Not a hawk, but I like this picture I took in Utah a couple years ago
A woman in Texas was mowing her lawn last month when she was suddenly attacked by a snake and a hawk — at the same time. The hawk had been carrying the snake but dropped it. It landed on poor Peggy Jones. The snake wrapped itself around her arm. Still hungry, the hawk dove at Peggy to retrieve its tasty treat, clawing at her and the snake, and ripping up her arm in the process. Eventually the hawk won and flew off with the snake. Peggy had severe cuts and bruises, and her husband had to finish mowing the lawn.
We’ve got another double attack to report, this one in the world of temporary staffing.
Last week we wrote about New Jersey’s new temporary staffing law, which imposes new burdens on companies using temp staffing. Not wanting to be left out of the fun, Illinois has followed suit with a similar law.
The Illinois law imposes several new burdens on companies using temp staffing workers.
I’ve listed those obligations here, on the BakerHostetler Employment Law Spotlight blog. I list eight things that companies in Illinois will need to know.
I haven’t yet decided which law is the hawk and which is the snake. But both will inflict some pain.
Meanwhile, enjoy this song called Snake Hawk, by The Budos Band.
Today we offer some fun facts about New Jersey. Raise your hand if you knew these things, but only if you are working from home because otherwise it would be weird:
The Lambert Castle Museum in Paterson has a spoon exhibit with over 5,400 spoons from every state and almost every country in the world.
The Passaic River in Paterson was the site of the first submarine ride in 1878 by its inventor John P. Holland.
New Jersey’s capital city, Trenton, was once the capital of the United States – but only for about eight weeks in 1784.
A less fun fact about New Jersey is that this past weekend, the NJ Temporary Workers’ Bill of Rights went into effect. It is a well-intentioned law that will have loads of unintended consequences. Rather than helping temp workers, the law’s requirements seem more likely to cause companies to stop using temp workers entirely.
The law’s requirements have been discussed elsewhere, and you can check out the BakerHostetler blog, The Bargaining Table, for a more complete discussion. But I want to focus on one aspect of the law that I think is particularly dumb and poorly drafted.
Section 7(b) requires that temp workers “shall not be paid less than the average rate of pay and average cost of benefits, or the cash equivalent thereof, of employees of the third party client performing the same or substantially similar work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions for the third party client at the time the temporary laborer is assigned to work at the third party client. Each violation of this subsection for each affected temporary laborer shall constitute a separate violation….”
Take a minute to digest that. It requires that temps are paid at least as much as similarly situated regular employees, but not just in wages. You also have to add in the cost of benefits. The cash value of benefits is often around a third of total compensation.
Suppose you have full time maintenance employees who average $20/hour plus benefits. If the cash value of benefits are one-third of the worker’s compensation package, then the temp worker “shall not be paid less than” $26.67/hour. And that’s before the staffing agency takes its markup of, maybe, 35%. You’d have to pay $36/hour for a temp maintenance worker, and the temp worker’s take home pay will be 33% higher (because of the cash value of benefits) than your comparable maintenance employee.
What if the temp agency provides benefits? Unclear. Poorly drafted. The law sets the temp worker’s minimum wage based on the cash value of the benefits the similarly situated employees receive. Maybe if the temp worker gets benefits, then the temp’s hourly wage floor would be $20, not $26.67, but that’s not clear.
Not only does the law greatly increase the cost of using temp labor, it also requires the company using the staffing agency’s services to disclose to the staffing agency the average wages and cost of benefits it provides to its similarly situated employees. If your company didn’t disclose this information, the staffing agency wouldn’t be able to comply with the pay floor requirement.
A failure to comply results in joint liability. So now you need to make sure the staffing agency pays its temps a particular wage, calculated based on the wages your company pays its employees. In your staffing agency agreement, you’ll need to require the agency to pay a particular wage to ensure compliance.
Here’s where things get tricky. An indemnity provision might not be sufficient to shift liability because the law says both parties are liable. So you need a breach of contract claim to rely on instead.
To build a potential breach of contract claim, the company will want to contractually require the agency to pay the workers a wage that is not less than the average cost of the company’s wages and cost of benefits. But directing and controlling wages is a strong indicator of joint employment under other laws. The act of complying with the NJ law could turn companies into joint employers. The wording in any staffing agreement, therefore, needs to thread the needle.
The text in a staffing agency agreement (or amendment) will need to be carefully drafted so that the company is requiring only that the agency comply with NJ law with respect to wages and benefits and is not directing or controlling the wages and benefits that the agency pays its temps.
Something like this might work: “If required under N.J.S.A. [insert citation], but only to the extent required by such statute, Agency shall pay the temporary workers at a rate not less than the average rate of pay and average cost of benefits, or the cash equivalent thereof, of employees of the company performing the same or substantially similar work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions for the company at the time the temporary laborer is assigned to work at the company.”
I don’t like telling the agency what it must pay its workers, but you’ll want a breach of contract claim available to you if the agency fails to comply and your company is jointly liable under the NJ law. An amendment to your staffing agency agreement is appropriate, but it needs to be carefully drafted.
And here’s another possible unintended consequence. How will your maintenance employees like being paid less than the maintenance temps? Maybe we need a union in here to get us a fair wage! I could see things going in that direction. If a temp can take home $26.67/hour, we want $26.67/hour too, not $20!
The NJ law does not apply to all temps. It applies to temps in these “occupational categories as designated by the Bureau of Labor Statistics of the United States Department of Labor:
33-90000 Other Protective Service Workers;
35-0000 Food Preparation and Serving Related Occupations;
37-35 0000 Building and Grounds Cleaning and Maintenance Occupations;
39-0000 Personal Care and Service Occupations;
47-37 2060 Construction Laborers;
47-30000 Helpers, Construction Trades;
49-0000 Installation, Maintenance, and Repair Occupations;
51-0000 Production Occupations;
53-0000 Transportation and Material Moving Occupations; or
any successor categories as the Bureau of Labor Statistics may designate.”
If all of this makes you want to take a long walk and get away, then fun fact: New Jersey has more than 4,000 miles of trails!
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.
A Nigerian comedian recently set out to beat the world record for continuous crying, seeking to cry for 100 consecutive hours. I expect that many new parents would object right here and point out that this record is bullsh@# because their infants have cried continuously for twice that long. But let’s assume the record here is for adult crying. Lacking the stamina of a newborn, the comedian failed miserably.
After six hours, the man experienced headaches, a swollen face, and lost his vision for 45 minutes.
A California Supreme Court decision last week may cause businesses to shed a few tears, but the ruling was no surprise, and companies just need to be prepared.
Remember how we loveindividual arbitration agreements as a tool for avoiding class action lawsuits? Companies that make widespread use of independent contractors should have these agreements in place, and most do. Courts generally enforce these agreements, which require claimants to bring any claims on an individual basis, not as part of a class action.
In California, there was an open question about whether an individual who is subject to an individual arbitration agreement could nonetheless bring a PAGA claim in California. PAGA refers to the Private Attorneys General Act, a California state law that allows “aggrieved individuals” to bring a claim on behalf of the state government, seeking relief for other employees. It’s not a class action but, to a defendant company, it feels like one.
In Adolph v. Uber, the California Supreme Court ruled that an individual whose claims are subject to an individual arbitration agreement may still be considered an “aggrieved employee” who can bring a PAGA claim seeking to remedy a defendant’s Labor Code violations against other employees.
The ruling was no surprise to the business community, but it clarifies an important point of law. You can read more about the decision here, in this BakerHostetler alert.
Businesses do not need to do anything differently on the preventive side, as a result of this ruling.
Businesses making widespread use of independent contractors should continue to require the contractors to sign individual arbitration agreements with class action waivers. While these agreements cannot prevent PAGA claims, they can often be used to delay PAGA claims. The agreement can include a clause requiring the parties to jointly request that any PAGA claim be stayed while the individual claim is arbitrated. This delay may frustrate the purpose of the PAGA claim, especially if your business prevails in arbitration against the individual.
So for now, nobody needs to follow the lead of the temporarily blind Nigerian comedian. Instead, follow the advice in this song:
In ancient and medieval warfare, cavalrymen who fought battles with lances were known as lancers. Actually, they were probably known as whatever Assyrians or Normans or Persians called lancers in their languages, but that’s not important right now.
I should share that my junior high, Palmetto, was also known as the Lancers when I attended in the 1980s. I don’t know if they are still the Lancers, but I do know that they are no longer Palmetto Junior High. Instead, the school is now known as Palmetto Middle School, which is unfortunate and a bit cruel to the teenage cheerleaders who must wear the school’s initials across their chests.
Medieval lancers might have been paid, or might not. Don’t know, don’t care. I know that PMS Lancers are not paid. But this post is not about free lancers. It’s about freelancers. And that space makes a lot of difference.
Los Angeles is the latest major city to pass an ordinance that imposes several strict requirements when retaining freelancers. The Freelance Worker Protection Ordinance took effect July 1, and L.A. now joins NYC, Seattle, and Minneapolis as cities that require a written contract when retaining a solo independent contractor.
This L.A. law is not a TV drama where “office politics and romance often distract the legal staffers from matters in the courtroom.” No, this L.A. law is more boring. This law applies when retaining a solo contractor who will earn $600 or more in a calendar year. If that’s the case (see what I did there?), then these rules now apply:
Must have a written contract that includes:
name, mailing address, phone, email of both hiring party and freelance worker,
itemization of services to be provided,
rate and method of compensation, and
date by which payment is due, or manner for determining due date.
Payment must be made by the due date or, if none is specified, within 30 days after services are rendered.
Both the hiring party and freelancer must retain records for 4 years.
Any waiver of these requirements is unenforceable.
The NYC, Seattle, and Minneapolis ordinances also require written contracts with similar contents when retaining solo independent contractors who will earn about the same amount. The NYC law applies to work worth $800 in one project or in the aggregate over 120 days. The Minneapolis law applies to work valued at $600 in a calendar year or $200 in a single week. The Seattle law applies to work valued at $600 in a calendar year.
Businesses and individuals who retain solo independent contractors in these cities need to be aware of these laws, which apply even if the hiring party is located elsewhere.
Hiring parties who fail to comply may be liable for double damages, fines for not providing a written contract, penalties for late payments, and attorneys’ fees. The most egregious violators may also be subjected to cavalry charges and lance attacks. Maybe.
In 1925, the first motel opened in San Luis Obispo, California, according to The People History. It was originally called the Milestone Mo-Tel and charged $1.25 per night. The term motel was created to shorten the phrase Motorists’ Hotel, the defining feature of which was the ability of visitors to park their vehicles directly outside their room.
Why are we focused on 1925? Because laws written in 1925 continue to directly impact legal disputes over misclassification in 2023, even though the facts being applied to those laws were so far beyond what lawmakers could have even imagined at the time. The application of outdated laws is something we deal with all the time, including with the Fair Labor Standards Act, enacted in the 1930s. The intersection of old laws with new technologies creates sticky legal problems. And today’s post is about one of these sticky situations.
In a recent decision, the Third Circuit Court of Appeals joined the First, Seventh, and Ninth in ruling that rideshare drivers with individual arbitration agreements are required to arbitrate misclassification disputes, as set forth in the Federal Arbitration Act (FAA). In other words, the FAA’s transportation exception does not apply.
I’ll explain why that’s important, and you’ll see where 1925 fits in.
For companies engaging large numbers of independent contractors, misclassification class actions pose a significant risk. Individual arbitration agreements with class action waivers provide important protections against that risk. Generally, the FAA requires the enforcement of arbitration agreements.
But the FAA has an exception. Under section 1 of the FAA, the Act does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
Historically, this exception was created because seaman and railroad workers were subject to a different set of federal requirements for dispute resolution. Remember, the FAA was enacted in 1925. People still said “seaman” without giggling.
In 1925, Calvin Coolidge was sworn in for a full term, in the first inauguration to be be broadcast on the cutting-edge new technology of radio. The Scopes Monkey Trial captivated the nation, following the indictment of Tennessee schoolteacher John Scopes for daring to teach human evolution. In other Tennessee news, the Grand Ole Opry debuted on Nashville radio, with the less-catchy name, the “WSM Barn Dance.”
So this was a different time. No one was thinking you could order a car on your cell phone, track your route on your cell phone, then pay and rate your driver by cell phone. In 1925, we were still a year away from the first trans-Atlantic phone call.
Anyway, plaintiffs’ lawyers attempting to bring misclassification class actions frequently argue that rideshare drivers fall within the transportation exemption, and therefore the FAA does not require enforcement of the drivers’ signed arbitration agreements. In Singh v. Uber Transp., a three-judge panel in the Third Circuit held that the transportation exception does not apply (and therefore the FAA does apply) because the vast majority of rides were intrastate, not interstate. The decision was issued in April, but there was a petition asking for a rehearing by the full circuit. Earlier this month, that petition was denied, and the Third Circuit’s decision therefore will stand, assuming there is no Supreme Court review.
The takeaway for companies making widespread use of independent contractors is to continue to use arbitration agreements, even in industries that may involve transportation. The scope of the transportation exemption is constantly being tested, but so far for rideshare, the outcome of most court decisions has been that the FAA still applies and the transportation exception does not apply.
For those interested in how the opening story ends, the Milestone Mo-Tel was renamed the Motel Inn, then closed in 1991. The building is now the administrative building for the Apple Farm Inn next door. The Apple Farm Inn charges a bit more than $1.25 per night, but it promises “the excitement of creating future memories.”
The song “Rock & Roll Stew” was released by Traffic as a single, off its excellent 1971 album, The Low Spark of High Heeled Boys. The stew is a reference to the messy life of playing gigs in clubs around the world. (This stew, of course, refers to the meal, not the anthropomorphic similar-sounding Stu, as referenced in Led Zeppelin’s “Boogie with Stu,” with this Stu being a real person, namely Ian Stewart, who was the Rolling Stones’ road manager and piano player and who sat at the keyboard one day to help Jimmy Page tune his guitar, a collaboration that resulted in this mostly improvised song, which is catchy and fun.)
Stew, according to allrecipes.com, is like a soup but chunkier. When making a stew, you can toss in meats and vegetables and whatever else you’re trying to get rid of in your refrigerator to make room before you go to Costco.
A messy chunky stew also seems like a good description of California’s ABC Test, which seems straightforward enough at first but, in reality, is chock full of meaty exceptions, most of which seem completely arbitrary.
The exceptions to the ABC Test are laid out in California Labor Code sections 2776 through 2785. The structure of the California law goes basically like this: When determining if someone is an employee or an independent contractor, use the ABC Test except in a whole bunch of situations or professions or circumstances, in which you would not use the ABC Test. There are dozens and dozens of exceptions to the ABC Test, and you just about need a decision tree to figure them out. The lines that have been drawn to determine whether some of the exceptions apply can also be maddening to understand, and they too seem arbitrary.
In a case brought by Mobilize the Message LLC, some of these lines were challenged on the grounds that they violate the First Amendment.
More specifically, the argument was that the law creates two classes of canvassers and distributors of literature, with different outcomes depending on whether they are engaging in political speech. The law allows promoters of consumer goods and distributors of newspapers to be classified as independent contractors, but it subjects promoters of political campaigns to the ABC Test, making it much more likely that they would be deemed employees.
Mobilize the Message LLC argued that the law discriminated against political speech by imposing more substantial burdens on those who engage in it than those who do not.
In October 2022, the Ninth Circuit rejected the challenge, ruling that there was no First Amendment violation. The petitioner then sought review by the U.S. Supreme Court. But late last month, the Supreme Court declined to take the case.
That means the Ninth Circuit ruling will stand, and the ABC Test — with its arbitrary lines — lives another day, even if the law subjects workers engaging in political speech to a different set of rules.
The ABC Test remains a messy stew, chock full of meaty (and vegetable-y) exceptions. But businesses operating in California have no choice but to learn it and digest it, no matter how chunky and confusing the mystery meat may be.
In school we all learned that the longest river is the Nile. But some say the Amazon is longer. In the atlas “Maps of Useful Knowledge” (1846), the Amazon was listed as 3200 miles and the Nile 2750 miles. The current U.S. Geological Survey shows the Nile at 4132 miles and the Amazon at 4000 miles. Brazilian researchers claim the Amazon is 4331 miles long and the Nile a mere 4258 miles.
So which is it, and how can it be changing? Apparently the controversy involves disputes over where the rivers start, where they end, and how to track changes in the rivers’ course.
Whatever you learned about the test for who is an independent contractor under the Fair Labor Standards Act is subject to change too.
Remember October 2022? Elon Musk completed a $44B deal to take over twitter. Germany took steps to legalize marijuana. And the DOL released a proposed new regulation to modify the independent contractor test.
The proposed rule received more than 50,000 comments. We’ve been speculating about when the DOL might issue a final rule.
We’ve now learned that the DOL is targeting this fall for release of the new rule. The latest version of the regulatory agenda lists August as the target release date. August may be a bit ambitious, but the fall seems likely. On June 9, a federal court of appeals granted a motion by the DOL for a 120-day stay in a pending lawsuit. The DOL asked for the stay to allow it time to release the new rule.
So it seems that whatever we know now about the length of the Nile River, the length of the Amazon River, and the independent comntractor test under the FLSA is subject to change. Hopefully we’ll know more about all three by sometime this fall.
We can be pretty sure the final rule will closely resemble the multi-factor balancing test released in October 2022. Businesses can plan accordingly by being proactive in assessing their relationships with independent contractors and taking steps to reduce risk now.
As I wrote a few days ago in the BakerHostetler blog, The Bargaining Table…
The sky is not falling.
When the National Labor Relations Board (NLRB or Board) issued its Atlanta Opera decision on June 14, I read the decision. Then I read some of the commentary issued quickly by news outlets right after the decision dropped. I’m not sure whether all of those commentators read the actual decision. To those who think this decision will have any significant impact on independent contractor classification under the National Labor Relations Act (NLRA or Act), I disagree.
In Atlanta Opera, the Board purported to revise the test for determining employee status under the Act. The Board said it was overruling the 2019 SuperShuttle DFW case and readopting the FedEx II standard from 2014. But is there really any practical difference? I think not.
The albumOld New Borrowed and Blue was released in 1974 by the British rock band Slade. It reached No. 1 on the UK albums chart. Slade recorded the album shortly after a near-fatal car crash involving drummer Don Powell, who played drums on the album despite walking with a cane and needing to be lifted onto his drum stool.
For whatever reason, Slade doesn’t get much air play on classic rock stations in the US. I remember the songs “Run Runaway” and “My Oh My,” both released in 1984, but I don’t remember hearing much more from Slade.
Getting back to Old New Borrowed and Blue, the “Borrowed” portion of the title refers to the fact that at least one song, “Just Want a Little Bit,” was a cover. It wasn’t Slade’s song, until it was. They borrowed it and made it their own.
Can the same thing happen in employment settings? Yes, it can.
We often consider the concept of joint employment, but did you know there’s also a doctrine called the “borrowed employee” doctrine?
What is a “borrowed employee,” and why does it matter?
The concept of “borrowed employee” arises in negligence cases involving vicarious liability. The “borrowed employee” doctrine is a defense that can be asserted if an injured employee at one company alleges that an employee of another company negligently caused the injury. If your employees ever provide services for another company, pay attention.
Philip Pantano, a mechanic employed by Container Services of New Jersey (CSNJ) had his foot crushed and amputated following a workplace accident. Pantano alleged that an employee of a different company, Marine Transport (MT), was negligent and caused the injury. Pantano claimed that MT was vicariously liable for that employee’s negligence and should have to pay for the damages. A jury agreed and awarded Pantano $861,000, on top of his workers’ compensation recovery.
The issue that went before the New Jersey Supreme Court centered around whether MT could be held vicariously liable for its employee’s negligence. The answer would depend on whether the MT employee who caused the accident was deemed a “borrowed employee” of CSNJ when the accident occurred. If MT could prove that the MT employee who caused the injury was a borrowed employee of CSNJ at the time of the accident, then MT is not vicariously liable, even though the worker was being paid by MT and was MT’s W2 employee.
The borrowed employee doctrine is a creation of state law. In New Jersey, there’s a two-part multi-factor test to determine whether someone is a “borrowed employee” for purposes of vicarious liability.
The first part of the test looks at control, which can be demonstrated through “direct evidence of on-spot control” or broad control based on method of payment, furnishing equipment, or having the right of termination. If the primary employer has control over the worker, then we go to part two of the test.
The second part of the test is the “business furtherance” prong. If the worker was furthering the primary employer’s business when committing the negligent act, then the primary employer is vicariously liable. “Business furtherance” is established under NJ law if (1) the work being done is within “the general contemplation” of the primary employer’s business, and (2) the primary employer derives economic benefit by loaning its employee.
Applying the test, a jury is supposed to determine whether the employee was acting on behalf of the primary employer, or was acting as a borrowed employee of the secondary employer, or if both are responsible.
Tip: It is in a primary employer’s interest to show that its loaned employee was acting as a “borrowed employee” of the other company at the time of the accident, if the injured employee was also employed by that other company.
Here’s why. If the employee who caused the accident was acting as a “borrowed employee” of the company that employed the injured worker, then the injured worker’s remedy is limited to workers’ compensation law. But if the accident was caused by the negligence of another company’s employee (and the worker is nit a “borrowed employee”), then the injured worker can bring a negligence claim against that other company.
If all of this is making your head hurt, remember a few things here:
1) When you lend an employee, make sure there’s worker’s compensation coverage all around.
2) When you lend an employee, make sure you have a well drafted agreement between the two companies. Allocation of risk should be addressed in advance.
Borrowing employees is commonplace. If you plan in advance, the arrangement can work well for both companies, and there’s no need to Run Runaway.
Who Is My Employee? 