Do Pre-Employment Laws Apply When Running Background Checks on Independent Contractors? (Tip: Instead, Just Ask Edward)

Time traveller independent contractor background check requirements

A time traveler named “Edward” claims to have photographic proof that he is visiting from 5,000 years in the future. According to Metro UK, he described his experience as “unbelievable.” Ponder that.

One of the benefits of time travel is that you’d know if your workers are going commit crimes in the future that could jeopardize your company. With people like Edward in short supply, we are instead forced to try to predict future behavior through more widely accepted methods, like reading tarot cards or performing background checks. (Free tip: pick the latter.)

There are federal and state laws that strictly regulate the processes and procedures for running pre-employment background checks. A Ninth Circuit Court of Appeals decision last week highlights the importance of following all technical requirements, including that employers provide a “clear and conspicuous disclosure” that they may run a background check and that the disclosure is “in a document that consists solely of the disclosure.” In that decision, the court ruled that it’s illegal to provide a disclosure that includes state law disclosures on the same page as the federal disclosure. It is common for employers to combine these disclosures on the same form, so check your forms! I blogged about the ruling here, on BakerHostetler’s Employment Class Action blog.

In contrast, the rules for running background checks on independent contractors are not as strict. The federal law requiring a stand alone disclosure applies only to reports being run “for employment purposes.” Same thing for the pre-adverse action notification requirement. It applies only to reports that are run “for employment purposes.”

Interpreting the “for employment purposes” language, at least three federal courts have ruled that a report on a prospective independent contractor is not being run “for employment purposes” and, therefore, these requirements do not apply to reports being run on independent contractors. (The FTC has issued guidance that the “for employment purposes” requirements do apply to independent contractors, but the courts have so far rejected this guidance as being inconsistent with the language of the statute.)

Some of the requirements in the Fair Credit Reporting Act (FCRA) may still apply, depending on the purpose of the report, but the bottom line is that the rules are different for background checks being run on employees and independent contractors. The FCRA is somewhat complicated, and don’t forget the patchwork of state laws.

There’s also the risk of misclassification — that the independent contractor could be deemed an employee — in which case the FCRA and state law requirements for pre-employment background checks would need to be followed, and the failure to follow them can be costly. The FCRA allows for statutory damages of $100 to $1,000 per violation, plus attorneys’ fees.

So if you’re afraid of a misclassification claim should you just follow the “for employment purposes” requirements anyway? Not necessarily. Though it can be prudent to follow some of the technical disclosure and pre-adverse action requirements that apply to pre-employment checks, be careful about using any forms with independent contractors that say the background check is being run “for employment purposes.” In other words, the forms you are using for pre-employment background checks might not be suitable for use with independent contractors.

This earlier blog post discusses more of the issues (and potential risks) related to running background checks on independent contractors.

There are plenty of good reasons to run background checks on some types of contractors, particularly those who will be entering customers’ homes. The goal, of course, is to try to predict the risk of future wrongdoing. Background checks can be useful for that purpose.

But the only surefire way to know what is going to happen in the future is to ask Edward.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Philadelphia on Feb. 26 or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Five Easy New Years’ Resolutions for Companies That Use Independent Contractors

new years resolutions

Now that the hangover has worn off and the calories have not, it’s time for 2019 New Years’ Resolutions. I know you didn’t ask for help, but you also didn’t not ask.

Here are some suggestions for those of you whose companies rely on independent contractors:

  1. Do you have one of those doorbells you can answer from anywhere? So do I. That’s because we’re cautious (syn., paranoid). Be similarly cautious that your non-legal, non-HR co-workers in management might retain independent contractors without your knowledge. Unleash your inner Anita Ward and make them Ring Your Bell. Set up a gatekeeper system that requires everyone to go through you before they can retain a non-employee worker. But don’t aim little cameras at their desks or you will lose friends.
  2. Update your Independent Contractor Agreements, even if you haven’t been sued yet. I am reminded of the time Bart Simpson exclaimed, “This is the worst day of my life!” and the wise yogi, Homer, responded helpfully, “–the worst day of your life so far.” (Here’s the clip.) Be prepared for if/when you are sued. Use the contract to highlight the facts that support independent contractor status. Be prepared.
  3. Don’t walk slowly in airports. This is (arguably) not directly related to the use of independent contractors, but it is important nonetheless because it drives everyone bonkers when people do it.
  4. Include arbitration clauses with class action waivers. In an alternative universe, your company has been sued by all of your independent contractors in a class action. In your reality, the contractor’s requirement to go at it alone in arbitration convinces your contractor that it’s not worth the effort to sue you, making you — who inserted the arbitration clause — the hero!
  5. Try this exercise: Do a simple self-audit. Check your company’s list of 1099 recipients for 2018 and see how many are individuals with SSNs, rather than entities with EINs. A long list with the names of a lot of individuals may be a sign that there are some independent contractor issues. That little exercise won’t burn off a single cookie, but it’s nonetheless a simple way to try to get a sense of how many independent contractors your business may have. The number is often greater than people realize.

Wishing you all a happy and healthy 2019!

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Orlando on Jan. 24, Philadelphia on Feb. 26, or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What It Means to “Suffer” in California, Independent Contractor Version

suffer or permit to work California

This article describes how gestures that are common in the U.S. can have very different meanings abroad. For example, the “ok” finger gesture is a vulgar bodily reference in Brazil, Germany, and Russia. (Not ok!) The thumbs up gesture in Greece or the Middle East can mean “up yours!” The University of Texas’s “hook ‘em horns” gesture in Italy means you’ve been cuckolded — your wife is cheating on you.

Same thing, different meaning.

To employers, California often feels like a foreign country. It has some of the most employee-friendly laws in the nation, creating migraines for multi-state employers. When it comes to interpreting legal phrases, California lives up to its reputation, especially in the Employee vs. Independent Contractor context.

Today we look at California’s definition of “employ” as it relates to determining whether someone is an employee or an independent contractor.

California’s wage and hour laws are set forth in the state’s Industrial Wage Orders, a bulky set of directives that set the rules for minimum wage, overtime, meal and rest breaks, and various record keeping requirements for California employers. These rules apply only to employees, not independent contractors, but the test for determining Who Is My Employee? in California is different than under any federal law.

California’s Industrial Wage Orders use the same language to define “employ” as used in the federal Fair Labor Standards Act (FLSA). But fittingly, the Republic of California applies a different meaning to the same phrase.

California’s wage and hour laws provide three alternative definitions for “employ”: (1) to exercise control over the wages, hours, or working conditions, (2) to suffer or permit to work, or (3) to engage, thereby creating a common law employment relationship.

The FLSA also defines “employ” as “to suffer or permit to work.”

On Monday, we described how the FLSA’s “suffer or permit” standard is applied when determining whether someone is an employee or an independent contractor.

Today’s post describes California’s test for the same phrase. It’s different. Hook ‘em horns.

Historically, California courts have rejected the federal interpretation of “suffer or permit” as not being broad enough. California courts interpret the phrase more literally. If you permit someone to work, that person is likely your employee.

In April 2018, California’s Supreme Court set up a test that cemented that expansive interpretation into law.

In Dynamex Operations West v. Superior Court, the California Supreme Court ruled that, to determine whether someone is an employee or an independent contract, an ABC Test must be used.

An ABC Test sets a higher bar than a Right to Control Test or an Economic Realities Test. It also sets a higher bar than California’s S.G. Borello test, which is the hybrid Right to Control/Economic Realities Test that California had been using since 1989 to answer the Employee vs. Independent Contractor question.

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

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

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

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

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

As of now, the Dynamex test applies only to claims brought under California wage orders, we think.  These claims generally include minimum wage, overtime, and meal and rest break claims. So far, this test does not appear to apply to claims such as failure to reimburse expenses or failure to provide employee benefits.

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

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Pain, Humiliation & Self-Pity: How Does the Definition of “Employ” Relate to Independent Contractor Misclassification?

Suffer or Permit to Work FLSA Definition of Employ

According to the New World Encyclopedia, examples of “suffering” include pain, illness, disability, hunger, poverty, grief, hatred, frustration, heartbreak, guilt, humiliation, anxiety, loneliness, self-pity, and death.

According to federal wage and hour law, “suffer” means employment.

Ouch. Happy Monday.

One of the many problems with the Fair Labor Standards Act (FLSA) — the federal law that sets minimum wage and overtime standards — is that it’s archaic, outdated, old. It was passed in 1938.  Before Hitler invaded Poland.  Before the first Captain America comic book. Even before the invention of the Slinky.

In 1938, Mick Jagger wasn’t even born yet. (But Betty White was 16.)

The language used in the FLSA reflects a different era. In the definitions section of the Act, “employ” includes “to suffer or permit to work.” What exactly does that mean? At the time it was written, what did Congress intend for it to mean? And what does it mean now, in the modern economy, especially when trying to determine whether a worker is an employee or an independent contractor?

According to the FLSA regulations, if “the employer knows or has reason to believe that [the individual] is continuing to work,” then the time is working time. It’s employment. Even work that is “not requested” is work time if the employer permitted the work to be done.

When asking the question, Who Is My Employee?, this broad definition presents a challenge. As the Supreme Court has recognized, this definition is broader than the ordinary “common law” definition of employment, which looks at the extent of control the employer exercises (or has the right to exercise) over the worker. That’s the Right to Control Test, which is discussed in more detail here.

Because the definition of “employ” is different under the FLSA than under most other employment laws, the test for determining Who Is My Employee? is different too.

The FLSA uses an Economic Realities Test to determine whether a worker is an employee (as compared to an independent contractor).

The Economic Realities Test is expressed slightly differently by different federal courts but, in general, the test asks whether the worker is economically reliant on the potential employer to earn a living. If economically reliant, the worker is likely an employee. If the worker has other sources of income or is business for himself/herself, the worker is more likely an independent contractor, not an employee.

The Economic Realities Test is described in more detail here.

So that’s how the federal courts interpret the “suffer or permit to work” language in the FLSA. But to keep things interesting, California’s wage and hour laws use the same “suffer or permit” language in its state law definition of “employ,” but California interprets that phrase differently and imposes a different test. Same standard, different test.

As we will discuss in Thursday’s post, California’s alternative interpretation of that same phrase can lead to very different results when evaluating whether someone is an employee or independent contractor.

It’s California’s definition — more than the federal definition — that is more likely to cause pain, illness, disability, hunger, poverty, grief, hatred, frustration, heartbreak, guilt, humiliation, anxiety, loneliness, or self-pity. To the Golden State’s credit, though, probably not death. Good job, California.

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

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Village People’s Construction Worker Character Wins! Court Expands OSHA Liability for General Contractors

Village People from Wikipedia 1978

The Village People (1978), from Wikipedia

According to the Official Website of the Village People, the group’s original lineup included Disco King, Construction Worker, Cowboy, Leatherman, Indian, and two “Nondescripts.” They were later joined by Cop, G.I., and Biker. Keeping with the times, as we know the Village People do, the costume formerly known as Indian has been rebranded as Native American. (True!)

But Cop or No Cop, Biker or No Biker, there has always been a Construction Worker since the band’s founding in 1977.

A recent court case involving construction workers tests whether a general contractor in control of a worksite (we’ll call him “Macho Man,” after the 1978 hit) has a legal duty to protect another contractor’s employee (we’ll call him “Hot Cop,” after a different 1978 V.P. tune), when none of Macho Man’s own employees are at risk.

The issue arose during a library construction project in Austin, Texas. One subcontractor refused to allow its employees to work near a 12-foot high wall of dirt that had not been properly sloped or reinforced. A citation was issued to the general contractor for allowing the unsafe condition, but it was undisputed that none of the general contractors’ own employees were endangered by the wall of dirt.

“Why does that matter?” you might be asking.

Although the condition was a violation of the Occupational Health and Safety Act (OSHA), the Fifth Circuit Court of Appeals had taken the position since 1981 (when the V.P. released the album, Renaissance) that “OSHA regulations protect only an employer’s own employees.”

The Court’s ruling earlier this week abandoned that rule, instead finding that a general contractor could be cited under OSHA for allowing an unsafe condition that affected only the employees of another contractor.

In response to the Court’s ruling, the Village People have reportedly abandoned plans to introduce a nebishy Health Inspector character on their next tour.

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

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A Christmas Poem: ‘Twas the Night Before an Independent Contractor Misclassification Ruling

‘Twas the night before Christmas, when all through the nation,
Plaintiffs’ lawyers were alleging independent contractor misclassification;

The businesses’ owners hung by their lawyers with care,
In hopes they could prove that all claims were threadbare;

The workers were all independent contractors, we said,
But the plaintiff was claiming to be an employee instead.

Contracts were reviewed; deposition transcripts were read,
And visions of a dismissal entry danced in our heads.

The judge in her robe, and I in my suit,
Feeling confident our side could win this dispute—

We argued that the facts proved no right to control;
None of the workers were on the payroll.

They could bring their own tools and could hire assistants;
They had formed LLCs and had other means for subsistence.

They only accepted the jobs they desired;
They never were hired. No application required.

We felt pretty good that when the facts were applied,
The judge would agree that no contractors were misclassified.

We filed our motion for summary judgment and waited.
The ruling was issued, and we all were elated.

The court weighed the factors. Nothing was missed.
The workers were contractors. Case dismissed.

Thank you, dear readers. I hope you like what I write.
Happy Christmas (and Hanukkah) to all, and to all a good night!

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

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NYC May Expand Anti-Discrimination Law to Cover Contractors, Interns

NYC anti discrimination gapI will admit, without shame, that in the 1980s, I loved the Gap Band. Songs like “You Dropped a Bomb on Me” and “Burn Rubber on Me” were just plain fun to listen to. Tip: Try it!

The band’s name didn’t refer to any actual gap — the name comes from the first letters of streets in Tulsa, Oklahoma — but I do know there are many gaps in anti-discrimination law, leaving some types of workers without adequate protection.  

The federal laws that prohibit discrimination in employment, like many (but not all) state laws, protect only employees. That leaves a gap. Independent contractors and interns who have been discriminated against may have no recourse.

The New York City Council is trying to close that gap.

In the same bill we excoriated on Monday for unfairly attacking the franchise model, the New York City Council also proposes to expand the protections of the City’s anti-discrimination law (section 8-107 of the Administrative Code) to protect independent contractors and interns, not just employees. 

Closing that gap makes sense. Hopefully this bill will be amended to keep the parts that expand anti-discrimination protection to non-employee workers (a good idea), while removing the parts that would expand liability to companies not responsible for the discrimination (a bad one).

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

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