06.03.24
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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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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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05.28.24
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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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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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05.20.24
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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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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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05.13.24
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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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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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04.29.24
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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.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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04.22.24
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Still Dead: Senate Votes to Void NLRB Joint Employer Rule

A Brazilian woman brought her Uncle Paolo to a bank branch so he could sign a loan document for her. Uncle Paolo was in a wheelchair and couldn’t seem to grip a pen, despite the woman’s best efforts to get him to cooperate.

But Uncle Paolo had good reason not to grip the pen and sign. You see, Uncle Paolo was dead. The woman brought the deceased to the bank in a wheelchair, thinking that — well, I don’t know she was thinking.

The bank called the police, and the woman was arrested. Uncle Paolo, reportedly, is still dead. The best part? There’s video.

Also still dead is the NLRB’s recent joint employer rule, struck down by a federal judge on March 8th.

Congress just took action to try to make it deader.

On April 10, the Senate voted 50-48 to invalidate the NLRB rule, following a 206-177 vote by the House.

President Biden has indicated he would veto the resolution, but the fact that the resolution received support from moderate Democrats, not just Republicans, may be a sign of how far out of touch the NLRB’s rule really was. Two Democratic Senators and eight Democratic members of Congress voted for the resolution.

Assuming the district court decision survives on appeal, the NLRB rule will remain dead, and the Congressional vote doesn’t make any difference anyway. That’s because dead is dead.

Tell that to the Brazilian woman in the video.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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04.08.24
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It’s No Eclipse Myth: FTC Considers Alleging Independent Contractor Misclassification Claims

I’m taking today off for the eclipse. The Federal Trade Commission never takes the day off. More on that below. But first, some fun facts, courtesy of exploratorium.edu.

-> In Vietnam, legend has it that a giant frog swallows the Sun. Its master, the lord of Hahn, then convinces the frog to spit it out.

-> In Javanese mythology, the god of darkness, Batara Kala, swallows the Sun. Javanese villagers try to make Batara Kala release the Sun by offering sacrifices and beating drums.

-> In Andean mythology, a puma devours the Sun. To prevent the Sun’s death, the puma must be frightened away by the screams of children and the cries of animals.

I don’t feel the need to ask my children or animals to scream away the eclipse, but I may do some crying and screaming on my own if the FTC has its way and starts getting involved in independent contractor classification disputes.

According to a recent speech by FTC Commissioner Alvaro Bedoya, the FTC may consider trying to bring independent contractor misclassification claims.

Misclassification has always been viewed as an issue of employment and tax law. But according to Bedoya, the FTC may choose to see misclassification as an unfair competition issue, thereby granting it jurisdiction (so he says) to bring enforcement actions of its own.

In his published remarks, Bedoya outlined several examples of egregious misclassification that would not pass muster under any law. Then he used these extreme and unusual examples as reasons why the FTC should get involved in pursuing misclassification wrongdoers. He argues that the FTC should get involved because misclassifiers are engaging in unfair competition, in violation of section 5 of the FTC Act.

But if the examples he gave already violate the FLSA and NLRA and state laws, why does the FTC need to pile on? It doesn’t.

Bedoya acknowledged that the DOL and the NLRB “are doing everything they can to stop it.” But then in the next sentence he said he thinks the FTC should “step up to the plate” too.

We have already seen that the FTC is trying to flex its muscle on issues like noncompete agreements, seeking to expand its authority beyond the traditional antitrust arena. Fighting misclassification might be the next battle the FTC wants to take on.

Businesses should remain vigilant and know that misclassification claims can come from lots of different places. Soon we may need to add the FTC to that list.

I think for now he’s just testing the waters and floating the idea to see what kind of support it might garner. I doubt the FTC truly has the jurisdiction or authority to enforce worker misclassification, but that doesn’t mean it won’t try — just like it’s trying to prohibit noncompete agreements by calling them a tool of unfair competition.

We’ll watch what the FTC does, but if it gets more aggressive on this issue, I may need to gather some children and animals to try to scream the FTC away.

I would not go so far as to offer sacrifices or beat drums. I’ll leave that to the ancient Javans.

If you’re in the line of totality, enjoy the eclipse!

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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04.01.24
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Stumpy’s Demise: How Do Most Claims of Independent Contractor Misclassification Arise?

Last weekend, I didn’t post because I was in D.C., where I had my first tour of the cherry blossoms. One of the most beloved trees at the Tidal Basin is this poor shrub of a tree affectionately known as Stumpy.

Stumpy looks dead, but every March he (he?) sprouts a cheery hat of blooming cherry blossoms. But this bloom will be Stumpy’s last. Because of repeated flooding around the Tidal Basin, the sea wall is being raised, which will require the chopping down of 150 trees.

While Stumpy is in for a rude surprise after the bloom, companies using independent contractors can plan in advance to avoid their own demise.

I was asked recently what are the most common ways that claims of independent contractor arise. I thought, that’s a good blog post topic. So here goes.

Here are the most common way that a claim of independent contractor misclassification can arise:

  • Individual lawsuit
  • Class action lawsuit
  • Government audit, random – IRS, DOL, state DOLs, state tax agencies
  • Government audit, based on complaint – IRS, DOL, state DOLs, state tax agencies
  • Former IC files for unemployment. Employer denies IC was an employee, but the agency investigates and concludes the worker was misclassified. Typically, the agency will then assume all similarly situated ICs were also misclassified and the employer failed to pay into the unemployment system for the lookback period (probably 3-4 years) and will then issue a large bill for unpaid assessments, often six figures+.
  • Workers’ compensation claim, same scenario as for unemployment

There are also unexpected and odd situations that can arise, like here.

A similar list for Stumpy might look like this:

Most likely ways that Stumpy might meet his demise:

  • Chainsaw
  • Axe
  • Lightning strike
  • George Washington’s chopping method of choice if he could tell a lie
  • Typhoon

Ok, typhoon seems unlikely. I assume it’ll be a chainsaw.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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03.18.24
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The Rats are High?! Illinois Judge Partially Strikes Down Temp Staffing Law, Granting Win to Staffing Firms and Their Clients

According to this NBC News story, the New Orleans police department headquarters is in such bad condition that not only are there rats everywhere, but the rats are eating the marijuana from the police evidence lockers.

“They’re all high,” the police superintendent testified in a recent hearing. (Skip to 1:45 of the video. Showing great respect, she calls them “major rodents.”)

Staffing firms and businesses in Illinois were saying “Rats!” when Illinois amended its temp staffing law in late 2023, but now they might be feeling a bit of a high.

The 2023 amendment required staffing firms in Illinois to pay their temps wages and provide benefits that were equivalent to those received by similarly situated workers of the client business where they were placed. The law caused a decline in temp staffing use in Illinois, as businesses understandably didn’t want to disclose their wage and benefit structure to staffing firms.

Last week a federal judge provided some relief, entering an injunction that prevents part of the law from taking effect.

A group of staffing agencies had filed the federal lawsuit, arguing that the state law requirement to pay equivalent benefits was unlawful and preempted by ERISA. The judge agreed, finding that ERISA is intended to promote a consistent national approach to employee benefits and that Illinois could not use state law to impose benefit requirements on staffing agencies.

Section 42 of the amended state law is titled “Equal pay for equal work,” and it requires agencies to pay temporary employees who work at a particular site for more than ninety days within a year at least the same wages and “equivalent benefits” as the lowest paid, comparable, directly-hired employee employed by the third-party client. 820 ILCS 175/42. Or, instead of providing equivalent benefits, agencies could pay “the hourly cash equivalent of the actual cost benefits.”

The law also required the staffing agencies’ clients to provide the agencies with “all necessary information related to job duties, pay, and benefits of directly hired employees” to allow agencies to comply.

Illinois businesses using staffing agencies will still be required to disclose pay information, and the requirement that staffing workers receive equivalent pay remains in effect. But the benefits portion of the law will not be enforced.

Action Item: Staffing agency agreements in Illinois may need to be updated to account for the removal of this requirement. Clients of staffing agencies should not longer be required to disclose employee benefit information.

Now about those rats. They’re eating the marijuana in evidence lockers?! I wish they had rat-cam video of that.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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03.11.24
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Court Vacates New NLRB Rule

No quips or musical references today. Just hard news, and here it is. If you do not already subscribe to BakerHostetler labor and employment alerts but would like to, drop me an email.

https://www.bakerlaw.com/insights/court-vacates-new-nlrb-joint-employer-rule/