Arbitration Agreements & Staffing Company Workers: Can They Take You Anywhere You Want to Go?

1956 chevy bel air Arbitration agreements staffing agency

1956 Chevy Bel Air. The Ides of March’s Vehicle was a ‘55.

I’m your vehicle baby. I can take you anywhere you want to go.

That may be true for Jim Peterik, vocalist and frontman for The Ides of March, who issued this bold proclamation in the band’s 1970 single, “Vehicle.” (It worked. See more below.)

It’s not true for arbitration agreements, though. They can’t take you anywhere you want to go unless you draft them very carefully. A recent decision by the First Circuit Court of Appeals reminds us of this lesson, although the opinion disappointingly fails to quote the Ides of March.

In Hogan v. SPAR Group Inc., we have an independent contractor named Paradise Hogan (which seems like would have been a cool name for a rock band); a staffing company called SBS; and a retail services provider called SPAR.  SPAR contracted with the staffing company to use the services of its independent contractors, including Hogan.

Continue reading

Do Pre-Employment Laws Apply When Running Background Checks on Independent Contractors? (Tip: Instead, Just Ask Edward)

Time traveller independent contractor background check requirements

A time traveler named “Edward” claims to have photographic proof that he is visiting from 5,000 years in the future. According to Metro UK, he described his experience as “unbelievable.” Ponder that.

One of the benefits of time travel is that you’d know if your workers are going commit crimes in the future that could jeopardize your company. With people like Edward in short supply, we are instead forced to try to predict future behavior through more widely accepted methods, like reading tarot cards or performing background checks. (Free tip: pick the latter.)

There are federal and state laws that strictly regulate the processes and procedures for running pre-employment background checks. A Ninth Circuit Court of Appeals decision last week highlights the importance of following all technical requirements, including that employers provide a “clear and conspicuous disclosure” that they may run a background check and that the disclosure is “in a document that consists solely of the disclosure.” In that decision, the court ruled that it’s illegal to provide a disclosure that includes state law disclosures on the same page as the federal disclosure. It is common for employers to combine these disclosures on the same form, so check your forms! I blogged about the ruling here, on BakerHostetler’s Employment Class Action blog.

In contrast, the rules for running background checks on independent contractors are not as strict. The federal law requiring a stand alone disclosure applies only to reports being run “for employment purposes.” Same thing for the pre-adverse action notification requirement. It applies only to reports that are run “for employment purposes.”

Interpreting the “for employment purposes” language, at least three federal courts have ruled that a report on a prospective independent contractor is not being run “for employment purposes” and, therefore, these requirements do not apply to reports being run on independent contractors. (The FTC has issued guidance that the “for employment purposes” requirements do apply to independent contractors, but the courts have so far rejected this guidance as being inconsistent with the language of the statute.)

Some of the requirements in the Fair Credit Reporting Act (FCRA) may still apply, depending on the purpose of the report, but the bottom line is that the rules are different for background checks being run on employees and independent contractors. The FCRA is somewhat complicated, and don’t forget the patchwork of state laws.

There’s also the risk of misclassification — that the independent contractor could be deemed an employee — in which case the FCRA and state law requirements for pre-employment background checks would need to be followed, and the failure to follow them can be costly. The FCRA allows for statutory damages of $100 to $1,000 per violation, plus attorneys’ fees.

So if you’re afraid of a misclassification claim should you just follow the “for employment purposes” requirements anyway? Not necessarily. Though it can be prudent to follow some of the technical disclosure and pre-adverse action requirements that apply to pre-employment checks, be careful about using any forms with independent contractors that say the background check is being run “for employment purposes.” In other words, the forms you are using for pre-employment background checks might not be suitable for use with independent contractors.

This earlier blog post discusses more of the issues (and potential risks) related to running background checks on independent contractors.

There are plenty of good reasons to run background checks on some types of contractors, particularly those who will be entering customers’ homes. The goal, of course, is to try to predict the risk of future wrongdoing. Background checks can be useful for that purpose.

But the only surefire way to know what is going to happen in the future is to ask Edward.

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.

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

2018_Web100Badge

 

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.

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

2018_Web100Badge

 

After Supreme Court Ruling, Be Sure Your Arbitration Agreements Contain These Two Essential Clauses!

Hyena supreme court henry schein arbitration

I never thought hyenas essential
They’re crude and unspeakably plain
But maybe they’ve a glimmer of potential
If allied to my vision and brain

– “Be Prepared,” The Lion King

The song goes on to warn that “you can’t be caught unawares.” Be prepared. The song neglects to remind companies to check their arbitration agreements for two essential clauses, but that’s why you have me.

The Supreme Court delivered its first Kavanaugh-authored opinion late last week. It was a short, punchy, and unanimous decision with no mention of cartoon hyenas or warthogs, but it clarifies an important point under federal arbitration law: If an agreement calls for disputes to be resolved by an arbitrator, a court cannot override that contractual agreement — even to decide a threshold question like whether the dispute is subject to arbitration.

This is a case of Who decides who decides.

Many arbitration agreements contain carve-outs, saying that certain types of disputes are not subject to arbitration. A common carve-out allows parties to go to court to get an injunction to prevent imminent harm.

The issue here was whether a carve-out like that could be presumed by the court (since it was not explicitly in the agreement), or whether the arbitrator had to decide what was subject to arbitration. The court ruled:

When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.

How does this apply to you?  Two important points:

First, carve-outs: Your arbitration agreements should be drafted to include carve-outs that allow parties to go to court to seek injunctive relief to prevent imminent harm. Specific types of disputes should not be subject to arbitration. If your employee or contractor is about to reveal a trade secret, you need the ability to run to court and get immediate relief. Arbitration is too slow to prevent that danger.

Second, arbitrability: If you fear that a court might invalidate the arbitration agreement or attempt to override it, include a provision like this: “Any disputes regarding whether an issue is subject to arbitration shall be resolved by the arbitrator.”

This case was decided under the Federal Arbitration Act, which is the federal law that favors enforcement of agreements to arbitrate disputes, subject to a few limited exceptions. One of those exceptions is also now before the Supreme Court in New Prime v. Olivieri, a case we discussed here. It relates to independent contractors in the transportation industry and whether the Federal Arbitration Agreement applies. A decision in New Prime will be issued sometime this term.

Arbitration agreements are an important tool that should be in your toolbox, especially if your company is concerned about class action claims, either from employees or independent contractors.

Be prepared.

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.

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

2018_Web100Badge

 

Five Easy New Years’ Resolutions for Companies That Use Independent Contractors

new years resolutions

Now that the hangover has worn off and the calories have not, it’s time for 2019 New Years’ Resolutions. I know you didn’t ask for help, but you also didn’t not ask.

Here are some suggestions for those of you whose companies rely on independent contractors:

  1. Do you have one of those doorbells you can answer from anywhere? So do I. That’s because we’re cautious (syn., paranoid). Be similarly cautious that your non-legal, non-HR co-workers in management might retain independent contractors without your knowledge. Unleash your inner Anita Ward and make them Ring Your Bell. Set up a gatekeeper system that requires everyone to go through you before they can retain a non-employee worker. But don’t aim little cameras at their desks or you will lose friends.
  2. Update your Independent Contractor Agreements, even if you haven’t been sued yet. I am reminded of the time Bart Simpson exclaimed, “This is the worst day of my life!” and the wise yogi, Homer, responded helpfully, “–the worst day of your life so far.” (Here’s the clip.) Be prepared for if/when you are sued. Use the contract to highlight the facts that support independent contractor status. Be prepared.
  3. Don’t walk slowly in airports. This is (arguably) not directly related to the use of independent contractors, but it is important nonetheless because it drives everyone bonkers when people do it.
  4. Include arbitration clauses with class action waivers. In an alternative universe, your company has been sued by all of your independent contractors in a class action. In your reality, the contractor’s requirement to go at it alone in arbitration convinces your contractor that it’s not worth the effort to sue you, making you — who inserted the arbitration clause — the hero!
  5. Try this exercise: Do a simple self-audit. Check your company’s list of 1099 recipients for 2018 and see how many are individuals with SSNs, rather than entities with EINs. A long list with the names of a lot of individuals may be a sign that there are some independent contractor issues. That little exercise won’t burn off a single cookie, but it’s nonetheless a simple way to try to get a sense of how many independent contractors your business may have. The number is often greater than people realize.

Wishing you all a happy and healthy 2019!

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.

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

2018_Web100Badge

 

Arbitration Agreements Save Uber From Massive Class Action

uber victory arbitration agreements 2018

Two themes are often repeated in this blog: (1) Independent contractor relationships are under attack, and (2) there are a lot of things companies can do to protect themselves, but they need to be proactive, not wait until they get sued. I’ve also tried themes relating to song titles – like here (Led Zeppelin) and here (Tom Petty) – but that’s kind of not the point I’m trying to make right now.

These two themes came together nicely this week in a major ruling by the Ninth Circuit Court of Appeals. Uber earned a big win, thanks to its arbitration agreements and a May 2018 U.S. Supreme Court decision confirming that mandatory arbitration agreements should be enforced.

Uber has been a favorite target of the plaintiffs’ bar in independent contractor misclassification lawsuits. Uber has been trying to defeat class claims by asking courts to enforce the mandatory arbitration agreements signed by most of its drivers.

That fight has been going on since 2013, when a federal court in California rejected Uber’s bid to enforce its arbitration agreements. The California judge certified a class of 160,000 drivers, then certified another subclass of drivers, creating a massive class action that Uber tried to settle for $100 million. The judge in that case rejected the settlement as too small, but Uber’s long game in court appears to have paid off.

After the judge rejected the proposed settlement, the case was to proceed; but, remember, the judge had also rejected Uber’s attempt to enforce the arbitration agreements, which would have kept the matter out of court entirely. If the arbitration agreements were enforced, the drivers would have to litigate their claims individually, one-by-one, with no individual driver’s claim worth all that much money. The attractiveness of these claims for plaintiffs’ lawyers is in the massive dollars generated by consolidating tens of thousands of individual claims into class actions. Individual arbitrations do not have much lure.

In this week’s Court of Appeals decision, the arbitration agreements were upheld as valid and enforceable. Uber will not have to face this class action of 160,000+ California drivers. The jackpot settlement of $100 million is gone, and the drivers who wish to go forward will now have to pursue their claims drip-drip-drip, one-by-one, with only small amounts of money at issue in each case.

This ruling became inevitable after the U.S. Supreme Court’s Epic Systems decision in May 2018, which held that individual employee arbitration agreements are generally enforceable and do not violate workers’ rights under the National Labor Relations Act.

Based on the Supreme Court’s ruling, the Ninth Circuit Court of Appeals had no choice but to rule that Uber’s arbitration agreements were indeed enforceable, overturning the district court judge’s 2013 decision that said they were not.

The plaintiffs tried to argue that since one of the lead plaintiffs opted out of arbitration, the entire potential class should be viewed as if everyone opted out of arbitration. But the Court was having none of that. A single class representative plaintiff doesn’t have the authority to cancel thousands of other contracts that he wasn’t a part of.

The lesson here is that arbitration agreements work. They are a potent weapon in defending against and preventing massive class action risks, especially for companies that rely heavily on independent contractors for their business model.

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

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

 

Lessons from a Reggae Cucumber Song: Draft Benefit Plan Eligibility Language Carefully

ERISA independent contractor misclassification cucumber

Reggae artist Macka B has a song touting the nutritional benefits of the cucumber. The song includes verses like:

Get the cucumber cut it inna slice
Put it inna jug of water overnight
You know what you get for a fraction of the price
Energy drink full of electrolytes

I learned about this song when I asked The Google for songs about benefits. But as much as I like the song (youtube here), this post is about a different kind of benefits.

One of the biggest risks of independent contractor misclassification is having to provide employee benefits to workers you thought were independent contractors. If it turns out those workers were misclassified and are really employees, they may suddenly be eligible for all sorts of employee benefits, including retirement plans like 401(k) match and employee stock ownership. And they’ll be eligible retroactively. This can be expensive. A goof of this type cost one major corporation $97 million back in the late 1990s.

As one recent federal court decision from Georgia reminds us, businesses can avoid this risk with careful drafting in its benefit plan document.

Continue reading