California May Tip The Scales, When It Comes to Tipping Independent Contractor Drivers

IMG_1078Should ride-hailing services (like Uber and Lyft) be required to offer a tip option if you pay by credit card? A proposed California law says yes.

A.B. 1099, passed by the California Assembly and headed to the State Senate, would require modification of these mobile apps to support credit card tipping. The bill, in its current form, takes no position as to whether these drivers are independent contractors or employees, instead calling them “workers,” but the proposed law is another attempt to legislate controls on the gig economy, rather than letting free market forces play out.

Gov. Jerry Brown has not taken a posiiton on the bill, and it may or may not survive in the California Senate.

California has been a hotbed of litigation for ride-hailing and delivery driving companies, and this latest development shows that State Governments are not afraid to further constrain how companies that use independent contractor drivers run their businesses.

In fact, we saw similar scale-tipping recently in Florida (see blog post here), but that was in an effort to protect ride hailing companies and these companies’ efforts to protect the classification of their drivers as independent contractors.

Keep an eye out for more legislation, especially at the state level, in an attempt to recalibrate the market forces that have brought us the gig economy.

Five (More) Signs Your Independent Contractor May Be Properly Classified

IMG_1079Last week I posted Five Signs Your Independent Contractor May Be Properly Classified. While I feel pretty good about the post, I also feel like there’s more where that came from. So here goes.

Five More Signs Your Independent Contractor May Be Properly Classified:

  1. The contractor has its own employees. Since contractors are in business for themselves, they should be free to hire their own employees. If they actually do, chalk up a few points.
  2. The contractor pays its own expenses. One indicator of a legitimate independent contractor relationship is that the contractor, if a sound businessperson, will earn a profit but, if a poor businessperson, will incur a loss. The profit/loss determination is often a function of how well the contractor prices its services. If you reimburse a contractor for all of its expenses, the risk of loss is generally removed. Legitimate independent contractors should be bearing some risk.
  3. The contractor works from its own office space. The flexibility to work wherever and whenever suggests proper classification as an independent contractor.
  4. The contractor works using its own tools and equipment. That’s more evidence that the contractor is running its own business and has more opportunity to incur a net loss.
  5. The contractor carries its own insurance. When a contractor carries the types of insurance typically carried by a business, the contractor is likely operating as a business. Look for General Commercial Liability and Workers Comp coverage.

Remember, the tests for determining Who Is My Employee? vary by law, and most test are balancing tests, so no single factor is likely to be determinative. Relationships with these five features, however, are more likely to have the scales tilted in favor of recognizing independent contractor status.

Labor Dept Withdraws 2015-16 Joint Employment, Independent Contractor Guidance

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Did the new Labor Secretary of Labor finally throw employers a bone? I think so, but it’s too early to tell whether it’s delicious bacon-flavored or some generic processed meat flavor.

On June 7th, the Department of Labor (DOL) announced it was withdrawing the 2015 and 2016 informal guidance on joint employment and independent contractors.

Read the full post here, on BakerHostetler’s Employment Law Spotlight blog.

5 Signs Your Independent Contractor May Be Properly Classified

IMG_1076In March, we posted Five Signs Your Contractor May Be Misclassified (with Bob Seger lyrics!). Today we look at the other side of the same coin. While there is no sure fire, (Silver) bullet (Band) proof assurance that your contractor relationship will withstand a legal challenge, there are some facts that tend to strongly support legitimate independent contractor status.

Here are 5 signs your independent contractor may be properly classified.

  1. The contractor has an LLC or Corporation. When the IRS or DOL performs an independent contractior misclassification audit, the first thing it is likely to ask for is a list of who received 1099s in the past year. Receipt by individuals suggest possible misclassification. Companies are less of a flag.
  2. The contractor has other clients. The true hallmark of an independent contractor is that the person is in business for him/herself. Having other clients is a strong sign that the contractor is running a legitimate independent business.
  3. The contractor advertises its services in the marketplace. This may take the form of having a web page, flyers, even Facebook ads. Anything that suggests that the contractor is running a business and seeking buyers of its services is strong evidence in support of legitimate independent contractor status.
  4. Your relationship with the contractor is project-based or for a fixed term. Open-ended relationships resemble at-will employment. While a fixed-term relationship can still exist in employment, it’s better than indefinite. Best of all, though, is a project-based engagement. Retain the contractor for a particular project. When the project ends, the relationship ends. Period.
  5. The contractor is not a former employee of your company. Companies sometimes rebrand former employees as contractors. That’s generally too cute. Receipt of a W-2 and 1099 by the same person is a big fat red flag.

Remember, the tests for determining Who Is My Employee? vary by law, and most test are balancing tests, so no single factor is likely to be determinative. Relationships with these five features, however, are more likely to have the scales tilted in favor of recognizing independent contractor status.

Podcast: What You Need to Know About Independent Contractor Misclassification

IMG_1073This week, I am encouraging readers to tune in to this podcast from XpertHR, in which I discuss issues and hot topics related to independent contractor misclassification.

Topics covered include:

  • The attack on business models that rely on the use of independent contractors;
  • The future of misclassification claims;
  • Possible updates to the FLSA;
  • Industries that are most at risk for independent contractor misclassification claims; and
  • Common misconceptions.

I hope you enjoy this interview, and thank you to David Weisenfeld and Xpert HR.

Security Guards: Employees or Contractors?

security guard employee or independent contractorI never saw the movie Paul Blart: Mall Cop and almost certainly never will. (Do I really need explain that decision?)

The Independent Contractor vs. Employee question often arises in the context of security guards, though. I confess to not knowing how Paul Blart was classified but, for companies who retain security guards, the decision whether to hire them as employees or to contract with a security firm is an important one.

The main advantage of hiring security guards as employees is the ability to retain control over how an individual guard does the job. The company can select who it wants to work and when, and can provide as much supervision and direction as needed.

The biggest disadvantage to using employees for security work, however, is the risk of liability. The very purpose of the role is to guard against dangerous or threatening situations. Where a security guard overreacts, or where someone gets hurt by a guard acting in the normal course, lawsuits are sure to result. And the injuries are likely to involve more than hurt feelings.

A recent Texas case, Henderson v. CC-Parque View, illustrates the benefit of using contractors rather than employees to provide security services. In that case, a management company contracted with a security firm to provide guards at an apartment complex.

One night, an overzealous guard (we’ll call him Blart, because that truly is a great name for an overzealous guard) ordered Henderson (that’s Henderson’s real name), who was sitting in a parked car at the complex, to get out of his car. Henderson got out, but an argument ensued.

In an attempt to proclaim his invincibility, Henderson (I imagine this is how it went down) shouted, “I’m rubber and you’re glue and anything you say bounces off me and sticks to you.”

The guard, an avid fan of MythBusters, did not believe his antagonist’s impromptu physics lesson and shot him in the abdomen with a rubber bullet. It did not bounce. And it hurt.

Henderson sustained injuries. He sued the guard, the security company that employed the guard, and the management company of the apartment complex.

The suit against the guard and security company proceeded, but the management company successfully argued that the guard was not its employee and that it could not be liable for his actions.

The court ruled that the guard was a contractor, not an employee of the management company; and the management company was dismissed from the lawsuit.

Had the guard been hired directly by the management company as its employee, the outcome likely would have been very different, since employers are commonly held liable for the acts of their employees, when in the course of employment.

This case is a good reminder of the benefit of retaining an outside security firm, rather than hiring employees, to provide security services.

And did you hear there’s a Mall Cop 2? I also won’t watch that.

Court Rejects Mandatory Arbitration for Independent Contractor Truckers

truck independent contractor arbitrationArbitration agreements can be an effective way to manage disputes with independent contractors. The Federal Arbitration Act (FAA) and Supreme Court decisions support arbitration as an efficient way to resolve disputes outside of the courtroom.

But what happens when an independent contractor with an arbitration agreement claims to have been misclassified as an employee? Can these disputes be forced into arbitration?

Usually yes, but this blog post by my colleague, John Lewis, highlights the limitations of arbitration agreements when applied to transportation workers. Although federal public policy — as articulated in the FAA — generally favors arbitration as a way to resolve disputes, Section 1 of the FAA lists a few situations where the FAA does not apply. One type of excluded dispute is over “contracts of employment” with transportation workers.

Are independent contractor agreements with owner-operator truckers “contracts of employment” with transportation workers? Continue reading