Category Archives: Non-Employee Workers

07.10.23
by

Not 1925: Another Court Upholds Arbitration Agreement for Rideshare Driver Misclassification Disputes

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 The application of outdated laws is something we deal with all the time, including with the Fair Labor Standards Act, enacted in the 1930s.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.”

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

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
06.19.23
by

No Need to Panic: NLRB’s Atlanta Opera Decision Unlikely to Have a Major Impact on Misclassification Disputes

Photo by Kilyan Sockalingum on Unsplash

As I wrote a few days ago in the BakerHostetler blog, The Bargaining Table…

The sky is not falling.

When the National Labor Relations Board (NLRB or Board) issued its Atlanta Opera decision on June 14, I read the decision. Then I read some of the commentary issued quickly by news outlets right after the decision dropped. I’m not sure whether all of those commentators read the actual decision. To those who think this decision will have any significant impact on independent contractor classification under the National Labor Relations Act (NLRA or Act), I disagree.

In Atlanta Opera, the Board purported to revise the test for determining employee status under the Act. The Board said it was overruling the 2019 SuperShuttle DFW case and readopting the FedEx II standard from 2014. But is there really any practical difference? I think not.

Click here to read the full story.

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

2018_Web100Badge
 
06.12.23
by

What Is a “Borrowed Employee” (and Should You Run Runaway)?

The album Old New Borrowed and Blue was released in 1974 by the British rock band Slade. It reached No. 1 on the UK albums chart. Slade recorded the album shortly after a near-fatal car crash involving drummer Don Powell, who played drums on the album despite walking with a cane and needing to be lifted onto his drum stool.

For whatever reason, Slade doesn’t get much air play on classic rock stations in the US. I remember the songs “Run Runaway” and “My Oh My,” both released in 1984, but I don’t remember hearing much more from Slade.

Getting back to Old New Borrowed and Blue, the “Borrowed” portion of the title refers to the fact that at least one song, “Just Want a Little Bit,” was a cover. It wasn’t Slade’s song, until it was. They borrowed it and made it their own.

Can the same thing happen in employment settings? Yes, it can.

We often consider the concept of joint employment, but did you know there’s also a doctrine called the “borrowed employee” doctrine?

What is a “borrowed employee,” and why does it matter?

The concept of “borrowed employee” arises in negligence cases involving vicarious liability. The “borrowed employee” doctrine is a defense that can be asserted if an injured employee at one company alleges that an employee of another company negligently caused the injury. If your employees ever provide services for another company, pay attention.

We saw this doctrine in action earlier this month, in a case before the New Jersey Supreme Court. Pantano v. New York Shipping Association.

Philip Pantano, a mechanic employed by Container Services of New Jersey (CSNJ) had his foot crushed and amputated following a workplace accident. Pantano alleged that an employee of a different company, Marine Transport (MT), was negligent and caused the injury. Pantano claimed that MT was vicariously liable for that employee’s negligence and should have to pay for the damages. A jury agreed and awarded Pantano $861,000, on top of his workers’ compensation recovery.

The issue that went before the New Jersey Supreme Court centered around whether MT could be held vicariously liable for its employee’s negligence. The answer would depend on whether the MT employee who caused the accident was deemed a “borrowed employee” of CSNJ when the accident occurred. If MT could prove that the MT employee who caused the injury was a borrowed employee of CSNJ at the time of the accident, then MT is not vicariously liable, even though the worker was being paid by MT and was MT’s W2 employee.

The borrowed employee doctrine is a creation of state law. In New Jersey, there’s a two-part multi-factor test to determine whether someone is a “borrowed employee” for purposes of vicarious liability.

The first part of the test looks at control, which can be demonstrated through “direct evidence of on-spot control” or broad control based on method of payment, furnishing equipment, or having the right of termination. If the primary employer has control over the worker, then we go to part two of the test.

The second part of the test is the “business furtherance” prong. If the worker was furthering the primary employer’s business when committing the negligent act, then the primary employer is vicariously liable. “Business furtherance” is established under NJ law if (1) the work being done is within “the general contemplation” of the primary employer’s business, and (2) the primary employer derives economic benefit by loaning its employee.

Applying the test, a jury is supposed to determine whether the employee was acting on behalf of the primary employer, or was acting as a borrowed employee of the secondary employer, or if both are responsible.

Tip: It is in a primary employer’s interest to show that its loaned employee was acting as a “borrowed employee” of the other company at the time of the accident, if the injured employee was also employed by that other company.

Here’s why. If the employee who caused the accident was acting as a “borrowed employee” of the company that employed the injured worker, then the injured worker’s remedy is limited to workers’ compensation law. But if the accident was caused by the negligence of another company’s employee (and the worker is nit a “borrowed employee”), then the injured worker can bring a negligence claim against that other company.

If all of this is making your head hurt, remember a few things here:

1) When you lend an employee, make sure there’s worker’s compensation coverage all around.

2) When you lend an employee, make sure you have a well drafted agreement between the two companies. Allocation of risk should be addressed in advance.

Borrowing employees is commonplace. If you plan in advance, the arrangement can work well for both companies, and there’s no need to Run Runaway.

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

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
06.05.23
by

Should Independent Contractors Receive an Employee Handbook? (Don’t Ask Rojakorn)

Rojakorn Nanon is a businessman in Thailand. He used to feel weak and tired but then started drinking something each day that wakes him up and gives him energy.

Thailand, you see, is one of the top 25 coffee producers in the world, growing mainly arabica beans (the good kind) in the north and robusta beans (icky bitter) in the south. It would not be surprising if our friend Rojakorn discovered the wonders of a morning cup of coffee.

But no.

Twice each day, Rojakorn drinks crocodile blood mixed with alcohol. He gets the concoction from a nearby crocodile farm owner (largest croc farm in Trang province!), who sells the wonder drink for 200-300 baht per glass, about $6-9. A latte would be cheaper, even with a few extra shots, and it would be a much more traditional way to stay focused at work. When you live in a country where coffee is plentiful, there’s no need to think so far outside the box.

The same advice applies when addressing this commonly asked question: Should I give the company’s employee handbook to independent contractors?

The answer is almost always no. Don’t think outside the box on this one. An employee handbook is for employees. It explains employment policies. It provides detail about employees’ attendance rules, vacation time, leaves, exempt/non-exempt classification, and other terms that apply only to employees. These items don’t apply to independent contractors, and if you’re telling your independent contractors that you expect them to follow the policies in the handbook, you may be suggesting that all sorts of things apply them that should not apply to them.

Yes, it’s true that there are some workplace rules you’ll want your contractor to follow. Your discrimination and harassment policies, for example, can and should apply to contractors. But most of that other stuff doesn’t apply. You can include a clause in the independent contractor agreement that the contractor will not engage in any unlawful discrimination or harassment. A simple contractual requirement should be sufficient. Or you can provide a standalone copy of that policy, but you may need to modify it a bit to remove inapplicable parts or to change the terminology.

Many large companies, especially global companies, have Codes of Conduct that apply to vendors and suppliers. You can give those to independent contractors. They are intended to apply to non-employees, and they are written in a way that does not suggest an employment relationship.

You can also subject a contractor to premises rules that do not include control over how the work is done. You could require a contractor to comply with a weapons rule or a violence rule. You could require a contractor to comply with a rule prohibiting unauthorized visitors onsite. But don’t provide the full list of employee workplace rules that may be attached to your disciplinary policy, since many of those prohibitions are specific to employees.

When it comes to employee handbooks and independent contractors, keep it simple. Employee handbooks are for employees. In this situation, there’s no need to think outside the box.

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

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
05.30.23
by

In the Staffing World, What Is MSP and VMS, and How Can they Help?

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.

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

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
04.10.23
by

No Suction: The DOL Doesn’t Care About Your Arbitration Agreements with Independent Contractors

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.

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

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
03.26.23
by

You Get What You Need: Prop 22 Upheld, and It’s a Model Other States Should Follow

The Rolling Stones’ song, “You Can’t Always Get What You Want” features the London Bach Choir and addresses the predominant themes of the 1960s — love, protest, and drugs. There’s some controversy as to whether Mr. Jimmy refers to vagrant Minnesotan Jimmy Hutmaker, who supposedly uttered the famous lyric-to-be during a chance 1964 encounter with Jagger at Bacon’s Drugstore, or Jimmy Miller, a record producer who also played drums on this track instead of Charlie Watts.

“You Can’t Always Get What You Want” is also a suitable theme for the main problem that dominates every aspect of independent contractor misclassification. The problems is that the laws are binary. A worker is either an employee who receives all of the protections of employment laws, or an independent contractor, who receives none. The exceptions creating a middle ground have been sparse.

But if you try sometimes.

California voters tried and succeeded in creating a middle ground in 2022, when they passed Prop 22. Prop 22 guarantees independent contractor status for rideshare and delivery drivers if a series of conditions are met, and then the app companies are required to provide a range of protections for drivers, including minimum rates of pay, a health insurance stipend, accident insurance, sexual harassment prevention, safety training, and rest requirements.

Prop 22 was and is a model for the middle ground that has been missing.

But Prop 22 has also been under attack. In a case called Castellenos, the SIEU and other worker advocates have argued that Prop 22 violates the California constitution and had to be invalidated. Without Prop 22, rideshare and delivery drivers could be subjected to California’s ABC Test for determining drivers’ status.

As you may have read, a California Court of Appeals ruled earlier this month that Prop 22 did not violate the California Constitution and could take effect, except for one small part of the law governing future amendments. The dispute will likely be heard by the California Supreme Court, so the fight isn’t over.

The point I want to make, though, is that Prop 22 carves out a middle ground that should be a model for other states to follow. It guarantees workers certain protections while allowing them to operate their own businesses as independent contractors.

The unions and worker advocates calling for the protection of worker rights routinely ignore the surveys showing that a vast majority of drivers prefer independent contractor status. Much of the noise on this issue is coming from a vocal minority.

The Prop 22 model is a middle ground that provides workers with protections they otherwise lack, while allowing workers to retain their preferred independent contractor status and flexibility.

We’ll continue to watch whether the California Supreme Court decides to hear this dispute but, either way, Prop 22 should be held up as a model for other states to follow, carving out a middle ground that balances the concerns of all sides. Worker status does not have to be binary. Binary laws that mandate employee or independent contractor status, with no middle ground, do not reflect the realities of the modern gig economy.

It’s time for reform.

You can’t always get what you want. But if you try sometimes, well, you just might find, you get what you need.

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

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
03.26.23
by

You Get What You Need: Prop 22 Upheld, and It’s a Model Other States Should Follow

The Rolling Stones’ song, “You Can’t Always Get What You Want” features the London Bach Choir and addresses the predominant themes of the 1960s — love, protest, and drugs. There’s some controversy as to whether Mr. Jimmy refers to vagrant Minnesotan Jimmy Hutmaker, who supposedly uttered the famous lyric-to-be during a chance 1964 encounter with Jagger at Bacon’s Drugstore, or Jimmy Miller, a record producer who also played drums on this track instead of Charlie Watts.

“You Can’t Always Get What You Want” is also a suitable theme for the main problem that dominates every aspect of independent contractor misclassification. The problems is that the laws are binary. A worker is either an employee who receives all of the protections of employment laws, or an independent contractor, who receives none. The exceptions creating a middle ground have been sparse.

But if you try sometimes.

California voters tried and succeeded in creating a middle ground in 2022, when they passed Prop 22. Prop 22 guarantees independent contractor status for rideshare and delivery drivers if a series of conditions are met, and then the app companies are required to provide a range of protections for drivers, including minimum rates of pay, a health insurance stipend, accident insurance, sexual harassment prevention, safety training, and rest requirements.

Prop 22 was and is a model for the middle ground that has been missing.

But Prop 22 has also been under attack. In a case called Castellenos, the SIEU and other worker advocates have argued that Prop 22 violates the California constitution and had to be invalidated. Without Prop 22, rideshare and delivery drivers could be subjected to California’s ABC Test for determining drivers’ status.

As you may have read, a California Court of Appeals ruled earlier this month that Prop 22 did not violate the California Constitution and could take effect, except for one small part of the law governing future amendments. The dispute will likely be heard by the California Supreme Court, so the fight isn’t over.

The point I want to make, though, is that Prop 22 carves out a middle ground that should be a model for other states to follow. It guarantees workers certain protections while allowing them to operate their own businesses as independent contractors.

The unions and worker advocates calling for the protection of worker rights routinely ignore the surveys showing that a vast majority of drivers prefer independent contractor status. Much of the noise on this issue is coming from a vocal minority.

The Prop 22 model is a middle ground that provides workers with protections they otherwise lack, while allowing workers to retain their preferred independent contractor status and flexibility.

We’ll continue to watch whether the California Supreme Court decides to hear this dispute but, either way, Prop 22 should be held up as a model for other states to follow, carving out a middle ground that balances the concerns of all sides. Worker status does not have to be binary. Binary laws that mandate employee or independent contractor status, with no middle ground, do not reflect the realities of the modern gig economy.

It’s time for reform.

You can’t always get what you want. But if you try sometimes, well, you just might find, you get what you need.

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

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
03.20.23
by

Could California’s AB 5 Get Cut Off? Ninth Circuit Ruling Keeps Case Alive

When I hear the name Lorena, my mind automatically goes back to 1993, which is probably true for many men about my age. That’s the year when Lorena Bobbitt brought a kitchen knife into the bedroom and cut off her husband John’s member while he was sleeping. She then tossed it in a field near the house, alerted police where to find it, and became an overnight celebrity for having taken revenge after years of alleged domestic abuse.

John later tried to cash in on the detachment, forming a band called The Severed Parts and appearing in two pornos called John Wayne Bobbitt Uncut and Frankenpenis.

It was a different Lorena who grabbed headlines last week, when the Ninth Circuit Court of Appeals considered whether it’s unconstitutional to pass a law because of personal animus.

The law is California’s AB 5, and the Lorena is former California assemblywoman Lorena Gonzalez. As a quick refresher, AB 5 is the California law that imposed a hard-to-satisfy ABC Test for determining independent contractor status. Lorena Gonzalez, a driving force behind the bill, was vocal in her animus toward rideshare and delivery app companies.

In Olson v. California, the rideshare and delivery app companies sued to invalidate AB 5, arguing that the law contained dozens of exceptions targeted toward a grab bag of industries, and their exclusion from the list of exemptions was due to animus toward them, rather than reason.

This might have been a hard argument to make, but for Lorena. Congresswoman Gonzalez made frequent public statements against rideshare and delivery companies, claiming they mistreated workers by not classifying them as employees. Gonzalez said she was open to including exceptions in the bill, but not for these companies. The legislature then passed an exemption for other referral-based app businesses, but not rideshare or delivery, even though the business models are basically the same. A few other vocal lawmakers joined Gonzalez with similar public statements targeting the rideshare and delivery app companies. It’s the old familiar “[insert name] said the quiet part aloud” story.

Last week the Ninth Circuit ruled that personal animus is not a legit reason to pass a law. The Court wrote, “We are persuaded that these allegations plausibly state a claim that the ‘singling out’ of Plaintiffs effectuated by A.B. 5, as amended, fails to meet the relatively easy standard of rational basis review.” The Court was referring to the standard used for evaluating equal protection claims under the Constitution. It does not advance a governmental interest to pass a law out of a desire to harm a politically unpopular group of citizens.

The Court’s ruling did not overturn AB 5. The ruling sent the case back to the district court, which will have to reopen the case against AB 5.

For now the law remains in effect, and there is no immediate impact to businesses in California. But the fight to overturn AB 5 has fresh legs and some momentum.

In other words, businesses in California are still subject to the ABC Test — unless you’re a licensed insurance business or individual, physician, surgeon, dentist, podiatrist, psychologist, veterinarian, lawyer, architect, engineer, private investigator, accountant, registered securities broker-dealer or investment adviser, direct sales salesperson, commercial fisherman working on American vessels for a limited period, marketer, human resources administrator, travel agent, graphic designer, grant writer, fine artist, payment processing agent, still photographer or photo journalist, freelance writer, editor, or cartoonist, licensed esthetician, electrogist, manicurist, barber, cosmetologist, real estate licensee, repossession agent, recording artist, songwriter, lyricist, composer, proofer, manager of recording artists, record producer or director, musical engineer or mixer, vocalist, musician engaged in the creation of sound recording, photographer working on recording photo shoots or album covers, independent radio promoter, newspaper distributor working under contract with a newspaper publisher, newspaper carrier working under contract either with a newspaper publisher or newspaper distributor, contracting party in certain types of business-to-business relationships, or referral agency other than for rideshare or delivery — all of which are subject to possible exemptions.

And so you can see the point. The exemptions are a mishmosh created by special interests and lobbying efforts, with no coherent overall theme — except to make sure rideshare and delivery apps are subject to the ABC Test.

We’ll continue to follow this case. Meanwhile, if you’d like to read more about the original Lorena and the incident, there’s a Lifetime movie, an Amazon docuseries, and a whole bunch of articles.

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

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 
03.06.23
by

Say What? Would the FTC Noncompete Ban Apply to Independent Contractors?

Her poor family and dog.

When writing, precision is important. So is grammar. A missing comma can change the entire meaning of a sentence, as Ms. Ray’s possibly sautéed relatives can attest, once they have been sufficiently glazed and garnished.

When used properly, commas can separate multiple items in a series. And in the FTC’s proposed new noncompete rule, when it comes to defining “worker,” there are multiple items in a series.

So let’s get right to it: Would the FTC’s proposed rule prohibit non-competes with independent contractors?

Yes, if the independent contractor is a “natural person.”

The rule covers restrictions on individuals, not entities. The rule covers contracts with individuals, not entities. The rule would not affect non-competes with a single member LLC, if you contracted with the entity. You could still prevent the entity from competing since the entity is not a natural person. (At least, under the proposed version.)

But remember, a non-compete with an LLC probably would not prevent the individual from competing as an individual or under the banner of a different single member LLC. If the contract attempted to restrict the individual too, the proposed rule would likely apply to that restriction.

Here’s how the proposed rule defines worker — with lots of commas:

(f) Worker means a natural person who works, whether paid or unpaid, for an employer. The term includes, without limitation, an employee, individual classified as an independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a client or customer.

There are a few other things you need to know.

What would be prohibited? The rule would prohibit employers from:

  • entering into or attempting to enter into a noncompete with a worker;
  • maintaining a noncompete with a worker; or
  • representing to a worker, under certain circumstances, that the worker is subject to a noncompete.

The rule would also require an employer to rescind existing noncompetes and provide individual notice to each worker with a noncompete that it’s no longer active.

Will the rule go into effect? I doubt it.

The FTC will almost certainly pass the rule, or a similar version of the rule, after the public comment period expires. But the rule will then get blocked by the courts as an overreach of the FTC’s authority. Under several legal doctrines, including the major questions doctrine recently adopted by the Supreme Court, a nationwide ban on non-competes is almost certainly action that only could only be taken through Congressional legislation, not by an agency.

What should companies do regarding noncompetes with their independent contractors?

First of all, in most cases you shouldn’t have noncompetes with independent contractors. If the contractor is working on something proprietary and confidential, then maybe. But ordinarily, you should think of your contractor as an independent business that is free to compete in the marketplace. A non-compete clause in an independent contractor agreement could be used to argue that the contractor is misclassified, since non-competes are more characteristic of an employment relationship.

Second, this proposed rule provides another reason that it’s generally best practice is to contract with an entity, not an individual.

Third, I probably wouldn’t do anything right now. Let’s see how this develops. While I expect states to continue to pass legislation that bans or restricts the use of noncompetes, I do not believe the FTC has the same authority. I do not expect this rule ever to take effect. For more Q&As about the proposed rule, click here.

But Todd, what about the songs?

Some of you have reached out to tell me you like the 70s and 80s song references. For today, I would recommend Comma Chameleon by Culture Club, Comma Get Your Love by Redbone, and Comma Eileen by Dexy’s Midnight Runners. You’re welcome.

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

© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge