by Todd Lebowitz

Drink Up With This Tip to Save money in Your Staffing Agency Relationships

Five fisherman from Sri Lanka died last month after drinking the unknown liquid they found in bottles floating about 300 miles offshore. The fisherman reportedly believed the bottles contained foreign liquor.

Ceylon Today reports that efforts are underway to inform nearby fishing trawlers about the dangers of drinking from floating bottles. It’s a good thing the authorities are doing that because, otherwise, the most common sense thing to do when finding unidentified liquids is to drink them.

Better planning would have saved their lives. You can also plan better when negotiating your staffing agency agreements. Here’s a clause you can include that won’t save lives but will save money.

Overtime Multiplier Caps

When a non-exempt temp works more than 40 hours in a week, the worker must receive overtime pay of 1.5x. But that doesn’t mean you need to pay the same markup rate to the agency for that extra .5x premium.

Here’s what you can do instead.

Suppose you pay a 40% markup on the hourly rate the agency pays to its workers. For a worker receiving $10/hour, you pay the agency $14, The agency gets $4 in revenue for one hour of work provided.

But suppose the same worker works 50 hours in a week. The extra ten hours are paid to the worker at $15/hour, which means the agency gets $6 in revenue for those hours. Here’s the math: 15 x 1.4 = $21, less the $15 that goes back to the worker = $6.

Why should the agency get $6 instead of $4 for the same hour worked? It’s a windfall. You can cap that with an Overtime Multiplier Clause.

The clause would say, essentially, that for straight time, the agency gets a 40% premium. For overtime hours, the markup is the same 40% on the straight time (the 1.0x), then the overtime premium (the extra 0.5x) is reimbursed with no markup on the premiums portion of the pay (the 0.5x).

The worker gets $15, but you pay the agency $19 for that hour, not $21.

In future posts, I’ll address other money-saving clauses you can add to your staffing agency agreements.

In the meantime, remember not to drink from any bottles you may find floating at sea.

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07.01.24

by Todd Lebowitz

How Long Can You Retain an Independent Contractor?

Commas are important. See, for example, Let’s Eat, Grandma and the Rachael Ray magazine blurb proclaiming that Rachael Ray finds inspiration in cooking her family and her dog. (The latter, sadly, turned out to be a fake. The real magazine blurb had the commas.)

If I had put a comma in the title above, after How Long, you may have thought this post was intended for Pro Football Hall of Famer Howie Long. It’s not. Howie played 13 seasons with the Raiders but almost certainly does not read this blog.

This post, instead, is intended for anyone who wants to know how long you can retain an independent contractor before that person becomes an employee.

Before I can provide a helpful answer, I’ll need some information first. (Just the basic facts, can you show me where it hurts?)

Question: Is the worker a 1099 independent contractor or a staffing agency’s W2 employee?

We need to know which legal issue to address. If the worker is a 1099 independent contractor, then the issue is independent contractor misclassification. In other words, is the worker really an employee, entitled to the various benefits and protections that the law gives to employees?

But if the worker is employed by a staffing agency and treated by the agency as the agency’s W2 employee, then the worker is already entitled to the benefits and protections of employment. The issue here would be joint employment. Is your business a joint employer?

If your question is about joint employment, an earlier post here addresses that question.

On the other hand, if the worker is a 1099 independent contractor, duration of assignment can be one of many factors that indirectly increases the risk that the worker is really an employee. Factors in the independent contractor classification analysis can include:

Is the assignment indefinite in duration, or instead for a specific project or fixed term?
Can the assignment be terminated at any time for any reason, or does early termination require cause or some other specified event?
Does your business have W2 employees who are performing the same or similar work?

If the assignment is indefinite or can be terminated at will, those are factors that weigh toward employment status. If the worker is performing the same function as employees, then the worker is going to look like an employee, and more so the longer this goes on.

But if the contractor is (1) engaged for a specific project or fixed term, and (2) the work is not something your employees are also doing, then duration is not necessarily a concern. A true independent contractor can be retained for a project that lasts many months or even years. We see this sometimes with implementation of electronic systems, like HRIS or enterprise software. Or there might be a third party contractor you’ve engaged for years to provide a repeating, project-based service that is entirely unrelated to your business, like your plumber or window washer or event photographer.

But if the work relates somewhat to your business, you may have a problem if the long duration is because of mission creep (not Mission CREEP). If the worker finished one project and then is given another and another, that starts to look like indefinite retention, which points toward employment.

If the worker is a 1099 independent contractor, duration of assignment might increase the misclassification risk, but the risk will depend more on how the other questions are answered. Duration is not directly a factor, but a longer duration may be an indication that other factors are starting to point in the direction of employment.

Further analysis would be needed.

The other question you may have is why I haven’t yet referenced the 1974 single by Ace, “How Long (Has This Been Going On),” which will now be stuck in your head the rest of the day, you’re welcome. Turns out, I learned here, that the song is not about romantic infidelity. Vocalist Paul Carrack wrote the song upon learning that bassist Terry “Tex” Comer had been secretly recording with two other bands.

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06.24.24

by Todd Lebowitz

Uncomfortably Numb: Minnesota’s New 14-Part Independent Contractor Test

Friday night I saw The Gilmour Project play at Northfield MGM, a smallish venue near Cleveland. Great show with plenty of Pink Floyd deep cuts and a “how did they just do that?” version of The Great Gig in the Sky with an electric guitar handling the Clare Torry solo vocals.

And, as many of you know, there is a law requiring that the last song at any Pink Floyd tribute show must be “Comfortably Numb.” There were no violations of law at this concert.

Last week I came across another law that, in a totally unrelated way, left me uncomfortably numb.

Tucked away in a 1,492-page omnibus bill that regulates, among other things, firearms law, agricultural policy, specialty dentist licensure, minerals taxes, combative sports, and broadband appropriation transfer authority, the Minnesota legislature adopted a new test for determining who is an independent contractor under state law, limited to the construction industry. Page 183.

To satisfy the test, each of 14 factors must be present. Construction includes building improvement but not landscaping services [@LKE: saved you an email].

Why am I posting about such a niche classification test? Two reasons.

First, I suffered through reading it, so I am sharing my pain.

Second, and more important, it’s a good reminder that there are so many worker classification laws out there, with different tests applying across different laws in different states and across different industries.

Minnesota is the champion of this nonsense. The state that brought us rollerblades, water skis, and diaper adhesives has 32 different tests for determining who is an employee under state workers’ compensation law, with different tests applicable to different types of work.

If you are working with large numbers of independent contractors across multiple jurisdictions, there’s a lot to know if you want to do it right. Penalties for noncompliance can be severe, including criminal penalties in some states.

Bonus tip: If you need to fall asleep, pull out that omnibus bill and skip to page 1,086 for the new regulations covering natural organic reduction vessels for human remains. Subdivision 19 prohibits the commingling of bodies in crematorium vessels. I guess that’s good. A different kind of comfortably numb maybe.

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06.17.24

by Todd Lebowitz

Famous Olsons? Ninth Circuit Rejects Constitutional Challenge to California’s AB 5

If I type “Olson” into google, my top results are Matt Olson, first baseman for Atlanta (makes sense since a lot of my web activity is baseball-related); James A. Olson Guitars (no idea why since the only place I play guitar is on the radio); and Major John Olson of the U.S. Space Force (also no idea why since I have never been to outer space).

The most relevant Olson for me today though is none of these. Instead, it’s a long-awaited decision in a case called Olson v California. In this case, a group of app-based gig economy companies sued the State of California, alleging that AB 5 and its ABC Test are unconstitutional.

Their argument is that the arbitrary grab bag of exceptions to AB 5 is arbitrary and that the law unfairly targets rideshare and delivery drivers.

An 11-judge panel of the Ninth Circuit heard the case en banc, and rejected these arguments.

The Ninth Circuit ruled that AB 5 is constitutional and that the legislature had a rational basis for including and excluding various types of workers from the ABC Test.

The result: AB 5 remains in place. As for rideshare and delivery app companies, Prop 22 created an exception allowing them to treat drivers as independent contractors, although the validity of Prop 22 is being challenged as well. More on that in a future post. The California Supreme Court is hearing arguments on Prop 22 and when a decision is issued, I’ll post about it. But I expect the Prop 22 will survive, just like AB 5 survived.

If I googled Olsen instead of Olson, that might have been more fun. I hopefully would have landed on Keith Olsen, who produced a number of classic rock albums, including Fleetwood Mac by Fleetwood Mac, Double Vision by Foreigner, and a Rick Springfield album with one of the all-time great album covers, Working Class Dog.

Nice tie, pup!

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06.10.24

by Todd Lebowitz

Battle of the Acronyms: Fifth Circuit to Rule First on NLRB Joint Employer Case

The government loves acronyms. Sometimes a little too much. If you check the DHS.gov website for its guide to acronyms, you’d see that AA can refer to eight different things, all entirely unrelated. AA can mean Affirmative Action, Approval Authority, or my favorite, Atomic Absorption. (A close second is Anti-Aircraft Improvised Explosive Device Incident. Sadly, no explanation is provided for why DHS drops the IEDI part.)

AAA has four approved meanings, including American Ambulance Association and Area Agency on Aging.

In law we get lots of acronyms too, and sometimes they show up in case names. Today we’re looking at the case of SEIU v. NLRB, which is battle over JE (joint employment, heh heh).

SEIU v. NLRB is one of two cases involving a challenge to the NLRB’s recent joint employer rule.

The NLRB joint employer rule is being challenged in both the D.C. Court of Appeals and the Fifth Circuit. The Fifth Circuit is generally viewed as more pro-business, with the D.C. Court a bit more deferential to the NLRB. So to U.S. businesses intent on squashing the new joint employer rule, location matters.

Last week, the D.C. Circuit issued an order that it will stay its case, and the Fifth Circuit gets to decide first.

How did we get here?

In October 2023, the NLRB issued its new joint employer rule, which would vastly expand the scope of joint employment.

In November 2023, the SEIU, seeking a friendly ruling, filed a petition in the D.C. Court of Appeals, asking the court to review and uphold the rule. For those of you wondering how the SEIU could file directly with the Court of Appeals, there’s a rule allowing it.

Meanwhile, at about the same time, the U.S. Chamber of Commerce (and others) filed a lawsuit in the Eastern District of Texas, asking the court to stop the rule. In March 2024, the federal court in Texas enjoined the rule. The NLRB then appealed to the Fifth Circuit.

Then we had a potential stalemate, with two federal Courts of Appeal being asked to review the same rule.

Now that the D.C. Court of Appeals has agreed to hold its case in abeyance, the Fifth Circuit will go first, which is likely a good thing for the business community.

The Fifth Circuit case is just getting started. the NLRB’s appellate brief is due June 26, 2024. Until the Fifth Circuit rules, the joint employer rule remains stayed. The joint employer rule did not take effect. So now we wait to see what the Fifth Circuit will do, and we should not expect a ruling until 2025.

EOP.

(End of post.)

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06.03.24

by Todd Lebowitz

I Wanna Take Your Hire: How to Control a Third Party’s Wages without Becoming a Joint Employer

When Sly and the Family Stone released “I Want to Take You Higher” in 1969, it was originally a B-side. The song took off, though, and became a Top 40 hit anyway.

The song is an upbeat ode to how music can make you feel good. Fun fact: It was used as the theme song in the Canadian children’s show, Hilarious House of Frightenstein, to introduce the show’s disc jockey, the Wolfman, who is either a fictional part-wolf part-man or a human DJ who achieved vocational excellence (and got his own TV show!) despite an untreated case of hypertrichosis.

The Family Stone wasn’t the only band that would like to take you higher. Jackie Wilson went to Billboard #1 in 1967 with “(Your Love Keeps Lifting Me) Higher and Higher.” In 1990, Damn Yankees asked, “Can you take me high enough?” in their song, “High Enough.” And, not to be outdone, Duran Duran, in 1995, released two covers of the Family Stone song, calling the second, “I Want to Take You Higher Again.”

Why all this talk about higher? Because when you’re working with a third party labor provider that provides high-demand, skilled labor, sometimes you’ll want to take their hire. (Heh heh).

The right to direct hire is often addressed in the vendor agreement. Maybe you’ll pay a finder’s fee if you direct hire within the first 3-6 months. But I was asked a more intriguing question last week that I thought was worth a blog post. (Thanks, P! You know who you are.)

Here’s the scenario, which is most likely to arise in the competition for highly skilled workers, like computer programmers: We want to direct hire, but we don’t control the market. If the third party labor provider pays a premium for in-demand roles, they might pay more per hour than we pay. That would make it hard for us to direct hire to worker.

Which leads to this question: How do we cap the wage paid by the third party labor provider (so we can offer the direct hire a raise, not a pay cut), without dictating the wages paid by the third party, which would create joint employment risks?

Excellent question! The answer is to do it indirectly. Here’s how.

Suppose you want the option to direct hire a chimneysweep but wouldn’t dare pay more than $50/hour for a chimneysweep (other than Dick Van Dyke himself, but only in his prime). Chimneysweeps are in high demand and so third party labor providers may be paying their chimneysweeps $50/hour too so they can get the best ones. It’s a competitive labor market, you know.

You don’t want to tell the third party labor provider what to pay its chimneysweeps. Dictating the wages of a third party worker is a strong indicator of joint employment.

Instead, you should agree to pay the agency $50/hour for its chimneysweeps. Then you know they are paying the chimneysweeps less than $50/hour because the agency has to be making a profit. The markup is probably 35-45%, so you could even pay the agency up to about $65 per hour and be confident the chimneysweep is not taking home more than $50/hour.

Then, if you wanted to direct hire the chimneysweep for which you are paying the agency $60-65/hour, that sweeper is likely only being paid about $42-45/hour and so his sweeping prowess could be yours for the low low price of roughly $50/hour or less. That’s how I would approach this problem.

I don’t think any bands are singing about this issue directly, but if I told you they were really singing “I Want to Take Your Hire,” you just might hear it that way next time you listen.

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05.28.24

by Todd Lebowitz

Weigh This Way: Baking Company Wins, Appeals Court Agrees that Distribution Route Drivers are Independent Contractors

About six months ago in Cambridge, Ontario, Sonny Ayres was born, the fifth child of parents Britteney and Chance. But Sonny was no ordinary baby. He weighed 14 1/2 pounds. (Yes, for the benefit of those moms reading this and looking aghast, he was delivered by c-section.)

According to Guinness (the book, not the beer), the heaviest recorded birth was 22 pounds, in 1879 in Seville, Ohio. That baby lived just 11 hours.

A different kind of weighing was at issue in a recent decision by the Third Circuit Court of Appeals, determining independent contractor status.

The issue was whether three plaintiffs who owned Pepperidge Farm distribution routes should have been considered employees under Pennsylvania’s wage and hour laws. The district court granted summary judgment for Pepperidge Farm, ruling that they were not employees, and the drivers appealed.

The drivers argued that the court should not have granted summary judgment because the job of weighing the evidence is supposed to be left to the jury. But, as the Third Circuit explained, it is the judge’s role to weigh the relevant legal factors. The judge can apply the undisputed facts to the relevant legal factors and can make a legal determination whether each factor supports employment or independent contractor status. And that’s exactly what the Third Circuit did here.

Applying a ten-factor Right to Control Test, the court determined that 8 of 10 factors supported independent contractor status, and so the plaintiffs were properly classified as contractors, not employees.

The plaintiffs argued that Pepperidge Farm set parameters and expectations for the distribution routes, thereby exerting control. The Third Circuit, however, explained that setting parameters and expectations is consistent with either independent contractor or employee status. The control factor tilts toward employee status when the hiring party sets parameters and expectations and directs the time, place, and manner of performance.

In this case, the right-to-control factors supported independent contractor status because the drivers determined the time, place, and manner for performing deliveries. The drivers bought and sold routes, organized their own distribution businesses, hired their own employees, set their own hours, and made deliveries when and how they chose.

This case is a good reminder of what type of control is relevant in the right-to-control analysis and what type of control is not. Some control is exerted over every relationship, whether it’s independent contractor or employment. The trick is knowing which type of control can be exerted without tipping the scales.

Pepperidge Farm prevailed in this case because it did not reserve or exercise the kind of control that supports employee status. And for that, we say Weigh to Go!

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05.20.24

by Todd Lebowitz

No Clash: Supreme Court Rules Cases Must Be Stayed When Sent to Arbitrtaion

Darling, you got to let me know
Should I stay, or should I go?

These lines open the 1981 hit single “Should I Stay or Should I Go” by the Clash. Slight correction, according to Genius lyrics, the opening lines of the song are “Oh! Hola!” which is kind of fun.

Should I stay or should I go is the question the Supreme Court answered last week regarding arbitration cases. In January, we previewed this pending case.

The case involves independent contractors who sued, alleging misclassification. The contractors had signed individual arbitration agreements, and the business successfully moved to compel arbitration. If there is an arbitration agreement, the Federal Arbitration Act (FAA) will generally apply (subject to some exceptions), and the district court must refer the case to arbitration.

This technical question then arises: Does the court dismiss the case or merely issue a stay?

It matters. A dismissal can be immediately appealed. An order to stay typically is not appealable.

The Supreme Court ruled that, under the FAA, a court is required to stay a case when granting a motion to compel arbitration. The court cannot dismiss the case.

So, stay. Not go.

This outcome is required under the text of the statute. The effect is that an order granting a motion to compel arbitration is not immediately appealable. The federal court case gets stayed, not dismissed; so there is no appeal. If you’re the party moving for arbitration, that’s good.

On the other hand, if a motion to compel arbitration is denied, the party moving to compel arbitration can appeal — even though the case remains with the district court. That’s because the FAA and case law allow for this immediate appeal.

So here’s the decision tree for how things must proceed after a motion to compel (MTC):

1. If MTC is granted, the court case gets stayed. The losing party cannot immediately appeal.

2. If MTC is denied, the case remains in court, but the losing party can immediately appeal.

There is no longer an option for the court case to be dismissed when the MTC is granted.

Turns out then, it’s not really true that If I go there will be trouble, If I stay it will be double. At least not if we’re talking about motions to compel arbitration. Something tells me, though, that’s not what the Clash were singing about.

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05.13.24

by Todd Lebowitz

Can You See It? NLRB Fights to Restore New Joint Employer Rule

This past weekend, the solar storm was supposed to be strong enough that we could see the aurora borealis in Cleveland. At 11:30 Friday night, my family went to the Polo Fields in nearby South Chagrin Metropark to see for ourselves.

Lots of others had the same idea, and the fields allowed us an unobstructed view of the sky, where we saw…. nothing really.

We read that iPhones capture light better than our eyes, so we too photos of the blank sky. Turns out there’s some truth to that. I took the photo above, which makes it appear that I saw a nice light show. But I didn’t. I took a photo of what appeared to me to be dark sky. So it was there, but I couldn’t see it.

The NLRB also wants us to see something that isn’t there.

Last week, the NLRB filed an appeal in the Fifth Circuit Court of Appeals, asking the court to reinstate its new joint employer rule.

A quick rewind, for context: In 2023 the NLRB tried to implement a new rule for determining whether joint employment exists. The rule would have made it much easier to find joint employment, including in situations where most of us never would have thought joint employment would exist. On March 8, 2024, a federal judge in Texas vacated the rule, just days before it was scheduled to take effect. You can read more about that decision here.

So with this latest filing, the NLRB is trying to revive the rule, but the NLRB faces an uphill battle in a largely conservative Fifth Circuit.

For now, the NLRB rule remains dead. It’s possible that could change, depending on how the Fifth Circuit rules.

But if you take an NLRB-issued iPhone to the courthouse in New Orleans that houses the Fifth Circuit Court of Appeals and snap a photo, you just might see a glimpse of the rule, invisible to the naked eye. Or maybe that’s just a picture of gumbo.

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04.29.24

by Todd Lebowitz

Think Big: Ninth Circuit Provides Another Reason to Engage Entities, Not Individuals, in Independent Contractor Agreements

The world’s largest passenger elevator is inside the Jio World Center building in Mumbai, India. It can hold 235 people and is designed to cater to large gatherings, such as weddings or convention attendees.

The elevator has glass windows, offers panoramic views of the gardens below, and features a crystal-studded ceiling. It has two sofas so passengers can relax while ascending the maximum five floors at the slow but deliberate rate of 1 meter per second.

Thinking big doesn’t just work when building elevators. It also works when building independent contractor agreements.

Here’s what I mean.

When lots of contractors are being retained, an important feature to include in independent contractor agreements is the requirement to arbitrate disputes on an individual basis, with a waiver of class claims. Under the Federal Arbitration Act (FAA), arbitration agreements and class action waivers are generally valid and enforceable.

But there’s that pesky transportation exemption in Section 1 of the FAA, which says that the FAA does not apply to transportation workers. The Supreme Court recently issued its decision in Bissonette v. LePage Bakeries, holding that to determine whether the transportation worker exception applies, you need to look at what the worker does, not what industry the worker is in. But this post isn’t about Bissonette. It’s about a Ninth Circuit decision issued a few weeks earlier.

The Ninth Circuit ruled that the transportation exemption applies only to individual workers, not to entities. Why does that matter? Well, is your independent contractor agreement with an individual or an entity?

If it’s with an individual, and the worker is engaged in transportation work related to interstate commerce, the transportation worker exception of the FAA might apply, which means the FAA and all of its protections for mandatory arbitration agreements would not apply.

But, according to the Ninth Circuit, if your arbitration agreement is with a business entity, then the transportation worker exception does not apply, since it is inapplicable to business-to-business disputes. That means the FAA does apply.

Engaging small businesses, even single member LLCs, can offer a number of advantages when trying to protect independent contractor status. This recent Ninth Circuit decision offers another advantage, better protecting the parties’ ability to require arbitration of disputes and waivers of class claims.

So when engaging independent contractors, remember to think bigger than the individual. If you can contract with an entity, even a single member LLC, you might be better off — for lots of reasons, even if none of them come with a sofa or panoramic views.

Who Is My Employee?

Exploring Independent Contractor Misclassification & Joint Employment Issues

Drink Up With This Tip to Save money in Your Staffing Agency Relationships

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How Long Can You Retain an Independent Contractor?

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Uncomfortably Numb: Minnesota’s New 14-Part Independent Contractor Test

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Famous Olsons? Ninth Circuit Rejects Constitutional Challenge to California’s AB 5

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Battle of the Acronyms: Fifth Circuit to Rule First on NLRB Joint Employer Case

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I Wanna Take Your Hire: How to Control a Third Party’s Wages without Becoming a Joint Employer

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Weigh This Way: Baking Company Wins, Appeals Court Agrees that Distribution Route Drivers are Independent Contractors

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No Clash: Supreme Court Rules Cases Must Be Stayed When Sent to Arbitrtaion

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Can You See It? NLRB Fights to Restore New Joint Employer Rule

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Think Big: Ninth Circuit Provides Another Reason to Engage Entities, Not Individuals, in Independent Contractor Agreements

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