How Best to Describe the Effect of Dynamex? Led Zeppelin Songs

ADDD3D9A-F4D5-4404-8E69-C3BFE2919D3C

A lot has been written about the Dynamex case, but not enough has been written about it using references to Led Zeppelin songs. I am here to fill the void. Here is a musically-themed update. We’re Going to California. You’re welcome.

Dazed and Confused. Last week, a gaggle of California businesses and trade associations sent a letter to Gov. Brown and the Cal. Legislature, asking for relief from the Dynamex decision and its court-created ABC Test for independent contractor misclassification claims. The letter correctly says, “With one judicial opinion, nearly 30 years of established law has been overturned virtually overnight.”

Communication Breakdown. The letter argues that any change in the standard for determining Who Is My Employee? should be made by the legislature, not the courts. The Industrial Wage Commission, which wrote the wage orders at issue in the Dynamex case, was defunded 15 years ago, before mobile apps existed and before the gig economy took off. So why is a new rule applicable to the new economy coming from a court, instead of the legislature?

When the Levee Breaks. The letter argues that the impact of the Dynamex decision may be massive, disrupting well-established industries and independent contractor relationships. The decision “hinders California as a national leader in the innovation economy.” Businesses feel Trampled Under Foot.

Babe I’m Gonna Leave You. Businesses relying on independent contractor models may leave California. This ruling makes it even more difficult to do business in the Wacky Republic.

What Is and What Should Never Be. Assuming that is a question, the answer is: The Dynamex ruling. (Another acceptable answer would have been: People who walk really slow in airports.)

Hey Hey What Can I Do. The letter asks the legislature to pass a law that eliminates the ABC Test and re-introduces a common sense balancing test like in S.G. Borello.

That’s all I have for now. But before I go, I feel compelled to give a hat tip to my favoritely (?) named Led Zeppelin song, Boogie with Stu.

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

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

Join 175 other followers

What Do Rabbits, Swedish Massage, and this Misclassification Study Have in Common?

Independent contractor miscalssification study Georgia State UniversityAccording to the DailySignal.com, the National Institute of Health recently spent $387,000 to determine the health effects of Swedish massage on rabbits. I have not read the study, but I independently conclude that the massages were relaxing and helped to decrease some of the daily stresses faced by small burrowing mammals.

And that brings us to a study being conducted at Georgia State University, partially funded by a similarly wasteful $250,000 grant from the Department of Labor. It’s a study on independent contractor misclassification.

The study is examining 12,000 federal court decisions between 2008 and 2015 to try to determine “the ways in which federal district courts draw the line between employee and independent contractors.” Using text mining and big data tools, the study hopes to uncover “the legal tests that courts used [and] the factors that exerted the most influence on judges’ decisions.”

This is dumb.

This is like watching 12,000 baseball games to try to figure out why umpires sometimes call runners out and sometimes call runners safe. We don’t need to watch 12,000 baseball games to figure that out. We can just look at the rule book instead. The rules explain how to determine when the runner is safe or out. The rules tell you the factors to look at.

Misclassification law works the same way. There are different rules that apply to different laws in different states in different circumstances. When a misclassification claim arises, we just have to look at the proper rule, which tells us the factors to consider. Then we look at the facts and apply the rule and the factors.

The point is, we already know the rules. And we already know the factors. They’re in the rules. We don’t have to examine 12,000 cases to try to reverse engineer the rules and the factors. Just look them up.

Perhaps my frustration is misplaced. Maybe they’ll uncover something new. I doubt it. Meanwhile, I am still thinking about whether it’s even possible to massage a rabbit.

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

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

Join 175 other followers

 

Rules are Rules: Shetland Islands Should Stay in a Box, but NLRB Should Proceed with Change to Joint Employment Test

Shetland Islands joint employment

From bbc.com, putting a u in “labor” just for you!

Some rules bring clarity, but other rules are plain wacky.

In the second category we introduce Scottish member of Parliament Tavish Scott, who is trying to pass a law requiring maps of Scotland to show the actual location of Shetland, in proportion to its distance, instead of putting it in a box like U.S. maps do for Hawaii and Alaska. The problem is that the Shetland Islands are pretty far north of the rest of Scotland, a 12-hour ferry ride across ancient-sea-monster-infested waters. According to one mapping agency,  Scottish maps would be “mostly sea” under Scott’s idea.

(Danish mapmakers, still angry about the territorial addition of Greenland, could not be reached for comment.)

A better way to use rules is to bring clarity. Scots know that the Shetland Islands are far away. That’s what the box means. Less clear, however, is the meaning of “joint employment” under U.S. labor law. As we’ve seen from several earlier posts (like here, here, and here), the new NLRB is trying to change the test for “joint employment” from the broad Browning-Ferris test (indirect opportunity to control = joint employment) to a tighter, more workable standard (requiring direct control over key terms of employment).

As we wrote here, the Board is now planning to go through the rigorous formal rulemaking process for changing the joint employment test. This process allows for public comment and takes a long time, but is intended to provide long-term certainty instead of allowing the test to ping-pong back and forth depending on the makeup of the 5-member Board.

For businesses, rulemaking is a good idea. It would finally bring some certainty to the process. It would add certainty and allow companies to plan around a firmly defined standard.

Last week, Senators Bernie Sanders, Elizabeth Warren, and Kirsten Gillibrand published a letter criticizing the proposed rulemaking process because they know it will result in the standard they don’t want. The letter is basically a publicity stunt intended to please their constituents, but that’s what politicians sometimes need to do.

Just ask Tavish Scott, who represents the Shetland Islands.

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

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

Join 175 other followers

 

Do ABC Tests Matter if my Business is not in California? (Yes!!!)

ABC Test Califoirnia Dynbamex Massachusetts other states

According to Michael Jackson and his brothers (don’t forget Tito), ABC is easy as 1-2-3, and it’s also easy as do-re-mi. According to Julie Andrews, in Do-Re-Mi, once you know the notes to sing, you can sing most anything. This is not technically true, as once demonstrated by William Hung.

ABC may sound easy, and some people might think they can sing anything.  But actual compliance with ABC Tests is not easy — and yes, every business needs to think about how it would comply with ABC Tests. (For background on What is an ABC Test?, read here and here.)

ABC Tests are not just in California. Massachusetts uses an ABC Test to determine who is an employee under state wage law. New Jersey uses an ABC Test to determine whether someone is an employee or independent contractor for state wage law. Unemployment too.

For unemployment purposes, lots of states use ABC tests to determine whether someone seeking unemployment coverage was your employee or an independent contractor. These states include Connecticut, Delaware, Illinois, Indiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, Vermont, Washington, and West Virginia. There are more but I started prioritizing my list by number of electoral votes.

Because ABC Tests are stricter than ordinary balancing tests (like Right to Control or Economic Realities tests), your company may be required to make unemployment contributions for individuals who are independent contractors under most laws but are employees under your state’s unemployment compensation law. You could owe back assessments and penalties for failing to pay into the state unemployment insurance fund.

New York, Pennsylvania, and D.C. use ABC Tests for work performed in the construction industry.

Some states use even tougher multi-factor tests to determine whether an individual presumed to be an independent contractor is really an employee. Maine has an ABCDE Test, meaning each of five factors must be met (plus another 3 from a list of 7, creating a veritable menu of family-style Chinese take-out for misclassification). New Hampshire uses an ABCDEFG Test to determine whether someone is an employee subject to its workers compensation and wage and hour laws.

Congressional Democrats, including Bernie Sanders and his hair, have introduced a bill that would use an ABC Test to determine whether someone is an employee under the NLRA. The bill has no chance to become law unless (until?) the Democrats control both houses of Congress and the Presidency, but for now, it’s worth noting that there is a desire among some lawmakers to adopt sweeping changes to the definition of employee.

The point is that ABC tests are prevalent already — and they are expanding. The California decision adopting an ABC Test was issued three years after the New Jersey Supreme Court adopted a similar (but less stringent) ABC Test for its state wage and hour laws.

With more state legislatures and state supreme courts considering changing the tests, we can expect this trend to continue. We can expect more states to adopt ABC Tests, especially in states where the courts (like in California) make up ABC Tests without legislative input. For a legislature to pass an ABC Test, it takes some work, bicameral support, and usually the signature of a governor. For courts to make up new ABC Tests, however, it’s easy as 1-2-3, do-re-mi.

Business should be thinking proactively about whether their contracts, relationships, and public-facing statements (such as in websites) will allow them to support independent contractor status when an ABC Test is used to determine WhoIs My Employee?

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

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

Join 175 other followers

 

Inspired by Animal House? NLRB May Force Long-Term Change to Joint Employment Test

Screen Shot 2018-05-12 at 2.00.26 PM

“What? Over? Did you say “over”? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!” —Bluto

The Republican-majority NLRB has been trying to figure out how to overturn the Browning-Ferris joint employment standard without running into conflicts of interest. It tried in December 2017, when it set a new test in Hy-Brand, but then backed off a few months later after allegations that Member Emanuel had a conflict of interest and should not have participated. The Browning-Ferris test went back into effect.

Two members of the Board come from large law firms and may face allegations of conflicts of interest if they vote to overturn Browning-Ferris.

But did you say it’s over? Nothing is over until we decide it is!

The Board announced last week that it is not giving up. Instead, it is planning a new way for changing the joint employment test. This plan, if successful, may mean a new test that is not subject to flip-flopping every time the NLRB majority flip-flops between Ds and Rs (as it does whenever there’s a new President from the other party.)

The new plan involves crafting a rule through the administrative rulemaking process. Sounds boring (and it is). The tedious rulemaking process includes issuing a public notice of the proposed new rule and a comment period.  Then, the Board gets to ignore any negative comments and adopt the rule.

The process takes time, but like a tiny water bacterium with a funny name, the new rule would be sticky.

From livescience.com: The tiny water bacterium Caulobacter crescentus secretes a sugary substance so sticky that just a tiny bit could withstand the pull from lifting several cars at once. With an adhesive force of nearly five tons per square inch, this “glue” is one of nature’s strongest.

The new rule would actually go in the books as a regulation, which future Board members would be obligated to follow.

It’s a sound strategy if it works.

The new rule would presumably resemble the rule the Board tries to enact in the Hy-Brand decision, which makes it much harder to show that a business is a joint employer. The new test presumably would require “joint control over essential employment terms” and would require control that is “direct and immediate,” not “limited and routine.”

For businesses that use other vendors’ workers (such as staffing agencies) and face the risk of being named a joint employer, this is an important development. Keep an eye on this one.

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

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

Join 175 other followers

California’s New Killer Bee: How Should Businesses Deal with Part B of California’s New Independent Contractor Test?

California ABC test Dynamex Killer Part BAccording to pestworld.org, Africanized honey bees have been known to chase people for more than a quarter mile once they get excited and aggressive. This is why they earned the nickname “killer bee.”

In its recent Dynamex decision, the California Supreme has introduced its own Killer B into California wage and hour law. This new Killer B could make plaintiffs’ lawyers excited and aggressive, chasing down businesses that use independent contractors and filing lawsuits alleging they are really employees. Those lawsuits could really sting!

Today we look at two questions: What is the new Killer Part B, and what do businesses need to know about it?

What’s the Issue?

Several states now use ABC Tests to determine whether a worker is an employee or independent contractor, at least under certain state laws. California joined the party with its 4/30/18 Supreme Court decision (Dynamex), adopting an ABC Test to determine who is an employee under most of California’s wage and hour laws.

Part B of the new California test can be difficult to meet. To be a true independent contractor, the worker must be performing work that is outside the hiring party’s “usual course of business.” We’ll call this a Strict ABC Test.

Some states have a more forgiving version of an ABC Test, allowing Part B to be satisfied if the worker performs the services either outside the usual scope of business or off of the hiring party’s premises. New Jersey, Illinois, and Connecticut use the more forgiving test. We’ll call that version the Standard ABC Test.

What’s the Concern with Part B in California’s New Test?

Part B can be hard to meet.  Lots of workers who are otherwise independent contractors will be considered employees because of Part B — especially under a California-style Strict ABC Test. If the type of services being provided are within the hiring party’s “usual course of business,” the worker must be treated as an employee under California’s wage orders.

Although this Strict ABC Test is new to California employers, it’s not new to multi-state employers. Massachusetts has been using a Strict ABC Test for its wage and hour laws since 2004, when it passed the Massachusetts Independent Contractor Law. In 2008, the Massachusetts Attorney General’s Office issued an advisory memo on its interpretation of the law, especially Part B.

What Can We Learn From Massachusetts?

The key to success under Part B is establishing that the contractor’s services are outside of the “usual course” of your business. That means the contractor does something that your business doesn’t do.

Companies should consider taking steps to define more precisely its “usual business,” and then memorialize that in multiple ways — internally, externally (website: About Us page?), and contractually in agreements with independent contractors.  Keep in mind the importance of differentiating between the scope of what your business does and the scope of what the independent contractor will be doing.  If you want to satisfy Part B, these things should be different.

You may need to define the scope of your services more narrowly. For example, if your business sells appliances but retains independent contractors to install them, you might take steps to define the scope of your business as “selling appliances but not installing them.” Consider adding language to your contracts, website, and other documents to make this distinction clear.

This is just one of many strategies that businesses in California and Massachusetts should be prepared to implement. Being proactive is the key to avoiding claims of independent contractor misclassification. Evaluate and modify your independent contractor relationships and contracts now, not after you have been sued.

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

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

Join 175 other followers

 

What is California’s new ABC Test, and What Does It Mean for Businesses?

Dynamex ABC test california

What just happened?

Last week, we reported here on the California Supreme Court’s Dynamex decision. Today’s post takes a deeper dive.

In Dynamex, the California Supreme Court adopted one of the strictest tests in the nation for determining whether a worker is an employee or an independent contractor. The new test is used to determine whether a worker is an “employee” under California’s Industrial Wage Commission (IWC) wage orders. The wage orders require “employees” to be paid minimum wage and overtime, and to receive meal and rest breaks (unless exempt). Under this new test, a lot of independent contractors might now be “employees.”

The new test is an ABC Test. Unlike the balancing tests that start with the scales set equally, the new Dynamex ABC Test begins with the presumption that any worker performing services for your business is your employee. Guilty until proven innocent.

To overcome that presumption, the business must meet all three prongs of the new ABC Test. To prove that the worker is an independent contractor (and that the California wage orders do not apply), the business must be able to show:

(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.

If the business fails to meet all three prongs of this test, the worker is an employee for purposes of the wage orders. Case closed. Done deal. The other factors don’t even matter.

What does that mean? You must provide the worker a minimum wage, overtime, and meal and rest breaks (subject to exemptions, if applicable). It doesn’t matter that you have an Independent Contractor Agreement, and it doesn’t matter if the worker agrees to be an independent contractor status. (Here’s why.)

What was the basis for the California Supreme Court’s decision?

The Court’s decision was based on its analysis of the definition of “employ” under the IWC wage orders. The Court concluded that this definition was intended to cover a broader range of relationships than common law employer-employee relationships.

The wage orders define employ as “to engage, suffer, or permit to work.” This language originated in 1916, with the passage of state laws designed to prevent the exploitation of child laborers. The idea was that if you allow children to work for you, you are going to follow certain legal requirements. To prevent funny business, an intentionally broad definition of “employ” was used.

Those familiar with the federal Fair Labor Standards Act (FLSA) will recall that it too uses a broader definition of “employ” than most other federal laws. The FLSA definition of employ is “to suffer or permit to work.” That sure sounds a lot like the California definition, so shouldn’t California just apply the same Economic Realities Test as used to determine whether someone is an employee under the FLSA? Oh, my dear sweet naive friend, that would be too simple. And California doesn’t like simple.

The California Supreme Court went out of its way to point out that California came up with its language first and that it never intended to follow the FLSA test. Really, it says that. So there.

In Dynamex, the California Supreme Court concluded that where the definition of “employ” is “to engage, suffer, or permit to work,” the intent is to cover a broader range of individuals than common law employees and, from now on, the way to determine whether someone is an “employee” under the “engage, suffer, or permit to work” standard is to apply the new ABC Test. The IWC wage orders use this broad definition, and so the wage orders will now apply to any relationship where an individual provides services, unless all three prongs of the ABC Test are met.

But why change now?

If you are asking yourself why the test would change now — when that same definition has been in place for 102 years, when there has been no new law passed by the California legislature, and when no new regulations have been enacted — the answer is what you tell your kids when you’re too tired to explain why: Because I said so.

Really. The Court just said so. Nothing in the law has changed. The new, strict ABC Test did not come from a new law. It came from Massachusetts. Thank you, Massachusetts. Next time just send lobster rolls.

What about the other wacky California employment laws?

Most California employment laws use a more traditional definition of employee, not the broad “engage, suffer, or permit to work” definition. Under these other laws, therefore, the test for determining whether someone is an employee is (we think) unchanged. For the most part, the S.G. Borello test should continue to apply.

The S.G. Borello test stems from a 1989 California Supreme Court decision and is a hybrid Right to Control/Economic Realities balancing test.

Under S.G. Borello, the primary question is whether the hiring party retains the right to control the worker, both as to the work done and the manner and means in which it is performed. If yes, the worker is an employee. If it is unclear, then secondary factors are considered.

Secondary factors include:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

The court or agency then mixes all of these factors into a witch’s cauldron, blends them together, sprinkles in a pinch of eye of newt, waits for the smoke to clear, and then declares that, based on an analysis of the multiple factors, the worker must be an … (insert answer here). The S.G. Borello test is a balancing test, subject to interpretation. It’s gray.

California does have some other strict tests. The Dynamex ABC Test is not the only one. For example, strict tests apply in the construction industry and for the performance of work where a license is required but not obtained. Under those scenarios, like under IWC wage orders, it’s much harder to maintain independent contractor status than it is under a law that applies the S.G. Borello test.

What about federal laws? Do those still apply too?

Hahahahahahaha! You bet they do! Employers in California are still required to follow the FLSA, which determines whether someone is an employee by using an Economic Realities Test. Yes, lucky California business owners, this means your worker could be an employee under the strict ABC Test imposed by Dynamex and therefore subject to California minimum wage and overtime rules; but, at the same time, the same worker might be a legitimate independent contractor under the Economic Realities Test and therefore not subject to federal minimum wage and overtime law. Well that’s confusing.

Right to Control Tests govern the determination of whether someone is an employee under federal tax law, anti-discrimination law, and employee benefits law. As we discussed here, it’s certainly possible to be an employee under one law but an independent contractor under another law.

With the introduction of the strict Dynamex ABC Test, that will happen more often, ensuring full employment for lawyers like me.

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

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

Join 175 other followers