Last week I was in Boston, spending time with many of my favorite people at our BakerHostetler Labor and Employment Group Retreat. I always enjoy spending time with the people in our other offices. They are wonderful, kind, smart, and a joy to be around.
As part of the programing, each practice team leader gave a six-minute TED-style talk. In my session about the Contingent Workforce Practice Team, I included a slide that I wanted share here.
We sometimes hear from companies that they don’t think they’re at risk for an independent contractor misclassification claim. They sometimes say, we’ve been doing it this way forever, and we haven’t been sued.
To that I would say, you mean you haven’t been sued yet.
Here’s what can happen when companies get sued for independent contractor misclassification.
There are quite a few songs about gals named Sue. There’s “Peggy Sue,” “Wake Up Little Susie,” “Susie Q,” and “Runaround Sue.” There’s a even a song about a “Boy Named Sue.” (The results of a recent survey consisting of me revealed that “Boy Named Sue” is by far the best of the Sue-themed songs.)
As far as I know, no one has yet written a song about Labor Secretary nominee Julie Su, but I would not be surprised if one of the unions in California wrote a ballad to applaud her work heading the state’s Division of Labor Standards Enforcement (DLSE) and Labor and Workforce Development Agency. Maybe something like Fatboy Slim’s “Praise You.”
Su is Biden’s pick for Secretary of Labor, following the resignation of Marty Walsh, who left to lead the NHL player’s union. Her nomination is controversial, and businesses fear they’ll be singing the blues if she’s confirmed.
But in a recent Senate committee hearing, she provided at least two answers that businesses will like.
First, she said she would not advocate for an independent contractor test modeled after California’s AB 5. She testified that it’s her view (mine too, probably the courts’ too) that only Congress could adopt an ABC Test to determine worker classification under the Fair Labor Standards Act (FLSA). That’s reassuring.
Second, she said that the DOL’s next regulatory agenda would not include a new joint employer test. The 2020 joint employer regulation adopted by the Trump DOL has been rescinded, and there has been no replacement regulation, which leaves a regulatory crater in the Code of Federal Regulations, where the joint employer rule used to be. Read more here.
On April 26, a Senate committee voted to advance Su’s nomination to the full Senate. All Democrats on the committee voted yes, and she received no Republican support. In a 51-49 Senate, the success of her nomination will likely depend on whether she can secure the support of Senators Manchin, Sinema, and Tester and whether Sen. Feinstein is healthy enough to vote.
And on that note, we turn back to Johnny Cash:
He said, “Now you just fought one heck of a fight And I know you hate me, and you got the right to kill me now And I wouldn’t blame you if you do But you ought to thank me, before I die For the gravel in ya gut and the spit in ya eye ‘Cause I’m the son of a bitch that named you Sue”
In the Muppet Movie, Kermit famously wondered, “Why are there so many songs about rainbows?”
Articles in Psychology Today and Remind Magazine have attempted to answer this question. A blog post on the Tough Pigs website almost took a contrary view in a post titled “Why There AREN’T So Many Songs About Rainbows,” but that was a twitter gimmick asking for wrong answers only.
Turns out there are quite a few songs about rainbows. You can google it. There’s also a pretty good band called Rainbow (“Man on the Silver Mountain,” “Since You Been Gone”), and the University of Hawaii’s teams are the Rainbow Warriors, f/k/a just the Rainbows, which probably didn’t frighten much of their football competition in the Mountain West.
I’m inspired by Kermit’s lyrical question, but my thoughts stray in a different direction: Why are there so many … joint employment tests, just under the Fair Labor Standards Act (FLSA)? Shouldn’t courts applying a federal law use the same test in every jurisdiction? Of course they should, but they don’t.
Here are the current tests for joint employment under the FLSA, in a nutshell:
The First, Third, Fifth, and Ninth Circuits apply a four-factor test based on a 1983 case called Bonette. The test considers whether the putative joint employer (1) can hire and fire employees, (2) controls employees’ work and employment conditions, (3) determines rates of pay, and (4) maintains employment records. Bonnette v. Cal. Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983).
The Second Circuit rejects the Bonette test as too focused on agency, instead applying a non-exclusive six-factor test. Zheng v. Liberty Apparel Co, Inc., 355 F.3d 61, 71-76 (2d Cir. 2003).
The Eleventh Circuit applies an eight-factor test that includes the Bonette factors and adds factors related to economic dependence. Layton v. DHL Express (USA), Inc., 686 F.3d 1172, 1176-78 (11th Cir. 2012).
The Fourth Circuit is having none of what the other circuits are having and goes in an entirely different direction. The Fourth Circuit’s test compares the two putative employers to determine whether they are “completely dissociated.” Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017); Hall v. DIRECTV, LLC, 846 F.3d 757 (4th Cir. 2017). The Fourth Circuit’s test is so far off the mark that it relies on a (mis)interpretation of a federal regulation that no longer exists.
And speaking of federal regulations that no longer exist, the Department of Labor’s regulation defining joint employment under the FLSA? You guessed it. It no longer exists.
In 2021, the DOL rescinded the joint employer regulation that had been adopted by the Trump DOL in 2020. The 2020 regulation has rescinded the previous regulation, which had been around for decades. No new regulation has been adopted, and so there is no regulation. Part 791 of Title 29 of the Code of Federal Regulations, formerly home to the DOL’s joint employment regulation, is empty.
So, why are there so many tests for joint employment? No good reason. There just are.
But that could change. Following a recent Ninth Circuit decision tagging Los Angeles County as a joint employer, L.A. County has petitioned the Supreme Court to reconsider the joint employment test. So we’ll see what happens there. A conservative Supreme Court majority might recognize how absurd it is that one federal statute can be interpreted so many different ways. Maybe they’ll take the case and announce one test for everyone.
In the meantime, if you’re looking for the joint employer test under the FLSA, you’ll need to look in several places. The test depends on where you are. All of us under its spell. We probably know that it’s ma-gic!
Kathleen Corradi has been an educator, a land use and sustainability expert and — now — New York City’s first Rat Czar.
The word czar derives from the Latin Caesar and had been used by the Russians to describe their emperor from the 1500s until the 1917 February Revolution, which led to Czar Nicholas II’s unemployment (and, not to bury the lede, the subsequent imprisonment and murder of the former czar, his family and staff).
But Ms. Corradi does not seek to be emperor of the rats. She seeks to eradicate them. Hell of a thing for an emperor to do, don’t you think?
NYC advertised the position with a bit of whimsy, seeking someone “bloodthirsty” with a “general aura of bassassery.”
NYC exercises considerably less whimsy, however, when dealing with independent contractors in its midst.
In most jurisdictions, independent contractors receive none of the protections of employees. NYC, however, imposes some additional burdens on businesses retaining contractors. Here are four things that New Yorkers retaining independent contractors should know:
1. NYC independent contractors are protected against discrimination and harassment under the NYC Human Rights Law.
2. NYC businesses with 15 or more workers must provide annual sexual harassment training to independent contractors, if the contractors (a) work for that business more than 80 hours in a calendar year, and (b) perform on at least 90 days, which don’t have to be consecutive.
3. NYC’s Freelance Isn’t Free Act requires written contracts with freelancers who provide services worth $800 or more, and the contracts must include specified information. This law applies to individuals retaining contractors, not just businesses.
4. NYC rideshare drivers must receive at least a specified minimum wage.
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.
This headline does not refer to the Chinese spy ballon.
Instead, I’m thinking about 1968. Jimmy Page and John Paul Jones had joined up to form a new band after the breakup of the Yardbirds. Drummer Keith Moon of The Who supposedly said the project would go down like a lead balloon.
One of the largest balloons, of course, is the zeppelin. The zeppelin was a passenger airship used until the Hindenberg disaster in 1937. So the band named itself Led Zeppelin, dropping the ‘a’ in Lead so people wouldn’t mispronounce the name of the band.
In 1971, the band released Led Zeppelin IV, which included the song “Going to California” and this lyric:
Spent my days with a woman unkind Smoked my stuff and drank all my wine Made up my mind to make a new start Going to California with an aching in my heart
For today’s post, I’m going to California with an aching in my heart.
Cities in California have upped their game when going after companies that use independent contractors. They’re taking the lead (not led) in bringing their own lawsuits.
In January 2023, the City of San Francisco secured a $5.25 million settlement to cover 5,000 independent contractor delivery drivers. The lawsuit alleged a failure to comply with the city’s health care security and paid sick leave ordinances, which apply to employees.
In October 2022, San Diego’s city attorney settled its own independent contractor misclassification lawsuit for $46.5 million. That deal covered 300,000 independent contractor delivery drivers.
In 2021, San Francisco reached agreement on another delivery driver misclassification lawsuit, settling for $5.3 million to cover 4,500 local drivers.
The mountains and the canyons start to tremble and shake The children of the sun begin to awake (watch out)
States are following a similar playbook, as we recently saw when New Jersey obtained a $100 million settlement, alleging that a rideshare app company failed to pay into the state unemployment insurance fund for independent contractor drivers.
It seems that the wrath of the gods got a punch on the nose And it's startin' to flow, I think I might be sinkin'
Government-initiated lawsuits can be particularly dangerous because arbitration agreements and class action waivers are ineffective. The governments are fighting for funds they think are rightfully theirs.
They also have political motives driving their prosecutions. Officials facing re-election want to be able to show their constituents they’re making a difference and fighting for workers’ rights (and ignoring, as usual, the fact that most IC drivers want to remain ICs).
Throw me a line, if I reach it in time I'll meet you up there where the path runs straight and high
The trend of government-backed compliance efforts is going to continue and will likely increase. Companies making widespread use of independent contractors should be proactive in evaluating these relationships, the contracts, and the local laws to build a comprehensive defense strategy — before getting sued.
Please join me and my colleagues for the 10th Annual Master Class Series on Labor Relations and Employment Law. The 2023 program will be offered virtually on Tuesdays from Feb. 7 through April 11, 2023. Sessions are one hour, 2-3pm ET.
This years’s topics include:
The New Employment Laws: Out with the Old and In with the Unknown
Remote Work in Transition: Trends and Compliance Considerations
The New Union Organizing Model: The Force of Gen Z
Debriefing the Dobbs Decision: Unpacking What Employers Face in the Aftermath of the Overturning of Roe v. Wade
Contingent Workforce Update: The Gamemakers Are At It Again
Workplace Privacy: The Ever-Increasing Risks of Breaches and Maintaining Data and Information
Back to the Future Part II: The NLRB and the Uncertain State of Labor Law
Take the Target Off Your Back: Avoiding Common Wage and Hour Practices That May Lead to Litigation
Federal Agencies Are Talking About You – and You Can’t Just Ignore It Anymore
Unique Issues in Workplace Investigations: Not Your Typical ‘How To’
I will be presenting on March 7, 2023:
Contingent Workforce Update: The Gamemakers Are At It Again
In The Hunger Games, Seneca Crane and Plutarch Heavensbee make up the rules for the games as they go along. The players never quite know what they’re getting into. While companies in the contingent workforce space don’t face literal death upon a misclassification or joint employment finding, the ramifications can be pretty harsh. Taking their cue from the gamemakers, the Department of Labor and the National Labor Relations Board keep changing the rules of the game. The states are updating their tests too. Learn what’s changing in 2023, and may the odds be ever in your favor.
There’s an island in Quebec that’s larger in area than the lake in which it sits. René-Levasseur Island was supposedly formed by the impact of a meteorite 214 million years ago, although eyewitness accounts differ. The land mass became an island in 1970, when the Manicougan reservoir was flooded, merging two crescent shaped lakes that surrounded the area.
I like fun geography facts, and an island larger than the lake in which it sits is a fun fact. But feels a bit aggressive for the Canadians to merge two crescent shaped lakes to turn this land mass into an island. I’m sure they had their reasons. If nothing else, it looks good on a map.
The Department of Labor is also being aggressive, but they’re not flooding any reservoirs. Instead, they’re channeling their aggression toward independent contractor misclassification.
In a news release this month, the DOL announced that it had obtained a consent judgment for $5.6 million against a national auto parts distributor and an Arizona logistics firm for allegedly misclassifying 1,398 drivers as independent contractors. The award included back wages and liquidated damages.
The DOL had alleged that, by misclassifying the drivers, the companies failed to meet minimum wage requirements, failed to pay overtime rates, and failed to keep required timekeeping records. These failures each were violations of the Fair Labor Standards Act (FLSA).
The award covered an eight-year period between April 2012 and March 2020.
I see three takeaways here:
First, the DOL is being aggressive in filing lawsuits when it thinks independent contractors have been misclassified. This consent judgment shows how expensive these claims can be for companies that improperly classify workers. Companies using independent contractors needs to be proactive in evaluating their risks and taking steps to minimize those risks. There are lots of ways to reduce risk if you plan ahead, before you’ve been sued or investigated.
Second, this case is a reminder that companies who classify delivery drivers as independent contractors are at heightened risk. Federal and state agencies and the plaintiffs’ bar seem to be filing a disproportionate number of claims involving delivery drivers. If your business uses delivery drivers who are classified as independent contractors, you may be at an increased risk of an audit or lawsuit.
Third, remember the DOL’s proposed new rule for independent contractor classification under the FLSA? (Read more here, here, and here.) The DOL wants to change the current test for who is an employee under the FLSA, replacing a regulation adopted by the Trump Administration in 2020. But cases like this one show that the current regulation is not impairing the DOL’s ability to enforce what it perceives as misclassification. The DOL’s many recent successes — as posted in DOL news releases — show that the DOL is doing just fine under the current rule when it comes to misclassification enforcement. The new rule is a solution without a problem.
Large judgments like this one seem shocking, but they are a reminder of the substantial dangers of misclassification.
Learn more by joining me at the 10th Annual 2023 BakerHostetler Labor Relations and Employment Law Master Class, all virtual, one hour every Tuesday starting February 7, 2023. My program on Contingent Workforce issues will be on March 7, 2023. Registration is free.
An author of romance novels died in 2020, committing suicide after online bullying. Or so it seemed. But a few days ago, Susan Meachen posted on Facebook to say she was back. Not in a risen-from-the-grave sort of way. She says she faked her own death and is very much alive. The story has been covered by CNN and BBC, and I don’t know whether anyone has yet figured out whether Meachen died or someone is now posting under her name.
One thing that seems more clearly dead, though, is the legal principle of agency deference in Ohio. This important decision arose out of a contractor dispute.
In a 7-0 decision, the Ohio Supreme Court ruled that under Ohio law, the judiciary is never [italics in original] required to defer to an administrative agency’s interpretation of the law, even if the statute is ambiguous. Only the judiciary has the authority to interpret the law for purposes of a judicial proceeding.
The Court held that an agency’s interpretation of the law is merely one view that a court may consider. The Court also stressed that an agency’s interpretation of common words is entirely irrelevant since courts are well equipped to interpret common words. Deference to an agency’s interpretation will depend on how persuasive a court finds the agency’s interpretation to be. A court might be more likely to defer if there is an ambiguity over a technical matter over which the agency has expertise, but even then, deference is never required.
The judicial branch is never required to defer to an agency’s interpretation of the law. As we explain, an agency interpretation is simply one consideration a court may sometimes take into account in rendering the court’s own independent judgment as to what the law is.
First, it is never mandatory for a court to defer to the judgment of an administrative agency. Under our system of separation of powers, it is not appropriate for a court to turn over its interpretative authority to an administrative agency..
Now assume that a court does find ambiguity and determines to consider an administrative interpretation along with other tools of interpretation. The weight, if any, the court assigns to the administrative interpretation should depend on the persuasive power of the agency’s interpretation and not on the mere fact that it is being offered by an administrative agency. A court may find agency input informative; or the court may find the agency position unconvincing. What a court may not do is outsource the interpretive project to a coordinate branch of government.
The case arose when an engineering firm applied for an engineering license in Ohio. Seems uneventful, except the firm listed an independent contractor as its full-time manager. Ohio law requires a firm to identify a responsible full-time manager to receive a license. The Ohio Board of Registration for Professional Engineers and Surveyors denied the license on the grounds that a full-time manager could not be an independent contractor. The Board said that a manager had to be a W2 employee.
But the statute requires only that there be a full-time manager. It doesn’t say who can be a manager. The Board determined that an independent contractor could not be a “full-time manager” because independent contractors (if properly classified) are not controlled by their client. In other words, how could the firm be managed by someone it cannot control?
That’s a great question from a practical standpoint. If the contractor is properly classified, it might be a terrible idea to designate an independent contractor as your firm’s full-time manager. But that doesn’t mean it’s prohibited by the licensing statute.
The Ohio Supreme Court explained that the statute requires the Board (“shall”) to grant a license when a firm identifies a full-time manager and meets the other criteria. The Court ruled that the Board, as an administrative agency, has no right to impose additional requirements that are not in the statute, such as that the full-time manager cannot be an independent contractor.
The Court used this dispute to lay down a marker on an important issue of law — When must a court defer to an agency’s interpretation of the law? In Ohio, the answer is never.
This issue comes up often at the federal level too, and you’ll hear a lot more about this issue following the recent announcement by the Federal Trade Commission (FTC) that it plans to pass a regulation making non-compete agreements illegal. The FTC probably does not have the legal authority to do that. A law to prohibit non-competes would almost definitely have to come from the legislature, not an executive agency. If the FTC goes through with its plan, the issue is likely to end up in front of a federal court, which is likely to rule that the FTC does not have this authority. The US Supreme Court’s conservative majority has sent signals that it will be less inclined to defer to agencies than in the past, and it would not be surprising to see the US Supreme Court issue a ruling at some point that looks a lot like this Ohio decision.
The bottom line here is that the era of agencies making new law through regulation may be coming to an end. Agencies can interpret ambiguities in statutes, and they can provide more detail about legal requirements when authorized to do so. But they cannot impose new requirements when not specifically authorized to do so. The path taken by the Ohio Supreme Court may be a sign of similar things to come at the federal level.
In terms of typical independent contractor issues, this post is a bit off topic. But the issue is an important one, and it arose out of a contractor dispute, so I just decided to just go for it and write this post, whether it’s what you were expecting or not.
Kind of like Susan Meachen did recently when she posted on Facebook. Or didn’t post. We still don’t really know.
In Denbighshire, Wales, the Howatson family lives in a small house that sits… wait for it… in the middle of a roundabout.
In the early 1980s, after the family had been in the house for 20 years, local authorities told them their property sat smack in the middle of where a roundabout was to be built. The family refused to sell, and they now have lovely 360-degree views of people driving around their house all day and night.
The Department of Labor is taking is a more direct approach in its effort to update the worker classification test under the Fair Labor Standards Act. But it’s a slow process, and it will be several more months before we see a final rule.
But this post will provide a status update. Long story short, we’ll see a new rule when the DOL gets around to it.
In October 2022, the DOL released its proposed new test for determining who is an employee under the Fair Labor Standards Act (FLSA). The proposed rule generated more than 50,000 comments in response. I posted some initial reactions to the proposed rule in this article here.
The proposed rule identifies seven factors to consider when determining whether an independent contractor has been misclassified under the FLSA:
1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and the employer;
3. Degree of permanence of the work relationship;
4. Nature and degree of control;
5. Extent to which the work performed is an integral part of the employer’s business;
6. Skill and initiative; and
7. Additional factors.
Under federal law, the rulemaking process involves three main steps. First, the agency posts a proposed new regulation. That’s what the DOL did in October.
Second, there is a public comment period, in which anyone can submit a comment to the DOL. The most effective comments tend to assist the agency in evaluating its proposed rule, such as explaining likely unintended consequences or identifying concerns with how it is written. Comments can also offer legal arguments as to why the agency’s proposed rule is not consistent with the law it is supposed to be interpreting.
Finally, after reviewing the comments, the agency will publish a final rule. The final rule might differ from the proposed rule, or it could be the same. Or the agency can jettison the proposed rule entirely and do nothing. Here that last option is unlikely. The DOL will almost certainly issue a new rule.
On December 13, I submitted a lengthy comment on behalf of Flex, the trade organization representing app-based rideshare and delivery platforms. The full comment is available here, and I thought it might be helpful to summarize the main points for this audience.
The comment included two parts.
Part One argues that the DOL should not abandon the current rule (the 2021 Rule), which was passed less than two years ago. The 2021 Rule was adopted after a thorough rulemaking process and comment period, and the rule was developed based on a detailed analysis by the DOL of decades of case law. The 2021 Rule focused on two core factors, rather than offering a multitude of factors that have no pre-assigned weight. The 2021 Rule offered more predictability for businesses and contractors, and predictability in the law is — to put it bluntly — good. A regulation should add clarity, and the 2021 Rule added clarity.
Part One also pointed out that the 2021 Rule had done little to damper the DOL’s efforts at combatting misclassification. The DOL has published a long list of successes in obtaining settlements and judgments in the last three months alone.
Abandoning the 2021 Rule would also be arbitrary and capricious, meaning it might not survive a legal challenge, and we urged the DOL not to make a change.
Part Two argues that even if the DOL decides to abandon the 2021 Rule, the proposed new rule needs some work. Part Two focused on seven aspects of the proposed new rule that the DOL should change.
The key thing to remember is that the DOL wants to go back to a multi-factor test. Multi-factor tests have been around for a long time, but the devil here is in the details. If you read the DOL’s description of each factor and how it should be applied, the DOL is putting its fingers on the scale, taking every close call (and some that aren’t close) and resolving them in favor of employee status.
I will list the seven arguments below to provide a general sense of the key points. But, since this is supposed to be a quick read format, I’m not going to wade into the details. You can read the full comment if you like.
From the Table of Contents to Part Two:
1) In Factor #1, the Commentary about “Managerial Skill” Should Be Deleted or Revised Because It Fails to Account for the Realities of 21st Century Work.
2) Factor #2 Should Be Substantially Revised to Remove Provisions That Are Illogical, Incompatible with Economic Realities, and Contrary to FLSA Case Law.
3) Factor #4 Should Remove the Commentary That Legally Required Control May Be Relevant Evidence of Control Because This Commentary Is Contrary to Controlling Case Law, Contrary to this Department’s Own Guidance, and Not Probative of the Economic Realities of a Relationship.
4) In Factor #4, Use of Technology to Supervise Should Not Be Referenced as a Relevant Control Factor.
5) Factor #5 Should Preserve the Current “Integrated Unit of Production” Analysis and Should Not Adopt a Flawed “Integral Part” Analysis That is Contrary to Case Law and Legally Unsupported.
6) Any Final Rule Should Preserve the Helpful Subregulatory Guidance in Fact Sheet #13, Clarifying That Certain Factors Are Not Relevant.
7) Any Final Rule Should Replace the Term “Employer” with “Principal” or a Similarly Neutral Term.
And now onto Step Three of the DOL’s rulemaking process. Last week, the Biden Administration published its overall regulatory agenda for 2023. It included a May 2023 placeholder for a proposed final rule. That’s just a best guess at this point, and with more than 50,000 comments for the DOL to review, the actual release date may be several months later. But the DOL, at least at present, appears prepared to move forward with a new rule to determine independent contractor vs. employee status under the FLSA.
We’ll continue to monitor developments, in a roundabout way.