Employee Benefits for Contractors? Don’t Overreact to New DOL Rule (or to Knife-Wielding Squirrels)

Terror in the backyard! Screen grab from @asdiamond on twitter

A knife-wielding squirrel was seen patrolling a backyard fence last week, according to this article in the Toronto Sun. Here’s the video evidence. Fortunately, no one took action and no one overreacted. The squirrel reportedly gnawed on the knife a bit, lost interest, and dropped it to pursue other squirrel-related passions. Everything turned out ok.

Not overreacting is important. Get all the facts, and look at the big picture before deciding whether to take action.

Same with the new DOL regulation on determining in dependent contractor status, first reported here.

This week I’ve seen two articles saying that, under the new rules, providing employee benefits to independent contractors does not tilt the scales in favor of employee status under the new rules. No, no, no! If you’ve seen that commentary, please disregard it. It is an overreaction, and if you provide traditional employee benefits to an independent contractor, that’s a sure sign of misclassification.

Now, let’s break that down a bit. Yes, it’s true that in the commentary to the new rule, the DOL indicated that providing some types of benefits to an independent contractor does not necessarily mean the contractor is misclassified. (As you will all undoubtedly recall from reading all 261 pages of the DOL commentary, that’s on pages 58-59.) But — and there’s a big but (one t) — it does not mean that you can freely start giving employee benefits to contractors.

First, let’s not overstate what the DOL is trying to say. The DOL is not saying you can provide traditional employee-type benefits to contractors, the same way you do for your employees. The DOL is saying that it’s not automatic misclassification under the FLSA if you provide a contractor with extra money for the contractor to help fund his/her own benefit plan, such as through the healthcare.gov exchanges.

Second, let’s not forget the very narrow scope of the DOL’s new rule. The new rule applies only to the FLSA. That is, it applies only for determining whether someone is owed overtime and a minimum wage. And here’s the important point: The FLSA and the new rule and the new test have nothing to do with determining independent contractor vs. employee status under federal tax and benefits law.

The test for determining whether someone is an employee under federal tax and employee benefit law is a Right to Control Test, not the FLSA Economic Realities Test addressed in the new rule. If you add your contractor to your regular employee benefit plan, you have almost certainly created an employment relationship under those laws. Or, perhaps worse, you could disqualify your plan by providing plan benefits to a non-employee.

Under either scenario, providing regular employee benefits to an independent contractor is a very bad idea under current federal law. In short, don’t do it.

Hopefully, federal law will eventually change to allow independent contractors better access to employee-type benefits without converting them to employees for all purposes. But we are a long way from there.

In the meantime, let’s not overreact. As for the new rule, Biden might invalidate it anyway before it is scheduled to take effect March 8.

As for knife-wielding squirrels, don’t confront them directly. You’ll just make them angry and more determined and–as you can see in this video–squirrels can be pretty darn creative when they are determined to get something.

© 2021 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
 

Today’s Tip: Beware of Multi-State Issues (and Rudolf is a girl?!)

Neil deGrasse Tyson broke the news last week that Santa’s reindeer must be female, since they still have their antlers in the winter. Mind blown: Rudolf is a girl. #girlpower

It seems like should have figured that out earlier. Sometimes things are not as they seem. So let’s play some reindeer games.

Assessing independent contractors status isn’t always as it seems either. Do you pass the IRS Test? Congratulations, but that tells you nothing about whether your relationship meets state law tests. Did you win an unemployment claim on the basis that your contractor was not your employee? Congratulations, but that tells you nothing about whether your relationship has contractor status under federal wage and hour law.

To determine whether an independent contractor relationship is legitimate requires you to look at multiple tests across multiple laws across multiple jurisdictions.

Companies that retain contractors across multiple states should pay particular attention to the differences among multiple states and across multiple laws. The same relationship can be deemed employment under one test and independent contractor under another.

For example, in my home state of Ohio, the analysis of whether a worker is an independent contractor or an employee is subject to a long list of competing legal standards:

  1. Federal Income Tax: Right to Control (IRS factors)
  2. Ohio Income Tax:  Follows IRS
  3. ERISA, ADA, Title VII, ADEA: Right to Control (Darden Test)
  4. Affordable Care Act: Right to Control (Treasury Regs.)
  5. FLSA: Economic Realities Test
  6. NLRA: multi-factor hybrid/right to control test
  7. OH Unemployment (ODJFS): IRS old 20-Factor Test
  8. OH Workers Comp / Construction: Need 10 of 20 old IRS Factors
  9. OH Workers Comp / Other: Ohio Right to Control Test
  10. OH Discrimination (RC 4112): Ohio Right to Control Test

The complexity is similar in every state.  In Illinois, the list is about as long, but with different state law tests and standards:

  1. Federal Tax: Right to Control (IRS factors)
  2. ERISA, ADA, Title VII, ADEA: Right to Control (Darden Test)
  3. Affordable Care Act: Right to Control (Treasury Regs.)
  4. FLSA: Economic Realities Test
  5. NLRA: multi-factor hybrid/right to control test
  6. IL Unemployment: ABC Test
  7. IL Wage Payment & Collection Act: ABC Test
  8. IL Workers Compensation: Various factors, including control, relationship to company’s business
  9. But, if Construction, then Employee Classification Act:
    – Presumption is employee,
    – Then apply ABC Test,
    – Then apply 12-factor test to prove sole proprietorship or partnership is IC

And there are 48 more states just like these (but different).

So bottom line: Just like you can’t make assumptions about your reindeer’s gender based on its name, you can’t make assumptions about your contractor’s status based on what you call the relationship. You’ve gotta check the antlers — or the appropriate law.

© 2020 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

Buckle Up? Why The Gig Economy Should Love Biden’s HHS Pick

Back before seatbelts were a thing, Sears sold this handy Auto Strap for Front-Seat Tots. Tie your toddler to some part of the car, and drive carefree! What could go wrong?

Ok, things have changed a bit when it comes to driving. Seatbelts and airbags seem to have carried the day. Things have also changed quite a bit in the modern workforce, with the gig economy pushing aside traditional employer-employee work relationships.

Something important just happened to help California gig economy companies, and it’s gone under the radar. Biden named California Attorney General Xavier Becerra as his pick for Health & Human Services. Why should gig economy companies care who Biden’s HHS pick is? Because naming Becerra to HHS means Becerra will no longer be California’s Attorney General. And that’s good new because a key part of Becerra’s agenda as State AG had been to knock around gig economy companies as much as possible.

Becerra tried to sabotage Prop 22 by giving it a misleading description on the ballot, but voters saw through it and passed the measure anyway.

Becerra has been the driving force behind California’s lawsuits against ride share companies, trying to force them to reclassify drivers as employees.

But now, assuming he gets confirmed, someone else will take over as California AG. Hopefully it will be someone with less of an anti-gig economy agenda than Becerra. We’ll see. But for now, this pick seems to be good news. I don’t know what he’ll do as HHS Secretary, but I know what he won’t do as HHS Secretary, and that’s to pick fights with companies who help to keep the gig economy strong.

So strap in and let’s see what this new ride will bring. Just be sure to use a seatbelt, not a $1.88 standing harness.

© 2020 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
 

Statue or Statute? When Defending a Misclassification Claim, Don’t Forget a Limitations Defense

I took this photo in Paris. Creepy, isn’t it?

When a New Zealand man was caught snooping around with a torch at a building where he didn’t belong, someone called the authorities. When the local police arrived, the man was still there but still as a stone. He was pretending to be a statue.

The ruse failed, and the man was taken into custody.

The moral of the story, I suppose, is that elaborate ruses don’t make good excuses.

The same can be said for a group of movers who claimed that a moving company had misclassified them as independent contractors and denied them a minimum wage and overtime. The federal court hearing the case, however, threw it out because the movers filed too late. Under the Fair Labor Standards Act (FLSA), the statute of limitations on federal minimum wage and overtime claims is two years — or three years, if willful. These plaintiffs filed well after the deadline had passed.

The plaintiffs didn’t go away quietly, however. Knowing they had missed the deadline, they first tried some creative arguments as to why the court should toll — or extend — their deadline to file.

First, they argued that they the moving company had tricked them into thinking they weren’t employees and had no FLSA rights, since the moving company told them they were independent contractors. Sorry, the court ruled. If that were an excuse, there would be no statute of limitations in misclassification cases. The deadline to file would get tolled every time, and that’s not gonna happen.

Second, they argued that the moving company failed to provide the required posters that notify employees of their rights. Again, no dice. Independent contractors aren’t entitled to employee notices, so if the company thought the workers were contractors, there obviously wouldn’t be notices. This too would apply in every misclassification case and cannot be grounds for tolling the filing deadline.

Finally, they argued that they were immigrants and shouldn’t be held responsible for not knowing the rights under US law. The judge wasn’t buying that one either. Ignorance of the law is not an excuse, especially when the plaintiffs were basing their lawsuit on the very law they claimed to be ignorant of.

This case dealt with statutes not statues, and despite spellcheck’s frequent failure to see the difference, there is a difference. Anyway, the excuses by the statue guy and the movers were similarly unimpressive. The movers’ case was dismissed for failure to file within the statute of limitations, and the court never even considered whether the workers were actually misclassified.

Companies facing misclassification claims need to remember to review statutes of limitation. A claim filed too late is destined to fail, so long as the company raises that defense.

And I still can’t believe the New Zealand guy thought he could go unnoticed by holding really really still. I’d love to see the body cam footage from when the officers moved in and caught him. Swatting away the pigeons on his head probably gave him away.

© 2020 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
 

Say Say Say: How Not to Bungle an Independent Contractor Relationship

Remember the 1983 song, Say Say Say, by Paul McCartney and Michael Jackson? “Say, say, say what you want. But don’t play games with my affection.”

The songs asks for some straight talk. Be direct. Say what you mean. Or as Michael says, “What can I do girl, to get through to you. Cause I love you, baby (baby).”

1983 was a memorable year for me for music. I had a cassette called CHART ACTION 1983 that was one of my favorites. It included songs from Dexy’s Midnight Runners, Adam Ant, the Stray Cats, Bonnie Tyler, and Golden Earring.

But it didn’t have Say, Say, Say, and that was fine by me because I don’t really like the song. If it was on CHART ACTION 1983, I’d have skipped it, but the old fashioned way: forward, forward more, a little more, oops too far, rewind, rewind, forward, got it. Hungry Like the Wolf.

“Say say say what you want” would have been good advice for a Pennsylvania agency that offered interpreter and transcription services. The agency tried to run its business with an independent contractor model, but failed to say say say the right things in its agreements.

A Pennsylvania court ruled that the agency had misclassified its interpreters as independent contractors. Under PA unemployment law, the interpreters were actually employees. (“You know I’m crying oo oo oo oo oo.”)

Let’s look at where the agency went wrong.

Bad facts, tending to support employee status: The interpreters had a set of policies and procedures they had to follow, including wearing name badges. The agency did the scheduling.

Good facts, tending to support contractor status: The interpreters are not supervised, reimbursed for their expenses, or provided benefits, training, equipment, or name badges. An interpreter could refuse work at any time.

Totally unnecessary bad fact: The interpreters had to sign a non-compete agreement. That’s evidence of employment because it restricts the interpreter’s ability to work for others as an entrepreneur would do. But it turns out that, in reality, the agency didn’t care if the interpreters worked for others, and many of the interpreters did work for others.

Even worse, the non-compete included language referencing an “existing contract of employment.” Oops. Poor choice of words when you’re trying to prove there was no employment relationship. I would bet that the agency just pulled this non-compete language off the internet, without having considered the legal implications. The court focused a lot of attention on the non-compete when ruling that the interpreters were really employees.

The non-compete was a self-inflicted wound. That misstep is a good example of why you can’t just pick template agreements off the internet and expect that they’ll be sufficient.

More bad facts were on the website: Another problem for the agency was its website, which described the extensive training provided to interpreters, referred to them as “new hires,” and indicated they were all required to undergo a final performance evaluation. These facts all suggest an employment relationship.

Pennsylvania unemployment law applies a two-part test for determining whether someone is an employee or an independent contractor. To be an independent contractor, the service had to prove that it did not exercise control (a Right to Control Test) and that the interpreters were “customarily engaged in an independently established trade, occupation, profession or business.”

This could have been done correctly. Because of the independent nature of an interpreter’s work, the agency probably could have set up legitimate independent contractor relationships. This case is a classic example of how a proactive legal review could have saved the day.

If the agency had asked a lawyer for help in setting up the business the right way, this case could have gone the other way. The agency could have eliminated the non-compete agreement (which it didn’t enforce anyway), modified the website to eliminate “new hire” language and to de-emphasize training, cut back on the specific training provided, and changed the name tag requirement to a more generic requirement to provide identification.

So to the song I say say say: You may have hit #1 in the U.S. that October, but I’m not the one who really loves you.

© 2020 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

 

Election News: California Voters Adopt Prop 22; Kentucky Voters Elect Dog as Mayor

Zippy evaluates the candidates.

Some elections are more consequential than others. It can be tough to lose, but in Rabbit Hash, Kentucky, the candidates for mayor are probably indifferent to the outcome. Even the winner probably doesn’t do a lot of mayoring.

That’s because the mayor of Rabbit Hash is a dog. Since 1988, the mayor has always been a dog. This year’s winner is a six-month old French bulldog named Wilbur Beast. Wilbur succeeds incumbent Brynneth Pawltro, a pit bull who has served since 2016.

Click here for an adorable photo of the winner.

In other election news (in case you were wondering whether there was anything else happening in the category of elections), voters in California passed Proposition 22. Prop 22 will allow ride share and delivery drivers in California to maintain independent contractor status, so long as the app companies provide a suite of predetermined benefits. Read more here.

That means the ABC Test in AB 5 will no longer apply to ride share or delivery drivers in California. The new exemption does not apply to other industries.

Look for intense lobbying from other industries to obtain similar treatment. Hopefully Prop 22 serves as model legislation and will adopted elsewhere throughout the country.

There was intense lobbying in the Rabbit Hash race too. Wilbur Beast’s owner, Amy Noland, told CNN that the dog had done a lot of campaigning and had hosted a lot of events.

According to the Rabbit Hash Historical Society, “The people of Rabbit Hash generally elect mayors based on the candidates’ willingness to have their belly scratched.” Based on my informal survey of other recent political races, this appears to be a anomaly.

© 2020 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

 

Signs of Trouble: California Ruling Raises Stakes for Ride Share

Please, no.

When governments try to help people, they don’t always get it right. The British Conservative party just wants to help. Or does it? This would be a rather sinister way to get rid of the homeless problem, don’t you think?

Same problem with the battle over whether ride share drivers are employees or independent contactors. Good intentions have unintended consequences. The California Attorney General claims to be helping drivers with his lawsuit against the ride share companies. But the state’s effort fails to recognize the massive unintended consequences.

In August, a California court issued a preliminary injunction requiring the major ride share companies to reclassify all California drivers as employees. The ruling was based on the California law (AB 5) and its ABC Test, which presumes that anyone performing services is an employee, unless three strict factors are met.

The August ruling was temporarily placed on hold while an appeals court reviewed it.

But on Thursday, the appeals court reviewed it and agreed that the ruling was proper. The stakes have been raised, and the future of ride share in California may now hinge on what happens with Prop 22, which is on the ballot right now in California.

Despite what the judges and the California Attorney General may think, ride share companies can’t just flip a switch and make all drivers employees. The logistics and expenses associated with making that change call into question whether the effort would even be worth it. When the initial court decision requiring reclassification came out in August, there were rumblings that ride share in California might shut down entirely, at least temporarily, while the companies re-evaluate and decide whether to re-tool.

The one saving grace would be Proposition 22.

As explained here, a Yes vote on Prop 22 would allow ride share companies to continue to classify drivers as independent contractors so long as they provide a suite of benefits and guarantees described in the proposed law. These would include:

  • Earnings Minimum. The measure would require app-based companies to pay at least 120 percent of the minimum wage for each hour a driver spends driving—but not time spent waiting for requests.
  • Health Insurance Stipend. The measure would require rideshare and delivery companies to provide a health insurance stipend of about $400 per month to drivers who regularly work more than 25 hours per week (not including waiting time). Drivers who average 15 driving hours per week but less than 25 driving hours would receive half as much.
  • Medical Expenses and Disability Insurance. The measure would require that companies buy insurance to cover driver medical expenses and provide disability pay when a driver is injured while driving.
  • Rest Policy. The measure would prohibit drivers from working more than 12 hours in a 24 hour period for a single rideshare or delivery company.
  • Other. The measure would require that rideshare and delivery companies have sexual harassment prevention policies and conduct criminal background checks and safety training for all drivers. It also would prohibit discrimination in hiring and firing.

The measure would also prevent cities and counties from passing further restrictions on driver classification.

The core problem with the Independent Contractor vs. Employee question is that, under U.S. law, the choice is binary. You’re one or the other. And even if ride share companies wanted to provide more benefits for drivers (and they have said they do), they are constrained by the current laws. The more companies do for the drivers, the more likely it is that the law will view those well-intentioned efforts as evidence that the drivers are really employees. This dilemma fits squarely within the box of “no good deed goes unpunished.”

Prop 22 offers a middle ground. Drivers would get more protection and benefits, and ride share companies would be protected from claims that providing those protections and benefits converts the drivers to employees. This type of law should serve as a model for how to deal with the Independent Contractor vs. Employee question–not just in California but nationwide. The choice should not be binary.

Thursday’s decision by the appeals court raises the stakes, and voters in California will decide the outcome in less than two weeks.

The homeless population in Britain thankfully has more time.

© 2020 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

 

Thanks, Electric Grandma! When Laws Collide, ABC Test Falls (This Time, at Least).

In 1982, a trio of children and their father had no grandma but desperately needed one. So, according to IMDB, they got “a very special robot grandmother to assist them.” It was futuristic fun and all the hijinks that accompany that sort of thing but, at its core, this was a simple clash of incompatible laws.

The Laws of Nature said “No Grandma,” but the Laws of Biomedical Engineering as Modified by 1980s Television Science Fiction said “Yes!”

This week’s post is also about what happens when two laws are incompatible, but we’ll steer clear of trying to figure out which part of grandma’s backside in the TV ad has father smiling in that way that makes me uncomfortable.

In Massachusetts, a group of 7-Eleven franchise owners sued 7-Eleven, Inc., claiming they should have been classified as employees of 7-Eleven, Inc. under the Massachusetts Independent Contractor Law. The Mass IC law is the strictest in the nation (take that, California!) and imposes an ABC Test that lacks the exceptions enjoyed by a select few Golden Staters.

Under the Mass IC law, “an individual performing any service” for another is presumed to be an employee. To avoid that conclusion, the alleged employer must prove all three parts of a strict ABC Test:

(A) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

(B) the service is performed outside the usual course of the business of the employer; and

(C) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

The plaintiffs claimed that they were employees under Part A of the Mass IC Law because 7-Eleven exerted control over how they ran their stores.

But 7-Eleven said the type of control exerted was the type of control required under the Federal Trade Commission’s Franchise Rule and the 154-page Compliance Guide that instructs franchisors on what they need to do.

A federal district court agreed with 7-Eleven. The court ruled that the Mass IC Law and the FTC’s Franchise Rule were incompatible when it came to franchising, and the federal rule carries the day.

Case dismissed.

Other courts have agreed, even in California, that when the type of control exerted is required under another law, that is not the type of control that converts someone to an employee. The “required control” argument can be a powerful defense to a claim of independent contractor misclassification.

There has been a lot of concern in the franchising world that the increased adoption of ABC Tests and other laws designed to convert everyone into an employee may put the entire franchise model at risk. This decision, while certain to be appealed, should be somewhat reassuring to franchisors that the franchise model can survive, even in the face of the strictest of ABC Tests.

Meanwhile, The Electric Grandmother was nominated for a 1982 Primetime Emmy for Outstanding Children’s Program, and Maureen Stapleton went on to do voiceover for the non-electric grandmother in Snow Cat, showing her versatility in playing both electric and non-electric grandmothers.

Snow Cat, according to IMDB, was a “series of children’s videos with awesome original songs about awesome trucks.” In case you needed something to watch tonight.

© 2020 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
 

Whaddaya Call It? DOL Proposes New Independent Contractor Test

Soda or pop? Pill bug or roly poly? What you call things depends on where you live. In 2014, the New York Times published this 25-question dialect quiz that will tell you, with startling accuracy, where you or your parents are from.

The test is fun, and you can see how words and dialects vary from region to region.

But some things should not vary from region to region — federal laws.

The Fair Labor Standards Act (FLSA) has one definition of “employ,” but when it comes to deciding who is an employee and who is an independent contractor, different courts in different states apply different standards.  The DOL is trying to fix that.

Under a proposed new rule, released on September 22, the same test would be used in all parts of the country, regardless of whether you call your lunch sandwich a hoagie, sub, or grinder.

Click here for the rest of the post, originally posted on BakerHostetler’s Employment Law Spotlight blog.

© 2020 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
 

Cut Off This, But Not That! Here’s Today’s Independent Contractor Tip

In 1877, the Police News reported the story of a dancer’s amputated leg sold at auction. But the story might not be as it seems, says Dr. Bob Nicholson, who studies news clippings from the Victorian era and is a fun follow on twitter.

Cutting off legs might not be a good way to raise money, but cutting independent contractors off from certain privileges may save your busienss money.

Whenever possible, cut off contractors from doing things that link them to your business. They should appear to the public as independent businesses, which hopefully they are.

To prevent contractors from portraying themselves in a way that may make them seem like employees, consider adding a clause like this one to your independent contractor agreements:

Contractor shall not use the Company’s name or logo in any of Contractor’s marketing or publicity materials, on clothing or other attire, on business cards, on a website, on social media, or in any other manner, unless the Company has granted permission in advance, in writing.

Sometimes you need your contractors to display your company logo, such as if they are being sent to customers’ homes for an installation. In those circumstances, consider adding “INDEPENDENT CONTRACTOR” in prominent language on any clothing that includes your company’s logo or name.

Proactive steps like this can help bolster your defense against misclassification claims. For balancing tests like the Right to Control Test and the Economic Realities Test, every good fact helps, and every bad fact hurts. Put as many brick on the good facts side of the scale as you can.

And if things don’t work out, you can always use this neat trick with your parasol to keep away bears.

Thanks again, Dr. Bob!

 

© 2020 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