Invented by Virgil A. Gates of West Virginia, the Guard is intended for “holding the moustache out of the way of food or liquid while eating or drinking.” As you may have already guessed, Virgil filed for a patent in 1876. Why would you have guessed that? Because 1876 was the last time anyone was named Virgil.
Moustaches, while certainly worth guarding (especially those of the handlebar variety), aren’t the only thing in need of protection. Solo independent business owners in the delivery and rideshare industries have been under attack, as class action lawsuits and government agency activity increasingly seek to take away their independence by declaring them employees.
In 2020, California enacted Prop 22, which preserved independent contractor status for these drivers so long as the app companies provided a list of preset benefits and guaranteed pay. In a statewide vote, Prop 22 passed overwhelmingly with 59% of the vote.
Massachusetts may soon follow suit. A similar ballot measure is likely to be considered by voters in the Bay State about a year from now.
The ballot measure, if successful, would create a system like Prop 22 in Massachusetts. Delivery and rideshare drivers would be granted independent contractor status, so long as the app company they were using provided them with a litany of worker benefits. The required benefits would include:
Guaranteed pay at 120% of state minimum wage for time spent completing delivery or rideshare requests;
Additional per mile pay for each mile driven in a personal vehicle;
A healthcare stipend for drivers who average 25 or more hours per week;
One hour of paid sick time per 30 hours worked;
Accident insurance; and
Prohibitions on discrimination based on race, sex, sexual orientation, and other protected characteristics.
Click here for the official summary of the proposed law.
If the ballot initiative receives enough signatures, it may appear on the ballot for a statewide vote in November 2024. Alternatively, the legislature may choose to consider the issue on its own, before the 2024 general election.
Initiatives like this one and California’s successful Prop 22 provide a reasonable, common sense third alternative to what is usually a binary choice between classification as an independent contractor (with no employee rights) and an employee. Rideshare and delivery drivers generally value their independence and the ability to operate their own business. Laws like this one allow them to do so as contractors while receiving certain benefits and guarantees.
It’s going to be hard to move my garage. I figure I’ll need at least four or five strong guys to help. My garage is heavy and seems pretty securely attached to the ground, so the work will be hard and I’m sure that I’d have to pay them at least $500 apiece.
But at least I don’t live in Illinois. Starting July 1, 2023, freelance labor will be governed by the Freelance Worker Protection Act (FWPA), another freelancer law similar to the ones in Los Angeles, Minneapolis, New York City, Seattle, and Columbus Ohio.
Here’s what you need to know before retaining a solo independent contractor in Illinois:
When the Law Applies
Independent contractor who is a natural person (i.e., a human, not an entity)
Providing services in Illinois
Providing services for a person or entity in Illinois
Total value is $500+, including all work aggregated over 120 days
Exclusions
N/a to construction or subcontractors, as defined in the Illinois Employee Classification Act (construction industry)
N/a to employees, as defined by the Illinois Wage Payment and Collection Act
Requirements
There must be a written contract that includes:
The name and contact information of both parties (including the hiring party’s mailing address);
An itemization of all products and services to be provided by the freelance worker;
The value of the products and services to be provided;
The rate and method of compensation;
The date when payment is due, which must be “no later than 30 days after the products or services are provided”; and
If the hiring party requires a list of products and services rendered in order to meet any payment processing deadlines (such as an invoice), the date by which the freelance worker must submit the list. (IDOL will provide model contracts)
Prohibitions
Once the IC “has commenced preparation of the product or performance of the services under the contract,” the hiring party cannot require, as a condition of timely payment, that the IC accept less compensation
Hiring party cannot threaten to withhold payment unless IC takes a lesser amount (no exception for unsatisfactory performance?)
Hiring party cannot do anything that would discourage the IC from exercising rights under the Act
No retaliation
Waivers are void against public policy (does that mean you can’t settle a dispute?)
If the contract failed to specify a due date for payment, the hiring party violates the Act if payment is made more than 30 days days “after the completion of the freelance worker’s services under the contract”
Record Keeping
Hiring party must retain a copy of the contract for two years
Enforcement
IC can file a civil lawsuit, or
IC can file an administrative complaint, which can lead to a broader investigation as to overall compliance
Penalties
For failure to timely pay: 2x amount owed, plus attorneys fees and costs
For failure to contract or to provide the contract: value of the contract or $500, whichever is greater
For discrimination or retaliation: value of contract, plus attorneys fees and costs
In addition, the IDOL may impose civil penalties up to $5000 for each violation, or $10,000 for each repeat violation within a five-year period, plus monetary damages to the state, restitution, and equitable relief, including injunctions.
Other Stuff
The law does not weigh in on whether the worker is misclassified
The Illinois DOL will issue regulations
Problems I See with the Law, as Written:
I see a few problems, and hopefully the IDOL will address these issues in its rulemaking.
First, suppose the IC’s work is unsatisfactory. Suppose the IC is slow or sloppy or rude or has terrible body odor. Suppose the IC does the work you requested but stomps all over your prized rose garden when walking in an out of the building. Suppose the IC comes into your home or business and breaks stuff or takes a cell phone picture of confidential information.
The law does not take into consideration all of the things that could warrant reduced or nonpayment, even if the products or services are ultimately provided. It seems that you’d still have to pay the value of the contract.
Second, the law seems to prohibit settlements. It says that any waiver of rights under this law is void as against public policy. It does say “except as otherwise provided by law,” so maybe a settlement would fall into that category.
Tips for Retaining ICs in Illinois after July 1, 2024
Consider including specifications or other requirements in the contract, to preserve an argument that the work is not yet completed or that the work was not performed as contractually agreed. (But don’t impose control over how the work is done, because that could lead to misclassification.)
Evaluate current use of individual ICs in Illinois, and consider whether this law will apply to those relationships.
Implement a Gatekeeper System like this, prohibiting managers from retaining ICs without going thorough an internal chokepoint for vetting. Managers who don’t know about the FWPA might retain ICs to get something done, creating liability for the company under the FWPA.
Look for the IDOL to release regulations that will hopefully provide clarity on the poor performance and settlement concerns.
Be careful about any IDOL investigation. If your business uses freelancers and the IDOL receives a complaint of a potential FWPA violation, the IDOL is likely conduct a thorough investigation that extends beyond the one complaining worker. With fines of $5,000 per occurrence, the penalties for noncompliance can get big in a hurry.
The scope of this law is broad. It applies to all “natural persons” (hey, no jokes about the weird guy down in the cubicle down the hall) who perform services for $500 or more. That would include your regular babysitter, your house cleaner, the guy you pay to wash the windows, solo consultants, or the guy you pay to assemble all the new modular furniture.
That would also include the guys I’m gonna need to pick up and move my garage.
Today we offer some fun facts about New Jersey. Raise your hand if you knew these things, but only if you are working from home because otherwise it would be weird:
The Lambert Castle Museum in Paterson has a spoon exhibit with over 5,400 spoons from every state and almost every country in the world.
The Passaic River in Paterson was the site of the first submarine ride in 1878 by its inventor John P. Holland.
New Jersey’s capital city, Trenton, was once the capital of the United States – but only for about eight weeks in 1784.
A less fun fact about New Jersey is that this past weekend, the NJ Temporary Workers’ Bill of Rights went into effect. It is a well-intentioned law that will have loads of unintended consequences. Rather than helping temp workers, the law’s requirements seem more likely to cause companies to stop using temp workers entirely.
The law’s requirements have been discussed elsewhere, and you can check out the BakerHostetler blog, The Bargaining Table, for a more complete discussion. But I want to focus on one aspect of the law that I think is particularly dumb and poorly drafted.
Section 7(b) requires that temp workers “shall not be paid less than the average rate of pay and average cost of benefits, or the cash equivalent thereof, of employees of the third party client performing the same or substantially similar work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions for the third party client at the time the temporary laborer is assigned to work at the third party client. Each violation of this subsection for each affected temporary laborer shall constitute a separate violation….”
Take a minute to digest that. It requires that temps are paid at least as much as similarly situated regular employees, but not just in wages. You also have to add in the cost of benefits. The cash value of benefits is often around a third of total compensation.
Suppose you have full time maintenance employees who average $20/hour plus benefits. If the cash value of benefits are one-third of the worker’s compensation package, then the temp worker “shall not be paid less than” $26.67/hour. And that’s before the staffing agency takes its markup of, maybe, 35%. You’d have to pay $36/hour for a temp maintenance worker, and the temp worker’s take home pay will be 33% higher (because of the cash value of benefits) than your comparable maintenance employee.
What if the temp agency provides benefits? Unclear. Poorly drafted. The law sets the temp worker’s minimum wage based on the cash value of the benefits the similarly situated employees receive. Maybe if the temp worker gets benefits, then the temp’s hourly wage floor would be $20, not $26.67, but that’s not clear.
Not only does the law greatly increase the cost of using temp labor, it also requires the company using the staffing agency’s services to disclose to the staffing agency the average wages and cost of benefits it provides to its similarly situated employees. If your company didn’t disclose this information, the staffing agency wouldn’t be able to comply with the pay floor requirement.
A failure to comply results in joint liability. So now you need to make sure the staffing agency pays its temps a particular wage, calculated based on the wages your company pays its employees. In your staffing agency agreement, you’ll need to require the agency to pay a particular wage to ensure compliance.
Here’s where things get tricky. An indemnity provision might not be sufficient to shift liability because the law says both parties are liable. So you need a breach of contract claim to rely on instead.
To build a potential breach of contract claim, the company will want to contractually require the agency to pay the workers a wage that is not less than the average cost of the company’s wages and cost of benefits. But directing and controlling wages is a strong indicator of joint employment under other laws. The act of complying with the NJ law could turn companies into joint employers. The wording in any staffing agreement, therefore, needs to thread the needle.
The text in a staffing agency agreement (or amendment) will need to be carefully drafted so that the company is requiring only that the agency comply with NJ law with respect to wages and benefits and is not directing or controlling the wages and benefits that the agency pays its temps.
Something like this might work: “If required under N.J.S.A. [insert citation], but only to the extent required by such statute, Agency shall pay the temporary workers at a rate not less than the average rate of pay and average cost of benefits, or the cash equivalent thereof, of employees of the company performing the same or substantially similar work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions for the company at the time the temporary laborer is assigned to work at the company.”
I don’t like telling the agency what it must pay its workers, but you’ll want a breach of contract claim available to you if the agency fails to comply and your company is jointly liable under the NJ law. An amendment to your staffing agency agreement is appropriate, but it needs to be carefully drafted.
And here’s another possible unintended consequence. How will your maintenance employees like being paid less than the maintenance temps? Maybe we need a union in here to get us a fair wage! I could see things going in that direction. If a temp can take home $26.67/hour, we want $26.67/hour too, not $20!
The NJ law does not apply to all temps. It applies to temps in these “occupational categories as designated by the Bureau of Labor Statistics of the United States Department of Labor:
33-90000 Other Protective Service Workers;
35-0000 Food Preparation and Serving Related Occupations;
37-35 0000 Building and Grounds Cleaning and Maintenance Occupations;
39-0000 Personal Care and Service Occupations;
47-37 2060 Construction Laborers;
47-30000 Helpers, Construction Trades;
49-0000 Installation, Maintenance, and Repair Occupations;
51-0000 Production Occupations;
53-0000 Transportation and Material Moving Occupations; or
any successor categories as the Bureau of Labor Statistics may designate.”
If all of this makes you want to take a long walk and get away, then fun fact: New Jersey has more than 4,000 miles of trails!
In ancient and medieval warfare, cavalrymen who fought battles with lances were known as lancers. Actually, they were probably known as whatever Assyrians or Normans or Persians called lancers in their languages, but that’s not important right now.
I should share that my junior high, Palmetto, was also known as the Lancers when I attended in the 1980s. I don’t know if they are still the Lancers, but I do know that they are no longer Palmetto Junior High. Instead, the school is now known as Palmetto Middle School, which is unfortunate and a bit cruel to the teenage cheerleaders who must wear the school’s initials across their chests.
Medieval lancers might have been paid, or might not. Don’t know, don’t care. I know that PMS Lancers are not paid. But this post is not about free lancers. It’s about freelancers. And that space makes a lot of difference.
Los Angeles is the latest major city to pass an ordinance that imposes several strict requirements when retaining freelancers. The Freelance Worker Protection Ordinance took effect July 1, and L.A. now joins NYC, Seattle, and Minneapolis as cities that require a written contract when retaining a solo independent contractor.
This L.A. law is not a TV drama where “office politics and romance often distract the legal staffers from matters in the courtroom.” No, this L.A. law is more boring. This law applies when retaining a solo contractor who will earn $600 or more in a calendar year. If that’s the case (see what I did there?), then these rules now apply:
Must have a written contract that includes:
name, mailing address, phone, email of both hiring party and freelance worker,
itemization of services to be provided,
rate and method of compensation, and
date by which payment is due, or manner for determining due date.
Payment must be made by the due date or, if none is specified, within 30 days after services are rendered.
Both the hiring party and freelancer must retain records for 4 years.
Any waiver of these requirements is unenforceable.
The NYC, Seattle, and Minneapolis ordinances also require written contracts with similar contents when retaining solo independent contractors who will earn about the same amount. The NYC law applies to work worth $800 in one project or in the aggregate over 120 days. The Minneapolis law applies to work valued at $600 in a calendar year or $200 in a single week. The Seattle law applies to work valued at $600 in a calendar year.
Businesses and individuals who retain solo independent contractors in these cities need to be aware of these laws, which apply even if the hiring party is located elsewhere.
Hiring parties who fail to comply may be liable for double damages, fines for not providing a written contract, penalties for late payments, and attorneys’ fees. The most egregious violators may also be subjected to cavalry charges and lance attacks. Maybe.
In 1925, the first motel opened in San Luis Obispo, California, according to The People History. It was originally called the Milestone Mo-Tel and charged $1.25 per night. The term motel was created to shorten the phrase Motorists’ Hotel, the defining feature of which was the ability of visitors to park their vehicles directly outside their room.
Why are we focused on 1925? Because laws written in 1925 continue to directly impact legal disputes over misclassification in 2023, even though the facts being applied to those laws were so far beyond what lawmakers could have even imagined at the time. The application of outdated laws is something we deal with all the time, including with the Fair Labor Standards Act, enacted in the 1930s. The intersection of old laws with new technologies creates sticky legal problems. And today’s post is about one of these sticky situations.
In a recent decision, the Third Circuit Court of Appeals joined the First, Seventh, and Ninth in ruling that rideshare drivers with individual arbitration agreements are required to arbitrate misclassification disputes, as set forth in the Federal Arbitration Act (FAA). In other words, the FAA’s transportation exception does not apply.
I’ll explain why that’s important, and you’ll see where 1925 fits in.
For companies engaging large numbers of independent contractors, misclassification class actions pose a significant risk. Individual arbitration agreements with class action waivers provide important protections against that risk. Generally, the FAA requires the enforcement of arbitration agreements.
But the FAA has an exception. Under section 1 of the FAA, the Act does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
Historically, this exception was created because seaman and railroad workers were subject to a different set of federal requirements for dispute resolution. Remember, the FAA was enacted in 1925. People still said “seaman” without giggling.
In 1925, Calvin Coolidge was sworn in for a full term, in the first inauguration to be be broadcast on the cutting-edge new technology of radio. The Scopes Monkey Trial captivated the nation, following the indictment of Tennessee schoolteacher John Scopes for daring to teach human evolution. In other Tennessee news, the Grand Ole Opry debuted on Nashville radio, with the less-catchy name, the “WSM Barn Dance.”
So this was a different time. No one was thinking you could order a car on your cell phone, track your route on your cell phone, then pay and rate your driver by cell phone. In 1925, we were still a year away from the first trans-Atlantic phone call.
Anyway, plaintiffs’ lawyers attempting to bring misclassification class actions frequently argue that rideshare drivers fall within the transportation exemption, and therefore the FAA does not require enforcement of the drivers’ signed arbitration agreements. In Singh v. Uber Transp., a three-judge panel in the Third Circuit held that the transportation exception does not apply (and therefore the FAA does apply) because the vast majority of rides were intrastate, not interstate. The decision was issued in April, but there was a petition asking for a rehearing by the full circuit. Earlier this month, that petition was denied, and the Third Circuit’s decision therefore will stand, assuming there is no Supreme Court review.
The takeaway for companies making widespread use of independent contractors is to continue to use arbitration agreements, even in industries that may involve transportation. The scope of the transportation exemption is constantly being tested, but so far for rideshare, the outcome of most court decisions has been that the FAA still applies and the transportation exception does not apply.
For those interested in how the opening story ends, the Milestone Mo-Tel was renamed the Motel Inn, then closed in 1991. The building is now the administrative building for the Apple Farm Inn next door. The Apple Farm Inn charges a bit more than $1.25 per night, but it promises “the excitement of creating future memories.”
In 1979, my sister and I watched a kids’ movie called C.H.O.M.P.S., a “comic science fiction family film” (according to Wikipedia), which featured a Benji-lookalike border terrier named CHOMPS. Except the dog wasn’t really a terrier, and wasn’t even really a dog.
C.H.O.M.P.S. was an acronym for Canine Home Protection System, and the terrier was a robot [insert plot of every children’s movie here] invented by a brilliant kid, who then outsmarts bumbling adults who try to kidnap the dog but prove inept and not nearly as clever as our young hero.
The movie scores an abysmal 29% on Rotten Tomatoes and I don’t remember much about it, except that my sister and I still talk about it.
Although we’re all grown up now, we’re still overrun with acronyms. Two acronyms often appear in the context of retaining contingent labor, and if your company makes frequent use of temp staffing or other contingent workers, these may be good to know.
First, there’s MSP. An MSP is a Managed Service Provider. MSPs can manage many different things, but in the context of employment law and the contingent workforce, they can manage temporary staffing needs for a business. Generally, they will contract directly with multiple staffing agencies and taking the laboring oar in overseeing those relationships. MSPs can also identify and retain independent contractors. They will monitor spend and can produce all sorts of nifty reports. If your business uses an MSP, then when you need temp labor or other contingent workers, you tell the MSP what you’re looking for, and the MSP does the rest.
Next, there’s VMS. VMS stands for Vendor Management System. It is an online portal through which contingent workforce staffing needs can be arranged and managed. MSPs generally use VMSs, but a company can also use a VMS without an MSP.
When beginning a relationship with an MSP, sophisticated businesses will take a hand-on approach in negotiating the terms of service with the MSP, as well as negotiating (or providing) the form agreements that the MSP will enter into with staffing agencies and independent contractors. Your company is not a direct party to those agreements but, rather, is a third party beneficiary.
Those staffing agency agreements should generally include the same protections against joint employer liability that you’d include if you contracted with the staffing agency directly. Click here for Ten Things That Should Be in your Staffing Agency Agreements But Probably Aren’t.
You’ll also probably want all contingent workers retained through the MSP to sign arbitration agreements with classs action waivers, as well as individual agreements addressing the protection of your confidential information and ownership of any IP created during the assignment.
Bonus tip: Be careful not to say that all deliverables are “works made for hire.” Under some laws, including in California, declaring deliverables to be “works made for hire” automatically converts the relationship into employment. Bummer. Use assignment instead. You can read more about that topic here.
For companies that make frequent use of contingent labor, MSPs and VMSs can save a lot of time and aggravation. When engaging MSPs, it’s worth the up-front investment to renegotiate and modify the template agreements that the MSP will use on your company’s behalf.
If you’re later alleged to be a direct or joint employer of the contingent workers, well-drafted agreements will provide vital home protection — even better than you could get from C.H.O.M.P.S.
Bonus Fun Fact: Red Buttons was in this movie. It’s fun to say Red Buttons. Try it. Really. Say it aloud. But say it quietly in case someone is listening. You’ll like it and will probably keep saying it quietly to yourself all day, with a slight smile, because no one else is in on your little secret.
Last week I was in Boston, spending time with many of my favorite people at our BakerHostetler Labor and Employment Group Retreat. I always enjoy spending time with the people in our other offices. They are wonderful, kind, smart, and a joy to be around.
As part of the programing, each practice team leader gave a six-minute TED-style talk. In my session about the Contingent Workforce Practice Team, I included a slide that I wanted share here.
We sometimes hear from companies that they don’t think they’re at risk for an independent contractor misclassification claim. They sometimes say, we’ve been doing it this way forever, and we haven’t been sued.
To that I would say, you mean you haven’t been sued yet.
Here’s what can happen when companies get sued for independent contractor misclassification.
There are quite a few songs about gals named Sue. There’s “Peggy Sue,” “Wake Up Little Susie,” “Susie Q,” and “Runaround Sue.” There’s a even a song about a “Boy Named Sue.” (The results of a recent survey consisting of me revealed that “Boy Named Sue” is by far the best of the Sue-themed songs.)
As far as I know, no one has yet written a song about Labor Secretary nominee Julie Su, but I would not be surprised if one of the unions in California wrote a ballad to applaud her work heading the state’s Division of Labor Standards Enforcement (DLSE) and Labor and Workforce Development Agency. Maybe something like Fatboy Slim’s “Praise You.”
Su is Biden’s pick for Secretary of Labor, following the resignation of Marty Walsh, who left to lead the NHL player’s union. Her nomination is controversial, and businesses fear they’ll be singing the blues if she’s confirmed.
But in a recent Senate committee hearing, she provided at least two answers that businesses will like.
First, she said she would not advocate for an independent contractor test modeled after California’s AB 5. She testified that it’s her view (mine too, probably the courts’ too) that only Congress could adopt an ABC Test to determine worker classification under the Fair Labor Standards Act (FLSA). That’s reassuring.
Second, she said that the DOL’s next regulatory agenda would not include a new joint employer test. The 2020 joint employer regulation adopted by the Trump DOL has been rescinded, and there has been no replacement regulation, which leaves a regulatory crater in the Code of Federal Regulations, where the joint employer rule used to be. Read more here.
On April 26, a Senate committee voted to advance Su’s nomination to the full Senate. All Democrats on the committee voted yes, and she received no Republican support. In a 51-49 Senate, the success of her nomination will likely depend on whether she can secure the support of Senators Manchin, Sinema, and Tester and whether Sen. Feinstein is healthy enough to vote.
And on that note, we turn back to Johnny Cash:
He said, “Now you just fought one heck of a fight And I know you hate me, and you got the right to kill me now And I wouldn’t blame you if you do But you ought to thank me, before I die For the gravel in ya gut and the spit in ya eye ‘Cause I’m the son of a bitch that named you Sue”
Kathleen Corradi has been an educator, a land use and sustainability expert and — now — New York City’s first Rat Czar.
The word czar derives from the Latin Caesar and had been used by the Russians to describe their emperor from the 1500s until the 1917 February Revolution, which led to Czar Nicholas II’s unemployment (and, not to bury the lede, the subsequent imprisonment and murder of the former czar, his family and staff).
But Ms. Corradi does not seek to be emperor of the rats. She seeks to eradicate them. Hell of a thing for an emperor to do, don’t you think?
NYC advertised the position with a bit of whimsy, seeking someone “bloodthirsty” with a “general aura of bassassery.”
NYC exercises considerably less whimsy, however, when dealing with independent contractors in its midst.
In most jurisdictions, independent contractors receive none of the protections of employees. NYC, however, imposes some additional burdens on businesses retaining contractors. Here are four things that New Yorkers retaining independent contractors should know:
1. NYC independent contractors are protected against discrimination and harassment under the NYC Human Rights Law.
2. NYC businesses with 15 or more workers must provide annual sexual harassment training to independent contractors, if the contractors (a) work for that business more than 80 hours in a calendar year, and (b) perform on at least 90 days, which don’t have to be consecutive.
3. NYC’s Freelance Isn’t Free Act requires written contracts with freelancers who provide services worth $800 or more, and the contracts must include specified information. This law applies to individuals retaining contractors, not just businesses.
4. NYC rideshare drivers must receive at least a specified minimum wage.
In Japan’s Aomori Prefecture, bald men compete annually in a Suction Cup Tug of War. In each round, two contestants attach suction cups to their heads and pull in opposite directions. The person whose cup detaches first is the loser.
The event is sponsored by the Tsuruta Hagemasu Association, which aims to shed positive light on male baldness. The Association’s website, which I cannot read because it is Japanese, includes several hilarious/serious photos, including one of six elderly gents with flags suction cupped to their heads. Only the guy on the far right seems to be in on the joke. The others seem deadly serious about what their heads can do.
Using your head to win is not unique to the Suction Cup Tug of War. Well, maybe it is unique to the Suction Cup Tug of War if we take that in the most literal way, but now I’m straying into the figurative so that I can transition from something absurd to something topical.
Using your head to win independent contractor misclassification disputes often involves relying on individual arbitration agreements, which can help to prevent class action lawsuits. But the DOL is using its head too, and it’s pulling in an opposite direction. When the DOL pulls against your individual arbitration agreements, the DOL is going to win. The arbitration agreement will lose its stickiness.
Recent DOL news releases have highlighted the Department’s success in prosecuting misclassification cases, even when the target company had its independent contractors sign arbitration agreements. The DOL, in other words, doesn’t care about your arbitration agreements. The DOL is not a party to those agreements, and the DOL isn’t bound by them.
While an individual contractor can waive the right to file a lawsuit, the DOL is not waiving that right. The DOL can — and will — bring misclassification claims against companies that use arbitration agreements. I’m not suggesting that having arbitration agreements makes businesses a target for enforcement; I have seen no evidence of that. My point is just that arbitration agreements have their weak points, and the major weak point is that they do nothing to prevent a government agency, state or federal, from conducting an audit or bringing an enforcement action.
The US DOL, state labor departments, state unemployment agencies, and state and federal tax services have all made misclassification an enforcement priority.
Businesses should keep using arbitration agreements with their independent contractors, but be aware that these agreements do not protect against all mass enforcement activity. The stickiness of these agreements is useful, but when the DOL pulls in the opposite direction, the suction cup is probably coming off your head.
For those of you wishing you could have been there, here’s a video of the 2023 Suction Cup Tug of War. After some bizarre preliminaries, including tournament officials and a young girl throwing wet paper rectangles at the competitors’ heads, the thrilling tug of war action begins at about 1:20 into the clip.
Who Is My Employee? 