Spurs and Chickens: California Judge Says Prop 22 Is Unconstitutional; Appeal to Follow

There’s a fight brewing over cockfighting, and it may be headed to the Supreme Court. The dispute is over who can regulate the bloodsport and how. The Commonwealth of Puerto Rico has joined a cadre of cockfighting enthusiasts to ask the Supreme Court to rule that it’s unconstitutional for the federal government to ban the contests.

In 1933, Puerto Rico changed its laws to allow the sport, in which gamecocks are often fitted with spurs and battle until death or dismemberment. The federal government later stepped in to ban the fights. People bet on this stuff, really. On chickens. Wearing spurs.

Closer to home, another fight is brewing, and it’s on a subject familiar to readers of this blog – Prop 22 in California. Passed in late 2020 through a ballot initiative, Prop 22 exempts app-based drivers from the ABC Test and allows them to maintain independent contractor status, so long as the app companies provide certain types of benefits to drivers.

But on Friday, an Alameda County Superior Court judge ruled that Prop 22 is unconstitutional. Wait, what?

Even though Prop 22 passed with 58% support, the SEIU and a vocal group of drivers weren’t too happy and sued. The matter initially went to the California Supreme Court, but the Court dismissed the petition and said it would not hear the case. The SEIU tried again, this time starting in Superior Court, which is where cases are supposed to start. The union found a sympathetic ear in Judge Frank Roesch, who issued this 12-page opinion, which is confusing, hard to follow, and seems to me to be just plain wrong.

What was the basis for the ruling? Two things.

First, Judge Roesch concluded that Prop 22 was unconstitutional because it limits the legislature’s ability to regulate workers’ compensation. Prop 22 defines app-based drivers as contractors, and contractors don’t get workers comp coverage. The law limits the ability of the legislature to undo Prop 22, which was smart since the legislature hated the bill.

The judge found that these limitations made Prop 22 unconstitutional because the California constitution grants the legislature “plenary” power to oversee workers’ compensation. Prop 22 allows the legislature to make limited amendments to Prop 22 but not to undo the whole thing or reclassify the drivers as employees. In making his ruling, the judge essentially concluded that if the legislature couldn’t undo the law, then the law unduly restricted the legislature. But wait! Just a few pages earlier, the judge conceded that “The term ‘legislature’ in [the California constitution] includes the people acting through the initiative power.” Yes, that’s quite the internal contradiction. If the term “legislature” includes initiatives by the people, then initiatives by the people are the equivalent of legislative action. They are acting as the legislature. An appeals court will likely take care of that confusing mess.

Second, the judge concluded that Prop 22 violated the state constitution’s rule that legislation can only be about one subject. Judge Roesch pointed to the part of Prop 22 that gave app-based drivers the right to collectively bargain in a quasi-union environment. He concluded that the bargaining piece of the law is “utterly unrelated” to the law’s purpose. Huh? That utterly makes no sense. The whole point of Prop 22 was to grant app-based drivers various concessions in exchange for clarity on their status as contractors. These concessions include a minimum rate of pay, contributions to healthcare funds, automobile insurance, and the right to collectively bargain in a specified manner. How could the right to collectively bargain be unrelated to these other rights, all of which were part of the quid pro quo in exchange for preserving independent contractor status? The ruling makes no sense, and this too is likely to be cleaned up on appeal.

So what’s the status of Prop 22? Is it dead? Dismembered? The judge may have tied spurs to his feet and kicked the law around a bit, but I am cautiously optimistic that this law will live to see another day.

The case is now headed to the Court of Appeal, and it may end up back with the California Supreme Court.

Meanwhile, for those of you wagering on whether cockfighting will return to legal status, I’d say the odds are against. I don’t think the Supreme Court will take the case and, if it does, I don’t think the Court will say the federal government lacks the power to regulate chicken gladiator shows. I’d put my money on Prop 22 to survive on appeal. I think Judge Roesch’s analysis is incorrect and will be overturned on appeal. But I can’t say I have the same sense of optimism for our cockfighting aficionado friends.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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The Abruzzo Agenda: Like a Good Hyena Story, the NLRB Giveth Then Taketh Away

Not a dog.

I had a great intro all ready for this week. I really did. WXYZ.com reported last week that Monica, a Detroit woman, took home a free puppy, only to learn days later that it was not a puppy at all, but a hyena.

I was about to share this great piece of investigative journalism with you when I was hit with this surprise: The woman’s story is now in doubt, and WXYZ has retracted the story. Thanks to the Wayback Machine, you can read the original story here and (to my great disappointment, because I so badly wanted this to be true) the retraction here.

Sometimes we are given something that seems wonderful — say, a puppy, or even a fun story about a woman who mistook a hyena for a puppy — but then it gets taken away. For all of you who were pleased with any NLRB pro-business decisions over the past four years, get ready to see those taken away too.

Last week new NLRB General Counsel Jennifer Abruzzo issued a Memo listing roughly 40 decisions and principles that she’d like to undo. She has a more diplomatic way of saying it — let’s just say we’ll “carefully examine” these. But expect many of these principles to be toast, now that the Board features a 3-2 Democratic majority.

You can see the full list here, but I’ll focus on three:

(1) “Cases involving the applicability of SuperShuttle DFW,” a case that made it easier to be classified as an independent contractor. You can read my post about SuperShuttle here.

(2) “Cases involving the applicability of Velox Express,” a case in which the NLRB ruled that independent contractor misclassification, by itself, is not an automatic unfair labor practice. You can read my post about Velox Express here.

(3) “Cases involving the applicability of UPMC,” which relates to the standard for the Board to accept settlements voluntarily entered into by the parties. What she’s really talking about here is the McDonald’s franchise joint employer case, in which her predecessor as NLRB General Counsel settled a case against McDonald’s that she (and an Administrative Law Judge) didn’t think should have been settled. The NLRB eventually approved the settlement. Here is an amicus brief I wrote for the Restaurant Law Center in that case, arguing that the settlement should be approved.

The General Counsel for the NLRB is the equivalent of its chief prosecutor. These are Abruzzo’s priorities. With a sympathetic 3-2 majority on the Board, you can be sure that many of these desired changes will take place.

Like a good hyena story, the pro-business Board decisions from the last four years aren’t likely to last.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Now is the Time to Add These Safe Harbor Clauses to Your Independent Contractor Agreements

Image by Luca Falvo from Pixabay

I just finished reading The Longest Day, the 1959 book by Cornelius Ryan that tells the story of the D-Day landing from Allied, French, and German perspectives. The book covers June 6, 1944 and the days leading up to it, but it doesn’t get into what happened next. To facilitate supply lines into Europe right after D-Day, the British built two artificial harbors off the Normandy coast. Mulberry Harbours A and B allowed for the transport of up to 7,000 tons of vehicles and supplies to the mainland each day.

A harbor is a place where ships can seek shelter from the open ocean. Switching our focus to peacetime and the law, a “safe harbor” is the legal term for a provision that protects against liability if you meet certain conditions. No ships are required. Know the required conditions, and you can find shelter from a legal storm.

Two states recently passed laws that create safe harbors against claims of independent contractor misclassification.

Businesses using independent contractors in West Virginia and Louisiana should update their contracts immediately to take advantage of these new statutes.

Each state’s law provides a list of conditions that, if met, will make someone an independent contractor, providing a safe harbor against claims that these workers are misclassified and should be employees. The LA law creates a presumption of contractor status; the WV law is conclusive.

One of the conditions in WV, for example, is that the written contract “states…that the person understands” a list of five specific facts. The contract needs to “state” these five things. The WV law has other requirements too.

The LA law requires that 6 of a possible 11 conditions are met to fall within the safe harbor.

Other states are considering similar laws. Missouri and North Carolina are considering similar bills. Oklahoma was headed down the same road during the last legislative section but has not yet passed a bill.

Businesses using independent contractors in these states should amend their agreements to take advantage of these safe harbor opportunities.

At a time when the federal government is pledging to crack down further on independent contractor misclassification, it’s important to have contracts that are built to withstand classification challenges by any governmental body. Even under federal law, which doesn’t have these safe harbors, these recitations can be helpful when trying to meet the Right to Control and Economic Realities Tests used in federal law and in most states.

Your agreements with independent contractors provide an opportunity to build your defense against claims of misclassification. They should not be treated as a mere formality.

You want to be able to point to your agreements as Exhibit 1 in your defense against a misclassification claim. Play offense, not defense. Adding the WV and LA clauses — and even the proposed NC and MO clauses — can go a long way toward protecting your independent contractor relationships.

You might not be into reading books about World War II and that’s ok. But please read your contracts carefully. Now is a great time to amend and improve independent contractor agreements.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Like Being Thrown on a Trotting Horse? This Company is Trying Rideshare without Independent Contractors

In 18th Century Europe, common methods for trying to revive drowning victims included throwing the victim onto a trotting horse, dunking in freezing water (ironic?), and my personal favorite, blowing tobacco smoke into the rectum.

These were creative ideas and sometimes they actually worked. The bouncing motion from being on a trotting horse could force air in and out of the lungs, like modern CPR. Tobacco smoke contains nicotine, which causes the brain to release epinephrine, which helps to stimulate the heart to contract.

It’s fun now to look back at how people tried to solve problems when they didn’t know what would happen.

The biggest unknown in the world of independent contractor misclassification is what would happen if rideshare and delivery companies were forced to reclassify all drivers as employees. A well-funded startup in Dallas is attempting to find out.

As reported here, a new rideshare service called Alto just completed a $45 million round of Series B funding. Alto’s model is to use all W-2 drivers and company-owned vehicles. The service currently operates only in Dallas, Houston, and Los Angeles, and has announced plans to switch to all-electric vehicles.

Will it work? Who knows.

Is it a viable business model? Who knows.

But in some ways, it’s a test case to see how an industry dominated by the independent contractor model might operate if forced to use all W2 workers. Yes, I know the taxi industry is another comparable. But it hasn’t exactly thrived since the emergence of rideshare. I’m pretty sure that’s not the model that rideshare would look to if force to pivot.

As the old proverb goes, necessity is the mother of invention. For those keeping score at home, Mothers of Invention was also the name of an experimental rock band in California once fronted by Frank Zappa and which featured tracks such as “My Guitar Wants to Kill Your Mama.” But that’s for another day.

For now, the rideshare industry continues to operate with its independent contractor model under siege. Widespread conversion of driver contractors to employees would be difficult and would introduce massive disruption in the industry. We’ll see what happens. In the meantime, let’s continue to innovate. Sometimes, even being thrown on a trotting horse can be helpful.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Biden Plan: Independent Contractor Misclassification Will Be An Enforcement Priority

Money
Get away
You get a good job with good pay and you’re okay
Money
It’s a gas
Grab that cash with both hands and make a stash
New car, caviar, four star daydream
Think I’ll buy me a football team

Pink Floyd just gets it. When I was a young lawyer, someone described civil litigation to me as just moving piles of money from one party to another. But that cynical view tells only part of the story. It excludes the emotion, frustration, stress, and workload involved in defending disputes and in dealing with the consequences, which can include destroying an entire business model.

For businesses making widespread use of independent contractors, all of these concerns are about to get worse.

President Biden’s proposed FY2022 budget includes expanding resources to combat independent contractor misclassification. The Administration’s “commitment” to combatting misclassification is spelled out pretty unambiguously on page 15:

The Administration is also committed to ending the abusive practice of misclassifying employees as independent contractors, which deprives these workers of critical protections and benefits. In addition to including funding in the Budget for stronger enforcement, the Administration intends to work with the Congress to develop comprehensive legislation to strengthen and extend protections against misclassification across appropriate Federal statutes.

The President’s proposal includes $14.2 billion for DOL enforcement efforts, including to “address the misclassification of workers as independent contractors.” This represents a $1.7 billion increase from 2021.

Expect the Department of Labor to place much greater scrutiny on independent contractor relationships than during the Trump Administration. The nomination of David Weil to head up the Wage and Hour Division signals that the President is serious about this enforcement priority. Weil served in the same role under Obama, and he made independent contractor misclassification a focal point of his enforcement efforts.

If your independent contractor arrangements have not been closely examined recently, it’s time for a check up. $14.2 billion for enforcement efforts is a lot of money. I think I’d buy me a football team.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What Are “Contract Workers”? You’ll Need Some Clarification First.

Did you know that Monaco’s flag looks the same as the flag of Indonesia? The differences are subtle. The Indonesian flag is wider, with a width-to-length ratio of 2:3, compared to Monaco’s 4:5; and Monaco flies a slightly darker shade of red. The flag above is Monaco’s. Fans of Indonesia, don’t be fooled by that pushy sales clerk at the flag store.

Now take your screen and flip it 180 degrees. That’s the flag of Poland. Its proportions are 5:8.

Sometimes, things look the same, even when they’re not. True with flags. Also true with “contract workers.”

When a client starts talking about its “contract workers,” the first thing I want to know is what they mean. Are you talking about 1099 independent contractors? Staffing agency workers employed by a staffing agency? Or your own W2 employees with contracts to work for specific period of time?

Each is as different as Monaco and Indonesia.

If discussing 1099 independent contractors, we’re talking about workers that no one is treating as an employee. The legal risk here is independent contractor misclassification. In other words, are laws being broken by not treating these workers as employees?

If discussing staffing agency workers, we’re talking about someone else’s W2 employees. The issue here is not whether these workers are anyone’s employees. We already know they’re the staffing agency’s employees. The legal issue here is whether these workers are joint employees. In other words, are they employees of both the staffing agency and your company?

If discussing your own W2 employees with contracts for a definite period, we’re probably discussing contract terms and we’ll probably need to see the contract. These are employees but not employees at-will.

The flags of Monaco and Indonesia may look the same, but the countries and their laws are very different. Same thing here. These three types of “contract workers” are as different as a European principality with a population of less than 40,000 and a Southeast Asian chain of islands with a population larger than every country on earth except China, India, and the United States.

Yes, Indonesia really does have the world’s fourth largest population. Fun fact! (And one of the world’s most common flags, tied with Monaco and Poland, as you now know.)

If you’re asked about “contract workers,” be sure you know what you’re being asked about. Any of these three types of worker can be called “contract workers,” but they’re very different, and the legal issues involved are very different too.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Independent Contractors May Have a Weil Problem On Their Hands

Crash Test Dummies is a band from Winnipeg that I really like — especially the 1993 album, God Shuffled His Feet. It’s full of thoughtful questions asked in a booming deep voice. The song In the Days of the Caveman takes a look back, with some keen observations added for good measure:

In the days of the caveman
And mammoths and glaciers
Bugs and trees were your food then
No pajamas or doctors

See, that’s all true and probably not something you had thought about before.

President Biden has given us another reason to look back and reconsider some things you hadn’t thought about in a while. Last week, Biden nominated David Weil to serve as Wage and Hour Administrator. Weil served in the same role under Obama, so we’ve seen that movie too.

Here are some highlights from Weil’s last stint as W&H Administrator:

  • Administrator’s Interpretation 2016-1: Joint Employment under the FLSA, which I wrote about here when it was issued. Weil embraces the broadest possible view of joint employment. The Trump Administration’s DOL rescinded this guidance in 2017.
  • Administrator’s Interpretation 2015-1: Applying the FLSA’s “Suffer or Permit” Standard to Independent Contractor Classification, which I wrote about here. Weil advocates an expansive view of employment, declaring that “most workers are employees under the FLSA’s board definitions.”

Here’s what we can expect from Weil 2.0:

  • Increased enforcement activity by the DOL against companies using independent contractors.

Right now, claims generally arise through lawsuits, and class/collective actions present the most danger. The risk of class claims can be limited with arbitration agreements and class waivers. But arbitration agreements provide no defense against a DOL action. Those agreements don’t bind the government. Expect the DOL to go after companies that make extensive use of independent contractors.

  • Increased enforcement activity by the DOL on joint employment claims.

Remember, unlike independent contractor misclassification, joint employment is not illegal. Joint employment is a problem when a primary employer (such as a staffing agency or vendor/subcontractor) fails to comply with some aspect of the FLSA and its wage payment rules. Under a broad theory of joint employment, the company benefitting from the services is going to be liable for the errors of the primary employer, even though the alleged joint employer had no control over the primary employer’s wage practices.

  • New regulations on independent contractor classification and joint employment.

The standards and test keep changing, depending on who holds the White House. One step the Wage and Hour Division can take to try to make its views more permanent is to adopt its views as formal regulations, not just Administrator’s Interpretations. This is what the Trump DOL tried to do for both independent contractor misclassification and joint employment. Expect a strong push by the DOL to adopt new regulations that make it harder to maintain independent contractor status and easier to find joint employment.

The bottom line is that we’re going back in time. Maybe not so far back that bugs and trees were your food then, but back to 2015 and 2016 interpretations of the FLSA. Expect no pajamas or doctors.

What to do about it? Businesses that rely on independent contractors should tighten their agreements now. Businesses that engage staffing agencies should review those contracts now.

These posts contain a few of my favorite tips:

Good luck out there, and beware of mammoths and glaciers.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What Are the I-9 Requirements for Independent Contractors?

The Munker-White Illusion, image by David Novick (UTEP)

This is one of my favorite optical illusions. The spheres here are all beige. They are not red, green, or purple. Look closely and you’ll see. David Novick, a professor of engineering at UTEP, explains the illusion here.

It’s fun to be fooled with optical illusions. But it’s not fun to be fooled with federal immigration law.

Companies retaining independent contractors should remember these key points for I-9s and immigration law compliance:

1. Properly classified independent contractors do not need to complete I-9 forms.

2. Misclassified independent contractor — that is, those who are really employees under federal law — are employees and should have a completed I-9. A multi-factor test is used to make this determination. According to federal regulations, these factors should be considered:

  • Who supplies tools or materials;
  • Whether the worker makes services available to the general public;
  • Whether the worker works for a number of clients at the same time;
  • Worker’s opportunity for profit or loss as a result of labor or services provided;
  • Worker’s investment in facilities for work;
  • Who directs the order or sequence in which the work is to be done; and
  • Who determines the hours during which the work is to be done.

3. Federal law prohibits individuals or businesses from contracting with an independent contractor to provide services in the U.S., knowing that the contractor is not authorized to work in the U.S. [8 U.S.C. 1324a(a)(4)]

4. Staffing agency temps employed by the staffing agency must complete I-9s as employees of the staffing agency. Contracts with staffing agencies should make clear the staffing agency accepts this obligation. If an agency sends a bunch of undocumented temps to your worksite, you might get an unscheduled visit from ICE, which is not a good look.

For those keeping a list at home (wait, that’s just me?), you can add immigration law noncompliance to the list of Things That Can Go Badly When Independent Contractors are Misclassified.

And that’s no illusion.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Schrödinger’s Cat? Ninth Circuit Disrupts Trucking Industry with Contractor Misclassification Ruling

Have you heard of Schrödinger’s cat? It’s not a real cat, like Felix or Brian Setzer. It’s a hypothetical, seemingly impossible cat that exists only in the world of quantum physics. Schrödinger’s cat refers to a thought experiment in which a cat in a box is simultaneously alive and dead, until you open the box and observe the cat. Then, stubborn as cats are, it will be only one or the other, and that’s when you realize you prefer dogs anyway.

In a ruling last week, the Ninth Circuit has tried to give the trucking industry Schrödinger’s cat.

The issue was whether California’s infamous ABC Test applies to the trucking industry. The answer now is both yes and no, depending on where you look.

If you’re in California, the Ninth Circuit says yes, the ABC Test applies to the trucking industry. Under the ABC Test, now part of California’s Labor Code, most workers are classified as employees, not independent contractors, unless the work they perform is “outside the usual course of the hiring entity’s business.” (There’s more to the ABC Test, but that’s Part B, the hardest part to meet.)

In the trucking industry, it’s hard to argue that owner-operator truckers retained by a trucking company are performing work that is “outside the usual course” of the trucking company’s business. The ABC Test would likely reclassify most owner-operators as employees. The California Trucking Association brought a lawsuit in 2018, arguing that the Federal Aviation Administration Authorization Act of 1994 (FAAAA) preempts this California law from being applied to trucking. The FAAAA preempts state laws “relating to a price, route or service of any motor carrier … with respect to the transportation of property.” Cal Trucking argued that applying the ABC Test and reclassifying owner-operators as employees would affect the prices, routes, and services provided.

Last week, the Ninth Circuit ruled that the ABC Test is a “generally applicable” law that does not sufficiently affect prices, routes, or service to be preempted. California’s ABC Test therefore applies to trucking and is not preempted by the FAAAA.

Now remember the cat – both alive and dead?

If you’re in Massachusetts, the answer to the same question is no, the ABC Test does not apply to trucking. In 2016, the First Circuit ruled that the FAAAA preempts Massachusetts’ ABC Test (which is the same as California’s) because of its effect on prices, routes, and service, when applied to trucking.

So what happens now? How can one federal law simultaneously mean two different things?

There are three ways this can play out:

  • The full Ninth Circuit might rehear the case and could reverse its ruling (which was a 2-1 split) to conform with the First Circuit’s view;
  • The ruling might stay as it is, meaning that the interpretation of a federal law (the FAAAA) is different in California and Massachusetts, even though their state ABC Tests are the same; or
  • The Supreme Court will take the case and resolve the circuit split.

I grew up in Miami where they had greyhound racing, which you can bet on. I don’t think there’s anywhere you can go and bet on cats. But if I were a betting man on this one, I’d wager that the Supreme Court weighs in at some point.

The owner-operator model in the trucking industry is so well-established and has been permitted for so long under federal law that it seems impossible for the Supreme Court to allow the FAAAA to mean two different things in two different states.

And what about the rest of the country?

The Third and Seventh Circuits have ruled that the FAAAA does not preempt state wage and hour laws when applied to trucking, but those courts were not considering strict ABC Tests like those reviewed by the First and Ninth Circuits. The ABC Test aims to reclassify most contractors as employees; it is no ordinary wage and hour law. More states are considering adopting strict ABC Tests and, in those states, we don’t know whether the FAAAA would preempt state classification law for truckers or not.

In other words, for most of the country, the cat is both alive and dead, and we won’t know which it is until we look. Unfortunately for tens of thousands of truckers, this is not a mere thought experiment. The disruption to the industry is massive, and the sooner we get a clear answer, the better it will be for everyone. Except maybe the cat.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Kick Back or Kickback? Using Independent Contractors in This Situation is a Felony

With summer coming, you’re probably ready to kick back, to relax. Vacation rentals invite you to kick back and relax. Meditation music invites you to kick back and relax.

But remove the little space between “kick” and “back,” and that’s not something you want at all.

The federal Anti-Kickback Statute makes it a crime to “knowingly and willfully” offer, pay, solicit, or receive any remuneration to induce referrals of items or services reimbursable by Federal health care programs. 42 U.S.C. § 1320a–7b(b).

That means you cannot retain an independent contractor sales agent to refer customers to buy items or services that are reimbursable by Federal health care programs. Paying commissions or any other thing of value for these referrals is illegal. (There are some limited exceptions.)

Violations are a felony, punishable by up to ten years in prison and massive fines. Violations of the Anti-Kickback Statute are also automatic violations of the False Claims Act, 31 U.S.C. § 3729.

The risk of prosecution is real. One recent decision upheld damages and penalties of more then $100 million against a blood testing lab that had retained independent contractor sales agents to provide referrals.

But employees can provide these referrals, even when independent contractors cannot. The Anti-Kickback Statute says it is not a violation when the remuneration is paid to an employee providing services in the course of employment. 42 U.S.C. § 1320a–7b(b)(3)(B). To avoid violating the Anti-Kickback Statute, these sales agents should be classified as employees, not independent contractors.

There are other safe harbors too. Earlier this year, the Department of Health and Human Services adopted a new rule describing these safe harbors, but they are narrow and all conditions must be met. There is a Personal Services Arrangements Safe Harbor that, under some circumstances, will permit payments to an independent contractor agent. You can read more about the new rule here.

Tread very carefully. The penalties for violating the Anti-Kickback Statute are serious. But if you get it right, maybe you can kick back and relax after all.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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