the way of anyone who might want to bring a joint employment claim. Individual arbitration agreements with class waivers are helpful in that regard.
If you’re working with a staffing agency, the form they provide you is not likely to help limit your legal risks. It’s always better to start with your own form.
Don’t Horse Around
Agreements provided by your vendors are unlikely to provide you with any meaningful protections. Different agreements have different purposes, and these three agreements should each be used in different situations.
It doesn’t work to use a staffing agreement with outsourced employees, and it doesn’t work to use an independent contractor agreement with outsourced labor employed by the vendor. Those workers aren’t independent contractors at all; they’re employees of the vendor. The legal risk you’re trying to address is whether you’re a joint employer. That’s a very different legal question than whether the worker is misclassified.
So be sure to use the right kind of agreement for the right kind of situation.
That means planing ahead and having the right forms on hand, ready to go. As our friend in Wejherowo learned the hard way, you’ve got think all the way through your plan in advance.
It can mean the front part of the head, as in this selfie featuring two hairy-faced beasts. The one on the left has a wet drippy beard after sloppily drinking water from a bowl. No, I meant on your left.
It can mean the English rock band formed in 1969, which featured Rod Stewart and Ronnie Wood. Their 1971 album, A Nod Is As Good As a Wink… to a Blind Horse, reached #2 in the UK charts.
Or it can be a verb, as in “DOL Independent Contractor Test Faces Court Challenges.” In today’s post, we’re going with verb.
As expected, the independent contractor rule released by the DOL earlier this month is already being challenged in court.
A coalition of business groups is trying to invalidate the rule by asking the Fifth Circuit to reopen an earlier case. In the earlier case, these groups challenged the Biden DOL’s effort to withdraw the Trump DOL’s 2021 version of the independent contractor rule. The 2021 version would have simplified the test, focusing the analysis on two key factors — control and opportunity for profit or loss. In the lawsuit, the business groups argued that the Biden DOL’s efforts to delay and withdraw the Trump DOL’s 2021 rule violated the Administrative Procedure Act (APA).
These groups now argue that the new rule contains the same legal flaws and that that the Trump DOL rule should be the rule that rules. The case is Coalition for Workforce Innovation v. Su, 5th Cir., No. 22-40316.
A second challenge has been filed by freelancer writers and editors who argue that the new rule is impermissibly vague and “freewheeling” (an excellent word choice) and that it violates the APA. They claim that the new rule impermissibly threatens their ability to work as independent contractors and is too vague to allow them to reasonably structure their businesses.
These challenges will take a while to resolve, and more may be filed. Unless a court issues an injunction staying the rule while these cases proceed, the new rule will take effect March 11th.
In the meantime, we’ll keep watching to see what happens. It’s a real face off!
This is a venomous Eastern Brown Snake, native to Australia. Stay away.
Tennis star Dominic Thiem knew what to watch for in his match this past weekend in Brisbane. It was on-court hazard he couldn’t ignore.
Play was interrupted when a “really poisonous snake” slithered onto the court near the ballkids. The intruder, an Eastern Brown Snake, “has the unfortunate distinction of causing more deaths by snake bite than any other species of snake in Australia.” The snake’s venom causes “progressive paralysis and uncontrollable bleeding,” which is not one of the on-court hazards typically of ballkidding.
(I don’t know if ballkidding is the real word for this, but it should be. Or ballkiddery maybe. I also learned from the snake bite article that the proper term for being bit by a venomous snake is “envenomation,” which is a word I hope to use elsewhere in a sentence sometime in 2024. So there’s a New Year’s resolution. [@Lisa, take note, I made one, even though you {correctly} say I am no fun because I won’t play the New Year’s Resolution game.])
The Eastern Brown Snake is not present in the U.S., so we don’t have to watch for any in 2024.
But here are several other things that could bite you in the behind in 2024 if you’re not paying attention:
1. New DOL test for independent contractor misclassification. The DOL issued its proposed new rule in October 2022 and targeted the fall of 2023 for release of a new final rule. The proposed rule would identify seven factors to consider when evaluating whether someone is an employee under the Fair Labor Standards Act (FLSA). The final rule will likely be very similar. We’re still waiting, and the final rule could be released at any time.
2. The new NLRB test for joint employment takes effect Feb. 26, 2024. Unless it doesn’t. The new rule is being challenged in both a federal district court in Texas and the U.S. Court of Appeals in D.C. Either court could quash the rule. The new rule will substantially expand who is a joint employer under the NLRA, even for worksites without unions.
3. Increased state and local enforcement activity. States and localities are filing their own lawsuits alleging worker misclassification. The New Jersey Attorney General recently filed a major lawsuit. The California Attorney General and California localities have been pursuing misclassification lawsuits too. Remember this: As much as I advocate for individual arbitration agreements with class waivers, they have no effect on enforcement actions brought by a state or local government. These lawsuits pose a substantial risk, and the governments love to issue one-sided accusatory press releases when they file the lawsuits.
4. The feds are doing this too. The DOL is bringing its own enforcement actions and publicizing them.
5. State and local laws that affect independent contractor classification and joint employment. We’re seeing legislative activity in three main areas:
(a) laws to change the tests; (b) laws that provide a safe harbor for independent contractor classification if certain protections are provided to the workers (Cal. Prop 22, this proposed Mass. state law); and (c) Freelancers laws that impose various requirements when retaining a solo independent contractor (currently: NY, IL, Los Angeles, Minneapolis, Seattle, NYC, Columbus).
6. State laws that criminalize worker misclassification. Take a look at recent legislation passed in NY State and Rhode Island.
7. State laws governing the use of temporary workers. Look for more states to enact laws like the Illinois Day and Temporary Worker Services Act (amended in Aug. 2023) and the New Jersey Temporary Workers’ Bill of Rights (enacted in Aug, 2023). These laws force companies that use staffing agencies to disclose the wages and benefits being paid to direct employees.
8. California’s AB 5 is still being challenged. This is the law that codified the ABC Test for most independent contractor relationships. But it also included a grab bag of miscellaneous and arbitrary exceptions. A full en banc Ninth Circuit has agreed to rehear Olson v. State of California, which challenges the constitutionality of AB 5.
Wishing you a happy, healthy, and litigation-free 2024.
In “Best of You” by Foo Fighters, Dave Grohl repeats the word “best” 40 times. In “Coconut,” Harry Nillson repeats the word “coconut” 28 times. I get it, Harry, she put the lime in the coconut and she got a bellyache. In “I Don’t Care Anymore,” Phil Collins ends the song with 18 mentions of “no more,” which all right I get your point.
Repeating the same thing over and over might be a useful device when performing a song. But it’s annoying in independent contractor agreements. And it’s unnecessary.
Consider using a Master Services Agreement (MSA) instead, which is a particular type of independent contractor agreement.
An MSA is an evergreen contract that describes the terms of the relationship but does not specify the particular project. The MSA will often describe the type of service to be performed — delivery, installation, whatever — but it will not describe the specific delivery or installation (or whatever).
Instead, each specific project will be described in a separate Work Order. For an installation, the Work Order would describe the customer, the location, the product to be installed, any specific customer requirements tied to that order, the installation time or deadline, and the fee to be paid. The MSA and Work Order would both make clear, in pre-printed text, that every Work Order is subject to the MSA.
The advantage of this setup is that it’s simple and convenient. There’s no need to restate the full terms of the relationship in every Work Order, particularly if the contractor is likely to perform multiple projects, all of which are subject to the same general terms and conditions.
The MSA will be a multi-page document containing all of the general terms we would expect to see in an independent contractor agreement, including representations as to IC status, a recitation of facts that support IC status, the obligations of each party, payment and invoicing terms, a general description of services, a list of things the contracting party will not control, indemnity, insurance, duration or termination, survival, and other typical IC contract terms.
The MSA should make clear that the IC can reject or accept specific proposed Work Orders, which is consistent with the IC being allowed to choose when to work. But the MSA should also make clear that once a Work Order is accepted, the IC has a contractual obligation to perform.
The MSA might also specify the manner in which Work Orders are offered and accepted. While it is preferable to have each Work Order signed, that’s not always practical. Consider how Work Orders will be accepted, and describe in the MSA what will constitute acceptance. In some cases, acceptance might be indicated by the contractor’s receipt of a Work Order and the contractor’s failure to decline it within 24 hours. It’s ok to create a presumption of acceptance, but you’ll want to preserve the contractor’s right to decline any particular Work Order without penalty.
And that’s how you can create the best, the best, the best of contracts.
Aeschylus (525-456 BC) was a Greek playwright and is often described as the father of tragedy. While only seven of his estimated 70+ plays have survived, the story of his death remains solidly entrenched atop the list of all-time oddest deaths (if it’s true).
Apparently, Aeschylus died after being struck in the head by a tortoise dropped by an eagle which had mistaken his head for a rock suitable for shattering the shell. That qualifies as a surprise ending to an otherwise successful career.
Today’s post is intended to help businesses in California avoid their own surprising deaths, sans tortoises.
Businesses using independent contractors in California are reminded that misclassification risks extend beyond the usual laws you’d think to be worried about. The California Labor Code has a special section devoted to making willful misclassification of workers illegal, period, end stop, and the law imposes substantial fines.
In other words, if you are working with independent contractors who should — under California law — be classified as employees instead, your business may be subject to substantial fines, even if you are not violating any of the laws addressing overtime, meal and rest breaks, reimbursement of expenses, etc.
Under Labor Code section 226.8, “willful misclassification” of independent contractors is, by itself, unlawful. Penalties start at “not less than” $5,000 and “not more than” $15,000 for each violation. If the Labor and Workforce Development Agency or a court determines that the violations are part of a pattern or practice, the fines jump to “not less than” $10,000 and “not more than” $25,000 for each violation.
Violators will also be required to post a notice on their website or in a location accessible to the public.
If your business is registered with the Contractors’ State Licensing Board, violations will also be reported to the Board for disciplinary proceedings.
The law defines “willful misclassification” as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The law applies to “any person or employer,” raising questions as to whether individuals may be penalized too.
So if you’re doing business with independent contractors in California, be aware of the usual range of potential violations — overtime, meal and rest breaks, wage statements, expense reimbursements, etc. But also be aware that willful misclassification is, by itself, unlawful. Fines under Labor Code section 226.8 should be something you’re aware of. Enforcement is more frequent and more likely than being hit in the head by a falling tortoise.
In the 1800s, P.T. Barnum used to promote the arrival of the circus with parades and clowns and band wagons through the town. By the late 1800s, politicians were noticing the excitement generated by the band wagons, and they would ride their own band wagons through town to generate support and excitement for the campaigns. Supporters would climb aboard, and the phrase “jump on the band wagon” was born.
So it seems fair to say, even back then, politicians were imitating clowns.
Over time, the phrase has come to mean rallying around any popular cause, clowns or no clowns.
And with the new statewide Freelance Isn’t Free Act, signed by Gov. Hochul on Nov. 22, the State of New York has done just that. New York’s statewide adoption of this freelancer law follows similar laws enacted in Illinois, New York City, Los Angeles, Minneapolis, Seattle, and Columbus. You can compare the four cities’ laws here and read more about Illinois’ law here.
Here’s what the NY State version will require, any time there is a contract with an individual independent contractor for services valued at $800 or more, either for one project or an aggregation of projects over 120 days:
Written contract required, which must include:
Name and address of hiring party and contractor
Itemization of services
Value of services
Rate and method of compensation
Date payment is due, or how due date will be determined
Any deadline by which the contractor must submit a list of services provided so that the hiring party can timely process payment.
The hiring party must provide a copy of the contract to the contractor.
The hiring party must retain the contract for six years!
Payment to the contractor must be made by the deadline specified in the contract or, if no deadline is specified, then within 30 days after the services have been completed.
The hiring party cannot require the contractor to accept less than the contracted amount. (The law does not seem to provide any exception for unsatisfactory services.)
Retaliation is prohibited against any contractor who seeks to exercise rights under the Act.
If there is a dispute over whether timely payment was made, the burden of proof is on the hiring party.
The law creates a private right of action.
The penalty for failing to provide a written contract is $250, if the contractor requested the written contract. Such a claim must be brought within two years.
The penalty for failing to make payment as required by the law or under the contract is the value of the contract, plus double damages, plus attorneys’ fees, and possibly injunctive relief. The statute of limitations for this type of claim is six years.
Waivers of any right under this Act are void as against public policy.
The law takes effect on May 20, 2024, and it will apply to contracts entered into after that date. In December 2022, Gov. Hochul vetoed an earlier version of this law, finding that it imposed too great a burden on the NYSDOL. Those concerns have been resolved in the new version of the Act.
The law does not apply to contracts with independent sales representatives, lawyers, medical professionals, or construction contractors.
The law applies not only to businesses, but to anyone in New York State who retains an independent contractor. As we discussed here when the New York City version of the law was enacted in 2017, the Act applies even to babysitters and dog walkers, if the minimum compensation amount is met.
Businesses and individuals who retain individual independent contractors in New York State, Illinois, Los Angeles, Minneapolis, Seattle, and Columbus need to know their obligations under these laws and act accordingly.
The Freelance Isn’t Free laws do not weigh in on whether the contractor is properly classified as an independent contractor.
There is a clear trend toward passing these types of laws, and we can expect more cities and states to jump on the band wagon.
I took this picture on Friday of a window washer at the Hilton across the street.
Late last week, the NLRB issued its new joint employer rule. I’ve listed three takeways below. Don’t be left hanging. Click here for the full Alert.
1) The National Labor Relations Board has issued a Final Rule that changes the test for determining who is a joint employer.
2) The Final Rule rescinds the Rule enacted in 2020 and adopts a test that will vastly expand the circumstances under which a company is a joint employer of the employees of another company.
3) The new rule may cause absurd results, including creating joint employment from the application of worksite safety rules to everyone onsite, including a vendor’s employees. The new rule requires joint employers to participate in the collective bargaining process.
The full Alert explains in more detail. If you are not subscribed to BakerHostetler employment law alerts, let me know and I’ll add you to the distribution list.
Who Is My Employee? 