Are Santa’s Elves Employees or Independent Contractors?

elves independent contractors or employeesFor roughly 200 years, Santa has been retaining seasonal help at his Arctic Circle workshop. His undersized non-union workers toil in an icy land that sits beyond the jurisdiction of U.S. employment laws, a wise move by Mr. Claus and his attorneys.

While children around the world ask silly questions like, Can I visit the elves? and What do elves eat? and How do they work so fast?this blog asks the serious question that all adult businesspeople want to know: Are elves employees or independent contractors?

Spoiler alert for the children: The answers are No, Caribou, and Amphetamines.

The adult question takes some analysis. Let’s peek behind the wintry curtain.

We know the elves are seasonal workers. The last few months of every year, they work their tiny asses off, manufacturing a few billion toys in a well-hidden workshop. Some small businesses make the mistake of thinking that short-term work means the worker can be classified as an independent contractor, but employment can be short-term too. If the other facts show control, economic reliance, etc., the elves will be employees. Doesn’t matter if the elves go back on the dole every January 1 for lack of work.

What about control? We know Santa gets a long list of demands from children, and many of these are detailed. Kids aren’t making vague requests for any old cell phone. They want the iPhone X with 256 GB of storage and an unlimited data plan. Santa needs to make sure the toys are build to spec. The elves cannot freestyle here. Santa supervises his staff, maintaining the right to control how they do their work.

Looking at other factors in the Right to Control Test, it’s really not a close call. The elves are told where to work (at Santa’s 10 billion sf workshop), when to work (23 hours a day, plus one hour in the yard for exercise), and they’re monitored every step of the way (little known fact: Mrs. C spends most of December knitting in front of a wall of security monitors). If Pete the Elf puts the wrong wheel on Little Johnny’s tricycle, you think Santa would stand for that? Heck no. The elves have no discretion. They work hard and are closely monitored. The only reason Santa’s workshop is not considered a sweatshop is that it’s in the Arctic.

Fortunately for the jolly taskmaster, U.S. wage and hour law doesn’t apply to enterprises at the earth’s geographic poles. Elves would surely be considered employees, not independent contractors, if the Fair Labor Standards Act applied. The Economic Realities Test determines whether elves are employees or contractors for minimum wage and overtime law, and this is an easy call. Elves are economically reliant on St. Nick to earn a living. You don’t see elves earning extra cash selling rasta beads at Jamaican resorts in February, do you? No. Elves earn all their green making toys up north.

Elves are employees, not independent contractors, even though they perform all their work in a few short months. The rest of the year they drink tiny cocktails and surf tiny waves in the tropics.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Using Independent Contractors Saved This Hospital an Arm and a Leg! (Really, Just a Leg)

leg broken independent contractor vs employee liabilityToday we attempt to answer a medical mystery: If I have to get my leg amputated because a doctor misdiagnosed me at the hospital, can I sue the hospital for malpractice?

Seems like an easy “yes,” right? Not so fast.

Suppose the doctor was an independent contractor, and suppose the hospital is a public institution. Those were the facts presented to the Supreme Court of Wyoming in a recent case (which also serves as a nice reminder that if you are admitted to the hospital with numbness and cramping in the legs and an “inability to walk,” it would be a good idea to get a vascular consult — assuming you want to keep your leg).

The Wyoming Supreme Court had to interpret a state statute that limited the liability of public hospitals to acts by its employees, except if a hospital extended its liability on purpose through an insurance policy. The hospital here had an insurance policy, but the policy did not reference coverage for acts by independent contractors.

The Court ruled that because the negligence (correction: alleged) “alleged” negligence was by a doctor who was seeing hospital patients as an independent contractor, the hospital was immune from liability for any negligence by the doctor.

Our fearless hero, the amputee, would have to sue the doctor instead. He could not sue the hospital. The case does not address how much malpractice insurance the doctor had, but I would bet my unamputated left leg that it was quite a bit less coverage than the hospital had.

The facts in this case are fairly specific, so I wouldn’t draw a lot of generalizations here. The case required the interpretation of a Wyoming statute and a specific insurance contract.

The case does serve as a reminder, though, of one of the many benefits of having work performed by legitimate independent contractors. The hospital would have been subject to liability if the doctor was an employee, but it faced no liability because the doctor was an independent contractor.

The key to victory, of course, is having a legitimate independent contractor relationship. As we have discussed many times in this blog, there are often disputes over whether a so-called independent contractor is properly classified or should really be considered an employee.

Courts will look to the facts of the relationship to determine Who Is My Employee? and will not just rely on what the parties call the relationship or the fact that a 1099 was issued instead of a W-2.

Depending on which law is being applied, the test for Independent Contractor vs. Employee may be a Right to Control Test, an Economic Realities Test, an ABC Test, or some other hybrid or variation. It’s important to understand whether your independent contractor relationships would hold up to scrutiny, and it’s important to conduct that review before you get sued.

Proper classification in this case meant the difference between zero liability and having to pay the going rate for an amputated leg.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Are Prostitutes Employees or Independent Contractors?

D019E4C0-7B51-4597-BA1A-0C84C01105CF.jpegThere’s a headline I never expected to write. But apparently this is an issue in the Great State of Nevada.

I subscribe to a service that alerts me when new lawsuits are filed involving independent contractor misclassification disputes. This gem arrived in my inbox last week:

Sierra National Corp. dba The Love Ranch is suing the Nevada unemployment department. Apparently the State ruled that the Love Ranch’s lovely ladies were employees, not independent contractors. The Ranchers filed a lawsuit asking the State to open its files and show how it reached that conclusion. Here’s the description of the case:

Mandamus and public records. Petitioner, which operates a legal brothel, seeks to compel respondent to provide public records relating to respondent’s investigation and decision that the brothel’s prostitutes are employees, not independent contractors. Respondent agency’s blanket denial of the petitioner’s public-records request violates the state public records law.

I’d love to be a fly on the wall listening to that dispute. I imagine it went something like this:

State: Your prostitutes are employees, not independent contractors.

Love Ranch: Why?

State: Well, you know, the Right to Control Test.

Love Ranch: Seriously?! We do NOT tell them how to… Never mind.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Court Rules that New Jersey is a Goat (sort of): a Note on Forum Selection Clauses

goat independent contractor misclassification forum selection clause Mary Kay caseThe Monty Hall puzzle is a brain teaser based on the game show, Let’s Make a Deal. The contestant is presented with three doors and must choose one. Choose the correct door and win a car. Choose either of the wrong doors and win a goat. (Note to rural readers: The puzzle is a first-world conundrum and assumes you’d prefer the car.)

Once the contestant chooses, the host opens one of the doors with a goat and asks the contestant whether he wants to stay with his original choice or choose the other unopened door. As explained here, the contestant should always switch doors, since switching provides a 2/3 chance to win. The math here is not intuitive, but read about it and you’ll understand.

The gimmick relies on the fact that the host knows what’s behind each door and will only reveal a door that hides a goat. The host never reveals a car.

When drafting multi-state independent contractor agreements, be the host, not the contestant. You want to know what’s behind each door and choose knowingly — and that leads us to choice-of-law and forum selection clauses.

One of the lessons reiterated throughout this blog is that the tests for Who Is My Employee? (i.e., Independent Contractor vs. Employee) vary substantially among the states. Some state laws are much more favorable for businesses than others. Massachusetts and California, for example, are the goats.

Businesses that use independent contractor agreements across multiple states should consider the advantages of inserting a forum selection clause and choice of law provision. Know what’s behind each possible door and then select, in advance, which state’s law will apply and where any lawsuit between the parties must be brought. If these terms are in an Independent Contractor Agreement, courts will generally (but not always) defer to the parties’ contractual agreement, so long as the selected state has some reasonable connection to the parties’ relationship and is not contrary to the state’s public policy. (Sorry, you can’t pick Hawaii just because you like pineapples.)

A recent case out of New Jersey demonstrates the usefulness of these clauses.

A group of New Jersey independent contractor beauty consultants attempted to sue Mary Kay, alleging independent contractor misclassification and violations of New Jersey wage law. They filed the lawsuit in New Jersey, which the plaintiffs’ bar likens to a shiny new Escalade. Mary Kay, however, sees New Jersey as a goat and knew ahead of time that New Jersey was a goat. On the well-known Car vs. Goat Continuum (ed. note: not actually well known at all), New Jersey employment laws are relatively pro-employee. The company therefore included in its Independent Contractor Agreement the requirements that any litigation be brought in Texas, that Texas law applies, and that any complaint must be recited aloud in court using a voice imitating Ross Perot, circa 1992. (The last part might be unenforceable.)

In response to the lawsuit, Mary Kay pointed to the contract and asked the court to move the case to the Lone Star State. Despite the plaintiff’s protests, the court honored the contract and sent the case southward. The plaintiff appealed that decision but lost. The Court of Appeals ruled that it was proper, under the circumstances, to honor the choice of law and forum selection clauses and to move the case to Texas.

Businesses using independent contractors across multiple states should strongly consider inserting choice of law and forum selection clauses into their contracts. (Arbitration agreements can be an even better option, but that’s for another post.)

Avoid the goats. They’ll eat anything, including your cash.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Strippers Have No Class, Judge Rules

We’ve seen lots of exotic dancer cases lately (clarification for my wife: seen lots of cases, not dancers) where the dancers — apparently this is the preferred legal term for strippers — claim they have been misclassified as independent contractors.

employment-class-action-blogMany of these claims have succeeded, but here’s an unusual way to lose class action status. This judge refused to certify the proposed class because of lack of experience of counsel. Thanks to my colleague, Greg Mersol (experienced counsel), for this post. Class dismissed!

Unlikely Lessons in Legal History, Edition 1.
Why lawyers use the term “exotic dancer” instead of stripper:

Lawyer’s Wife:  Were you out cavorting with strippers again?

Lawyer:  No.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.