Category Archives: Independent Contractor vs. Employee

11.11.24
by

For Upcoming Changes to Independent Contractor Rules, Look to Band Names

The band America (“A Horse with No Name,” “Ventura Highway”) was formed in England. Yes, really. But by three Americans whose fathers were in the U.S. Air Force and stationed overseas.

That got me thinking about other bands with place names. When I was growing up in Miami in the 1980s, if someone mentioned Boston, I thought of just another band out of Boston, on the road to make ends meet. If someone mentioned Kansas, I thought of dust in the wind, even though I never particularly liked that song. Chicago made me think of the Cubs, but only in 1984. Otherwise, does anybody really know what time it is?

Not that I am older and have a life, place names mean something different to me. They now make me think of federal, state, and local laws affecting independent contractor status.

(Ok, I take back the comment about having a life. I realize this is a sad and pathetic way to think of place names.)

After the election, place names are going to take on greater importance as businesses aim to protect their independent contractor relationships. Federal enforcement activity isn’t going away, but I expect to see a growing emphasis on legislation and enforcement at the state and local level.

In the realm of non-employee workers (independent contractors, staffing agency temps), I expect to more state and local legislation in these areas:

1) Freelancer Laws. We now have freelancer laws in CA, NY, IL, Los Angeles, NYC, Minneapolis, Seattle, and Columbus. These laws impose requirements when retaining individuals who are independent contractors. The laws generally require written contracts that contain several mandatory components.

2) Temporary Worker Laws. We have these in NJ and IL. They generally require that staffing agencies pay their workers an equivalent wage rate (and sometimes the value of benefits) being paid to workers they work alongside at the company where they are providing services.

3) Misclassification Laws – the Bad Kind. In states with Democrat trifectas (house, senate, governor), expect new laws that make it harder to be an independent contractor. Expect more ABC Tests, like in CA and MA. Other states have ABC Tests for determining who is an employee under workers’ comp and unemployment law.

4) Misclassification Laws – the Good Kind. In states with Republican trifectas, expect more safe harbor laws. If you satisfy a set of basic requirements in your dealings with a non-employee worker, then the worker is an independent contractor under that state’s laws. Pesky balancing tests (and long-haired freaky people) need not apply. We have these state laws in WV and LA (not L.A.)

We will likely see changes at the federal level too, but these may take years to develop. The federal agency rulemaking process is slow and cumbersome, and agency rules will take on less importance as federal agency power continues to diminish after the Supreme Court’s Loper Bright decision.

I haven’t touched on Europe or Asia, but those are bands for another day and another post. When? At some point, in the heat of the moment, but only time will tell.

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

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

2018_Web100Badge
 
10.28.24
by

Hugs! 7-Eleven Franchisees Are Not Employees, Court Rules

Have you ever heard the expression, “I was so happy I could hug a goose”?

Me either. That’s because it’s not an expression. But no one told the sculptor here.

I took this photo while touring the gardens at a villa in Varenna, Italy. I am still haunted by the image. The goose seems none too pleased, but the boy is playing him like a guitar, no matter the feelings of the goose.

Franchise owners in Massachusetts are so happy that they could hug a goose after a recent Massachusetts Supreme Court ruling.

For years, there’s been ongoing litigation in which five 7-Eleven franchise owners sued 7-Eleven, claiming to be employees of the franchisor. The franchise industry has been closely monitoring the case because a ruling for the plaintiffs could threaten the franchise model.

The case has twice been before the Massachusetts Supreme Court. The first time, the Mss. S.Ct. ruled that individual franchise owners could, potentially, be deemed employees under the Massachusetts ABC Test if the individuals were “performing any services” for the franchisor. This ruling, in 2022, merely answered a hypothetical question, but the answer made franchisors nervous.

The litigation continued and made its way to the Mass. S.Ct. a second time. This time the issue was whether the individuals, by operating their stores as 7-Eleven franchises (and following 7-Eleven brand guidelines, etc.) were “performing any services” for the franchisor.

In a goose-hug-worthy decision, the Mass. S.Ct. ruled in late September that “the franchisees operate independent stores not for 7-Eleven
but rather for themselves.” Therefore, they are not performing services for the franchisor, and they cannot be deemed the franchisor’s employees.

This is great news for franchisors (and bad news for plaintiffs’ lawyers). Celebrate however you think is best, but please consider the feelings of the goose.

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

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

2018_Web100Badge
 
10.21.24
by

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2018_Web100Badge
 
10.07.24
by

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

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

Am I wrong? Didn’t think so.

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

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

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

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

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

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

And when that happens, it will be no surprise.

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

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

2018_Web100Badge
 
09.16.24
by

Try These Steps to Reduce IC Misclassification Risks, in the Long Run

Don Henley used to hurry a lot, he used to worry a lot, he used to stay out till the break of day.

But you don’t need to carry on that way. — at least when it comes to reducing your company’s risk of independent contractor misclassification. Here are four steps you can take that will proactively reduce risk, in the long run:

1. Review & Modify Actual Practices

Courts answer the question of Who Is My Employee? By reviewing the actual facts, not what the parties intend or what the contract says. Make sure the facts on the ground are consistent with economic independence of the contractor and a lack of control by the hiring party. Change the facts when you can.

2.Create a Vendor Qualification Questionnaire

Require vendors to make a set of written representations that support their status as independent contractors. Then rely on this set of representations when deciding whether to retain each contractor. These representations also help to pin down a contractor who later claims to be an employee.

3.Create a Gatekeeper Process

Sometimes contractors are retained by operations people who don’t know the first thing about misclassification and related legal risks. A gatekeeper process requires all retentions of independent contractors to flow through a designated person who can issue-spot and evaluate whether the proposed retention is consistent with independent contractor status. The gatekeeper has the discretion to approve or deny requests to retain a contractor.

4.Draft Customized Contracts

Any independent contractor agreement you find on the internet is pure garbage. Contracts should be customized:

  • To memorialize the specific facts that support independent contractor status in the relationship
  • To prohibit the exercise of control by the hiring party over various aspects of the relationship
  • To impose indemnity obligations and insurance requirements, and
  • To make it more difficult for a contractor to challenge the independent contractor classification

Taking proactive steps like these can help you to answer this question in the affirmative, when facing an independent contractor classification challenge: Who is gonna make it? We’ll find out, in the long run.

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

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

2018_Web100Badge
 
09.09.24
by

Hungry Serpents: Contractor Who Admitted Being Self-Employed Loses Suit in Which He Claims to Be an Employee

Snakes may have an eating disorder. Is cannibalism an eating disorder?

A wildlife technician for the Georgia Department of Natural Resources was searching for eastern indigo snakes, when he found a four-footer with an unusual appetite. Upon capture, the snake vomited up other snakes. The snake has eaten another indigo snake (no relation?), a rate snake, and possibly a rattlesnake, which may or may not have still been alive. Published reports of the incident are unclear about the rattlesnake.

Turning on your own species is not unique to snakes. We see independent contractors try that trick all the time. They’re content to be contractors until they decide they’re unhappy, at which point they sue and claim to have been an employee all along.

A recent Fifth Circuit case stood out to me for two reasons:

(1) The contractor had made previous statements, under oath, that he was self-employed. I wanted to see if the court would hold those against him.

(2) If the court applied the economic realities test, I wanted to see which version of the test it would use. Would the court apply the new DOL version of the test?

Here’s what happened. The Killick Group provides inspection services in the oil, gas, and energy industries. When the need arises for a job, the company engages third party independent contractor inspectors to perform the work.

One of those third party inspectors was Guillermo Gray. Gray was a certified welding and coding inspector with his own company. Gray sued Killick Group, alleging that he was an employee under the Fair Labor Standards Act (FLSA) and should have received overtime pay.

In defending the claim, Killick Group used past statements by Gray against him. In 2015, Gray was convicted of driving while intoxicated. When applying to secure a work-only driver’s license, he attested that he was “self-employed” as an inspector, and he listed his own company, Veritas Inspections, Inc., as his employer.

Killick Group argued that Gray was judicially estopped from claiming to be an employee, since he attested previously that he was self-employed. Killick Group also argued that Gray did not meet the test to qualify as an employee under the FLSA.

The trial court agreed with the judicial estoppel argument and granted summary judgment. On appeal, the Fifth Circuit had some concerns with the estoppel argument and decided to analyze the case under the FLSA.

The appeals court applied an economic realities test, considering five factors:

(1) the degree of control exercised by the alleged employer;
(2) the extent of the relative investments of the worker and the
alleged employer;
(3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer;
(4) the skill and initiative required in performing the job; and
(5) the permanency of the relationship.

The court determined that Gray was an independent contractor under the test.

Two things stand out to me about this case.

First, the Fifth Circuit did not consider the version of the test created by the DOL in its recent independent contractor regulation. The Fifth Circuit applied the same five-part test that Fifth Circuit courts had applied in the past.

Second, I wish the Fifth Circuit would have analyzed the judicial estoppel argument. Since the court determined that Gray was not covered by the FLSA, the court did not consider the judicial estoppel argument. I find the judicial estoppel argument intriguing, and I like it as a tool — if it will work. Independent contractors regularly assert that they have independent businesses, such as when taking tax deductions and filing a Schedule C. As an advocate for companies, I’d like to be able to use those assertions against an individual who later claims to be an employee. It would have been helpful to have Fifth Circuit case law supporting that argument.

Both of these takeaways are worth digesting. I will digest them more thoroughly than the indigo snake digested its meals, one of which may or may not have still been alive at the time of regurgitation. The mystery of what happened to the possibly-eaten, possibly-still-alive rattlesnake remains unsolved. I choose to believe it was eaten and lived. That makes for the better story.

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

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

2018_Web100Badge
 
09.03.24
by

No Cukes: Appeals Court Hints That It Might Disregard DOL Independent Contractor Rule

Cucumber in our garden, not from Iceland

There’s a cucumber shortage in Iceland.

But it’s not the farmers’ fault. While Iceland has fewer than 400,000 permanent residents, the country produces about six million cucumbers per year. This BBC article blames the shortage on the popularity of a cucumber salad recipe circulating on TikTok.

I could blame TikTok for many things, but probably not that. According to experts interviewed in the article, other factors may also be responsible, including seasonal crop rotation and school going back into session.

While this journalistic deep dive created more questions for me than it answered, a recent court decision made me a little more confident in answering an entirely different question.

Remember the DOL’s new independent contractor classification test? The one that went into effect in March 2024? The rule is being challenged in court, and a Fifth Circuit Court of Appeals decision in late August may provide a clue about whether the rule will survive.

This recent Fifth Circuit case was about a different DOL rule. It addresses a restaurant industry regulation that deals with the tip credit and minimum wage law. The court said that the DOL did not have the authority to add legal requirements that are not in the Fair Labor Standards Act (FLSA).

Why is this relevant to the independent contractor test? Because the DOL is essentially doing the same thing in both contexts.

With the independent contractor rule (like the tip credit rule), the DOL is setting up a new test with requirements that are not written into the FLSA. After the Supreme Court’s recent Loper Bright decision, which limits the authority of federal agencies, the DOL may have a much harder time getting courts to apply the DOL’s regulations. It would not at all surprise me if the courts ignored or rejected the DOL independent contractor rule. With or without a DOL rule, there are already decades of case law telling courts how to determine employee status under the FLSA. Federal judges don’t need the DOL to tell them what the test should be.

We’ll continue to watch what happens with the DOL independent contractor rule. You could grab a box of popcorn and watch things unfold slowly. Or maybe you prefer to shop for other snacks. Just don’t expect to find cucumber salad if you’re shopping in Iceland.

For now, businesses should assume that the DOL will apply its independent contractor test in its own enforcement actions, even if the courts may be more skeptical.

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

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

2018_Web100Badge
 
08.26.24
by

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

Nature can be cruel. Friends can be crueler.

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

(No, it was not Dick Cheney.)

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

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

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

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

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

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

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

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

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

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

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

2018_Web100Badge
 
08.19.24
by

A New Gambit? DOL Independent Contractor Rule Still Facing Court Challenges

There are lots of strategies for winning a chess match. Most gambits are named for people, but some have funny names like the Alien Gambit, the Zilbermints Double Countergambit, and the Fried Liver Attack.

At a chess tournament earlier this month in Makhachkala, Russia, one competitor tried a new strategy. She (allegedly) smeared mercury on the board and chess pieces of her opponent before the match. There’s video. This seems a bit outside the rules. After her opponent began experiencing respiratory distress and tasted iron in her mouth, the Mercury Gambit proved not to be a long-term winning play.

The saboteur now faces criminal prosecution and a lifetime chess ban. So don’t try this at home.

The DOL is facing an array of gambits too. But these gambits are lawsuits, each trying to get a court to revoke the DOL’s recently adopted independent contractor rule. The rule went into effect March 11, 2024, and we wrote about it here.

I’m aware of four pending challenges to the rule, all in federal court:

  • In a Texas case brought by a coalition of business groups, the plaintiffs filed a brief July 1st arguing that under the Supreme Court’s Loper Bright decision, the DOL lacked authority to issue the rule. Coalition for Workforce Innovation v Su, E.D. Texas.
  • In a Georgia case filed by freelance writers and editors, the parties have filed cross-motions for summary judgment, all of which are still pending. Warren v Su, N.D. Ga.
  • In a Louisiana case, a family-owned trucking company sought a temporary restraining order to prevent the rule from taking effect. The motion was denied, and the plaintiffs intend to appeal. The court has stayed the case pending the appeal. Frisard’s Transportation v DOL, E.D. La.
  • In a Tennessee case, two writers filed suit to try to enjoin the rule, and the parties have filed cross-motions for summary judgment. Pittman v. DOL, M.D., Tenn.

When compared to mercury poisoning, court challenges really seem to be the way to go. I commend the strategy. Perhaps not as original, but tried and true.

The DOL’s 2024 independent contractor rule remains in effect for now, and businesses should structure their independent contractor arrangements to comply.

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

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

2018_Web100Badge
 
08.12.24
by

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2018_Web100Badge