Raise your hand if you remember songs by Laura Branigan? How about “Gloria”? Or this lyric? You take my self, you take my self control?
The song “Self Control” is about stepping into the nightlife, with a bit of seedier, seductive angle. The lyrics, though, remind us of another reason not to exert control over an independent contractor’s employees.
Suppose you retain a contractor to replace the roof on your building. The contractor has legitimate employees, and one falls through a weak spot on the roof. That’s a worker’s comp claim, and you’re not liable for some kind of premises liability claim, right?
The answer may depend on whether you’ve exerted control over the contractor’s employees.
Let’s look at California law, but the same principle can often be applied elsewhere. (Check your state’s law.) Under the Privette doctrine, a property owner who hires an independent contractor is liable to the contractor’s employee for injuries sustained on the job only if (1) the owner exercises control over any part of the contractor’s work in a manner that affirmatively contributes to the worker’s injuries, or (2) the employee is injured by a concealed hazard that is unknown and not reasonably ascertainable by the contractor.
The keys points in avoiding premises liability claims are, therefore:
Don’t exert control over how your contractors’ employees do their job, and
Make sure any hazards are marked or disclosed.
You could have other problems if the contractor misclassifies its workers and treats them as individual subcontractors. But avoiding control can also help you avoid joint employer liability in that situation.
The bottom line here when dealing with contractors’ employees is to avoid Laura Branigan’s idea of the nightlife: Don’t take their self, don’t take their self-control.
In 1995, a man robbed two Pittsburgh banks during the day. He wore no disguise and was easily identified by surveillance cameras and arrested. This surprised the man.
The man was surprised because he had covered himself in lemon juice, and he believed that lemon juice made him invisible to video cameras. Obviously, it doesn’t and it didn’t. Lemon juice does not prevent a person from being seen.
Now let’s talk about staffing agency temps and being seen. If your temps are integrated into your workforce, there is a high likelihood you are a joint employer.
If your staffing agency temp improperly pays your temp, and the temp files a wage and hour claim, you can’t just drench yourself in lemon juice and hope not to be seen. Chances are, you’ll be sued too.
If you are a joint employer, you are likely liable for wage and hour violations by the staffing agency, even though you had no control over the staffing agency‘s pay practices. For liability purposes, their mistake is your mistake.
One of the best ways to avoid getting drawn into a class action filed by an agency temp is to require, in your staffing agency agreements, that all temps sign an individual arbitration agreement. All temps should be required, as a condition of being placed at your company, to agree that any claims they have against your company will be resolved in arbitration, on an individual basis, not through a class action.
How do you do this? In three parts.
First, insert in your staffing agency agreement a clause requiring that all temps placed at your facility must first signed an arbitration agreement, a copy of which will be attached to the staffing agency agreement.
Second, draft the individual arbitration agreement exactly the way you want it, and attach it to the staffing agency agreement as an exhibit. Include a class waiver. Consider allowing small claims to be carved out and resolved in small claims court. Consider omitting AAA or JAMS as a designated arbitration administrator, to reduce the risk of mass arbitration filings. You can require arbitration without designating any agency to administer it. The agencies charge high fees, which creates the leverage that makes mass arbitration an effective tool of the plaintiffs’ bar. No arbitration agency = no administrative fees = probably no mass arbitration.
Third, require the agency to maintain copies of these agreements. You want the ability to audit compliance. You can also require the agency to show you a copy of each signed agreement before each temp begins an assignment.
It is frustrating to think that your business could be jointly liable for wage and hour violations by a staffing agency when you have no control over how they pay their employees. But with joint employment, that risk is a reality. You need to prepare for that possibility well in advance.
The staffing agency agreement provides you an ideal opportunity to plan ahead and protect yourself against this possibility.
Lemon juice might be a nice addition to iced tea, but it does not provide any protection against security cameras or class action lawsuits. You’ll need arbitration agreements for that.
Click here for more tips about what should be in your staffing agency agreements.
[This was college move-in week, so I’m a bit behind on writing a new post for this week. Instead I’m re-posting a favorite from 2020. I like this tip for staffing agency agreements!]
Suppose you’ve got a staffing agency worker (we’ll call him Shorty) who’s a bit vertically challenged and is self-conscious about it. He tells you he’s gonna need some time off because he found this:
A limb-lengthening clinic in Las Vegas claims it can make you a few inches taller through minimally invasivce surgery. According to this article on OddityCentral.com, here’s how it works:
“We cut the leg bones – either femur (upper leg bone) or tibia (lower leg bone) – and insert a device that slowly stretches them out which makes you taller permanently.”
“I insert a device that responds to an external remote control that the patient will control at home. Once the device is set, I place screws at the top and bottom of the device to lock into position. This is done on each leg.”
The doc says you then just press a button at home and you’ll stretch by 1 mm a day. Just like nature intended.
So, back to Shorty. Suppose he has this surgery one weekend and comes back to work a bit achy from all the stretching. He wants some extra breaks to get him off his feet. Or he wants you to provide him a stool so he can rest more often from his station on the assembly line. Do you have a reasonable accommodation obligation?
If you’re in HR, you know that weird stuff happens, so maybe you hadn’t considered limb-lengthening, but let’s use this as an excuse to think about relationships with staffing agency workers and what your obligations might be for medical issues.
This is unlikely to be a disability situation, unless Shorty’s stature is due to a medical condition. But you’ll undoubtedly have staffing agency workers who do have disabilities and who do need reasonable accommodations.
That brings us to today’s Tip of the Day:
Consider adding to your staffing agency contracts a clause requiring the agency to pay the expenses for any reasonable accommodations provided to qualified staffing agency employees to allow them to perform their job functions.
Accomodations can sometimes be expensive, and it’s not unforeseeable that staffing agency workers will need accommodations at some point. Plan ahead, and build this contingency into the contract.
A clause like that may lengthen your contract a bit, but this lengthening can be done in a sentence or two — with no surgical intervention, no cuts in your femur or tibia, and no insertion of a stretch button in your leg. That’s the kind of lengthening I’d be much more inclined to try. I’ll leave my limbs just the way they are.
Rock history is filled with questions. There’s “Questions 67 and 68,” a 1969 release by the band then known as Chicago Transit Authority, about a girl that singer Robert Lamm was seeing in 1967 and ‘68. There’s “Question” by the Moody Blues, reflecting on the war in Vietnam. There’s even ? and the Mysterians, a typographically monikered pre-punk band that gave us “96 Tears.” (Fun fact: The band members were the children of migrant workers who had settled in Michigan.)
I can’t sing at all, but I can field questions. One question I get a lot is, “Should I make this person an independent contractor?”
Note the phrasing of this question. It’s not “Can I?” — that’s a legal question — but “Should I?” That’s partly a legal question and partly a business question. The answer largely depends on your tolerance for risk.
When trying to decide “Should I?” ask yourself three questions:
1. What is the likelihood the IC relationship will be challenged?
If no one ever questions the relationship, it never becomes an issue. But it’s not enough to consider whether you think the contractor will ever challenge the relationship. You need to worry about federal and state agencies, auditors, and other similarly situated contractors who might not be as content with their classification. Consider also that a contractor who is happily working might be less happy if your company terminates the relationship. A contractor who wants to be a contractor now might have other ideas later if the relationship ends badly and the contractor seeks legal advice.
Here are a few situations where there’s a high likelihood of a classification challenge:
Volume: The company works with a lot of independent contractors.
Industry: The contractors are performing services in an industry that is under heightened scrutiny, such as rideshare, installers, delivery drivers.
High Dollars: The independent contractors are paid a substantial amount of money, either individually or collectively.
General Audit Risk: The company considers an audit to be likely for any reason, even if unrelated to worker classification.
Similar Employees: The company has employees who do the same or similar work as the independent contractor.
Here are a few situations where there’s a low likelihood of a classification challenge:
One-off. It’s a one-off retention, meaning there’s just one independent contractor; there are no other independent contractors who are similarly situated.
Shared Expectations: The independent contractor wants to be an independent contractor (although that can change if the relationship ends badly).
Low Dollars: Low dollar value of the contract.
No Similar Employees: There are no employees doing what the contractor has been retained to do.
2. If there’s a challenge, what is the likelihood of success?
This is the purely legal question. Is the independent contractor classification correct under all of the applicable laws (federal, state, and local)?
That’s the question we usually explore in this blog (see all other blog posts, haha), but the legal analysis is only part of the equation you should be considering when asking the “Should I?” question. The answer to the legal question will depend on the facts, the contract, the applicable law, and the jurisdiction. This is the part where you want to reach out to a lawyer.
3. If misclassification is found, what are the likely damages or adverse consequences?
Often it’s a close call whether a worker is misclassified. Do you want to take that risk? Sometimes the stakes are so low that a company might be more willing to take the risk. If there are only a few independent contractors and they are not paid much money, you might be more willing to take the risk if there are facts that could support IC status (even if there are also facts that go the other way).
In making this assessment, there are generally several factors to consider:
A) What laws might be violated if the contractor is misclassified?
Sometimes an IC classification seems questionable on the facts, but the impact of misclassification would be very low. Suppose the IC works 15 hours a week, never more than 8 hours in a day, is paid at a rate of $20/hour or more, performs non-manual labor, and has other clients. Even if this worker is misclassified:
There’s no federal minimum wage or overtime violation (hourly rate exceeds minimum wage, no overtime hours).
There’s no state or local minimum wage or overtime violation (same).
There’s no failure to provide employee benefits (probably not eligible because part-time).
The risk of a workplace injury and resulting workers’ compensation claim is minimal (based on the nature of the work).
An unemployment claim is unlikely because the IC would continue to have other work (has other clients).
There could be local wage statement violations, meal or rest break violations, or disclosure violations. There could be a failure to reimburse business expenses. There could be tax penalties for failure to withhold. There could be an unfair labor practice charge under the National Labor Relations Act (see point #3 in this post). There could be penalties for failing to comply with local freelancer laws. There could be assessments for failing to pay into the unemployment and workers compensation systems. But none of these adverse findings are likely to create significant economic exposure under this fact pattern.
On the other hand, suppose the IC works varying hours per week, perhaps up to 60 hours, is paid on a fixed per project basis that would result in an hourly wage below the minimum if the IC worked a high number of hours, has no other clients, and performs manual labor. Suppose there are several ICs doing the same kind of work with the same IC classification. Now the risks are much higher in each category. You’re looking at possible violations of many laws, with potentially significant economic consequences.
B) What does the statute say about damages?
What damages are available? Are there penalties? Liquidated or punitive damages? Attorneys’ fees?
C) Is the potential misclassification systemic?
If the potential misclassification is of one person, the damages are going to be limited. If there are many ICs doing the same thing, the potential damages are multiplied. And, if there are many similarly situated ICs, a plaintiff’s lawyer might find the case attractive as a potential class action. If there are violations of law, your company may be liable for the plaintiff’s attorneys’ fees.
D) Is the use of contractors vital to the business?
For some companies, a finding of widespread misclassification could put the entire business model at risk. For other companies, a few adjustments can be made and life goes on.
E) Are there individual arbitration agreements in place?
Individual arbitration agreements can prevent class action litigation, but they don’t solve every problem. Is there a risk of mass arbitrations? Is your business still subject to California PAGA claims? Is the arbitration agreement enforceable as written?
F) Are there other practical or business considerations?
If there’s a finding of misclassification, what else might happen? Can you justify your decisions if questioned by your CEO or the board? Will there be adverse publicity? Would the business suffer reputational damage? Would the company’s value or stock price suffer? What would it cost to defend a claim, even if you win? If the company gets sued based on the decision to retain workers as contractors not employees, would your job be at risk?
That’s a lot of questions.
I know.
And we haven’t covered it all either. There are other factors to consider too, but hopefully this is enough to get you to start thinking about how to conceptualize the “Should I?” question.
The main point to remember is that “Should I?” is not purely a legal question. It requires business judgment and risk calculation too.
If you’ve had enough of the questions for today, I will leave you with this, courtesy of the best band to come out of Jacksonville, Florida.
Rojakorn Nanon is a businessman in Thailand. He used to feel weak and tired but then started drinking something each day that wakes him up and gives him energy.
Thailand, you see, is one of the top 25 coffee producers in the world, growing mainly arabica beans (the good kind) in the north and robusta beans (icky bitter) in the south. It would not be surprising if our friend Rojakorn discovered the wonders of a morning cup of coffee.
But no.
Twice each day, Rojakorn drinks crocodile blood mixed with alcohol. He gets the concoction from a nearby crocodile farm owner (largest croc farm in Trang province!), who sells the wonder drink for 200-300 baht per glass, about $6-9. A latte would be cheaper, even with a few extra shots, and it would be a much more traditional way to stay focused at work. When you live in a country where coffee is plentiful, there’s no need to think so far outside the box.
The same advice applies when addressing this commonly asked question: Should I give the company’s employee handbook to independent contractors?
The answer is almost always no. Don’t think outside the box on this one. An employee handbook is for employees. It explains employment policies. It provides detail about employees’ attendance rules, vacation time, leaves, exempt/non-exempt classification, and other terms that apply only to employees. These items don’t apply to independent contractors, and if you’re telling your independent contractors that you expect them to follow the policies in the handbook, you may be suggesting that all sorts of things apply them that should not apply to them.
Yes, it’s true that there are some workplace rules you’ll want your contractor to follow. Your discrimination and harassment policies, for example, can and should apply to contractors. But most of that other stuff doesn’t apply. You can include a clause in the independent contractor agreement that the contractor will not engage in any unlawful discrimination or harassment. A simple contractual requirement should be sufficient. Or you can provide a standalone copy of that policy, but you may need to modify it a bit to remove inapplicable parts or to change the terminology.
Many large companies, especially global companies, have Codes of Conduct that apply to vendors and suppliers. You can give those to independent contractors. They are intended to apply to non-employees, and they are written in a way that does not suggest an employment relationship.
You can also subject a contractor to premises rules that do not include control over how the work is done. You could require a contractor to comply with a weapons rule or a violence rule. You could require a contractor to comply with a rule prohibiting unauthorized visitors onsite. But don’t provide the full list of employee workplace rules that may be attached to your disciplinary policy, since many of those prohibitions are specific to employees.
When it comes to employee handbooks and independent contractors, keep it simple. Employee handbooks are for employees. In this situation, there’s no need to think outside the box.
As promised during the Master Class session last week, here are Ten Things That Should Be in Your Staffing Agency Agreements But Probably Aren’t.
There are still four Master Class sessions to go. The next one will be Tuesday at 2pm ET, covering the NLRB and the Uncertain State of Labor Law. There is no charge to participate. CLE and HR credits are available. You can register here.
A Swedish company has constructed airbag jeans for motorcyclists, designed to inflate for protection in the event of a crash. The denim-like fabric is water-repellent and abrasion-resistant. You can learn more here.
When riding a motorcycle, it’s smart to anticipate the possibility of injury. The same is true when engaging temps from a staffing agency.
Here’s what I mean. At some point, you’ll have a temp who requires reasonable accommodations for disabilities. The expense to accommodate might be small. But it might not be. Who pays for it, you or the staffing agency?
Last week, the EEOC announced a $119,000 settlement with a staffing company that rejected an applicant because of disabilities. The applicant, who is deaf, had been placed at a client. Before the applicant was to appear for work, a manager at the staffing agency cancelled the assignment, informing the applicant that the client did not have sign language interpreters available. The client, incidentally, was ready and willing to employ the applicant.
The EEOC’s news release doesn’t say whether the applicant actually needed an ASL interpreter or whether the client was planning to pay for one. But providing an ASL interpreter can be a reasonable accommodation. In a staffing agency relationship, who pays for reasonable accommodations needed by temps?
The best advice here is to plan ahead and put on those airbag jeans. Your contract with the staffing agency can address who pays for reasonable accommodations. All it takes is a short clause in the agreement. If the agency is paying, make sure there’s no markup on those expenses. Few staffing agency agreements address who pays for reasonable accommodations. But they should.
If you add a clause, differentiate between Title I and Title III obligations. Title I of the Americans with Disabilities Act (ADA) prohibits disability discrimination in employment. That’s the one you want to focus on. Title III of the ADA addresses public accessibility. You’ll pay for the wheelchair ramps and accessible doorways at your facility (Title III), but you may be able to shift the expenses of Title I compliance to the agency.
It’s also a good idea to make sure managers know to involve HR if disability or accommodation issues arise. You don’t want a manager saying “we can’t accommodate that” and ending a temp’s assignment.
Airbag jeans will be sold for $499 a pair. Reasonable accommodations may cost more. Either way, it’s smart to plan ahead and build protections in to your staffing agency agreement.
On March 7, I’ll be speaking at the 10th Annual Labor Relations and Employment Law Master Class Series, addressing recent developments in the contingent workforce area. I’ll be addressing joint employment and staffing agency relationships, and I plan to offer a list of ten items that should be in your staffing agency agreements but probably aren’t
Sign up here to learn more. There is no charge to attend the webinar.
“Don’t Look Back” was the title track on Boston’s second album, released in 1978. The album version came in at six minutes, but a radio edit brough it down to four.
This is a practice I never understood. People used to listen to the radio for hours at a time, but six minutes was too long for one song? Why is it better to ingest two three-minute songs per six minutes than one six-minute song? But maybe I’m the wrong person to ask. My idea of an excellent album is Tales from Topographic Oceans by Yes. The album consists of four songs, each about 20 minutes long, and was inspired by a footnote in a book about Hindu texts by the yogi Paramahansa Yogananda.
But this is getting way off track.
I chose “Don’t Look Back” as the theme for today’s post because it’s good advice for life, but bad advice for drafting arbitration agreements.
For businesses that make widespread use of independent contractors, one of the best strategies for protecting against misclassification claims is by having a robust arbitration agreement with a class action waiver. But too many times those agreements don’t look back.
Lately I’ve seen a couple of decisions in which arbitration agreements were found not to cover particular claims, when those claims arose from events that happened before the agreement was signed. I think those cases were wrongly decided, since arbitration covers the process for resolving disputes, regardless of when they arise. But it makes good sense to draft in a way that cuts off this line of attack.
I have recently started adding a sentence to my arbitration agreements that goes something like this: “Covered disputes also include disputes relating to past events, including those that predate this Agreement.”
Today’s tip is to go back and look at your arbitration agreements. If they aren’t clear about covering claims based on earlier events, consider adding this clarification next time you update the agreement.
Now for those of you who would like an earworm for the day, here you go:
Don't look back, ooh, a new day is breakin' It's been too long since I felt this way I don't mind, ooh, where I get taken The road is callin', today is the day
In Inner Mongolia, these sheep have been walking in a circle for about two weeks, with a few sheep occasionally standing in the middle. Here’s video.
Various theories have been circulating to try to explain the odd behavior, including that it may be some sort of bacteria-induced delirium.
But I think I know the real reason. (And a hearty Mazel Tov! to the wooly couple!)
When drafting independent contractor agreements, it’s never a good idea to be unsure of why you’re doing something. Too often, businesses use generic agreements and don’t understand the impact or purpose of what they’ve written.
One common place I see mistakes is in the very beginning of contracts – the contractual recitals.
Recitals are often used to provide context for the reader. Recitals are also used for six-year old piano players to play chopsticks for grandma, but that’s for another day. For example, an off-the-shelf independent contractor agreement might start with something like this: We’re in the business of doing X, and we are retaining Contractor to do this part of X. Therefore, the parties agree to the following terms.
The problem with that innocent sounding recital is that it may be evidence the contractor is misclassified.
Under a Strict ABC Test, if the work being performed by the contractor is within the hiring party’s usual course of business, the contractor is automatically considered an employee. That fact fails prong B of a strict ABC Test.
Under an Economic Realities Test or a Right to Control Test, one of the factors often considered is often whether the work being performed is “an integral part” of the business, or some variation on that theme. Unlike ABC Tests, these tests are balancing tests and so one factor will not necessarily determine a worker’s classification, but there’s no reason to give the factor away, especially in a contract recital.
In a misclassification challenge, every fact and contract term will be subject to scrutiny.
If you’re unsure whether the term is needed, then question whether to include it. Recitals generally aren’t needed at all, and I often omit them from my independent contractor agreements. Don’t include off-the-shelf terms if you don’t understand their effect.
Unexplainable behavior makes for good blog posts and tweets, but not good contracts.
Which is why I never ask unfamiliar sheep to help me draft contracts.
The parliament of New Zealand maintains a list of words and phrases that are considered unbecoming to say about another member and are therefore banned from use during parliamentary debates. These include:
His brains could revolve inside a peanut shell for a thousand years without touching the sides.
Energy of a tired snail returning home from a funeral.
Could go down the Mount Eden sewer and come up cleaner than he went in.
Silly old moo.
Words matter when trying to preserve a worker’s independent contractor classification too. Avoid possessives when referring to independent contractors, who are not “your” anything. The terminology you use should be consistent with the concept that the contractors are in business for themselves.
Check your company’s website and public facing materials and try to avoid phrases like this:
Our technicians [or representatives or whatever]
Our team of [whatevers]
We install/repair/other verb
Other words and phrases can also suggest employment and should be avoided when referring to contractors:
Hire (instead, retain)
Wages (instead, compensation)
Assignment (instead, project or engagement)
Duties (instead, services)
Using terminology that does not sound like employment will help when trying to show a court of agency that the relationship is not employment.
And never, ever tell anyone that your independent contractor’s brains could revolve inside a peanut shell for a thousand years without touching the sides. That’s just unbecoming.
Who Is My Employee? 