EU Court Expands Penalties for Independent Contractor Misclassification

UK england independent contractor misclassification

Crikey! Across the pond, worker misclassification is a hot topic, and the European Court of Justice (ECJ) has turned up the heat on companies using independent contractors.

In a closely watched case, the ECJ ruled that a commission-only sales contractor who was  misclassified was entitled to receive payment for four weeks of annual holiday pay for the entirety of his engagement, 13 years, covering 1999 to 2012.  The case is King v Sash Window Workshop Ltd., decided 29/11/2017 (US translation: 11/29/2017).

In the US, back pay in misclassification cases is often limited to two or three years. Statutes of limitation generally limit how far back a worker can go when seeking a recovery. But what about Europe?

Let’s see. The European Court acknowledged that UK law allows four weeks of annual leave and does not allow unused weeks to be carried over to the following year. Ok, that’s a good start and suggests back pay should be limited.

So when a salesman like Mr Conley King alleges that he was denied four weeks of annual leave for a 13-year period, shouldn’t the recovery be limited? The most he could ever have is four weeks, right? In the US, the recovery likely would be limited, either because a court would apply the no-carryover rule or because the statute of limitations would limit the recovery to two or three years of lost leave.

Not so under UK and EU law, the European Court ruled.

The court awarded the salesman pay for four weeks of paid leave for all 13 years. That’s a 42-week paid vacation. Call my travel agent, honey. We’re going around the world!

The court ruled that, while a UK business may prevent carryover of unused holiday leave for its workers, its failure to offer holiday leave required a different result. Since the business prevented the worker from using any of his four weeks of leave in each of his 13 years, the business was now on the hook for the full four weeks for all 13 years that it deprived the worker of his paid holiday leave.

The case now goes back to a UK Court of Appeal.

Meanwhile, the decision raises the stakes on European companies who misclassify workers as independent contractors. The lookback period for lost benefits may now be unlimited, with statutes of limitation being ignored.

US companies with overseas independent contractors should pay close attention to those relationships. If the independent contractor status of those relationships is challenged, the business may be liable for substantially more past benefits than previously thought. That may mean rough seas ahead.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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New Year’s Resolution: 5 Tips to Limit Risks of an Independent Contractor Misclassification Claim

new years resolutions independent contractor misclassification 2018You know deep down you’re not really going to run a triathlon or learn Mandarin in 2018, so how about a New Year’s Resolution that’s more realistic? Here are 5 things businesses can do to limit their risks of an independent contractor misclassification finding:

  1. Review and edit contracts. Independent Contractor Agreements should be customized for the specific retention, highlighting actual facts that would be helpful in opposing a challenge to independent contractor status.
  2. Review and modify facts. Almost every independent contractor relationship can be strengthened by finding ways you can give up control or memorialize ways that you do not ever intent to exercise control. Does it really matter what times of the day your contractor works? If you set hours and don’t need to, change that fact. Then memorialize it in the contract.
  3. Use a Vendor Qualification Questionnaire. Qualify your contractors before retaining them. Make them represent to you that they are really in business for themselves, have other clients, are not economically dependent on getting work from you, etc. These representations can be useful if the contractor — or the government — ever challenges the contractor’s classification by claiming the relationship is really employment.
  4. Assign a gatekeeper. You may have contractors that you don’t even know about because managers in parts of the business have retained outside help rather than ask permission to hire new employees. Create a process that requires managers to obtain permission from a particular person before retaining any outside labor.
  5. Be proactive. Examine the facts and circumstances of your independent contractor relationships now. Know where you stand on the risk scale. Then assess how you can make changes to better protect your business against a claim of independent contractor misclassification. There are almost always steps that can be taken proactively to limit your risks. Be ready.

These are steps every business can take either internally, or with a little outside help. You’ve probably heard Ben Franklin’s axiom, “An ounce of prevention is worth a pound of cure.” Ol’ Ben was giving fire safety advice to his fellow Philadelphians in 1736, but the advice holds true as well when evaluating independent contractor relationships in 2018. Take steps now to reduce risks, and place your business in a better position to extinguish any claims of misclassification.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Are Santa’s Elves Employees or Independent Contractors?

elves independent contractors or employeesFor roughly 200 years, Santa has been retaining seasonal help at his Arctic Circle workshop. His undersized non-union workers toil in an icy land that sits beyond the jurisdiction of U.S. employment laws, a wise move by Mr. Claus and his attorneys.

While children around the world ask silly questions like, Can I visit the elves? and What do elves eat? and How do they work so fast?this blog asks the serious question that all adult businesspeople want to know: Are elves employees or independent contractors?

Spoiler alert for the children: The answers are No, Caribou, and Amphetamines.

The adult question takes some analysis. Let’s peek behind the wintry curtain.

We know the elves are seasonal workers. The last few months of every year, they work their tiny asses off, manufacturing a few billion toys in a well-hidden workshop. Some small businesses make the mistake of thinking that short-term work means the worker can be classified as an independent contractor, but employment can be short-term too. If the other facts show control, economic reliance, etc., the elves will be employees. Doesn’t matter if the elves go back on the dole every January 1 for lack of work.

What about control? We know Santa gets a long list of demands from children, and many of these are detailed. Kids aren’t making vague requests for any old cell phone. They want the iPhone X with 256 GB of storage and an unlimited data plan. Santa needs to make sure the toys are build to spec. The elves cannot freestyle here. Santa supervises his staff, maintaining the right to control how they do their work.

Looking at other factors in the Right to Control Test, it’s really not a close call. The elves are told where to work (at Santa’s 10 billion sf workshop), when to work (23 hours a day, plus one hour in the yard for exercise), and they’re monitored every step of the way (little known fact: Mrs. C spends most of December knitting in front of a wall of security monitors). If Pete the Elf puts the wrong wheel on Little Johnny’s tricycle, you think Santa would stand for that? Heck no. The elves have no discretion. They work hard and are closely monitored. The only reason Santa’s workshop is not considered a sweatshop is that it’s in the Arctic.

Fortunately for the jolly taskmaster, U.S. wage and hour law doesn’t apply to enterprises at the earth’s geographic poles. Elves would surely be considered employees, not independent contractors, if the Fair Labor Standards Act applied. The Economic Realities Test determines whether elves are employees or contractors for minimum wage and overtime law, and this is an easy call. Elves are economically reliant on St. Nick to earn a living. You don’t see elves earning extra cash selling rasta beads at Jamaican resorts in February, do you? No. Elves earn all their green making toys up north.

Elves are employees, not independent contractors, even though they perform all their work in a few short months. The rest of the year they drink tiny cocktails and surf tiny waves in the tropics.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Here’s a Tip a Cartoon Cat Would Love: Try This Edit to Your Independent Contractor Agreements

Independent contractor misclassification cat“Whenever he gets in a fix, he reaches into his bag of tricks!” Yes, boys and girls, I am talking about Felix the Cat, whose magical bag of tricks could be transformed to get him out of any treacherous situation. Don’t you wish you had one of those?

Well, I won’t share mine, but I can offer this tip, which may help you avoid a treacherous situation.

This weekend I was reading a California decision on independent contractor misclassification. (I do other, more fun things in my free time too, so don’t make fun. Ok, you should make fun a little.) While analyzing Right to Control factors, the court ruled that the worst fact for the business was that it could terminate the contractor at will. The ability to terminate a relationship at will, the court ruled, was the “ultimate” form of control! Really? I agree it’s a factor among many, but the “ultimate factor”? Come on.

Anyway, this problem is easily avoided with some creativity. Allow me to reach into my bag of tricks.

If your relationship with a contractor is for an indefinite time period and you rely on work orders to describe each project, consider a one-year term instead. No, not a one-year term with auto-renewals unless the parties give notice. That’s too close to an indefinite term. Allow the one year term to expire. But…

Add a provision that, after the one-year term expires, if you offer a new work order and if the contractor accepts a new work order, then acceptance of that new work order constitutes an agreement to renew the independent contractor agreement for another year.

This variation on the auto-renewal approach requires the parties to take an affirmative act to renew the agreement — the offer and acceptance of a new work order. And this approach also allows you to maintain that the relationship with the contractor is project-by-project (one work order at a time).

The main agreement does not have to be terminable at will. No need for that. If each project is defined by a work order and you’re not satisfied, then don’t offer any new work orders. The agreement itself does not have to be terminated.

If your independent contractor’s tasks are not defined by work orders, then this solution might not work for you. But if your contractor picks up work one work order at a time, this can be a helpful little maneuver.

No guarantees here, but I like this approach better than the indefinite agreement. Contracts of indefinite duration are definitely a negative factor in the Independent Contractor vs. Employee analysis, even though most courts would not be as fixated on that fact as this particular court was.

Now I am going to turn my bag of tricks into a helicopter.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Are Prostitutes Employees or Independent Contractors?

D019E4C0-7B51-4597-BA1A-0C84C01105CF.jpegThere’s a headline I never expected to write. But apparently this is an issue in the Great State of Nevada.

I subscribe to a service that alerts me when new lawsuits are filed involving independent contractor misclassification disputes. This gem arrived in my inbox last week:

Sierra National Corp. dba The Love Ranch is suing the Nevada unemployment department. Apparently the State ruled that the Love Ranch’s lovely ladies were employees, not independent contractors. The Ranchers filed a lawsuit asking the State to open its files and show how it reached that conclusion. Here’s the description of the case:

Mandamus and public records. Petitioner, which operates a legal brothel, seeks to compel respondent to provide public records relating to respondent’s investigation and decision that the brothel’s prostitutes are employees, not independent contractors. Respondent agency’s blanket denial of the petitioner’s public-records request violates the state public records law.

I’d love to be a fly on the wall listening to that dispute. I imagine it went something like this:

State: Your prostitutes are employees, not independent contractors.

Love Ranch: Why?

State: Well, you know, the Right to Control Test.

Love Ranch: Seriously?! We do NOT tell them how to… Never mind.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Court Rules that New Jersey is a Goat (sort of): a Note on Forum Selection Clauses

goat independent contractor misclassification forum selection clause Mary Kay caseThe Monty Hall puzzle is a brain teaser based on the game show, Let’s Make a Deal. The contestant is presented with three doors and must choose one. Choose the correct door and win a car. Choose either of the wrong doors and win a goat. (Note to rural readers: The puzzle is a first-world conundrum and assumes you’d prefer the car.)

Once the contestant chooses, the host opens one of the doors with a goat and asks the contestant whether he wants to stay with his original choice or choose the other unopened door. As explained here, the contestant should always switch doors, since switching provides a 2/3 chance to win. The math here is not intuitive, but read about it and you’ll understand.

The gimmick relies on the fact that the host knows what’s behind each door and will only reveal a door that hides a goat. The host never reveals a car.

When drafting multi-state independent contractor agreements, be the host, not the contestant. You want to know what’s behind each door and choose knowingly — and that leads us to choice-of-law and forum selection clauses.

One of the lessons reiterated throughout this blog is that the tests for Who Is My Employee? (i.e., Independent Contractor vs. Employee) vary substantially among the states. Some state laws are much more favorable for businesses than others. Massachusetts and California, for example, are the goats.

Businesses that use independent contractor agreements across multiple states should consider the advantages of inserting a forum selection clause and choice of law provision. Know what’s behind each possible door and then select, in advance, which state’s law will apply and where any lawsuit between the parties must be brought. If these terms are in an Independent Contractor Agreement, courts will generally (but not always) defer to the parties’ contractual agreement, so long as the selected state has some reasonable connection to the parties’ relationship and is not contrary to the state’s public policy. (Sorry, you can’t pick Hawaii just because you like pineapples.)

A recent case out of New Jersey demonstrates the usefulness of these clauses.

A group of New Jersey independent contractor beauty consultants attempted to sue Mary Kay, alleging independent contractor misclassification and violations of New Jersey wage law. They filed the lawsuit in New Jersey, which the plaintiffs’ bar likens to a shiny new Escalade. Mary Kay, however, sees New Jersey as a goat and knew ahead of time that New Jersey was a goat. On the well-known Car vs. Goat Continuum (ed. note: not actually well known at all), New Jersey employment laws are relatively pro-employee. The company therefore included in its Independent Contractor Agreement the requirements that any litigation be brought in Texas, that Texas law applies, and that any complaint must be recited aloud in court using a voice imitating Ross Perot, circa 1992. (The last part might be unenforceable.)

In response to the lawsuit, Mary Kay pointed to the contract and asked the court to move the case to the Lone Star State. Despite the plaintiff’s protests, the court honored the contract and sent the case southward. The plaintiff appealed that decision but lost. The Court of Appeals ruled that it was proper, under the circumstances, to honor the choice of law and forum selection clauses and to move the case to Texas.

Businesses using independent contractors across multiple states should strongly consider inserting choice of law and forum selection clauses into their contracts. (Arbitration agreements can be an even better option, but that’s for another post.)

Avoid the goats. They’ll eat anything, including your cash.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Why You Should Limit Workplace Rules That Apply to Contractors (Twisted Sister Edition)

There are so many great songs about defying authority. What’s the best? Hard to say. The best video, though – that’s easy. We’re Not Gonna Take It by Twisted Sister. (Watch here, then thank me later. I could watch the first minute a hundred times. Say it with me: “What do you want to do with your life?”)

Rock may about breaking rules, but business is not. With your employees, there are lots of rules you want them to follow, and you probably list them in painful detail in handbooks, posters, flyers, brochures, catalogs, signposts, compendiums, directories, and mandatory worker inner eyelid tattoos.

What about independent contractors, though? To preserve independent contractor status, you already know you want to try to minimize your exercise of control. But some rules are needed, expecially for contractors who work on your site.

Here are some guidelines to consider:

Rules appropriate for employees, but not well-suited for contractors:

  • Employee Handbooks
  • Policy Manuals
  • FMLA Policy
  • Vacation and leave policies

Applying those employee-specific rules to independent contractors would tend to support an argument that contractors are being treated like employees.

Some rules, though, are more appropriate to ask on-site contractors to follow.

Examples of rules that are generally suitable to apply to contractors:

  • Safety rules, especially those related to ensuring safety at the facility (e.g., must wear hard hat, please do not flick matches at that industrial-size fuel tank, keep your fingers clear of the 4000 ton forging press)
  • Emergency evacuation or exit procedures
  • Anti-Discrimination Policy (if drafted broadly, to cover employees, contractors, visitors, interlopers, outerlopers, sidelopers, etc.)

These types of rules can be applied to contractors because they do not tell the contractor how to do the work. Instead, they are designed to ensure a safe and productive space where no one gets hurt.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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