Don’t Get Armboxed: Strict ABC Test Results in $100 Million Misclassification Liability

In Russia, a new variant on boxing involves chaining the two combatants to opposite sides of a podium, with one arm of each boxer immobilized. They then pound each other with the remaining good arm and, because they’re tied to the podium, they have nowhere to go.

The contests, called armboxing, last for three one minute rounds. If the fighters last two rounds, their arms are both freed up for round three, but the boxers remain chained to the podium.

Getting pummeled with nowhere to go is also a fair way to describe Uber’s most recent run-in with the New Jersey Department of Labor over unpaid unemployment contributions. The NJDOL claims that under the Strict ABC Test governing New Jersey unemployment law, rideshare drivers are employees, not independent contractors.

The NJDOL pursued Uber and a subsidiary for failing to pay into the state’s unemployment fund over a five-year period, 2014-2018.

Last week, the NJDOL announced a settlement with Uber to cover the unpaid assessments – for a cool $100 million. The amount was based on $78 million in unpaid contributions plus $22 million in interest. Uber has made the payment but did not concede there was any misclassification.

New Jersey uses a strict ABC Test to determine employee status for unemployment coverage, but uses a different version of the ABC Test for wage and hour law. The strict ABC Test used for unemployment law follows the same formula as the tests in Massachusetts and California. The danger in these tests, of course, lies in prong B, which requires that to be an independent contractor, the work being performed must be “outside the usual course” of the hiring party’s business.

State departments of labor are notoriously aggressive in pursuing misclassification, and courts often defer to their judgment, even if the facts could support independent contractor status. The NJDOL is among the most aggressive enforcers, as you might expect when its Labor Commissioner says this: “Let’s be clear: there is no reason temporary, or on-demand workers who work flexible hours, or even minutes at a time can’t be treated like other employees in New Jersey or any other state.”

For businesses using independent contractors, tools such as arbitration agreements with class action waivers can be effective in preventing class action litigation. But arbitration agreements can’t stop a state agency from conducting an audit and imposing its own penalties for noncompliance.

And that’s how Uber found itself tied to a podium with one arm immobilized as it got hit.

Businesses in states using strict ABC Tests need to be particularly careful when setting up their business plans, their contracts, and their external messaging. State audits can be random, or they can be initiated after a worker complaint.

Unemployment filings by independent contractors can be especially dangerous. State departments of labor will typically investigate those claims, assess whether the worker is misclassified and — most troubling of all — will find that if the one worker was misclassified, then all similarly situated workers were also misclassified. The state DOL may then issue back assessments based on its assumptions about how many workers are similarly situated and how many were therefore misclassified.

When an independent contractor files an unemployment claim, pay attention and be prepared to defend your classification decision. Merely denying that the worker was an employee may not be enough, and a full-fledged audit could follow. In a full-fledged audit, the stakes can be high, and it might not feel like a fair fight.

Be proactive, plan ahead, and don’t chain your business to a podium.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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NLRB’s Proposed New Joint Employment Rule: Same But Different

[Reposting with revised link to the article, not behind paywall]

When I was 5 years old, and my sister was 3, the rule was that we had to be in our rooms by 8 p.m.

We followed that rule, but in our own way. We’d put on our pajamas, say good night and go into our rooms. But then we would lie down on the carpet at the very edge of our rooms, with our bodies still in the room and our heads in the hallway so we could talk.

In the strictest sense, we followed the rule. But we did it in our own way, to serve our own purposes. In essence, we chose to define what it means to be in our rooms.

The same sort of rulemaking is happening at the National Labor Relations Board on the subject of defining joint employment.

Click here to read the rest of this article, published 9/12/2022 in Law360.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved. This article originally published on Law360, 9/12/2022.

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Are Independent Contractors Entitled to Military Leave? Eggcellent question!

Worker protection laws are a bit different in China.

According to this report, a Chinese company forces its employees to eat raw eggs as punishment if their work does not meet expectations. When one intern complained, the HR Manager allegedly responded, “What law is preventing you from eating a raw egg?”

Even if the company’s motivational techniques could be challenged under Chinese labor law, Chinese legal experts caution that the intern is probably not the right person to complain. His unpaid internship apparently doesn’t make him an employee under Chinese law. And there it is: The age old question of Who Is My Employee? is a thing in China too.

Back in the U.S., we know that the employee vs. independent contractor question makes all the difference in whether several types of employment, tax, and benefits laws apply. But what about military leave law?

Under the Uniformed Services Employment and Reemployment Rights Act (USERRA), employees are guaranteed reinstatement and other job protection rights after taking military leave. And employers must grant military leave when requested.

Do the same protections apply to independent contractors?

According to federal regulations, the answer is no — so long as the contractor is properly classified as a contractor.

Under USERRA, independent contractor status is evaluated using a Right to Control Test. The regulations say these six factors should be considered:

1.       The extent of the employer’s right to control the manner in which the individual’s work is to be performed;

2.       The opportunity for profit or loss that depends upon the individual’s managerial skill;

3.       Any investment in equipment or materials required for the individual’s tasks, or his or her employment of helpers;

4.       Whether the service the individual performs requires a special skill;

5.       The permanence of the individual’s working relationship; and,

6.       Whether the service the individual performs is an integral part of the employer’s business.

No single factor is controlling, but all are relevant for determining whether an individual is an employee or an independent contractor.

As with so many other laws, it’s not enough just to assume USERRA doesn’t apply because a worker is classified as an independent contractor. The workers has to be properly classified as an independent contractor, according to the test that applies to that particular law.

Getting it wrong means failure to comply with military leave law. That sounds unpatriotic and unfair. And it could leave you with egg on your face.

[Note to self for future blog post idea: Can you require independent contractors to eat raw eggs in the U.S.?]

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Smackdown, Live!: Joint Employer Test Must Consider ‘Reserved or Indirect Control,’ D.C. Circuit Rules

Picture Source: nypl.org

In 2009, the James Brown compilation album The Godfather’s Smackdown, Live! was released. It’s a two-disc compilation of live shows from 1980. I never saw James Brown live, but I did see James Brown’s Celebrity Hot Tub.

The D.C. Circuit Court of Appeals issued a different kind of smackdown, chastising the National Labor Relations Board (NLRB) for ignoring the Circuit Court’s earlier directive about the joint employer test. Believe it or not, this case is another chapter in the ongoing Browning-Ferris saga.

Click here to read the rest, originally posted on the BakerHostetler Employment Law Spotlight blog.

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Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment.

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Yes, This Applies to You: Why Non-Union Employers Should Be Concerned with the NLRB’s View On Worker Misclassification

Good news for old passengers traveling to New York!

The caption above may be too small to read, but it’s from a recent New York Times article about updates to the airport. The caption says, “An old passenger walkway in the process of being demolished at La Guardia Airport.”

You might not think this applies to you, but I say it’s about time! The idea of a walkway for old passengers doesn’t seem right, and old passengers should be allowed to use the same walkway as everyone else.

Another area where I sometimes hear “this doesn’t apply to me” is when we talk about the National Labor Relations Board’s views on independent contractor misclassification. But even if your business is union-free (meaning no union, not that the union is complimentary), the NLRB’s position on independent contractor misclassification matters. (Also, how is it that we intuitively know caffeine free means there’s no caffeine, rather than there’s lots of it and there’s no extra charge?)

The NLRB wants to make it harder to maintain independent contractor status under the National Labor Relations Act (NLRA).

Here are four reasons your non-union business should care about the NLRB’s views on independent contractor misclassification:

  1. The NLRB’s General Counsel has issued a policy memo indicated that she intends to have independent contractor misclassification declared to be an automatic unfair labor practice (ULP). This spring, the Board issued a complaint in a case that may help it achieve this policy goal. If misclassification becomes an automatic ULP, that would overturn the Board’s 2019 decision in Velox Express, when the Board said it was reasonable for a company to express its opinion that a worker was a contractor, not an employee, even if the company turned out to be wrong.
  2. If the NLRB rules that your contractors are employees, you can hang up a welcome shingle for your favorite union. (Aside: I don’t think anyone would welcome shingles, but you can buy welcome shingles on amazon.) Such a ruling would empower the unions to try to organize your newly-declared employees. If some independent contractors were already feeling mistreated enough to seek employee status, they’ll likely welcome union representation to help them fight back against The Man.
  3. The protections granted to employees under the NLRA apply to non-union employees too. But the NLRA doesn’t apply to independent contractors. Non-union employees have the right to engage in protected, concerted activity without fear of retaliation or reprisal. Contractors don’t. Protected, concerted activity can include more than you might think. Any time two employees get together to object to a business practice, that’s potentially protected, concerted activity. If two contractors jointly complain, the NLRA doesn’t apply.
  4. The NLRB has an information sharing agreement with the Department of Labor (DOL). If the NLRB thinks your contractors are misclassified, they’re probably gonna tell on you. The DOL may then starts its own investigation, viewing your company as an easy target for misclassification, even though the tests for employee status are different under the NLRA and the federal wage and hour laws administered by the DOL.

Like La Guardia, the NLRB is trying to do a little remodeling, but the NLRB’s remodeling is not for the benefit of old passengers. Instead, the Board is trying to make it harder to classify a worker as an independent contractor. The Board also wants to declare worker misclassification to be an automatic ULP.

Whether your workforce is union or non-union, businesses should pay attention. This is a rebuild that’s worth watching.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Watch Your Back, AB 5! Ninth Circuit Case Could Wipe Out California’s ABC Test

Yes, that’s a goat on my back.

This weekend we tried goat yoga. Highly recommended. It was a mix of basic yoga (my kind of yoga) to help get me stretched out, but held in a pen with goats who know no boundaries.

We then toured the farm, which featured llamas, long-haired pigs, guinea hens, a few obligatory dogs, and several varieties of goats, including the kind of fainting goats featured in that George Clooney movie.

Having to watch my back during yoga was something I signed up for and was part of the fun. Not so for California’s AB 5, which should be watching its back after what we saw at the Ninth Circuit last week.

The Ninth Circuit held oral argument in a case brought by Uber called Olson v State of California. Uber is arguing that AB 5 is unconstitutional.

While it’s hard to predict cases based on oral argument, the three judges on the panel seemed pretty sympathetic to Uber’s argument, which is that the statute arbitrarily picks winners and losers, i.e., the exemptions make no sense from an equal protection/due process standpoint.

Unlike the strict ABC Test in Massachusetts, the California ABC Test codified in AB 5 (and later AB 2257) contains loads of exceptions. The statute says to use the ABC Test to determine employee vs independent contractor status for all workers — except for dozens of categories of workers and other situations.

Let’s not pretend. We all know this bill was written to target ride share and delivery app companies. The unfairness of making this law apply to everyone soon became apparent and led to the insertion of dozens of exceptions. If an exception applies, the Borello balancing test applies instead of the ABC Test.

The exceptions just about swallow the rule, and a law targeting a handful of companies presents constitutional problems. Or so the argument goes.

We can expect a decision in the next few months, and this is one to watch. Unlike me at goat yoga, imagining a decision that strikes down or severely limits AB 5 is not a big stretch.

AB 5, watch your back.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Watch Your Back, AB 5! Ninth Circuit Case Could Wipe Out California’s ABC Test

Yes, that’s a goat on my back.

This weekend we tried goat yoga. Highly recommended. It was a mix of basic yoga (my kind of yoga) to help get me stretched out, but held in a pen with goats who know no boundaries.

We then toured the farm, which featured llamas, long-haired pigs, guinea hens, a few obligatory dogs, and several varieties of goats, including the kind of fainting goats featured in that George Clooney movie.

Having to watch my back during yoga was something I signed up for and was part of the fun. Not so for California’s AB 5, which should be watching its back after what we saw at the Ninth Circuit last week.

The Ninth Circuit held oral argument in a case brought by Uber called Olson v State of California. Uber is arguing that AB 5 is unconstitutional.

While it’s hard to predict cases based on oral argument, the three judges on the panel seemed pretty sympathetic to Uber’s argument, which is that the statute arbitrarily picks winners and losers, i.e., the exemptions make no sense from an equal protection/due process standpoint.

Unlike the strict ABC Test in Massachusetts, the California ABC Test codified in AB 5 (and later AB 2257) contains loads of exceptions. The statute says to use the ABC Test to determine employee vs independent contractor status for all workers — except for dozens of categories of workers and various other situations.

Let’s not pretend. We all know this bill was written to target ride share and delivery app companies. The unfairness of making this law apply to everyone soon became apparent and led to the insertion of dozens of exceptions. If an exception applies, the Borello balancing test applies instead of the ABC Test.

The exceptions just about swallow the rule, and a law targeting a handful of companies presents constitutional problems. Or so the argument goes.

We can expect a decision in the next few months, and this is one to watch. Unlike me at goat yoga, imagining a decision that strikes down or severely limits AB 5 is not a big stretch.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Dead End for Class Certification? Ninth Circuit Provides Roadmap for Defending Independent Contractor Misclassification Class Claims

For businesses using independent contractor vendors, misclassification claims are usually well-suited for class certification. A plaintiff’s path toward certifying a class can be relatively smooth when all vendors of a particular kind are treated as contractors. The argument goes that if one is misclassified, all are misclassified.

But a new Ninth Circuit ruling may help businesses change the path toward class certification into a dead-end road.

Click here to read the rest of the post, originally published on BakerHostetler’s Employment Class Action Blog.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Hear This: Ballot Measure to Limit Mass. ABC Test is Blocked

Have you heard? There’s a baby goat in Pakistan who may have set the world record for Longest Ears by a Goat. The ears are each 1.6 feet long. Which also means there’s category for Longest Ears by a Goat.

The goat, named Simba, reportedly trips on its ears, which are so long that they drag on the ground. That’s a problem, I hear.

I’m also hearing of a problem in Massachusetts, but it’s of a different sort entirely.

Efforts to add exceptions to Massachusetts’ ABC Test for independent contractor misclassification have been scuttled by the state’s Supreme Judicial Court. A ballot measure modeled after California’s Prop 22* would have created exemptions to support independent contractor status for app-based rideshare and delivery drivers. The Court, however, ruled that the proposed ballot measure covered too many subjects and could not lawfully be placed on the ballot.

What does all this mean?

As many of you know, Massachusetts has the toughest test in the nation when it comes to classifying independent contractors. Under Massachusetts wage and hour law, a worker is deemed an employee unless —

A) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

B) the service is performed outside the usual course of the business of the employer; and,

C) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

That’s a strict ABC Test, like California’s. But California’s ABC Test has a slew of exceptions, memorialized in AB 2257, formerly AB 5. The Massachusetts Independent Contractor Law has no exceptions, which makes Massachusetts a favorite venue for plaintiffs’ lawyers who like to bring misclassification cases.

With the ballot measure struck down, voters will not have an opportunity to pass a Prop 22-like bill in Massachusetts that would have allowed app-based rideshare and delivery drivers to maintain independent contractor status, so long as certain requirements were met.

States with ABC Tests continue to pose significant compliance risks for businesses that rely on independent contractors. It’s easy to trip and fall, regardless of the size of one’s goat ears.

*California’s Prop 22 is in limbo too. As explained here, a state court ruled the ballot measure unconstitutional. The issue is now on appeal.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Strap Yourself In: NLRB’s Joint Employer Rule is About to Change Again

Strap yourself in. It’s going to be a bumpy ride.

I drove behind this band of safety-conscious paddle boarders near Chicago recently. The guy in back is secured in by bungy cord. At least he looks comfortable.

The NLRB is about to make things a lot more uncomfortable for businesses concerned about joint employment.

As discussed here, the NLRB made clear earlier this year that it wants to revamp the independent contractor vs. employee test under the National Labor Relations Act.

Expect a new rule on joint employment to drop any day. The NLRB indicated several months ago that the joint employment rule was a target in its rulemaking agenda, and the expected release date is July 00, 2022.

Like most of you, I switched from the Julian calendar to the Gregorian calendar in 1752. While the changeover caused 11 days in September 1752 to be lost, I missed the memo about inserting a 0th day in July, starting 270 years later. Since I could find no way to mark the expected release date in my iPhone, I’ll give the NRLB the benefit of doubt and assume the date is a placeholder for “sometime in July.”

On Friday, it will be “sometime in July.” So get your bungy cord ready. You may need to take steps to better protect your business against joint employment risks.

The new rule will displace the current Trump-era regulation, which currently requires direct and substantial control over essential terms and conditions of employment before joint employment can be found.

Expect the new rule to track the Browning-Ferris standard imposed by the Board in 2015. Under Browning-Ferris, when one company has the right to control aspects of the work, joint employment exists — regardless of whether control is actually exerted, and regardless of whether the control is over wages, hours, scheduling or anything else that fits within the meaning of essential terms and conditions.

Joint employment under the NLRA can have several effects:

1. It can force you to the bargaining table for matters involving workers you did not consider to be your employees.

2. It can open the door to bargaining units that include workers you didn’t think were your employees.

3. It can open another door to bring union organizing activity into your business – through non-employee workers.

4. It can convert illegal secondary picketing into lawful primary picketing. If another company’s employees picket your site but the workers turn out to be your joint employees, they have the right to be there.

5. Each business that is a joint employer may be found jointly and severally liable for the other’s unfair labor practices.

When the new rule is posted, we’ll discuss what employers should do in response. Until then, enjoy the summer and try paddle boarding. But try to use a car with enough seats.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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