Watch for New Joint Employer Rule This Week

Who’s the white robed fella? I ask because it looks here like Ric didnt know this guy would be in his video.

While cleaning out the garage Saturday, I heard the Cars’ song “Magic,” which contains this nifty lyric: “Summer, It’s like a merry go round.” I then went down the rabbit hole of looking for the video, which features a collection of bizzaro characters at Rik Ocasek’s freakish pool party, including this probable leader of a religious cult.

The lyric stood out, though, because this summer is like a merry go round for joint employment. The rules are about to change again to make it much easier to establish joint employment under the FLSA.

I’ll keep this post short for two reasons:

  1. It’s beautiful outside and so I should not be inside on my laptop, and
  2. The real news on joint employment is coming sometime this week, but it’s not out yet as of Sunday midday when I am writing this.

Here’s what we know:

In March 2021, the Biden Administration indicated it would be rescinding the Trump joint employer rule, which made it hard to establish joint employment.

Last week, the White House announced that it had concluded its review of the new joint employer rule, which will be published imminently.

After it’s released, I’ll write more about it, quite possibly with another screenshot from a Cars video. Or “You Might Think I’ll screenshot another video. Maybe not. Like you, I am on the edge of my seat. But unlike you, that’s because I’m getting up to go outside. I’ll post more when we see the final rule.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Biden Plan: Independent Contractor Misclassification Will Be An Enforcement Priority

Money
Get away
You get a good job with good pay and you’re okay
Money
It’s a gas
Grab that cash with both hands and make a stash
New car, caviar, four star daydream
Think I’ll buy me a football team

Pink Floyd just gets it. When I was a young lawyer, someone described civil litigation to me as just moving piles of money from one party to another. But that cynical view tells only part of the story. It excludes the emotion, frustration, stress, and workload involved in defending disputes and in dealing with the consequences, which can include destroying an entire business model.

For businesses making widespread use of independent contractors, all of these concerns are about to get worse.

President Biden’s proposed FY2022 budget includes expanding resources to combat independent contractor misclassification. The Administration’s “commitment” to combatting misclassification is spelled out pretty unambiguously on page 15:

The Administration is also committed to ending the abusive practice of misclassifying employees as independent contractors, which deprives these workers of critical protections and benefits. In addition to including funding in the Budget for stronger enforcement, the Administration intends to work with the Congress to develop comprehensive legislation to strengthen and extend protections against misclassification across appropriate Federal statutes.

The President’s proposal includes $14.2 billion for DOL enforcement efforts, including to “address the misclassification of workers as independent contractors.” This represents a $1.7 billion increase from 2021.

Expect the Department of Labor to place much greater scrutiny on independent contractor relationships than during the Trump Administration. The nomination of David Weil to head up the Wage and Hour Division signals that the President is serious about this enforcement priority. Weil served in the same role under Obama, and he made independent contractor misclassification a focal point of his enforcement efforts.

If your independent contractor arrangements have not been closely examined recently, it’s time for a check up. $14.2 billion for enforcement efforts is a lot of money. I think I’d buy me a football team.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Independent Contractors May Have a Weil Problem On Their Hands

Crash Test Dummies is a band from Winnipeg that I really like — especially the 1993 album, God Shuffled His Feet. It’s full of thoughtful questions asked in a booming deep voice. The song In the Days of the Caveman takes a look back, with some keen observations added for good measure:

In the days of the caveman
And mammoths and glaciers
Bugs and trees were your food then
No pajamas or doctors

See, that’s all true and probably not something you had thought about before.

President Biden has given us another reason to look back and reconsider some things you hadn’t thought about in a while. Last week, Biden nominated David Weil to serve as Wage and Hour Administrator. Weil served in the same role under Obama, so we’ve seen that movie too.

Here are some highlights from Weil’s last stint as W&H Administrator:

  • Administrator’s Interpretation 2016-1: Joint Employment under the FLSA, which I wrote about here when it was issued. Weil embraces the broadest possible view of joint employment. The Trump Administration’s DOL rescinded this guidance in 2017.
  • Administrator’s Interpretation 2015-1: Applying the FLSA’s “Suffer or Permit” Standard to Independent Contractor Classification, which I wrote about here. Weil advocates an expansive view of employment, declaring that “most workers are employees under the FLSA’s board definitions.”

Here’s what we can expect from Weil 2.0:

  • Increased enforcement activity by the DOL against companies using independent contractors.

Right now, claims generally arise through lawsuits, and class/collective actions present the most danger. The risk of class claims can be limited with arbitration agreements and class waivers. But arbitration agreements provide no defense against a DOL action. Those agreements don’t bind the government. Expect the DOL to go after companies that make extensive use of independent contractors.

  • Increased enforcement activity by the DOL on joint employment claims.

Remember, unlike independent contractor misclassification, joint employment is not illegal. Joint employment is a problem when a primary employer (such as a staffing agency or vendor/subcontractor) fails to comply with some aspect of the FLSA and its wage payment rules. Under a broad theory of joint employment, the company benefitting from the services is going to be liable for the errors of the primary employer, even though the alleged joint employer had no control over the primary employer’s wage practices.

  • New regulations on independent contractor classification and joint employment.

The standards and test keep changing, depending on who holds the White House. One step the Wage and Hour Division can take to try to make its views more permanent is to adopt its views as formal regulations, not just Administrator’s Interpretations. This is what the Trump DOL tried to do for both independent contractor misclassification and joint employment. Expect a strong push by the DOL to adopt new regulations that make it harder to maintain independent contractor status and easier to find joint employment.

The bottom line is that we’re going back in time. Maybe not so far back that bugs and trees were your food then, but back to 2015 and 2016 interpretations of the FLSA. Expect no pajamas or doctors.

What to do about it? Businesses that rely on independent contractors should tighten their agreements now. Businesses that engage staffing agencies should review those contracts now.

These posts contain a few of my favorite tips:

Good luck out there, and beware of mammoths and glaciers.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Half Man, Half Goat: Can Arbitration Agreements Bind the DOL?

The one on the left is now 6-foot-5. The one on the right? Whereabouts unknown.

When my kids were younger, we used to play a guessing game. The questioner would think of someone, real or imaginary. The object was to figure out who. We’d go around the table, and each person gets one question that could only be answered with yes or no, then they’d get one guess. Then it goes to the next person to ask one and guess one.

The best strategy was to ask broad questions first: Is the person real? Is the person alive? Then narrower: Have I ever met the person? Is it someone in our family? It usually took about 10 questions for someone to figure it out, even if the answer was obscure or fictional.

The running gag in our house, though, was that sometimes the answer would be “half-man, half-goat.” I don’t remember how that started, but it’s still a thing in our house. Is it half-man, half-goat? Yes.

This creature has many of the great powers inherent to goats (can butt heads without feeling pain, eats paper cups), but it can’t do everything a goat can do because it’s also saddled with being half-man.

Arbitration agreements can be like that too, especially when included in independent contractor agreements. Arbitration clauses can require independent contractors to arbitrate all disputes, including misclassification claims. One of the great powers of an arbitration clause is the power to require claims to be resolved individually, with each party waiving the right to file class or collective actions. Another great power is to keep the proceedings mostly confidential, in contrast to a court proceeding, which is open to the public.

But one thing arbitration agreements can’t do is bind governmental agencies. A recent decision from the Ninth Circuit Court of Appeals reminds us that if the Department of Labor (DOL) claims that a business is misclassifying its independent contractors, that dispute is not subject to arbitration. The DOL can escalate the dispute to court.

The Ninth Circuit ruling reminds us that the DOL is not a party to the arbitration agreement and, therefore, cannot be bound by it. Government agencies also have different interests than private litigants. When the government files suit, it can aim to deter similar misconduct and “vindicate a public interest.” Like a bureaucratic superhero.

This outcome is no surprise. In 2002, the Supreme Court ruled that the EEOC was not bound by an arbitration agreement and could pursue relief outside of arbitration for the same reason. The same rule applies for the DOL.

The lesson here is to remember that arbitration agreements can be valuable in many ways, but they’re also a bit (just a bit) like playing with only half a goat. They can’t do it all. When drafting independent contractor agreements, arbitration clauses can be helpful, but they can’t prevent all lawsuits–especially those filed by a government agency.

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© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Breaking News? DOL Rescinds Independent Contractor Rule That Never Took Effect

Remember when TV news was on at 6 p.m. and 11 p.m. and that was it? Every once in a while, there would be a Breaking News! alert, and it was always something really important. They wouldn’t interrupt Diff’rent Strokes for just anything. (Bonus points if you remembered there was an apostrophe in the title instead of the first ‘e.’)

But now, with 24-hour news on a dozen stations, everything is Breaking News! – even this story about a New Mexico man who went grocery shopping, then returned to his car to find 15,000 bees in the back seat. (Man walks back into store, returns jar of honey.)

The Breaking News! you’re reading about today is the Department of Labor’s (DOL) latest announcement, rescinding its proposed rule for determining independent contractor status under the Fair Labor Standards Act (FLSA).

Click here for the rest, posted by me on Friday on the BakerHostetler Employment Law Spotlight blog.

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

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Macaques & The Guess Who: Why the New Independent Contractor Rule Won’t Take Effect March 8

Photo by Hectonichus and, yes, this fella is sticking his tongue out at you (but he can’t remember why).

A Swedish study concluded that baboons, pig-tailed macaques, and squirrel monkeys have some of the worst short-term memories in the animal kingdom, barely exceeding that of bees. The point is, never ask a pig-tailed macaque where you left your car keys.

Having a short memory can be a problem in some situations, but not it’s not an issue if you’re just trying to recall the latest Department of Labor test for independent contractor misclassification. Everything you recall from six weeks ago is being undone anyway. (Or Undun, if you’re a fan of the spelling-impaired Canadian band The Guess Who.)

Remember the new rule issued by the DOL in January 2021 for determining employee vs. independent contractor status? It was going to modify the Economic Realities Test to focus on two core factors: (1) the nature and degree of the worker’s control over the work, and (2) the worker’s opportunity for profit or loss based on personal initiative or investment. The new rule was to take effect March 8. The test would apply only to claims under the Fair Labor Standards Act (FLSA).

No more. Last week, the DOL delayed implementation until May, but the rule most likely will be rescinded completely. Undun.

This decision comes on the heels of the DOL rescinding two opinion letters that were also issued in January. Undun. The letters provided guidance on determining independent contractor status in a few particular situations.

The Economic Realities Test remains the test used to determine who is an employee under the FLSA. It’s a multi-factor balancing test.

So if you’ve been relying on recent DOL guidance for how to apply that test, channel your inner pig-tailed macaque. Whatever you recall from January can be forgotten. And where did I put my car keys?

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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(Just Like) Starting Over: Biden Salutes John Lennon on Joint Employer Policy

The 1980 Double Fantasy album is meh, featuring alternating tracks by John Lennon and Yoko Ono. But there’s at least on gem on that album, and it’s the very first track: “(Just Like) Starting Over.” The song was originally titled “Starting Over” but the parenthetical was a late addition, reportedly inserted to make sure listeners knew this wasn’t Dolly Parton’s country music chart topper from the same year, “Starting Over Again.” Not that anyone has ever confused John Lennon with Dolly Parton, but I get it.

President Biden’s policy on joint employment is already embracing the same theme, even before Marty Walsh gets confirmed as Secretary of Labor. The DOL ain’t wastin time no more. (And speaking of the Allman Brothers, if you haven’t yet seen the documentary Jimmy Carter: Rock N’ Roll President, it’s worth 96 minutes of your time.)

Late last week, the DOL announced it has submitted a new proposed rule for determining joint employer status under the Fair Labor Standards Act (FLSA). The text of the proposed rule has not yet been released, but here’s what we know:

1. The new rule would replace the regulations enacted by the Trump DOL in March 2020. The March 2020 regulation required actual control for a finding of joint employment and focused the joint employer analysis on four factors — right to hire/fire, supervision of work conditions or schedules, rate/method of pay, and control of personnel files. That test made it tougher to establish joint employment.

The March 2020 regulations are already the subject of litigation, and the Second Circuit Court of Appeals is hearing a case to decide whether the new rules are valid. That means the March 2020 rule could be on the chopping block no matter, with either the Second Circuit or the Biden DOL doing the chopping.

2. The new rule will be (just like) starting over. It will re-adopt an Obama-era joint employment test. But which one?

Option A:

Before the March 2020 rule requiring actual control, all that was need to be a joint employer was the right to control certain aspects of the relationship.

When using a staffing agency for staff augmentation, for example, there was a pretty high likelihood that would be joint employment, even if the staffing agency had exclusive control over the four factors highlighted in the March 2020 test — setting wages, setting schedules, controlling pay, and maintaining personnel files. At a minimum, the new rule will go back to that standard.

Option B:

But there’s a worse option that could be in the cards. Five states are bound by a 2017 federal appeals ruling that adopts a much broader interpretation of joint employment. In a case called Salinas, the Fourth Circuit ruled that two businesses are joint employers unless they are “completely disassociated” from one another. The Fourth Circuit covers MD, NC, SC, VA, and WV. That decision suggests that every borrowed labor situation might automatically be joint employment, since the two companies have a contractual “association” with each other.

The Salinas decision was based on an old regulation, on the books since 1958, that the March 2020 regulation eliminated and replaced.

Which version of joint employment will the new Biden rule seek to adopt? Or will the DOL come up with a new test entirely?

Either way, we know that the test for joint employment will change in 2021 or 22, and the new rule will make it much more likely that staffing agency relationships and other borrowed labor arrangements create joint employment.

While the specifics of the new test are not yet known, we know enough already to start to plan. Staffing agency agreements should be checked and revised to protect against joint employment liability. This post provides a few of my favorite tips.

There are plenty of steps that can be taken to protect against joint employment, so long as businesses plan ahead and draft their contracts carefully. Change is coming, but we’ve been down this road before. It’s (just like) starting over.

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Sign up now for the BakerHostetler 2021 Master Class on The State of Labor Relations and Employment Law. Twelve sessions, one hour every Tuesday, 2 pm ET, all virtual, no cost. Click here for more information. List me as your BakerHostetler contact so I know you’ve registered. 

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Stop Licking My Face? DOL Rescinds Independent Contractor Guidance

Tasty! Image by Roman Michael Gottfried from Pixabay

In this issue of Science Focus Magazine, the BBC tackles the difficult question of Why Do Dogs Lick People?

Says Dr Emily Blackwell, a lecturer in companion animal behaviour and welfare at the University of Bristol, “It’s a greeting and can be taken as a compliment.”

Ok then. That’s a nice gesture.

But that’s not going to be the case with the new administration’s Department of Labor, apparently. Steps are already being taken to remove helpful guidance on whether workers qualify as employees or independent contractors.

That’s not a nice gesture. There will be no lovable face licking by the new DOL.

On January 19th, the Trump DOL issued two opinion letters addressing whether certain kinds of workers are employees are independent contractors and the appropriate test for making that determination.

But last week, under direction from the Biden Administration, the DOL rescinded the guidance. Here’s what the two letters covered:

  • FLSA2021-8: Addressing whether certain distributors of a manufacturer’s food products are employees or independent contractors under the FLSA.
  • FLSA2021-9: Addressing whether requiring tractor-trailer truck drivers to implement safety measures required by law constitutes control by the motor carrier for purposes of their status as employees or independent contractors under the FLSA, and whether certain owner-operators are properly classified as independent contractors.

Under the Trump administration, the DOL had committed to publishing more opinion letters. These letters help the public understand the DOL’s interpretation of the law. They apply general rules to more specific situations. They answer questions. That’s good, right? Doesn’t the government want compliance? From the perspective of the business community, compliance is easier if we know what the DOL is thinking.

Fast forward to last week. Even though Marty Walsh has not yet been confirmed as Secretary of Labor, the DOL is already undoing what the DOL had recently done.

Looking ahead, we can expect to see fewer opinion letters, or maybe none. The Biden Administration has indicated that these types of unofficial guidance documents should not be issued. The Administration feels that it ties the hands of the DOL. During the Obama Administration, the DOL entirely discontinued the practice of publishing opinion letters on wage and hour issues, so a plunge back into the darkness seems likely to happen again under a Biden Administration DOL.

This is a bad trend for businesses trying to understand and comply with the law.

So my advice today? If you want some love and attention when trying to unravel the independent contractor versus employee conundrum, don’t look to the DOL for help. Instead, go get a puppy. It might lick your nose, which could be nice.

 

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Sign up now for the BakerHostetler 2021 Master Class on The State of Labor Relations and Employment Law. Twelve sessions, one hour every Tuesday, 2 pm ET, all virtual, no cost. Click here for more information. List me as your BakerHostetler contact so I know you’ve registered. 

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Employee Benefits for Contractors? Don’t Overreact to New DOL Rule (or to Knife-Wielding Squirrels)

Terror in the backyard! Screen grab from @asdiamond on twitter

A knife-wielding squirrel was seen patrolling a backyard fence last week, according to this article in the Toronto Sun. Here’s the video evidence. Fortunately, no one took action and no one overreacted. The squirrel reportedly gnawed on the knife a bit, lost interest, and dropped it to pursue other squirrel-related passions. Everything turned out ok.

Not overreacting is important. Get all the facts, and look at the big picture before deciding whether to take action.

Same with the new DOL regulation on determining in dependent contractor status, first reported here.

This week I’ve seen two articles saying that, under the new rules, providing employee benefits to independent contractors does not tilt the scales in favor of employee status under the new rules. No, no, no! If you’ve seen that commentary, please disregard it. It is an overreaction, and if you provide traditional employee benefits to an independent contractor, that’s a sure sign of misclassification.

Now, let’s break that down a bit. Yes, it’s true that in the commentary to the new rule, the DOL indicated that providing some types of benefits to an independent contractor does not necessarily mean the contractor is misclassified. (As you will all undoubtedly recall from reading all 261 pages of the DOL commentary, that’s on pages 58-59.) But — and there’s a big but (one t) — it does not mean that you can freely start giving employee benefits to contractors.

First, let’s not overstate what the DOL is trying to say. The DOL is not saying you can provide traditional employee-type benefits to contractors, the same way you do for your employees. The DOL is saying that it’s not automatic misclassification under the FLSA if you provide a contractor with extra money for the contractor to help fund his/her own benefit plan, such as through the healthcare.gov exchanges.

Second, let’s not forget the very narrow scope of the DOL’s new rule. The new rule applies only to the FLSA. That is, it applies only for determining whether someone is owed overtime and a minimum wage. And here’s the important point: The FLSA and the new rule and the new test have nothing to do with determining independent contractor vs. employee status under federal tax and benefits law.

The test for determining whether someone is an employee under federal tax and employee benefit law is a Right to Control Test, not the FLSA Economic Realities Test addressed in the new rule. If you add your contractor to your regular employee benefit plan, you have almost certainly created an employment relationship under those laws. Or, perhaps worse, you could disqualify your plan by providing plan benefits to a non-employee.

Under either scenario, providing regular employee benefits to an independent contractor is a very bad idea under current federal law. In short, don’t do it.

Hopefully, federal law will eventually change to allow independent contractors better access to employee-type benefits without converting them to employees for all purposes. But we are a long way from there.

In the meantime, let’s not overreact. As for the new rule, Biden might invalidate it anyway before it is scheduled to take effect March 8.

As for knife-wielding squirrels, don’t confront them directly. You’ll just make them angry and more determined and–as you can see in this video–squirrels can be pretty darn creative when they are determined to get something.

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Snapshot or Long Exposure? Dep’t of Labor Approves New IC Test … For Now

Say cheese! Image by OpenClipart-Vectors from Pixabay
(Note: This post was updated on 1/6/21)

This octopus in New Zealand has been trained to take photos of visitors to the Sea Life Aquarium. That’s a pretty neat trick. I’m sure the visitors love it and will pay whatever exorbitant fee the aquarium charges to profit on the back of its cephalopod slave labor, but do the photos last? Do the visitors keep them, or do the pictures end up in the circular file at home?

Some photos are cherished and kept. Others, not so much.

So which category will the DOL’s new independent contractor test fall into — cherished and kept? Or not so much?

As reported here, in September 2020, the DOL published a new proposed rule for how to determine independent contractor vs. employee status under the Fair Labor Standards Act (FLSA). The DOL has been rushing to publish the new rule before Inauguration Day 2021, in case of a change in the Oval Office.

Now facing that change, the White House on Monday approved the proposed rule, and this morning the Department of Labor released the new rule. It takes effect on March 8, 2021–unless it doesn’t. The Biden administration’s incoming press secretary, Jen Psaki, has already said the new administration would try to kill this one in an early executive order. We’ll see how that plays out.

Meanwhile, whether the new rule goes into effect or not, the FLSA analysis for independent contractor vs. employee should not really change anyway. The new rule is essentially a repackaging of how the courts have already been applying the FLSA test. While Democrats have protested the new rule as an attempt to make it easier to classify someone as an independent contractor, I don’t see it that way. I see it as a clearer way to articulate the test that has been applied for years.

Once Biden takes office, there are so many things he’ll want to undo, he’ll need more hands than an octopus has legs, so this one might not quite hit the top of the list. We’ll continue to monitor the status of this proposed new rule, including whether and when it actually takes effect.

In the meantime, if you can get to New Zealand anytime soon, there’s an octopus that would like to snap your picture. Happy New Year!

© 2021 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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