What Are the I-9 Requirements for Independent Contractors?

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

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

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

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

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

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

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

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

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

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

And that’s no illusion.

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

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Breaking News? DOL Rescinds Independent Contractor Rule That Never Took Effect

Remember when TV news was on at 6 p.m. and 11 p.m. and that was it? Every once in a while, there would be a Breaking News! alert, and it was always something really important. They wouldn’t interrupt Diff’rent Strokes for just anything. (Bonus points if you remembered there was an apostrophe in the title instead of the first ‘e.’)

But now, with 24-hour news on a dozen stations, everything is Breaking News! – even this story about a New Mexico man who went grocery shopping, then returned to his car to find 15,000 bees in the back seat. (Man walks back into store, returns jar of honey.)

The Breaking News! you’re reading about today is the Department of Labor’s (DOL) latest announcement, rescinding its proposed rule for determining independent contractor status under the Fair Labor Standards Act (FLSA).

Click here for the rest, posted by me on Friday on the BakerHostetler Employment Law Spotlight blog.

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

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

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

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

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

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

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

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

Now remember the cat – both alive and dead?

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

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

There are three ways this can play out:

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

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

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

And what about the rest of the country?

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

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

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

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Island Politics: Which States Are Considering New ABC Tests?

On Victoria Island in Northern Canada there is a series of long finger lakes. In one of the lakes there’s an island. Inside that smaller island, there’s a smaller lake, which contains a still smaller island about a fifth of a mile long. It is the largest known island in a lake on an island in a lake on an island. You can see it here.

I like maps and islands. I like exclaves and enclaves and have lots of questions about islands.

One of my questions is why Rhode Island came to be called that, since it’s not an island. This was particularly confusing to me in elementary school but I have come to terms with it and no longer lose sleep over this.

But now Rhode Island is causing me to lose sleep again.

Why? ABC Tests.

There are bills pending in both Rhode Island and New York that, if passed, would adopt strict ABC Tests for determining who is an employee and who is an independent contractor. The tests would follow the California AB 5/Dynamex model and the Massachusetts model, meaning that a worker providing services would automatically be classified as an employee unless (all 3):

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

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

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

As discussed here, Part B is the killer B, the destroyer of most independent contractor relationships.

The bills have not yet passed either house, but both have popular support among legislatures that are heavily Democratic. Both bills seem to have a good chance at passing in 2021.

Keep an eye on these bills.

Meanwhile, Victoria Island is the eighth largest island in the world but has only about 2,100 people. I am not aware of any push among the mostly-Inuit inhabitants to reclassify independent contractors anywhere in Nunavut, but I also don’t feel like I have my finger on the pulse of Nunavut politics. It’s harder to track legislation there.

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

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West Virginia Adopts Pro-Business Independent Contractor Test

Three Fun Facts about West Virginia:

  1. The New River is actually one of the world’s oldest rivers and, unusually, flows south to north.
  2. The nickname and team mascot for Poca High School in Poca, WV is the Dots.
  3. West Virginia just adopted the most pro-business worker classification test in the nation.

While I would love to write about the Poca Dots, I’m going to focus on the state’s new worker classification test, enacted March 11, 2021. It takes effect 90 days later, on June 9, 2021.

The new test creates a safe harbor. If you comply with a list of requirements, including a written contract, your worker is automatically an independent contractor under WV wage and hour law, anti-discrimination law, workers’ compensation, and unemployment.

The bill nearly had a disastrous flaw. In its original form, passed by one chamber, if you failed to meet the safe harbor criteria, you’d automatically be deemed an employee. That would have had absurd unintended consequences, including that a worker would automatically be an employee if there was no written contract or if the contract did not include all required clauses.

I drafted a last-minute amendment that was adopted and inserted into the bill at the eleventh hour. The amendment said that if the safe harbor was not met, the worker would not automatically be an employee. Instead, the worker’s status would determined by using the 20-factor Right to Control Test in IRS Rev. Ruling 87-41. (The 20 factors are explained here in this PDF from the Texas Workforce Commission.)

The bill is very pro-business.

Businesses retaining contractors in WV should review the safe harbor provisions and be sure to comply. Compliance means a free pass for independent contractor status under state law (but not under federal law). Contracts may need to be adjusted to include the required clauses. Now is the time to do that.

Here is a link to the bill. The blue text contains the safe harbor. Read it closely and make sure these provisions are in your WV independent contractor agreements.

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

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Macaques & The Guess Who: Why the New Independent Contractor Rule Won’t Take Effect March 8

Photo by Hectonichus and, yes, this fella is sticking his tongue out at you (but he can’t remember why).

A Swedish study concluded that baboons, pig-tailed macaques, and squirrel monkeys have some of the worst short-term memories in the animal kingdom, barely exceeding that of bees. The point is, never ask a pig-tailed macaque where you left your car keys.

Having a short memory can be a problem in some situations, but not it’s not an issue if you’re just trying to recall the latest Department of Labor test for independent contractor misclassification. Everything you recall from six weeks ago is being undone anyway. (Or Undun, if you’re a fan of the spelling-impaired Canadian band The Guess Who.)

Remember the new rule issued by the DOL in January 2021 for determining employee vs. independent contractor status? It was going to modify the Economic Realities Test to focus on two core factors: (1) the nature and degree of the worker’s control over the work, and (2) the worker’s opportunity for profit or loss based on personal initiative or investment. The new rule was to take effect March 8. The test would apply only to claims under the Fair Labor Standards Act (FLSA).

No more. Last week, the DOL delayed implementation until May, but the rule most likely will be rescinded completely. Undun.

This decision comes on the heels of the DOL rescinding two opinion letters that were also issued in January. Undun. The letters provided guidance on determining independent contractor status in a few particular situations.

The Economic Realities Test remains the test used to determine who is an employee under the FLSA. It’s a multi-factor balancing test.

So if you’ve been relying on recent DOL guidance for how to apply that test, channel your inner pig-tailed macaque. Whatever you recall from January can be forgotten. And where did I put my car keys?

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

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(Just Like) Starting Over: Biden Salutes John Lennon on Joint Employer Policy

The 1980 Double Fantasy album is meh, featuring alternating tracks by John Lennon and Yoko Ono. But there’s at least on gem on that album, and it’s the very first track: “(Just Like) Starting Over.” The song was originally titled “Starting Over” but the parenthetical was a late addition, reportedly inserted to make sure listeners knew this wasn’t Dolly Parton’s country music chart topper from the same year, “Starting Over Again.” Not that anyone has ever confused John Lennon with Dolly Parton, but I get it.

President Biden’s policy on joint employment is already embracing the same theme, even before Marty Walsh gets confirmed as Secretary of Labor. The DOL ain’t wastin time no more. (And speaking of the Allman Brothers, if you haven’t yet seen the documentary Jimmy Carter: Rock N’ Roll President, it’s worth 96 minutes of your time.)

Late last week, the DOL announced it has submitted a new proposed rule for determining joint employer status under the Fair Labor Standards Act (FLSA). The text of the proposed rule has not yet been released, but here’s what we know:

1. The new rule would replace the regulations enacted by the Trump DOL in March 2020. The March 2020 regulation required actual control for a finding of joint employment and focused the joint employer analysis on four factors — right to hire/fire, supervision of work conditions or schedules, rate/method of pay, and control of personnel files. That test made it tougher to establish joint employment.

The March 2020 regulations are already the subject of litigation, and the Second Circuit Court of Appeals is hearing a case to decide whether the new rules are valid. That means the March 2020 rule could be on the chopping block no matter, with either the Second Circuit or the Biden DOL doing the chopping.

2. The new rule will be (just like) starting over. It will re-adopt an Obama-era joint employment test. But which one?

Option A:

Before the March 2020 rule requiring actual control, all that was need to be a joint employer was the right to control certain aspects of the relationship.

When using a staffing agency for staff augmentation, for example, there was a pretty high likelihood that would be joint employment, even if the staffing agency had exclusive control over the four factors highlighted in the March 2020 test — setting wages, setting schedules, controlling pay, and maintaining personnel files. At a minimum, the new rule will go back to that standard.

Option B:

But there’s a worse option that could be in the cards. Five states are bound by a 2017 federal appeals ruling that adopts a much broader interpretation of joint employment. In a case called Salinas, the Fourth Circuit ruled that two businesses are joint employers unless they are “completely disassociated” from one another. The Fourth Circuit covers MD, NC, SC, VA, and WV. That decision suggests that every borrowed labor situation might automatically be joint employment, since the two companies have a contractual “association” with each other.

The Salinas decision was based on an old regulation, on the books since 1958, that the March 2020 regulation eliminated and replaced.

Which version of joint employment will the new Biden rule seek to adopt? Or will the DOL come up with a new test entirely?

Either way, we know that the test for joint employment will change in 2021 or 22, and the new rule will make it much more likely that staffing agency relationships and other borrowed labor arrangements create joint employment.

While the specifics of the new test are not yet known, we know enough already to start to plan. Staffing agency agreements should be checked and revised to protect against joint employment liability. This post provides a few of my favorite tips.

There are plenty of steps that can be taken to protect against joint employment, so long as businesses plan ahead and draft their contracts carefully. Change is coming, but we’ve been down this road before. It’s (just like) starting over.

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

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Watch This Rooster! PRO Act Would Change Definition of Employee Under Labor Law.

Who says the news is always negative? Not so in Alabama, where we were treated this headline on AL.com:

Teen reunited with pet rooster lost at Alabama Cracker Barrel after Civil War reenactment

It seems an 18-year old Civil Ward reenactor brought his Buff Orpington rooster, Peep, to a civil war reenactment in nearby Tennessee, then stopped for lunch afterward. Our hero dutifully put on Peep’s leash and secured him to the bed of his truck while dining at a nearby Cracker Barrel after the event. But when he returned, the rooster was gone.

Police and animal control were summoned to the scene. The parties were later reunited when Peep wandered back to the Cracker Barrel, and this story had a happy ending. This had been Peep’s third Civil War reenactment, although his role in the battle plan was unclear. Fortunately for Peep, further battles lie ahead.

Further battles lie ahead in Congress too, not for roosters but for businesses everywhere. Rep. Bobby Scott and 200 Democratic co-sponsors have re-introduced a massive labor bill that fulfills every wish of the unions.

The PRO Act – Protecting the Right to Organize – would bring a massive overhaul to the National Labor Relations Act. Two portions of the bill would affect independent contractor misclassification and joint employment.

First, the PRO Act would re-adopt the Browning-Ferris test for determining whether someone is a joint employee of two employers. This test had been adopted by the Obama Board but reversed by the Trump Board. The test would consider two entities to be joint employers if they “share or codetermine” control over workers’ terms of employment. The notion of control would be broad. It would include not just actual direct control, but reserved control or indirect control. Under the original Browning-Ferris test, control over the speed of an assembly line was considered sufficient control to make a business a joint employer.

Second, the PRO Act would adopt a nationwide strict ABC Test for determining whether someone is an employee or independent contractor. The new rule would require that all workers performing services be considered employees under the NLRA unless (all three):

(A) the individual is free from the employer’s control in connection with the performance of the service, both under the contract for the performance of service and in fact;
(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.

This is the same test adopted by California (recall Dynamex and AB 5) but without the exceptions. California lawmakers recognized this test wouldn’t work in all industries and adopted a long list of exceptions to this test.

The PRO Act would not have any exceptions.

It’s no surprise that the bill was reintroduced. A similar bill was passed by the House last year but never considered by the Senate.

While 60 votes in the Senate isn’t going to happen, this bill deserves a close and watchful eye. (Follow its progress here.)

That means really watching it, not just tying it to the bed of your truck and hoping it’s still there after you finish your Cracker Barrel omelet.

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

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Waiting for Something? Here’s What to Expect from the NLRB

Zippy accepts a package delivery.

Our Amazon delivery driver snapped this photo yesterday, when leaving a package at my door. There’s Zippy, waiting patiently and watching. Her dog treats arrived in a separate delivery yesterday, so this package is probably not for her.

What have you been waiting for? If not a special delivery, then maybe a change in federal labor laws? Oh, not quite as good, but very likely.

Here are three things to expect from the NLRB during the Biden Administration:

1. Joint employment, and a return to Browning-Ferris.

In 2015, the NLRB overturned 30 years of precedent to create a new test to determine when staffing agency workers are joint employees. That decision, known as Browning-Ferris, allowed for a finding of joint employment even if control was indirect, reserved, and related to nonessential terms.

The Browning-Ferris standard was later abandoned, but it will likely come back. Expect a new test that makes it easier to establish a joint employment relationship under federal labor law. You can read more about the Browning-Ferris test here.

2. Independent contractor misclassification, as an unfair labor practice.

Is independent contractor misclassification, by itself, an unfair labor practice? In 2019, the NLRB said no, it’s not necessarily a violation of the NLRA to misclassify an employee as a contractor. The Board’s rationale was that a business can express its legitimate belief that workers were contractors, even if that belief turned out to be wrong.

Expect that to change. A more union-friendly Board is likely to rule that when a business incorrectly tells workers they are contractors, the business is interfering with workers’ rights. Expect independent contractor misclassification to become an automatic violation of the NLRA.  

3. Independent contractor misclassification, and a tougher test for proving contractor status.

In 2019, the Board updated the test for determining Who Is My Employee?, making it easier to prove independent contractor status under the NLRA.

From 2014 to 2018, the Board had taken the position that to be an independent contractor, you must be “in fact, rendering services as part of an independent business.” That test was abandoned in 2019, in a case called SuperShuttle DFW, when the Board said that you can be an independent contractor if you are permitted to run your own business, whether you actually do so or not. The 2019 ruling reinstated the Right to Control Test as the proper way to decide employee vs. independent contractor status.

Expect a return to the 2014 test, which would mean that to be an independent contractor, you’d need to actually operate as an independent business.

When might all this happen?

Some in 2021, some in 2022.

Biden has already removed Peter Robb as the NLRB’s General Counsel, replacing him with Peter Sung Ohr as Acting GC. The GC acts as the Board’s chief prosecutor, setting the administration’s priorities on what it considers to be a violation of the NLRA. We are already starting to see changes in Board policy, but the composition of the five-member Board will not shift to majority Democratic-control until after William Emanuel’s term expires in August 2021.

In 2021, we can expect changes in policy that are more pro-worker. In 2022, we can expect to start seeing 3-2 rulings in NLRB decisions that are more pro-worker. The Democrats will take a majority of Board seats in late 2021.

Businesses should anticipate these changes and plan accordingly. This package is going to be delivered. It’s just a matter of time.

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

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Stop Making Sense: California Companies Can Be Liable for Not Following Rule That Did Not Yet Exist

Sometimes things stop making sense. And I’m not referring to the 1984 Talking Heads album, which included “Psycho Killer,” “Burning Down the House,” and other songs least likely to be used in an episode of Sesame Street.

No, when I say things “stop making sense,” I’m thinking more like dogs climbing ladders, pigeon-eating catfish, or Nazi Russian goats. Seriously mind-bending facts. The stuff that makes you question what was in those brownies.

The California Supreme Court’s ruling today falls in that category. Remember the 2018 Dynamex decision? That’s the one where the Court invented a new ABC Test for deciding whether someone was an independent contractor or an employee under California wage and hour law. Ever since then, companies have been trying to figure out whether that made-up test would apply retroactively. In other words, would California hold companies liable before 2018 for not following a test that did not yet exist until 2018?

After today’s decision in Vazquez v. Jan-Pro, we now know the answer: Of course! It’s California. Even companies not in the fortune telling industry should have known what legal standard the justices were going to invent. And of course it’s fair to hold companies liable for failing to comply with a standard that, before 2018, did not exist anywhere in California law. If Johnny Carson could figure out what was in that envelope (“seersucker“), California business should have been able to figure out what legal test the California Supreme Court would make up in 2018.

The Court reasoned that it’s normal practice for a decision to apply retroactively and said it’s only fair for the decision to apply to everyone retroactively since Dynamex didn’t see it coming either. The Court rejected the common sense notion that it would be unfair to apply the test retroactively, even though courts across California had — for years — applied the multi-factor Borello balancing test when determining employee vs. independent contractor status.

One saving grace may be that the Dynamex decision is now almost three years old, so statutes of limitation for wage and hour claims are running out. Most wage and hour claims in California must be brought within three or four years of the violation, depending on the claim asserted.

I can’t say this decision is surprising. But I couldn’t say the knife-wielding squirrel featured in the last blog post was surprising either. It’s a crazy world out there, folks. Sometimes it’s best to just stay home and watch Veep, which once seemed too outlandish to be believable.

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

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