Invented by Virgil A. Gates of West Virginia, the Guard is intended for “holding the moustache out of the way of food or liquid while eating or drinking.” As you may have already guessed, Virgil filed for a patent in 1876. Why would you have guessed that? Because 1876 was the last time anyone was named Virgil.
Moustaches, while certainly worth guarding (especially those of the handlebar variety), aren’t the only thing in need of protection. Solo independent business owners in the delivery and rideshare industries have been under attack, as class action lawsuits and government agency activity increasingly seek to take away their independence by declaring them employees.
In 2020, California enacted Prop 22, which preserved independent contractor status for these drivers so long as the app companies provided a list of preset benefits and guaranteed pay. In a statewide vote, Prop 22 passed overwhelmingly with 59% of the vote.
Massachusetts may soon follow suit. A similar ballot measure is likely to be considered by voters in the Bay State about a year from now.
The ballot measure, if successful, would create a system like Prop 22 in Massachusetts. Delivery and rideshare drivers would be granted independent contractor status, so long as the app company they were using provided them with a litany of worker benefits. The required benefits would include:
Guaranteed pay at 120% of state minimum wage for time spent completing delivery or rideshare requests;
Additional per mile pay for each mile driven in a personal vehicle;
A healthcare stipend for drivers who average 25 or more hours per week;
One hour of paid sick time per 30 hours worked;
Accident insurance; and
Prohibitions on discrimination based on race, sex, sexual orientation, and other protected characteristics.
Click here for the official summary of the proposed law.
If the ballot initiative receives enough signatures, it may appear on the ballot for a statewide vote in November 2024. Alternatively, the legislature may choose to consider the issue on its own, before the 2024 general election.
Initiatives like this one and California’s successful Prop 22 provide a reasonable, common sense third alternative to what is usually a binary choice between classification as an independent contractor (with no employee rights) and an employee. Rideshare and delivery drivers generally value their independence and the ability to operate their own business. Laws like this one allow them to do so as contractors while receiving certain benefits and guarantees.
It’s going to be hard to move my garage. I figure I’ll need at least four or five strong guys to help. My garage is heavy and seems pretty securely attached to the ground, so the work will be hard and I’m sure that I’d have to pay them at least $500 apiece.
But at least I don’t live in Illinois. Starting July 1, 2023, freelance labor will be governed by the Freelance Worker Protection Act (FWPA), another freelancer law similar to the ones in Los Angeles, Minneapolis, New York City, Seattle, and Columbus Ohio.
Here’s what you need to know before retaining a solo independent contractor in Illinois:
When the Law Applies
Independent contractor who is a natural person (i.e., a human, not an entity)
Providing services in Illinois
Providing services for a person or entity in Illinois
Total value is $500+, including all work aggregated over 120 days
Exclusions
N/a to construction or subcontractors, as defined in the Illinois Employee Classification Act (construction industry)
N/a to employees, as defined by the Illinois Wage Payment and Collection Act
Requirements
There must be a written contract that includes:
The name and contact information of both parties (including the hiring party’s mailing address);
An itemization of all products and services to be provided by the freelance worker;
The value of the products and services to be provided;
The rate and method of compensation;
The date when payment is due, which must be “no later than 30 days after the products or services are provided”; and
If the hiring party requires a list of products and services rendered in order to meet any payment processing deadlines (such as an invoice), the date by which the freelance worker must submit the list. (IDOL will provide model contracts)
Prohibitions
Once the IC “has commenced preparation of the product or performance of the services under the contract,” the hiring party cannot require, as a condition of timely payment, that the IC accept less compensation
Hiring party cannot threaten to withhold payment unless IC takes a lesser amount (no exception for unsatisfactory performance?)
Hiring party cannot do anything that would discourage the IC from exercising rights under the Act
No retaliation
Waivers are void against public policy (does that mean you can’t settle a dispute?)
If the contract failed to specify a due date for payment, the hiring party violates the Act if payment is made more than 30 days days “after the completion of the freelance worker’s services under the contract”
Record Keeping
Hiring party must retain a copy of the contract for two years
Enforcement
IC can file a civil lawsuit, or
IC can file an administrative complaint, which can lead to a broader investigation as to overall compliance
Penalties
For failure to timely pay: 2x amount owed, plus attorneys fees and costs
For failure to contract or to provide the contract: value of the contract or $500, whichever is greater
For discrimination or retaliation: value of contract, plus attorneys fees and costs
In addition, the IDOL may impose civil penalties up to $5000 for each violation, or $10,000 for each repeat violation within a five-year period, plus monetary damages to the state, restitution, and equitable relief, including injunctions.
Other Stuff
The law does not weigh in on whether the worker is misclassified
The Illinois DOL will issue regulations
Problems I See with the Law, as Written:
I see a few problems, and hopefully the IDOL will address these issues in its rulemaking.
First, suppose the IC’s work is unsatisfactory. Suppose the IC is slow or sloppy or rude or has terrible body odor. Suppose the IC does the work you requested but stomps all over your prized rose garden when walking in an out of the building. Suppose the IC comes into your home or business and breaks stuff or takes a cell phone picture of confidential information.
The law does not take into consideration all of the things that could warrant reduced or nonpayment, even if the products or services are ultimately provided. It seems that you’d still have to pay the value of the contract.
Second, the law seems to prohibit settlements. It says that any waiver of rights under this law is void as against public policy. It does say “except as otherwise provided by law,” so maybe a settlement would fall into that category.
Tips for Retaining ICs in Illinois after July 1, 2024
Consider including specifications or other requirements in the contract, to preserve an argument that the work is not yet completed or that the work was not performed as contractually agreed. (But don’t impose control over how the work is done, because that could lead to misclassification.)
Evaluate current use of individual ICs in Illinois, and consider whether this law will apply to those relationships.
Implement a Gatekeeper System like this, prohibiting managers from retaining ICs without going thorough an internal chokepoint for vetting. Managers who don’t know about the FWPA might retain ICs to get something done, creating liability for the company under the FWPA.
Look for the IDOL to release regulations that will hopefully provide clarity on the poor performance and settlement concerns.
Be careful about any IDOL investigation. If your business uses freelancers and the IDOL receives a complaint of a potential FWPA violation, the IDOL is likely conduct a thorough investigation that extends beyond the one complaining worker. With fines of $5,000 per occurrence, the penalties for noncompliance can get big in a hurry.
The scope of this law is broad. It applies to all “natural persons” (hey, no jokes about the weird guy down in the cubicle down the hall) who perform services for $500 or more. That would include your regular babysitter, your house cleaner, the guy you pay to wash the windows, solo consultants, or the guy you pay to assemble all the new modular furniture.
That would also include the guys I’m gonna need to pick up and move my garage.
When Johnny Cash recorded At Folsom Prison in 1968, he has performing for an audience of arsonists, kidnappers, and killers. But the inmate audience probably didn’t include any independent contractor misclassifiers.
Fast forward to 2023. There’s a new sheriff in town, and you wouldn’t believe what might now qualify a person for prison time.
Under a new law signed by Governor Hochul last week, wage theft in New York State is now larceny. The law amends section 155 of the penal code (larceny).
Section 155 defines larceny:
2. Larceny includes a wrongful taking, obtaining or withholding of another`s property, with the intent prescribed in subdivision one of this section, committed in any of the following ways:
The definition then lists five subparts: (a) by embezzlement, (b) by taking lost property, (c) by issuing a bad check, (d) by false promise, or (e) by extortion.
Now there’s a subpart (f) “by wage theft.”
Wage theft is defined to include failing to pay overtime, if overtime is due, for work performed. That definition appears broad enough to include the failure to pay overtime because a worker was treated, incorrectly, as an independent contractor.
Larceny comes in different degrees, based on how much money is involved. The new law says that prosecutors can aggregate multiple instances of wage underpayment to one person into one count. It’s unclear to me whether underpayments to multiple people could be aggregated to create a higher degree of felony.
If the value of the property is up to $1,000, that’s petit larceny and a class A misdemeanor. But anything over $1,000 is grand larceny.
If the value of the property exceeds $1,000, that’s grand larceny in the 4th degree, which is a class E felony. More than $3,000 is 3rd degree grand larceny and a class D felony. More than $50,000 is 2nd degree grand larceny and a class C felony. More than $1,000,000 is 1st degree grand larceny and a class B felony.
These are serious crimes. Non-violent felonies can mean prison time. Conviction of a class E felony (for taking $1,001 to $3,000) can result in up to four years of prison time.
New York is not alone in seeking to classify wage theft as criminal conduct. Minnesota and Washington, D.C., are among other jurisdictions that have criminalized wage theft with laws that authorize jail time. California and Rhode Island are considering similar legislation. Rhode Island’s bill would criminalize the knowing misclassification of independent contractors as a felony.
Here’s a link to the new law in New York, created through two companion bills, A154A and S2832A.
Do I expect Riker’s Island to start filling up with accountants and corporate officers who misclassified independent contractors? Not exactly. But I do expect this new law to be used by the state as leverage.
Now that felony prosecutions are a new weapon in the enforcement arsenal, it would not surprise me to see the state threaten prosecution as leverage to force a company to settle disputes over whether independent contractors were misclassified. States can initiate proceedings through tax, unemployment, or workers compensation audits or as a result of worker complaints. Investigations can lead to findings of misclassification, along with hefty fines and back assessments, and companies naturally want to dispute these findings (sometimes causing my phone to ring).
Will the state use the threat of criminal prosecution to try to leverage settlements or capitulation? Yeah, probably.
This is a well-intentioned law because intentional wage theft from employees is obviously a bad thing. But the breadth of the law is a concern for companies that use independent contractors.
For those of you in New York City, there’s also the Freelance Isn’t Free Act, which imposes all sorts of contractual requirements when retaining solo independent contractors. Don’t forget about that.
There are lots of traps out there, and the dangers of misclassification keep growing.
I got stripes, stripes around my shoulders I got chains, chains around my feet I got stripes, stripes around my shoulders And them chains, them chains, They’re about to drag me down.
Driving back from Ann Arbor after dropping off my youngest daughter at college, I decided it would be a good time to catch up on some albums I hadn’t heard in a while. Soon I settled on Amy Winehouse’s Back to Black, which was her second and final album, released in 2006. The article liked here describes the conversation with her father that led to the song.
If Amy had gone to rehab, it’s fair to assume she would not have expected to be considered an employee of the rehab center where she was being treated. That was probably the expectation of a number of rehab patients at a Texas facility too, but a court ruling last month found otherwise.
It’s true, the situation in this case was a bit unusual, but it still involves rehab patients being deemed employees of their rehab enter. Here’s how it went down.
The patients, as part of their treatment, were required to undergo vocational, on-the-job training at third parties, where they worked regular shifts. The third parties would pay the rehab center, and the fees were used to offset operating costs. The patients signed agreements that they did not expect compensation for their work.
The rehab center, though, essentially functioned as a staffing agency. It charged the third parties for the patients’ time, even charging time-and-a-half when they worked overtime hours. The patients saw none of that cash, and some of them sued.
A district court in Texas applied the economic realities test and found the patients to be acting as employees of the rehab center / staffing agency when it performed the offsite work. After discovery, the court certified a collective action under the FLSA, and the case is ongoing.
An interlocutory appeal to the Fifth Circuit Court of Appeals failed, with the appeals court holding that the district court applied the right test for determining whether the patients could have been employees.
This case, while still underway, is a good reminder that employment relationships can be created in unexpected ways. This time it was the rehab center that tried to say, no no no.
[This was college move-in week, so I’m a bit behind on writing a new post for this week. Instead I’m re-posting a favorite from 2020. I like this tip for staffing agency agreements!]
Suppose you’ve got a staffing agency worker (we’ll call him Shorty) who’s a bit vertically challenged and is self-conscious about it. He tells you he’s gonna need some time off because he found this:
A limb-lengthening clinic in Las Vegas claims it can make you a few inches taller through minimally invasivce surgery. According to this article on OddityCentral.com, here’s how it works:
“We cut the leg bones – either femur (upper leg bone) or tibia (lower leg bone) – and insert a device that slowly stretches them out which makes you taller permanently.”
“I insert a device that responds to an external remote control that the patient will control at home. Once the device is set, I place screws at the top and bottom of the device to lock into position. This is done on each leg.”
The doc says you then just press a button at home and you’ll stretch by 1 mm a day. Just like nature intended.
So, back to Shorty. Suppose he has this surgery one weekend and comes back to work a bit achy from all the stretching. He wants some extra breaks to get him off his feet. Or he wants you to provide him a stool so he can rest more often from his station on the assembly line. Do you have a reasonable accommodation obligation?
If you’re in HR, you know that weird stuff happens, so maybe you hadn’t considered limb-lengthening, but let’s use this as an excuse to think about relationships with staffing agency workers and what your obligations might be for medical issues.
This is unlikely to be a disability situation, unless Shorty’s stature is due to a medical condition. But you’ll undoubtedly have staffing agency workers who do have disabilities and who do need reasonable accommodations.
That brings us to today’s Tip of the Day:
Consider adding to your staffing agency contracts a clause requiring the agency to pay the expenses for any reasonable accommodations provided to qualified staffing agency employees to allow them to perform their job functions.
Accomodations can sometimes be expensive, and it’s not unforeseeable that staffing agency workers will need accommodations at some point. Plan ahead, and build this contingency into the contract.
A clause like that may lengthen your contract a bit, but this lengthening can be done in a sentence or two — with no surgical intervention, no cuts in your femur or tibia, and no insertion of a stretch button in your leg. That’s the kind of lengthening I’d be much more inclined to try. I’ll leave my limbs just the way they are.
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.
Who Is My Employee? 