by Todd Lebowitz

Ice Fishing, Prostitution and Emails: Think Before You Express Legal Concerns (Including About Misclassification)

In this post, we’ll set the bar low. Today’s theme is “Don’t say stupid [stuff].”

Those of you living outside Northeast Ohio may have missed this recent gem. During a city council meeting on whether to allow ice fishing at Hudson Springs Park, Hudson’s mayor opposed the proposal — on the grounds that ice fishing shanties might be used for prostitution.

“If you open this up to ice fishing, while on the surface it sounds good, then what happens next year? Does somebody come back and say, ‘I want an ice shanty in Hudson Springs Park for ‘X’ amount of time?’ And if you then allow ice fishing with shanties, then that leads to another problem. Prostitution.”

Don’t say stupid stuff. After being widely mocked, the mayor resigned a week later.

A similar rule of thumb applies when evaluating your independent contractor relationships.

It’s a great idea to look carefully at those relationships and to examine whether misclassification might exist. But be careful what you put in writing. Don’t write stupid stuff. Emails are a plaintiff’s lawyer’s best friend.

If you think your business might be misclassifying its contractors, you get a gold star for being proactive. (Congratulations! It will look great on your chart on the refrigerator.) But don’t express that opinion in an internal company email. Pick up the phone and call someone. Or better yet, get your legal counsel involved. Not only can you have privileged, non-discoverable email communications with counsel, you can also get helpful legal advice.

Email, IMs, DMs, texts, Slack, and Team chats are all discoverable in litigation. If your business gets sued for misclassifying contractors, you do not want a trove of emails from HR to the CFO saying, “I think we may be misclassifying our contractors” or “I saw Lebowitz’s blog, and I think our contractors are probably employees under the Right to Control test,” or “That California ABC test is a real killer. There’s no way we meet part B.”

Those are helpful thoughts — and you all know I always recommend being proactive about these things — but please, please, pick up the phone instead. Call your CFO. Call your company president. Call your lawyer. Don’t write it in a discoverable email or text or IM or chat. Don’t create evidence that will allow a plaintiff’s lawyer to say, “Not only was this business misclassifying its contractors, but they knew they were doing it. Just look at this email.”

Your good intentions in identifying a possible issue can be used against you. But be careful how you communicate that concern. Say it, don’t write it.

But don’t say it at a city council meeting.

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02.28.22

by Todd Lebowitz

Upside Down? U.S. Companies Can Learn from Australian High Court Ruling on Independent Contractors

There’s no reason our maps are oriented the way they are, with Australia at the bottom and Canada near the top. There’s no right side up in space, and we could just as easily think of the world with Australia on top, in the middle.

Same with our way of deciding Who Is My Employee? The process for determining whether someone is an employee or an independent contractor doesn’t have to be the way Americans conduct that analysis.

Two High Court decisions this month in Australia highlight a key difference between the American approach and what is now the new Australian approach.

In the U.S., courts look past the written contract and analyze a worker’s status based on the actual facts of the relationship.

The Australian High Court says the U.S. approach is upside down.

In two highly publicized decisions, the Australian court ruled that the contract establishes the rules of the relationship and therefore also determines the worker’s status. In one case, the agreement said the work would be controlled by the hiring party. By contractually reserving the right to control the work, the hiring party inadvertently made the worker an employee. The court still looked past the fact that the parties called the worker an independent contractor, but the court said the contractual requirements of the relationship — the terms and conditions — controlled the outcome.

The other High Court case involved two truck drivers. Their contracts exhaustively set forth terms preserving their flexibility to work for others and to control how their work was performed. Their contracts also called for the drivers to use their own equipment, which involved a significant investment by the drivers. The court overruled a lower court decision that deemed the workers to be employees. The lower court focused on actual control exerted by the hiring party. But the High Court said the contract controls and, in this case, the contract established requirements consistent with independent contractor status. It is up to the parties to follow the contract, but the contract establishes the independent contractor relationship.

There are lessons for American companies here too.

While under U.S. law, the actual facts of the relationship control whether the worker is an employee, the independent contractor agreement is an opportunity to memorialize the helpful facts. That’s why off-the-shelf templates in the U.S. are of no value. (Hot tip: Google & Bing is not a law firm.) See related posts here and here, including how to discomfit a bear.

An independent contractor agreement in the U.S. should be drafted with the particular facts of the relationship in mind. Does the worker get to decide when and where the work is done? If so, put that in the contract. The worker controls when and where the work is performed, and the hiring party has no right to control when and where.

If the worker’s status is challenged, you want the contract to be a helpful piece of evidence. You want to be able to say to a court: Not only does the worker get to decide when and where the work is done (or insert other factor), but the contract forbids us from controlling that.

In the U.S., contract terms like that will be persuasive evidence, but only if the actual facts align. In Australia, the contract sets the rules, and the parties are in breach if they fail to follow the rules established in the contract.

But no matter where you sit, and no matter which way your map is aligned, companies should view independent contractor agreements as an opportunity to build the case that an independent contractor is properly classified.

By planning ahead and drafting carefully, you can maximize your chances of coming out on top.

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02.07.22

by Todd Lebowitz

Iguanas with Jackets: Here’s One Exhibit to Include with Every Staffing Agency Agreement

*I met this little guy in Costa Rica, 2017*

It happens every year.

When the temperature in Florida drops into the 30s, the iguanas freeze. Unable to regulate their body temperature, they drop out of trees, landing on sidewalks and in yards like solid rubber toy animals.

The freeze doesn’t kill them though. It just stuns them for a while, then they eventually warm up, reanimate, and go about their daily iguana business.

Getting stunned like this can’t be avoided for the iguanas. Amazon is not yet selling iguana jackets, and online delivery to lizards is notoriously complicated. (Note to self: Business opportunity?)

But unlike iguanas, businesses can reduce their chances at getting stunned — at least when it comes to avoiding lawsuits from staffing agency workers.

When staffing agency workers file wage and hour lawsuits, they often sue both the staffing agency and the business where they worked. The workers allege that both are joint employers, often bringing class claims or a collective action.

Businesses that carefully draft their staffing agency agreements will have some natural defenses against these claims. I’ve written about that here. I call this strategy The Monster with Three Eyes.

But there’s a fourth strategy too. Force individual staffing agency workers to arbitrate these claims instead of pursuing them in court, and include class action waivers with the agreement to arbitrate.

There are two ways to introduce arbitration agreements with class waivers in your staffing agency agreements.

First, you can mandate that staffing agencies sign arbitration agreements with their own employees. Some courts have found that arbitration agreements between a staffing agency and its employee protect the third party business too, even if the third party hasn’t signed the agreement.

But that approach carries risk. The agency’s arbitration agreement might be poorly written, or it might include terms that make it unenforceable. Your protection is only as good as whatever form agreement the agency presents to their workers.

There’s a second approach I like better. It goes like this:

Draft your own individual arbitration agreement (with class waiver) for staffing agency workers to sign, requiring them to arbitrate any claims against you. Make it mutual, of course.
Append it to the staffing agency agreement as an exhibit.
Include a clause in the staffing agency agreement requiring the agency not to assign anyone to your business unless they’ve first signed this agreement.

The agreement will be short. No more than two pages. It can also include an agreement by the agency worker to protect your confidential information and assign inventions.

If the document is properly characterized as an offer by your business, accepted by the worker, you have offer plus acceptance equals contract — even if your business doesn’t sign it. There is specific language you can include that can make that work.

So if you use staffing agency workers, don’t assume you won’t get sued as a joint employer. You particularly want to avoid class and collective actions, and this type of arbitration agreement will do the trick.

Plan for bad weather in advance. Include this layer of protection with your staffing agency agreements. Consider it your own little iguana jacket.

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01.24.22

by Todd Lebowitz

Keep Litigation Far Away: Tips for Nonprofits so Volunteers Won’t Be Considered Employees

Jonathan photographed in April 2021. (Photo: Xben911 via Wikimedia Commons, CC BY-SA 4.0)

Jonathan turns 190 this year, but you won’t see his mug on the cover of People. That’s because Jonathan lives a solitary life in St. Helena, a remote volcanic island in the South Atlantic. Once a week, he is hand-fed cabbages, cucumbers, carrots, and apples to boost his nutritional intake. Jonathan is a giant tortoise, and he is believed to be the oldest living land animal.

You could volunteer to help feed Jonathan, but St. Helena is hard to get to. The island is 1,200 miles west of Africa, and commercial air service is limited. Sea transport is available on the RMS St. Helena, but it takes five days to get there from Cape Town.

If you want to volunteer closer to home, however, opportunities abound. Nonprofits thrive on the services of volunteers. But every once in a while, we hear of a volunteer who later claims to be an employee and who wants to be paid.

A recent case against the American Film Institute serves as a good reminder that expectations should be clearly established when working with volunteers.

When engaging volunteers, consider asking all volunteers to sign a short acknowledgement. Consider including these types of representations in the acknowledgement, customized to fit the specific project and organization:

That this is volunteer work and is purely optional;
That the decision to work is made freely, without pressure or coercion;
That the volunteer does not expect to be paid; and
That the work is being performed to support a nonprofit organization, and is being performed for [insert] objective [e.g., public service / religious / charitable / humanitarian / civic / some other similar non-commercial].

If the work could result in physical injury or damage to the individuals’s clothing or other property, consider adding that the individual acknowledges the risks (e.g., bodily injury, damage to personal property), knowingly assumes these risks, and will not hold the nonprofit responsible if those things occur.

Please don’t use the exact language above. This is not legal advice or a template. I’m just giving you ideas here — for the greater good. Work with counsel to draft an appropriate agreement.

Be sure the volunteer work is really voluntary. The voluntariness of the work was at issue in “the Lord’s Buffet” case a few years back, which has quite the backstory.

Volunteer service is important, and nonprofits unfortunately need to protect themselves against the occasional ungrateful troublemaker.

A simple acknowledgement can go a long way toward keeping litigation far away — like St. Helena and Jonathan, 1,200 miles from the nearest land mass.

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01.03.22

by Todd Lebowitz

New Year’s Resolutions: 5 Tips for Avoiding Trouble in 2022

Last spring in Poland, a menacing brown object appeared in a tree. Locals grew concerned about the mysterious beast and closed their windows. After a few days it was still there, and a call was placed to the local animal welfare society.

The authorities responded to the call and arrived on the scene to investigate. The citizens were relieved to learn it was not a bird of prey, a dangerous rabies-infested rodent, or a trapped pet. It was a croissant.

Somebody probably threw it into the tree while trying to feed birds.

The locals were likely embarrassed, but better safe than sorry. When in doubt, take steps to avoid problems. Be proactive.

Here are five tips to start off the new year the right way, with or without arboreal baked goods:

1. Review and revise your agreements with staffing agencies. Make sure you include The Monster with Three Eyes and these other clauses. Consider requiring all individual workers to sign arbitration agreements, and don’t forget the impact a choice of law clause may have.

3. Self-audit your use of independent contractors to determine whether these relationships are defensible. Here’s a tip for quickly identifying the riskiest relationships.

2. Review and revise your agreements with independent contractors. Add safe harbor clauses if you do business in WV or LA. Remember these rules, akin to discomfitting a bear.

4. Create a gatekeeper system so that managers and procurement team members cannot retain non-employee labor without first going through a designated individual. You can’t guard against the risks you don’t even know about.

5. Check your website for references to independent contractor relationships. Don’t refer to your contractors as “our whatevers” or “our team of whatevers.”

Remember, to those who say they haven’t been sued for misclassification, I say you haven’t been sued yet.

Wishing you all a happy and healthy 2022!

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12.06.21

by Todd Lebowitz

Don’t Get Stuck Naked: Tips for Enforceable Arbitration Agreements When Using Staffing Agency Workers

*He was in here. Really. Source: Syracuse Fire Dept Facebook*

A Syracuse man was rescued from inside the walls of a historic theater last month after spending two days trapped, naked. The man apparently had entered the building’s crawlspace (why?) and fell from the ceiling into a gap between walls in the men’s restroom. No word on why he was au naturale.

But I’m sure he was glad to be freed from this unexpected situation. He should have planned better — like by not hiding in a crawlspace or, if he had a really, really good reason to hide there, by at least wearing clothes.

You can protect your business from unexpected situations (different ones), such as by making sure your staffing agency agreements include valid arbitration clauses with the staffing agency’s workers. The goal here is to avoid being left naked and stuck, if faced with a joint employment claim.

In a recent Oklahoma case, two staffing agency workers sued the staffing agency and the company where they provided services, alleging a failure to pay overtime.

The company where they worked filed a motion to compel arbitration, arguing that the arbitration agreement the workers signed with the staffing agency should cover all claims against both defendants. The district court initially ruled that the arbitration agreement was only between the worker and the staffing agency, and so it could not be relied upon by the other company. Motion denied.

But the Tenth Circuit disagreed, finding that the non-signatory company could enforce the agreement because the plaintiffs’ claims “allege substantially interdependent and concerted misconduct” against the two defendants. The plaintiffs were therefore “estopped from avoiding their duty to arbitrate their claims arising out of their employment relationship.”

That was good news in this case, but I wouldn’t count on that result every time. This case turned on Oklahoma estoppel law. But with proper planning, you can achieve the same result.

Here’s how:

First, in your agreement with staffing agencies, require the agencies to have all individuals assigned to perform services at your company sign an individual arbitration agreement.

Second, make sure it’s not just any old arbitration agreement, but one that includes customized terms. For example:

Require the worker to acknowledge that signing is a condition to being placed at your company.
Make sure the scope of covered claims is broad enough to include claims that are not just against the staffing agency.
List your company as a third party beneficiary with authority to enforce the agreement.
Make the obligation to arbitrate bilateral and binding on your company, even though your company will not sign the agreement. In other words, if you agree to perform services at the company, the company will agree to arbitrate any claims against you.

There are a few more tricks of the trade, but these are some of the key items. Keep the agreement short, and use simple language.

With some careful advance planning, you can avoid being left naked and stuck if faced with a joint employment lawsuit filed by staffing agency workers.

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10.25.21

by Todd Lebowitz

Zombie Copyrights: Tips for Preserving IC Status With Writers While Avoiding the Risk of Losing Copyright After 35 Years

In Return of the Living Dead, a warehouse owner accidentally reanimates some cadavers, who then become unkillable zombies. While not based on a true story, the 1985 film does have some parallels in real life (if you squint real hard and just go with it).

As discussed last week, copyright claims can also return from the dead when the author is an independent contractor. This week we discuss what can be done to avoid this zombie copyright scenario.

In the case of Horror Inc. v. Miller, the Second Circuit ruled that screenwriter Victor Miller could reclaim the copyright to Friday the 13th after 35 years, since he wrote the script as an independent contractor.

The case highlights a serious risk when retaining a writer as an independent contractor instead of as an employee. If a work is not a “work made for hire” under the U.S. Copyright Act, the author can reclaim a copyright 35 years after having transferred the rights away.

Horror, Inc. argued that Miller was an employee when he wrote the script, which made it a “work made for hire.” The court disagreed, but the rights holder should have had another argument in its back pocket – one that would have been much cleaner and could have changed the result of the case.

Employment is just one path for designating something a “work made for hire.” Another path toward the same designation is to have a “specially commissioned work.”

If Miller’s contract to write the movie had indicated that the movie was a specially commissioned work for use as part of a motion picture, it would not have mattered whether he was an employee or an independent contractor. The “specially commissioned work” designation would have made the work a “work made for hire” without getting into the messiness of employment, which would mean that Miller could not reclaim any rights after 35 years. This circular from the copyright office explains the “specially commissioned work” rule.

There are important lessons from this case for anyone seeking to engage a writer, whether it’s a freelancer or a script writer.

First, think through the implications of employee vs. independent contractor, not only in the context of employment law but also copyright law.

Second, consider a belt-and-suspenders approach. Even if the writer is your employee under labor law, the writer might not be your employee under U.S. Copyright Act — at least according to the Horror, Inc. case. Consider Plan B. You maybe able to designate the work a “specially commissioned work” or use one of the other definitions of a “work made for hire,” assuming that the facts fit within the definition.

But there are pitfalls to the second approach too. The California Labor Code says that if a work is a “work made for hire,” then the relationship between the writer and the acquirer is automatically employment, at least under certain provisions in the Labor Code. See Cal. Unemp. Ins. Code Section 686 and Cal. Lab. Code Section 3351.5(c).

If the California Economic Development Department (EDD) performs a misclassification audit, it will likely ask for all independent contractor agreements, and if a deliverable has been designated as a “work made for hire,” that may serve as conclusive proof of misclassification, with back assessments owed for failure to pay unemployment taxes.

You can get around the whole “work made for hire” issue by assigning the work, but that leaves the door open for the writer to reclaim the copyright after 35 years. And we’re right back where we started.

The independent contractor vs. employee decision has important implications in copyright law that are often overlooked. The Horror, Inc. case is a good reminder of some of the surprises that may arise many years later.

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10.11.21

by Todd Lebowitz

Hold Your Fyre: Five Tips For Avoiding Misclassification When Using Social Media Influencers

In 2017, the Fyre Festival failed spectacularly after all sorts of social media influencers touted it as the must-attend party of the year. Documentaries on Hulu and Netflix tell the story in all its gory detail, and you can see the videos that hyped the event that wasn’t.

Despite that epic fail, the use of social medial influencers continues to be a powerful form of marketing. But when contracting with a social media influencer, beware. There are legal traps for the unwary.

For those of you who missed the social media influencer webcast on September 28, here are five tips to help prevent your social media influencer from being misclassified as your employee.

1. Whenever possible, contract with the influencers’ loan out company instead of the influencer as an individual. This is especially important if the influencer is a member of SAG-AFTRA and union pension and health contributions may be in play.

2. Limit control over things you don’t need to control. Yes, you can put parameters around the influencer’s messaging to protect the brand, and it’s ok to require the influencer to follow the FTC Guides, to avoid use of nudity or profanity, to avoid discriminatory or harassing language, and similar reasonable guardrails. But don’t get sloppy and start requiring the influencer to use your equipment or work from your facility. Be careful about open-ended contracts that are terminable at will. Don’t overreach in exerting control over when and where the. work is performed. Consider all of the Right to Control Test factors.

3. Remember that the law decides whether it’s employment, regardless of what the parties agree. And the Right to Control Test is not the only game in town. The Economic Realities Test will apply for determining worker status under federal wage and hour law and some state laws. More troubling, ABC Tests in California, Massachusetts, and other locations raise the bar significantly and make it much harder to maintain an independent contractor relationship. If the law says that it’s employment, then it’s employment. The labels you put in your contract don’t matter.

4. Avoid terminology that sounds like employment. “Retain” the influencer, not “hire.” “Terminate the contract,” instead of “fire.” Pay a “fee,” not a “wage.”

5. Pay by the project, not by the hour, whenever possible. Method of pay is a factor in many of the classification tests, and payment by the hour is one factor that’s suggestive of an employment relationship.

For more tips about how to properly engage a social media influencer, including how to make sure you follow advertising laws and avoid misclassification risks, tune in to the webcast.

You can watch it here on YouTube.

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09.27.21

by Todd Lebowitz

Nowhere to Run: New Case Serves as Reminder That FLSA Misclassification Settlements are Very Public

I just got back from running in a 200-mile relay, Muskegon to Traverse City, with a group of college friends. I ran three legs of 4, 4, and 5 miles. I had the easiest set of three legs among the 12 runners, but I’m happy just to have finished. It was great to see everyone, and I was able to disconnect from work life for a few days.

So, what I’m saying here is, I had a better weekend than the guys I’m about to write about. And for them, there’s no running away from their problems.

In yet another exotic dancer case to hit the news, the performers at King’s Inn Premier Gentlemen’s Club in Massachusetts are about to score a $292,000 settlement in a claim that they were misclassified as independent contractors. A hearing to approve the settlement is scheduled for this week.

There seem to be a lot of exotic dancer cases in the annals of independent contractor misclassification, and the clubs seem to lose their fair share of these cases. This case, like most of the dancer cases, is a wage and hour case. The dancers claimed they were denied a minimum wage and overtime pay, in violation of the Fair Labor Standards Act (FLSA). The club claimed the dancers were independent contractors and therefore were not covered under the FLSA.

But why do you care about a ~~strip club~~ exotic dancers case? Two reasons:

First, the Economic Realities Test is alive and well, and it applies to all industries.
Second, any settlement of an FLSA lawsuit must be approved, and it becomes public record.

You can read more about the first point here, in a collection of posts about this test and how it is used to determine whether someone is an employee.

The second point deserves a bit more attention, though. Most types of litigation can be settled in a private settlement agreement. An FLSA case cannot be. The law requires the settlement of an FLSA case to be approved by a judge, and there is a public hearing at which the settlement terms are considered.

Once you get sued for an FLSA violation, it’s very hard to get out of it with anything resembling confidentiality. This is the kind of claim you want to avoid in the first place.

How do you avoid an FLSA claim when you have independent contractors?

Be proactive. Evaluate your relationships using the Economic Realities Test and see if they hold up.
Review your contracts and see if they can be adjusted to better memorialize the facts that support independent contractor status.
Consider obtaining representations from the contractors up front to determine whether they really do operate independently.

Don’t wait until its too late to take action. You can’t just run away from an FLSA case.

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09.20.21

by Todd Lebowitz

Make Sure Your Social Media Influencer Isn’t Deemed To Be Your Employee (and Other Legal Tips) — Free Webinar on Sep. 28

More than 67% of US marketers will use some form of social media influencer marketing this year, according to emarketer.com. While I can’t vouch for the numbers, I do believe that putting numbers in my attention-grabbing lede makes you want to keep reading and, besides, we all know it’s a lot so does the exact number really matter anyway?

While top social media influencers include Cristiano Ronaldo, Justin Bieber, and Ariana Grande, there are also niche social medial influencers with more targeted audiences, such as the gluten-free or plant-based foods crowd.

Whatever your social media marketing strategy, engaging a social media influencer involves legal risks. Some of these risks are pretty intuitive, such as laws relating to testimonials. You need to learn those rules and follow them. Other risks are a bit more hidden, and that’s where I come in.

While your relationship with a social media influencer is intended to be an independent contractor relationship, you need to avoid exerting so much control that you risk the influencer being deemed your employee. Yes, the Right to Control Test applies here too.

You need to protect your brand, and your contract with a social media influencer should do that. But where do you draw the line? You need to install guardrails to protect the integrity of your brand, but if you exert too much control, it’s possible to convert your social medial influencer to your employee, entirely by accident.

Join me and Linda Goldstein, co-leader of BakerHostetler’s Advertising, Marketing and Digital Media team for our webinar on September 28, Influencer Marketing: A 360 Degree View of the Legal Risks.

We’ll discuss:

Recent industry trends in Influencer Marketing
Current regulatory risks and trends
Independent contractor misclassification risks

You can register here for free. 1.0 CLE credit is available.

Free Useless Tip: One surefire way to avoid independent contractor misclassification is to use a social media influencer that’s not human, and there are several. Dogs, cats, and even a South Korean avatar have all built loyal social media followings. In the webinar we’ll be focusing on the use of human influencers, but you’re welcome.

Who Is My Employee?

Exploring Independent Contractor Misclassification & Joint Employment Issues

Category Archives: Tips

Ice Fishing, Prostitution and Emails: Think Before You Express Legal Concerns (Including About Misclassification)

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Upside Down? U.S. Companies Can Learn from Australian High Court Ruling on Independent Contractors

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Iguanas with Jackets: Here’s One Exhibit to Include with Every Staffing Agency Agreement

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Keep Litigation Far Away: Tips for Nonprofits so Volunteers Won’t Be Considered Employees

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New Year’s Resolutions: 5 Tips for Avoiding Trouble in 2022

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Don’t Get Stuck Naked: Tips for Enforceable Arbitration Agreements When Using Staffing Agency Workers

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Zombie Copyrights: Tips for Preserving IC Status With Writers While Avoiding the Risk of Losing Copyright After 35 Years

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Nowhere to Run: New Case Serves as Reminder That FLSA Misclassification Settlements are Very Public

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