Should the Economic Realities Test be Changed for the Gig Economy? One Court Thinks So (But How Would That Affect Jon and Ponch?)

CHiPS are off duty police officers contractors or employees?

Go Jon! Go Ponch! Screenshot from IMDb

According to IMDb, the highest rated episode of CHiPs was Christmas Watch. Thieves at the community church ran off with a 15th century bell, which meant — according to IMDb — “The Christmas season doesn’t mean any less work for Jon and Ponch!”

Well ho ho ho then. The Christmas season means lots of extra work for lots of other people, including real life police officers. A recent case in the Sixth Circuit Court of Appeals addressed whether police officers taking second jobs are independent contractors or employees.

The test for Independent Contractor vs. Employee under the Fair Labor Standards Act (FLSA) is well-established. It’s the Economic Realities Test, a multi-factor test that seeks to determine whether, as a matter of economic reality, the worker is reliant on the hiring party to earn a living.

But in Acosta v. Off Duty Police Services, the Court of Appeals questioned whether the usual formula should still apply in the modern gig economy, when lots of people take second jobs.

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What is the Test for Independent Contractor vs. Employee? (Jan. 2019)

what is the test for independent contractor misclassificationSeems like a simple question, but it isn’t. My question to your question is, “Why do you ask?” That’s because the test for Independent Contractor vs. Employee is different under different laws.

And worse, the tests keep changing, as we saw in Monday’s post about the NLRB’s SuperShuttle decision.

As of today, January 31, 2019, here’s where we stand:

The current tests for determining Independent Contractor vs. Employee are:

National Labor Relations Act (NLRA)

Right to Control Test (SuperShuttle version, as of 1/25/19)

Title VII, Age Discrimination in Employment Act (ADEA), ERISA

Right to Control Test (Darden version, or some variant of it, as applied circuit by circuit)

Internal Revenue Service

Right to Control Test (IRS version)

Affordable Care Act

Right to Control Test (emphasis on particular factors, based on regulation)

Fair Labor Standards Act (FLSA)

Economic Realities Test (which different courts articulate differently)

California, Massachusetts wage & hour laws

ABC Tests (strict version of Part B)

New Jersey wage & hour

ABC Test (regular version of Part B)

California state laws other than wage & hour

S.G. Borello & Sons Test (customized hybrid version of Right to Control & Economic Realities Tests), we think, for now

State Unemployment and Workers Comp Laws

Pick a card, any card. Tests vary substantially state to state. Some are Right to Control Tests, some are ABC Tests, some are entirely made-up, customized tests that require consideration of — or proof of — specific factors

Other State Laws (wage & hour, discrimination, tax)

Tests vary significantly state by state, law by law

This chart may be a helpful start, but three significant challenges remain, when trying to determine Independent Contractor vs. Employee.

  1. Fifty Shades of Gray.  These tests, for the most part, are balancing tests. Courts and agencies must weigh multiple factors. In most instances, some factors will favor contractor status and some will favor employee status. Different courts may reach different conclusions, even with the same facts.
  2. Planes, Trains, and Automobiles. Multi-state employers face the added challenge of having to deal with different tests in different states. Then, just to keep everyone on their toes, states generally apply different tests for different state laws. Sometimes different tests apply in different industries too. Transportation workers, for example, may be subject to different tests than construction workers.
  3. Into the Wild. The tests keep changing. In January 2019, the NLRB changed its test in the SuperShuttle case. In 2018, California changed its test under state wage and hour law from the S.G. Borello balancing test to a strict ABC Test. In 2015, New Jersey switched to a different version of an ABC Test for its state wage and hour law. The times they are a-changin.

What to do about it? (Free tips!)

  1. Know the tests that apply where your business operates.
  2. Construct your independent contractor relationships in a way that tends to favor the factors supporting independent contractor status. Inevitably, business considerations will get in the way, and tough decisions will have to be made about how much control can be relinquished and how the relationships need to be structured. Adjust the facts of the relationship.
  3. Use a customized independent contractor agreement that emphasizes the factors that support independent contractor status. Avoid off-the-shelf agreements. Merely reciting that everyone agrees the relationship is an independent contractor relationship is only a teeny bit helpful. “Teeny bit helpful” is not the gold standard.
  4. Re-evaluate existing relationships, and make changes from time to time.
  5. Implement a gatekeeper system to prevent operations managers from entering into contractor relationships that may be invalid. Require any retention of a contractor to be approved by a point person, who can issue spot and seek help in evaluating whether a contractor relationship is likely to withstand a misclassification challenge.
  6. Seek legal help before you get audited or sued. Now is the time to review and modify relationships to reduce the likelihood of a misclassification claim. Once a claim is made, your business can only play defense. Create your playbook now, before the defense has to take the field.

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

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

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NLRB Changes Independent Contractor Test (Again). Ch-Ch-Ch-Changes!

changes independent contractor test super shuttle nlrbThe word of the day is change. Not the kind I needed Saturday morning when it required 37 quarters to drive 50 miles on the Florida Turnpike. (Thank you Walgreens, for the roll of quarters!) No, I mean the David Bowie kind. Turn and face the strange.

On Friday, the Trump-appointed, Republican-majority NLRB issued an important pro-business decision, changing the test for Independent Contractor vs. Employee under the National Labor Relations Act (NLRA). The case is called SuperShuttle DFW and involves independent contractor airport shuttle drivers in the Dallas-Fort Worth area.

The new test is the old test. Or as Roger Daltrey might say, “Meet the new boss. Same as the old boss.

The new test is the traditional common law Right to Control Test, which had been the test until 2014. In 2014, a Dem-led Board made it harder to prove independent contractor status by changing the test in a case called FedEx Home Delivery. The FedEx test asked whether the worker was “in fact, rendering services as part of an independent business” and essentially adopted an Economic Realities Test, rather than the Right to Control Test that had always been applied.

Friday’s decision brings back the old test — a traditional Right to Control Test.

A Right to Control Test asks who has the right to control the manner and means by which the work is completed. More control by the hiring party tilts toward a finding of employment. Less control means more entrepreneurial opportunity for the worker, which tilts toward a finding of independent contractor.

The Right to Control Test re-adopted in the Super Shuttle decision is a balancing test, and here are the factors the NLRB will consider:

(a) The extent of control which, by the agreement, the master may exercise over the details of the work.

(b) Whether or not the one employed is engaged in a distinct occupation or business.

(c) The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.

(d) The skill required in the particular occupation.

(e) Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work.

(f) The length of time for which the person is employed.

(g) The method of payment, whether by the time or by the job.

(h) Whether or not the work is part of the regular business of the employer.

(i) Whether or not the parties believe they are creating the relation of master and servant.

(j) Whether the principal is or is not in business.

In this case, the Amalgamated Transit Union was trying to organize 88 shuttle drivers, each of whom owned their vehicles and paid a flat fee for the right to transport passengers to and from the airport. Drivers kept the money they received for each fare, providing them with the opportunity for profit or loss, depending on how much they chose to work and which rides they chose to accept. Drivers could work when they wanted and could accept or decline rides.

The union argued that the drivers were subject to extensive rules about how they operated, including what they wore, the communication system they used, background check and training requirements, and the appearance and seating arrangements in their vehicles. These requirements, however, were not imposed by the franchisor, which then contracted with the individual drivers. Rather, these requirements were imposed by the state-run DFW Airport.

The Board recognized the important principle that requiring compliance with state- or customer-issued requirements is not the kind of control examined in a Right to Control analysis. Although the DFW Airport’s requirements were extensive, the franchisor’s insistence that its independent contractor drivers follow those rules did not turn the drivers into the franchisor’s employees. That’s an important point for businesses to remember when they enter into independent contractor arrangements.

So where does that leave us? A million dead end streets and every time I thought I’d got it made, it seemed the taste was not so sweet.

The test keeps changing, depending on which political party controls the Board. For now, we’re back to a common law Right to Control Test when determining Independent Contractor vs. Employee under the NLRA.

Ch-ch-ch-ch-changes.

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

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

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Fecal Matter Meets Electrical Wind Machine: NLRB Scrambles to Re-Evaluate Joint Employment

NLRB rulemaking update browniong-ferris Hits the fanAccording to the British site, The Phrase Finder, the expression When the shit hits the fan “alludes to the unmissable effects of shit being thrown into an electric fan.” That’s lovely. The Cambridge Dictionary (also U.K.) describes the idiom a bit more delicately: “also, when the shit flies, [when] a situation suddenly causes a lot of trouble for someone.”

Thank you, British internet!

In any event, this expression seems to capture the predicament the NLRB suddenly finds itself in after the D.C. Court of Appeals issued its unexpected ruling a couple weeks ago in the ongoing Browning-Ferris case, which we wrote about here.

The ruling vastly complicated the NLRB’s efforts to adopt a more pro-business definition of “joint employment” that would require direct control over essential terms of employment before joint employment could be found. The D.C. Court of Appeals ruled that the meaning of “joint employment” under the National Labor Relations Act is determined by the common law Right to Control Test, and that the NLRB has no authority to change the definition in a way that is inconsistent with the common law meaning.

The common law Right to Control Test, to the current Board’s dismay, allows for a finding of joint employment when control is reserved, even if the right to control is not actually exercised. That ruling is contrary to the definition being proposed by the NLRB as part of its ongoing effort to enact a new regulation through the rulemaking process.

Since the D.C. Court of Appeals ruling, here’s what’s been happening:

First, two key Democratic lawmakers sent a letter to Board Chair John Ring, asking that the Board abandon its rulemaking effort in light of the court’s ruling. Nice effort, but that’s not likely to happen.

Second, “in light of the unique circumstance” posed by the court’s decision, the Board has again extended the period for the public to submit comments on the proposed rule. The new deadline is January 28, 2019, with reply comments due February 11, 2019. This is the third time the Board has extended the comment period. The second extension inspired one of my favorite posts, “Amazon Users (espec. Cindy, Amy & kris), Please Don’t Submit Comments On the NLRB’s Proposed Joint Employment Rule,” which if you missed, it’s not too late.

So what happens next?  The Board has a few options:

1. It can change the proposed rule to allow for a finding of joint employment when a company reserves the right to exercise control, even if the control is indirect and is never actually exercised, but only if the right to control covers “essential” terms and conditions of employment. That change would be consistent with the D.C. Court of Appeals ruling, but it’s not as sweeping a change as current pro-business Board majority would like.

2. It can plow forward with its current rulemaking plan and ignore the D.C. Court of Appeals. The NLRB typically ignores decisions by the U.S. Courts of Appeal on the basis that there are 12 regional federal Courts of Appeal and they don’t always agree, while on the other hand, the NLRB’s authority is national, not regional. This approach often results in circuit splits, in which Courts of Appeal issue contradictory rulings, a situation that generally results in the U.S. Supreme Court deciding the issue once and for all. If the NLRB takes this approach, a circuit split could develop, and the Supreme Court would be likely to get involved, but it would probably take years before that wound its way up to the Supreme Court.

3. It can ask the full slate of D.C. Court of Appeals judges to re-hear the case. This is called an en banc proceeding. Since the decision was 2-1, there could be some momentum toward the full slate of judges agreeing to reconsider the case, but even if that happens, there is no guarantee the ruling would be any different.

4. The D.C. Court of Appeals decision can be appealed to the Supreme Court. The Supreme Court could decide to hear the case, or it could decline and allow the law to further develop. The Supreme Court often waits to hear what other Courts of Appeal have to say before it issues a final decision. But even if the Supreme Court takes the case, there is no assurance that the NLRB will get the ruling it wants.

Here’s why. On one hand, the newly constituted Supreme Court is more conservative and is regarded as more pro-business, which would appear to suggest support for the outcome that the pro-business NLRB would want — authority to narrow the definition of joint employment to situations in which control is directly exercised, not merely reserved.

But on the other hand, the current Supreme Court seems less and less inclined to defer to agencies’ interpretations of statutes. While the current Supreme Court may be sympathetic to the outcome desired by the NLRB, it is unlikely to be sympathetic to the process by which the NLRB wants to achieve that outcome. The Supreme Court’s current members seem inclined to limit the authority of federal agencies to re-interpret the law.

There are lots of ways the joint employment saga might play out. But for now, it’s fair to say that the D.C. Court of Appeals decision was unexpected and messy, in a way that alludes to the unmissable effects of excrement being thrown into an electric fan (as the Brits might say).

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

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

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Backfired? New Ruling May Threaten NLRB’s Proposed Rule on Joint Employment

Joint employment bagpipe

The word “backfire” derives from the grooming practices of 15th century Scottish noblemen, who grew beautiful long fiery-red flowing back hair, which they brushed and braided into elaborate patterns, including the “Haggis Flow” and the “Scotch Tape.” Ok, not really. Efforts to rewrite history and change definitions can sometimes fall short of the mark.

The NLRB’s grand strategy for rewriting the definition of joint employment may have just backfired. A Court of Appeals decision issued late last week may jeopardize the Board’s rulemaking authority, even though that was not the issue before the Court.

Before we dive into the December 28, 2018 ruling, here is a quick refresher on how we got here:

  • In 2015, the Democratic-majority Board adopted a vastly expanded definition of joint employment, allowing a business to be deemed a joint employer (1) even if it did not control working conditions but merely retained the right to do so, or did so indirectly, such as through third party subcontracting, and (2) even if the working conditions that could be controlled were non-essential working conditions, not just the key terms and conditions like hiring, firing, and disciplining. This was the Browning-Ferris decision.
  • In early 2018, the newly constituted Republican Board tried to reverse its 2015 Browning-Ferris decision in a case called Hy-Brand, in which the Board enacted a much narrower, pro-business definition of joint employment, requiring direct and immediate control over essential terms and conditions of employment before a company could be deemed a joint employer.
  • Several weeks later, however, the Board reversed itself and rescinded the Hy-Brand decision after conflict of interest questions arose relating to one of the board members (Member Emanuel) who decided Hy-Brand. When the Board rescinded its Hy-Brand decision, the effect was to re-establish the expansive 2015 Browning-Ferris test as the operative definition of joint employer.
  • In light of its failed effort in Hy-Brand, the Board then chose to pursue a two-step Plan B for overruling Browning-Ferris and for narrowing the definition of joint employment.
  • Step 1 would be to enact a new regulation, creating a narrower definition of joint employment that would, in effect, overrule Browning-Ferris prospectively. That process is ongoing. Step 2 was to ask the D.C. Court of Appeals to reopen the otherwise mothballed appeal of the Board’s 2015 decision in Browning-Ferris, which adopted the current broad definition of joint employment.
  • In Step 2, the Board expected the Court of Appeals to find that the 2015 Browning-Ferris decision was an overreach and that the vastly expanded definition of joint employment could not survive. That ruling would have nicely positioned the Board to roll out its new regulation, which would substantially narrow the definition of joint employment, as it tried to do in the Hy-Brand case.

That brings us to this past Friday’s decision by the D.C. Circuit Court of Appeals (Dec. 28, 2018) and the real meaning of the word “backfire.” Step 2 did not go the way the NLRB had planned.

The Court of Appeals’ Ruling and Its Effect on Joint Employment

According to the 2-1 majority opinion, the question of whether there is a joint employment relationship under the National Labor Relations Act (NLRA) must be answered by applying the common law test for whether there exists an “agency” relationship.  The Board has no special expertise relevant to defining the common law of agency. Therefore, according to the Court of Appeals, the Board is awarded no deference in this area. In other words, the Board does not have the right to define or redefine joint employment in a way that would be inconsistent with the common law meaning of “agency.”

The Court of Appeals said that the Board’s 2015 ruling in Browning-Ferris — that indirect or reserved control can be considered when determining whether a joint employment relationship exists — was appropriate because it is consistent with the common law of agency.  Under the common law, it is the right to control that matters, even if that control is not exercised. In fact, the Court of Appeals concluded that Board has no authority to prohibit the consideration of indirect or reserved control when evaluating whether there is joint employment. (That’s what the Board is currently trying to do through rulemaking.)  The reason the Board cannot prohibit consideration of indirect or reserved control is that the common law definition of agency examines whether an entity has the right to control how work is performed, regardless of whether that control is exercised. This last point is important for reasons that the D.C. Court of Appeals was not directly addressing. That point — if it hold true — would cast doubt on the Board’s ability to implement its proposed new regulation. The regulation would require a showing of direct and immediate control (not merely indirect or reserved control) before joint employment can be found.

The D.C. Circuit Court of Appeals did not, however, give the Board’s 2015 Browning-Ferris ruling its full backing. Where the Browning-Ferris ruling went wrong, according to the Court of Appeals, was in allowing the consideration of indirect or reserved control over non-essential terms and conditions of employment.  The common law agency test requires control (or indirect or reserved control) over essential terms and conditions of employment (e.g., hiring, firing, disciplining).  The Court therefore ruled that the Board lacks authority to change that definition in a way that make a business a joint employer merely by entering into a standard subcontracting or staffing agency agreement. All such relationships involve some level of control over non-essential working terms, such as defining the type of work to be done by the subcontractor or staffing agency workers and dictating the desired result.

The 2015 Browning-Ferris case is now being remanded back to the Board to take another shot at it. That would be fine and dandy with the now-Republican-majority Board, except for the fact that the Board may now be impotent to make a meaningful pro-business change in this case, since Member Emanuel might be precluded from participating in the decision due to Littler’s representation of Leadpoint, the staffing agency in the Browning-Ferris dispute (or maybe he is not precluded now, since the one-year conflicts period has now lapsed). Member Emanuel was a shareholder in the Littler firm before his appointment to the Board in September 2017. Further complicating the possible recusal issue is the fact that Trump required his appointees to sign an Ethics Pledge that provided a two-year conflict of interest period, rather than the standard one-year period.

The most lasting effect of this Court of Appeals decision is likely to be that it calls into question whether the Board can, through rulemaking, redefine joint employment in a way that eliminates consideration of indirect or reserved control by a putative joint employer.  If the definition of joint employment under the NLRA is determined by the common law of agency, and the Board — according to this Court of Appeals — lacks the expertise to interpret the common law of agency, then the Board would lack authority to change the definition in the way it proposes.

On the other hand…

On the other hand, it may be that this decision has no lasting impact at all on the definition of joint employment under the NLRA. This was a 2-1 decision by U.S. Court of Appeals, not by the U.S. Supreme Court. The two judges in the majority were Obama appointees. The full D.C. Circuit could be asked to reconsider the issue in an en banc proceeding.  Or the matter could go to the Supreme Court (which seems unlikely).

Or, if past practice is any indicator of future behavior, the Board might just ignore the D.C. Circuit Court of Appeals, on the basis that there are 12 Circuit Courts and they often disagree. The Board is required to follow rulings by the U.S. Supreme Court, but it often ignores legal opinions issued by the individual Courts of Appeal. The Board must, of course, follow the D.C. Court of Appeals’ ruling as it relates to this particular dispute, but it will not necessarily take the Court of Appeals’ broader rulings as controlling authority on what the Board can or cannot do.

So where are we?

We’ll see. But two things are certain.  First, the definition of joint employment will continue to evolve; and second, the definition of backfire has nothing to do with Scottish nobleman or their back hair.

And at the end of the day, joint employment continues to be a messy, messy situation.

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

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Amazon Users (espec. Cindy, Amy & kris), Please Don’t Submit Comments On the NLRB’s Proposed Joint Employment Rule

Joint employment rule NLRB comment period extended

Amazon has a popular feature that allows users to post questions about a product, and then anyone can then post an answer. But is that really such a good idea?

Should literally anyone be allowed to post a comment? Allow me to introduce you to Cindy C., who recently purchased an ice machine and is (I think) trying to be helpful to others who are considering purchasing the same brand of ice machine:

PNG image

 

Thank you Cindy. Not a helpful comment. If you decide to try the extension cord, first get out of the bathtub. Otherwise, the next post containing your name could be here.

Then there’s Amy N., who has neither Alexa nor an ounce of common sense:

6B1055D9-4CEB-45B0-A880-D540798F108A

Thank you Amy N. It’s really nice to hear from you and, best of all, now I know what to get you for Christmas!

Then there’s my favorite user comment, courtesy of kris:

8FB1A0FA-0C54-43AE-B088-8911A3FF77A6

Dear kris, we didn’t think that you did. And we still don’t. Not this thing or any other thing. You may resume finger painting.

Amazon is not the only democratic institution that invites all living, breathing creatures to provide public comments.

As we’ve written here, the NLRB is pursuing the administrative rulemaking process to craft a new definition of “joint employment.” As part of that process, there is a public comment period, during which anyone (even kris) can post a comment about the proposed rule.

So far, there have been about 8,000 comments posted, many cribbed from a cut-and-paste pro-union comment drive that invites adherents to write, “Dear _, I strongly oppose….” Many other comments, fortunately, include well-considered and thoughtful opinions, both for and against the rule. It’s the thoughtful comments that are the most helpful, kris.

The NLRB has extended the comment period through January 14, 2019, with an additional reply period through January 22 in which people can reply to a previously posted comment.

If Amy N. asks, comments may only be submitted via Alexa.

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

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

suffer or permit to work California

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

Same thing, different meaning.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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