Preview of 2021? New Bill Would Revoke Arbitration Agreements, Raise Stakes for Independent Contractor vs. Employee Disputes

Independent contractor misclassification epic systems congressRegardless of your politics, I think we can all agree that the best part of Election Day being over is that there will be no more political ads for a while. You know what I mean: “Candidate A hates you and your family and supports legislation to tax you into bankruptcy. I’m Candidate B and I approve this message.” Or, “Candidate B hates you and your family and supports criminals and gangs. I’m Candidate A and I approve this message.” Finally and mercifully, that’s going to end for a while.

So let’s look ahead to 2020, when another vicious round of political ads will be unleashed upon your television screen, punishing all who have not yet cut the cord.

With the Democrats taking control of the House, and with several key Republican seats expected to be in play in 2020, a Democratic presidential win in two years could mean that the Democrats enter 2021 in control of both houses of Congress and the Executive Branch.

A bill recently introduced by prominent Democrats provides a hint of what would happen to recent wins for businesses in the areas of employee arbitration agreements and class action waivers.

H.R. 7109, the Restoring Justice for Workers Act, would prohibit class action waivers in employment contracts and would prohibit agreements to arbitrate future claims. The proposed law would roll back the Supreme Court’s recent Epic Systems decision and shift the balance of workplace power back toward employees.

According to a study cited in Justice Ginsburg’s dissent in Epic Systems, about 65% of companies with more than 1,000 employees have mandatory arbitration agreements. These contracts would become void.

The bill would also increase the stakes for businesses that use independent contractors. If employee arbitration agreements and class action waivers were unenforceable, then the determination of Independent Contractor vs. Employee becomes even more important. A misclassified contractor (who is deemed to be an employee) could then bring class action claims in court, rather than being restricted by contract to seeking an individual remedy through arbitration.

The bill has no chance of passage in the current Congress, but a tsunami of pro-worker legislation may be coming after the next couple of years. 

Meanwhile, enjoy the resumption of TV ads about erectile dysfunction and drugs that you should ask your doctor about even side effects include rare incurable cancers and in some cases death. These are the ads we know and love.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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G-L-O-R-I-A! California Court says to use different tests for different IC misclassification claims

California independent contractor misclassification tests

If someone were to ask whether you like the song, “Gloria,” you’d be right to ask, “Which version?”

There’s the version written by Van Morrison and recorded by his band Them, later covered by Patti Smith, The Doors, and a gaggle of others. That’s the version that goes, “G-L-O-R-I-A, Gloooooria!” (I’m gonna shout it out every day.)

Then there’s the version recorded by Laura Branigan in 1982, originally written in Italian by Umberto Tozzi. (Fun fact!) You know that one — “You’re always on the run now. Running after somebody, you gotta get him somehow.”

Of course the right answer is that you prefer the first version, but my point is that there are multiple versions of “Gloria.” Same name, different song.

This is the same approach California courts seem to be taking with the state’s test for Independent Contractor vs. Employee. Same question, different tests. Many of you will recall the April 2018 Dynamex decision, in which the California Supreme Court adopted a strict ABC Test for determining whether a worker is an employee under California’s Industrial Wage Orders.

But the Dynamex decision did not address whether the new ABC Test would be used to determine whether someone is a contractor or an employee under California’s other state labor laws. Now we know.

The answer, according to a California Court of Appeal decision last week, is that there’s room for both “G-L-O-R-I-A” and “You’re always on the run now.” (You’re welcome, Laura Branigan.)

In last week’s case, called Garcia v. Border Transportation Group, the court considered an eight-count complaint brought by a taxicab driver who had been treated as an independent contractor. The driver claimed he should have been treated as an employee and that various state laws, which apply only to employees, were not followed. The court ruled that different tests apply to different claims.

The Court ruled that the claims brought under California’s Industrial Wage Orders had to be evaluated under the Dynamex ABC Test and, for these claims, the driver had to be considered an employee. The claims subject to the Dynamex test were the claims alleging unpaid wages, failure to pay minimum wage, failure to provide meal and rest periods, failure to furnish itemized wage statements, and the unfair competition (UCL) claims arising out of the wage order violations.

On the other hand, the driver’s claims for wrongful termination in violation of public policy, waiting time penalties, and the UCL claims stemming from these allegations had to be evaluated under the more traditional S.G. Borello balancing test, which includes elements of a Right to Control Test but incorporates other factors too, making it a hybrid test. Under the S.G. Borello standard, the Court ruled that the driver was properly classified as an independent contractor.  (The plaintiff alleged failure to pay overtime too. Typically, overtime claims are governed by the Industrial Wage Orders, but the overtime rules do not apply to taxicab drivers.)

For those who like score cards, here is a list showing (a) the claims that were filed, and (b) which test must be used to determine Independent Contractor vs. Employee under each claim, according to the Garcia case. I have color-coded the claims because it looks pretty:

1. Wrongful termination in violation of public policy. (Lab. Code, §§ 923 [employees may organize], 6310 [retaliation for an OSHA complaint], 6400 [duty to provide a safe work environment], 1102.5 [whistleblower protection].)  S.G. Borello balancing test

2. Unpaid wages under the wage order. (Cal. Code Regs, tit. 8, § 11090.)  Dynamex ABC Test

3. Failure to pay minimum wage. (Lab. Code, §§ 1182.12 [minimum wage], 1194 [right of action], 1194.2 [liquidated damages], 1197 [duty to pay minimum wage].)  Dynamex ABC Test

4. Failure to pay overtime. (Lab. Code, §§ 510 [overtime], 1194 [right of action].) – Not applicable

5. Failure to provide meal and rest breaks. (Lab. Code, §§ 226.7 [rest periods], 512 [meal breaks].) Dynamex ABC Test

6. Failure to furnish accurate wage statements. (Lab. Code, §§ 226 [wage statements], 226.3 [civil penalties], 2699 [PAGA penalties].) Dynamex ABC Test

7. Waiting time penalties. (Lab. Code, §§ 201−202 [wages and leave due upon departure], 203 [penalties].) S.G. Borello balancing test

8. Unfair competition (UCL), based on the foregoing violations. (Bus. & Prof. Code, § 17200 et seq.; Lab. Code, § 2699 [PAGA penalties].) Dynamex ABC Test for the alleged violations of the wage order; S.G. Borello balancing test for the other claims

 

That’s the state of the law at this moment, but of course the California Supreme Court could weigh in again later as to whether S.G. Borello should still be used at all.

The explanation given in the Garcia case, though, for why the different tests should be used for different claims makes perfect sense. The definition of employee in Dynamex is broader than in the other statutes, as the California Supreme Court explained in the Dynamex decision.

So there you have it. Different definition of employee, different tests.

Shout it out all night!

Shout it out every day!

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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New Rule May Clear Up ‘Employee vs Contractor’ Test under FLSA, But Not Quite Yet

DOL joint employment

New regulations may soon be proposed to redefine “employee” under federal wage and hour law. In a recent interview with Bloomberg BNA, Secretary of Labor Alex Acosta hinted that the DOL is working on a new regulation that would more definitively speak to who is an employee and who is an independent contractor.

The Fair Labor Standards Act (FLSA), the federal law governing minimum wage and overtime for employees, does not apply to independent contractors. That’s one of the reasons it matters whether someone is classified as an employee of a contractor. Contractors are not entitled to a minimum wage or overtime under federal law.

The FLSA was passed in the 1930s and does not fit the modern gig economy. Secretary Acosta appears committed to modernizing the regulations, which would bring much needed clarity to the question of who is an employee and who is an independent contractor.

In terms of priorities, the DOL appears likely to address the definition of “joint employment” first.

The National Labor Relations Board (NLRB) has initiated formal rulemaking procedures that would result in a new regulation defining joint employment more narrowly under federal labor law.  The DOL has indicated it has plans to follow suit, using rulemaking procedures to seek a new regulation redefining “joint employment” under the FLSA. We can probably expect to see a new proposed FLSA regulation redefining “joint employment” by early 2019.

Based on Secretary Acosta’s comments to Bloomberg BNA, it seems likely that the DOL will turn it’s attention to the Independent Contractor vs Employee conundrum next.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Is this weird trick the key to defeating independent contractor claims? (Hahahahahaha. No.)

Weird trick to defeat independent contractor claims Jani-King

As everyone with an internet connection now knows, articles promising “one weird trick” to solve some real-world problem are everywhere. These articles are annoying. (It’s called clickbait.) You open up the article, and the “weird trick” is usually something you already knew anyway. Or the weird trick just doesn’t work.

So what’s the “weird trick” here?

Requiring independent contractors to form corporate entities. Then you have a business-to-business contract, not employment. Right?

Ok, it’s not weird at all. Lots of companies use this approach.

But does it work? Not necessarily.

Let’s consider the issue under the Fair Labor Standards Act (FLSA). The FLSA requires employees to be paid a minimum wage and overtime (unless there’s an exemption) and requires employers to keep certain kinds of pay records.

The test for determining whether someone is an employee under the FLSA is Ye Olde Economic Realities Test. 

Dear Reader, hold onto your seat, because we’re about to see this test in action!

Can you defeat independent contractor misclassification claims by requiring workers to form legal entities? Let’s see…

A federal appeals court recently considered a dispute involving Jani-King and its franchise model for providing janitorial services. Under Jani-King’s business model, the individuals who provide cleaning services are not treated by Jani-King as its employees. Rather, Jani-King requires that anyone who wants to provide janitorial services under the Jani-King name must form a legal entity, like an LLC. Then Jani-King enters into a franchise agreement with the LLC, and the LLC/franchisee provides the cleaning services. There is no job offer or employment agreement between Jani-King and the individuals performing the services. It’s all treated like a business-to-business, franchisor-franchisee relationship.

The Department of Labor (DOL) is questioning the legitimacy of this model.  The DOL began an investigation and then filed a lawsuit, claiming that Jani-King’s franchisees are really Jani-King’s employees under the FLSA, and Jani-King therefore had to comply with FLSA record-keeping requirements, as well as its overtime and minimum wage rules.

The reason Jani-King’s “one weird trick” doesn’t necessarily work is because to determine whether someone is an employee under the FLSA, it doesn’t matter what you call the worker. You can call the worker a contractor or a franchisee, but using that tag doesn’t mean the worker is not an employee under the FLSA. That’s a legal determination made using the Economic Realities Test.

In this case, the trial court judge in Oklahoma had dismissed the DOL’s case, ruling that Jani-King’s contracts were with entities, not individuals, so there could not be an employment relationship. The Tenth Circuit Court of Appeals, however, said that’s not true. 

The Court of Appeals ruled that a six-part Economic Realities Test must be used to determine whether the individual franchisees who performed the janitorial work should be considered employees under the FLSA. Under the Economic Realities Test, a court must examine the economic realities of the relationship, not merely rely on the parties’ labels. 

In the Tenth Circuit (which covers Oklahoma, New Mexico, Kansas, Colorado, Utah, and Wyoming), here are the factors to consider under the Economic Realities Test:

1) The degree of control exerted by the alleged employer over the worker; 

2) The worker’s opportunity for profit or loss; 

3) The worker’s investment in the business; 

4) The permanence of the working relationship; 

5) The degree of skill required to perform the work; and 

6) The extent to which the work is an integral part of the alleged employer’s business.

The not-so-weird trick of requiring workers to set up a legal entity does not necessarily work. It can be helpful, but only if the facts show that the entity is not economically reliant on the other party. The facts matter, not the labels.

This case is headed back to the trial court for some fact-finding to determine how these six factors play out.

In the meantime, remember that “one weird trick” to solve some real-world problem is probably not weird at all, and it may or may not work. But it may arouse your curiosity and cause you read the article. Here, Jani-King’s one weird trick aroused the DOL’s curiosity, which is not something a business should want to do.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Truckers Fight to Preserve Independent Contractor Status, But Appellate Rulings Create Uncertainty

independent contractor driver trucking faaaa

Big Mutha Truckers was a 2002 video racing game in which four sibling truckers compete to make deliveries in fictional Hick County, with the most successful driver inheriting the family business. I had never heard of the game until now, but apparently it  was not very successful and is panned thoroughly by whoever spent precious life-minutes writing a comprehensive Wikipedia entry about this game, time that the author sadly will never be able to recover.

The real life trucking industry has its own problems, and they extend far beyond Hick County. The independent contractor owner-operator model, which has been common in the transportation industry for decades, is under attack. The situation is most critical on the West Coast, and owner-operator drivers are taking action to protect their livelihood — and their independent contractor status.

The Coalition for Independent Truckers announced the formation of a new Independent Contractor Ambassador program. The program’s mission is to protect the independent contractor/owner-operator model in the trucking industry. It aims to educate policymakers, the media, and the general public on the value of the independent  contractor model.

Three recent court decisions will it more difficult for these drivers to preserve their independent contractor status.

Last week, the Third Circuit Court of Appeals ruled that Illinois* state wage laws may be applied to professional motor carrier drivers, even though federal law is supposed to override state laws that are “related to” motor carrier prices, routes, or services.

Earlier this month, The Ninth Circuit Court of Appeals ruled that California’s meal and rest break laws may be applied in the motor carrier industry, despite federal law that seems to pre-empt state law in that field.

The Federal Aviation Administration Authorization Act (FAAAA) prevents states from enacting laws that are “related to” motor carrier prices, routes, or services. It seems hard to imagine that California’s mandatory meal and rest breaks (at issue in the 9th Circuit case) would not affect services and routes. Illinois wage law (at issue in the Third Circuit case) seems like a closer call.

Other federal courts have ruled that states cannot apply their wage and hour rules to motor carrier drivers because of FAAAA preemption. For example, a the First Circuit Court of Appeals previously ruled that Massachusetts’ ABC Test could not be applied to owner-operator drivers, since the state law test was preempted by the FAAAA.

But these new decisions from the Third and Ninth Circuits go the other way, saying that the state laws at issue do not sufficiently “relate” and therefore are not preempted by the FAAAA. These rulings create uncertainty and inconsistency across the industry, with different rules applying to interstate drivers in different locations. That’s what the FAAAA and other federal transportation laws aim to prevent.

This is an issue to watch. The Supreme Court may soon be called upon to resolve the circuit split. The national transportation industry relies heavily on the use of independent contractor owner-operators. These two appellate decisions make it increasingly difficult for legitimate independent contractor owner-operators to maintain their independent contractor status. Instead, these professional drivers may be subjected to reclassification as employees under some state laws, despite working in an industry that federal law tries to pre-empt,

Keep an eye on this one. Unlike Big Mutha Truckers, this saga will not be derailed by “repetitive gameplay, dated graphics, and lackluster sound.”

*Not an error. Yes, the case was decided in the Third Circuit, even though it relates to Illinois law.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Ultimate Survival Alaska: The Most Detailed Test for Independent Contractor Misclassification Yet! (And Bears!) (Maybe)

Alaska independent contractor definition workers compensationReality TV seems to fit Alaska like antlers on a caribou, but apparently much of what we see on TV is fake, according to this article by Tom Kizzio in the L.A. Times. Kizzio derisively charges that state subsidies have caused the proliferation of shows about bush people, lack of indoor plumbing, and living off the land, despite some being filmed near suburbs with multiple Safeways.

I say “derisively” because Kizzio wrote a book called Pilgrim’s Wilderness: A True Story of Faith and Madness on the Alaska Frontier, which chronicles a pioneering family in the (real) bush who turns out to have a past worthy of reality TV. That is, Kizzio planted his flag in the same mud flat. Maybe Kizzio’s just jealous that his book didn’t get a show.

Reality TV in Alaska may be full of fakes, but one thing Alaskans apparently take seriously (other than their annual oil subsidies) is precision in defining what it means to be an independent contractor.

We’ve written about all sorts of balancing tests, like Right to Control Tests and Economic Realities Tests, and we’ve written about stricter ABC Tests and the proliferation of state law variations, some of which apply only to certain types of state laws like workers compensation or unemployment.

The Alaska legislature has passed a new law that contains one of the most specific tests yet, an ABCDEFGH test that includes subparts under G and H and which applies only to the definition of “independent contractor” for workers compensation purposes.

I know most of my readers will not be grappling with the complexities of this Alaskan workers comp statute in their day-to-day business dealings, but this new law is a good illustration of how every state seems to want to define “independent contractor” its own way. The multitude of definitions means a labyrinth of red tape and confusion for any business that operates in multiple jurisdictions. In some places, your independent contractor may be properly classified; in other places, not so much.

The abundance of tests for Independent Contractor vs. Employee was already mind-numbing, but this new test is perhaps the most detailed and specific yet. Many of these factors appear in other tests as factors to be considered and weighed, but this test is different in that — like an ABC Test — each item must be present for someone to be a contractor.

Here’s Alaska’s new test, which applies only to workers compensation law:

A person is an independent contractor for the purposes of this section only if the person: 

(A) has an express contract to perform the services; and

(B) is free from direction and control over the means and manner of providing services, subject only to the right of the individual for whom, or entity for which, the services are provided to specify the desired results, completion schedule, or range of work hours, or to monitor the work for compliance with contract plans and specifications, or federal, state, or municipal law; and

(C) incurs most of the expenses for tools, labor, and other operational costs necessary to perform the services, except that materials and equipment may be supplied; and

(D) has an opportunity for profit and loss as a result of the services performed for the other individual or entity; and

(E) is free to hire and fire employees to help perform the services for the contracted work; and

(F) has all business, trade, or professional licenses required by federal, state, or municipal authorities for a business or individual engaging in the same type of services as the person; and

(G) follows federal Internal Revenue Service requirements by

(i) obtaining an employer identification number, if required;
(ii) filing business or self-employment tax returns for the previous tax year to report profit or income earned for the same type of services provided under the contract; or
(iii) intending to file business or self-employment tax returns for the current tax year to report profit or income earned for the same type of services provided under the contract if the person’s business was not operating in the previous tax year; and

(H) meets at least two of the following criteria:

(i) the person is responsible for the satisfactory completion of services that the person has contracted to perform and is subject to liability for a failure to complete the contracted work, or maintains liability insurance or other insurance policies necessary to protect the employees, financial interests, and customers of the person’s business;
(ii) the person maintains a business location or a business mailing address separate from the location of the individual for whom, or the entity for which, the services are performed;
(iii) the person provides contracted services for two or more different customers within a 12-month period or engages in any kind of business advertising, solicitation, or other marketing efforts reasonably calculated to obtain new contracts to provide similar services.

Whew! That’s information overload. I doubt most of you read all the way through. You skimmed, right? Sort of fake-read your way through it? That’s ok. (I did too.) Thanks for jumping to the bottom and joining me again.

I’ve gotta leave you now, though. I checked the guide on my TV, and I don’t want to miss reruns of Bristol Palin’s reality show about “her amazing journey through life” (actual description from imdb), or, to translate the hyperbole of Alaskan reality tv into a simpler more truthful description, her state-subsidized show about being a single mom.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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“Maybe Later”: California Legislature Declines Business Community’s Request to Fix ABC Test

California ABC Test legiuslative efforts fail 2018

Peter Gabriel’s 1986 album, So, includes the song “Don’t Give Up.” It is a mournful duet with Kate Bush that must not be included on anyone’s workout playlist. The blend of an inspirational title and weepy output, though, seems appropriate for this post.

Today we’re following up on the state of independent contractor misclassification in California, five months after the Dynamex decision and its contractor-hatin’ ABC Test.

This summer, in response to Dynamex, California businesses that rely on independent contractor gig workers engaged in a coordinated effort to persuade the California legislature to suspend the Dynamex ruling and to reinstate a common sense balancing test for determining Independent Contractor vs. Employee.

For now, they have failed.

California’s 2018 legislative session just ended. The Democratically controlled Assembly and Senate declined to consider any legislation that would affect the Dynamex ruling and its new ABC Test.

In a recent interview with California’s Capital Public Radio, three weeks before the legislative session closed, Assembly Speaker Anthony Rendon admitted that he is a much weaker hitter than the Washington Nationals third baseman who shares his name and has 19 more home runs this year than the Speaker. (Actual quote unavailable.) But, more relevant to this post, Rendon also said that there would be no action this year on legislation to define Who Is My Employee?

“Ultimately, this decision is about the future of the way work looks. And that requires us to be thoughtful and deliberate,“ Rendon said. “And there’s no way we can be thoughtful and deliberate in three weeks.”

Senate President pro tem Toni Atkins, who may or may not have been in the late-80s-early-90s soul/R&B group Tony! Toni! Toné!, expressed similar sentiments: “The California Supreme Court voted unanimously for this new test. I agree with Speaker Rendon that forging any legislative review or response to their decision in just three weeks isn’t workable.”

Let’s break that down.

When my oldest daughter was little and didn’t want to do something, she developed a polite way of saying “no f-ing way.”  She’d say, “Maybe later.”  We all knew what that meant.

I am hearing the same thing from Rendon and Atkins when they say that three weeks wasn’t enough time to draft new legislation. All they had to do was reinstate the status quo before Dynamex, which was a well-established balancing test for determining whether someone is an employee or an independent contractor.

But instead they gave us the legislative equivalent of “maybe later.” I won’t be putting that on my workout playlist either. And it’s not gonna get worked out any time soon. The ABC Test in California is here to stay. (Cue weepy mournful background music.)

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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