Here’s me in a radio interview, explaining independent contractor misclassification risks in California

Ok, so that’s a pretty boring headline. I will accept responsibility for that.

Let’s try something different this week. Instead of reading, you can listen.

Here is a radio interview on KFROG radio, which aired in Southern California a few weeks ago. In the interview, I discuss California’s Assembly Bill 5, which will convert many independent contractors to employees under California law. I address unanticipated consequences and issues for businesses to consider as they prepare for this law to go into effect.

It’s just under 20 minutes so you can listen on your commute.  Or, if you live in trafficky California, you can listen to it four times on your commute.

You can click here to listen.

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© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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California’s New Anti-Arbitration Law: A Hotbed of Problems

California continues to be a hotbed of activity, which got me wondering: what is a hotbed? So I looked it up.

Hotbed – noun – hot·bed |  \ ˈhät-ˌbed

/a bed of soil enclosed in glass, heated especially by fermenting manure, and used for forcing or for raising seedlings/

And now you can decide which is more useful- knowing what a hotbed is or keeping up with the latest legislation in California that makes things harder for businesses.

The latest is AB51, which bans mandatory employee arbitration agreements if they are made a condition of employment. Voluntary arbitration agreements are still permitted.

So let’s just include an opt-out provision, right? That way there’s a choice, so it’s not mandatory. That would seem to make sense. Not so fast. The law says that if you include an opt-out provision, it still counts as mandatory. Huh? That’s contrary to the meaning of opt-out.

Opt – verb \ ˈäpt

/to make a choice/

If the option to opt-in is voluntary, then the option to opt-out is voluntary. Grammarians needed in California please.

The law is also probably illegal, except maybe for jobs in the transportation industry. According to the Supreme Court, the Federal Arbitration Act (FAA) prohibits states from enacting laws that treat agreements to arbitrate differently than other agreements. If the parties agree to arbitrate, there’s an enforceable contract, and the states need to get out of the way. That’s a bit of an oversimplification, but not by much. The FAA doesn’t apply to portions of the interstate transportation industry though, so the California law might be enforceable only as to that small segment of jobs. The enforceability of this law will be tested in the courts.

The law also creates a chicken-and-egg problem for independent contractor misclassification disputes. You can still require in an independent contractor agreement that an independent contractor must arbitrate disputes. And in that arbitration agreement, you can grant the arbitrator the authority to rule on any questions about enforceability of the arbitration agreement.

But what if the dispute is over whether the independent contractor is an employee? If the California law stands, then the agreement to arbitrate the dispute is enforceable only if the arbitrator rules that the contractor is properly classified as a contractor, but the agreement to arbitrate is unenforceable if the arbitrator rules that the contractor is misclassified and should really be an employee. But if the arbitrator rules that contractor was really an employee, then under California law the agreement granting the arbitrator the right to make that decision is void. You’d have to decide the ultimate issue — independent contractor s employee — before determining who decides whether the worker is a contractor or an employee.

Is your head spinning? Good. Just in time for Halloween.

Thanks California. You give me lots to write about.

This new law applies to employee arbitration agreements entered into after January 1, 2020– unless it’s not enforceable at all. We’ll see.

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© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Need Direction After California’s New Independent Contractor Law? Download the Playbook!

Siri punked me. Independent contractor misclassification AB 5Sometime I forget where I park, so when I went to the airport recently, I told Siri where I left the car.

Siri then punked me with this. I think it was intentional. Stupid AI.

California businesses may be in need of some direction too. On September 18, Gov. Gavin Newsom signed Assembly Bill 5 into law.  The law redefines the Independent Contractor vs. Employee test in California, applying an ABC Test to a broad range of state laws.

When the law takes effect January 1, 2020, it will instantly turn thousands of independent contractors into employees. Some aspects of the law may even apply retroactively.

What are your options?

I can think of ten. Click here to download The Playbook: Now That California Has Passed AB 5, What Are the Options for Businesses Using Independent Contractors?

 

Page 1 from The-Playbook-California-AB-5_p03

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© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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California Businesses May Need Emotional Support Clown When New Independent Contractor Law Takes Effect

Emotional support clown independent contractor misclassification

An Auckland, New Zealand man sensed he was about to fired from his job in the ad industry. His employer scheduled a meeting and said he could bring someone with him for emotional support.

He brought a clown.

As the employer provided the man with his separation papers, the clown made balloon animals — a poodle and a unicorn — to try to lighten the mood. The clown also mimed crying as the employer explained the termination.

Afterward, the man described the performance of his emotional support clown as “overall supportive” but “sort of noisy.”

California businesses may want to hire their own emotional support clowns as they try to decide how to respond to Assembly Bill 5 (AB 5), which has passed both houses and now awaits Governor Newsom’s signature to become law.

AB 5 makes it harder to classify workers in California as independent contractors.  Once it takes effect, it will instantly convert many thousands of independent contractors into employees.

Here’s how. AB 5 codifies the ABC Test invented by the California Supreme Court in the Dynamex case and then extends it.  In April 2018, the California Supreme Court ruled that a strict ABC Test would be used for determining whether someone is an independent contractor or an employee under California’s Industrial Wage Orders, which cover minimum wage, overtime, meal and rest breaks, and a few other wage-related subjects.

Under AB 5, the Dynamex ABC Test will also be used to determine whether someone is an employee under all portions of the California Labor Code and the Unemployment Insurance Code.  That means independent contractors in California will be presumed to be employees of the entity for which they perform services under these laws, unless the business can prove all three of the ABC Test factors below:

A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

B) The person performs work that is outside the usual course of the hiring entity’s business; and

C) The person is customarily engaged in in independently established trade, occupation or business of the same nature as that involved in the work performed.

As discussed here, Part B of the test is the hardest to meet.

Unless all three factors of the test are satisfied, the workers will be considered employees under California law, and all of the following state law requirements will apply:

  • Minimum wage
  • Overtime, if not exempt, including daily overtime
  • Meal and rest breaks
  • Reimbursement of expenses
  • Paid sick leave
  • Paid family leave
  • Various notice, poster, and wage statement requirements
  • Timekeeping record requirements
  • Unemployment coverage
  • Workers compensation coverage
  • Paycheck timing requirements
  • On-call, call-back, and standby pay requirements
  • Travel time payment requirements
  • Final paycheck requirements
  • Commission rules

This is not intended to be a complete list of all California laws that apply to employees, but these are some of the most likely areas where businesses would find themselves to be in a state of noncompliance if their independent contractors are deemed to be employees under AB 5.

There are a number of exemptions to the bill, but they are narrowly crafted.  Barbers and estheticians, for example, are not affected.

If signed, the law will take effect January 1, 2020, although some provisions may be applied retroactively.

This bad news leads to the obvious question you astute readers will ask: So what are my options if I use independent contractors in California?

I am putting the finishing touches on The Playbook: Now That California Has Passed AB 5, What Are the Options for Businesses Using Independent Contractors?

The Playbook will be available at no cost and will be released as a BakerHostetler Client Alert. I will post a link here, once it is available.

In the meantime, let me know if you’d like more information about how AB 5 might affect your business. If you can’t reach me, I’m probably on the phone, trying to hire my own emotional support clown.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Employees Say They’ve Been Robbed! NLRB Says Independent Contractor Misclassification Does NOT Violate the National Labor Relations Act

Burglar roomba misclassification

Sheriff’s deputies in Washington County, Oregon, responded with guns drawn, expecting they were responding to a burglary in progress. A woman had called 911, saying that someone had broken into her house and locked themselves in the bathroom. She could hear rustling noises from behind the bathroom door, even though she knew she hadn’t allowed anyone into her home.

The officers entered the home and heard it too. They demanded that the suspect come out of the bathroom, hands raised. But no one responded. They busted open the door, ready to take down the suspected burglar by force.

What they found instead was a Roomba. The homeowner’s robotic vacuum cleaner had gotten stuck in the bathroom.

Calling the Roomba a burglar didnt make it a burglar, and calling in a suspected burglary did not make the woman a victim.

People make mistakes, and calling something the wrong thing can be an excusable mistake.

That’s essentially what the National Labor Relations Board ruled late last week, in a major pro-business decision.

In a case called Velox Express, The Board ruled that to misclassify a worker as an independent contractor — when the worker should have been an employee — is not a violation of the National Labor Relations Act (NLRA or the Act).

The Board reasoned that The Act prohibits interfering with employees’ Section 7 rights. Section 7 rights refer to employees’ right to engage in protected concerted activities, such as banding together to complain about their treatment. The Board said that by misclassifying employees as independent contractors, a company is merely stating a legal opinion about what the worker is. Telling workers they are contractors does not, by itself, interfere with their ability to organize or engage in protected concerted activity. If they’re really employees, they still can. It’s only if the company coerces or threatens the workers that the company interferes and then violates the Act.

The Board further reasoned that it’s hard sometimes to tell whether a worker is a contractor or an employee, and Congress did not intend to punish companies for making a mistake.

This decision will be blasted by worker advocates and, frankly, it’s surprising even to me.

The ALJ Decision That Led to This Ruling

We wrote about this case previously here, when an Administrative Law Judge made three important rulings.

First, the ALJ found that Velox exercised significant control over how its delivery drivers performed their work, which made them drivers under the NLRB’s Right to Control Test.

Second, the ALJ ruled that Velox violated Section 8(a)(1) of the Act when it discharged driver Jeannie Edge for raising group complaints that Velox exercised too much control over its drivers.  (In a somewhat ironic twist, Edge wanted to be an independent contractor but had perceived, correctly, that Velox was treating its drivers more like employees, even though it was calling them contractors. Edge wanted Velox to treat the drivers more hands-off, the way contractors would typically be treated.)

Third, the ALJ ruled that misclassifying an independent contractor was, by itself, a violation of the NLRA. The ALJ’s reasoning was that by misclassifying workers as independent contractors, the company was in effect telling the workers they had no rights under the NLRA, since that Act protects only employees, not independent contractors.

NLRB’s Decision

The case was appealed to the full Board, which agreed that (1) the Velox drivers were really employees under the common law Right to Control Test, and (2) Velox violated Section 8(a)(1) when it discharged Edge for engaging in protected concerted activity.

But the Board rejected Finding #3, ruling instead that misclassifying workers as independent contractors is, ho-hum, merely expressing a legal opinion. Section 8(c) of the Act says it’s not a violation to express an opinion.

The Board recognized that the outcome would be different if the company misclassified its workers as contractors for the purpose of interfering with employees’ Section 7 rights or to coerce them not to exercise those rights. But misclassification alone is not a violation of the NLRA.

So, Is Misclassification Now Lawful? Hey Man, Are You Gonna Shut Down the Blog?

No! and No! This decision says only that the act of misclassification is not an automatic violation of the NLRA. That’s just one law.

When a company misclassifies an employee as an independent contractor, every other law related to employees still applies. A company that misclassifies employees as contractors can still be violating tax law by not withholding from wages; can be held liable for violating wage and hour law by failing to pay a minimum wage or overtime or failing to provide meal and rest breaks; can still be in violation of state workers’ compensation and unemployment insurance law by failing to pay into those systems; can be in violation of the Family and Medical Leave Act by failing to offer the type of leave available to employees; and can still find itself in violation of every other law that grants rights to employees when the company does not grant those rights.

Misclassification can still violate the NLRA too, if a company engages in misclassification for the purpose of interfering with employees’ rights.

The game is still very much on.

So What Impact Will This Decision Have?

Probably not much. It sounds like a doozy, and it is; but as a practical matter, it probably doesn’t change a whole lot. Independent Contractor Misclassification still has significant legal consequences, and companies who misclassify workers as independent contractors when they should really be employees still face liability under a long list of employment, tax, and benefit laws. Violations of these laws continue to result in massive liabilities, often in the many millions of dollars.

This pro-business decision by the Board may result in fewer unfair labor practice disputes, but even that outcome seems unlikely. Disputes over employee vs. independent contractor status usually arise because there’s a real dispute over how a company is treating its workers, not merely because it used the wrong terminology. Any failure by a company to grant employees rights they are entitled to receive is still a violation of law, even if it’s no longer a violation of the NLRA merely to call an employee an independent contractor.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Why Don’t Companies Offer Healthcare Benefits to Independent Contractors?

 

I found this on buzzfeed, while doing academic research for this blog post.

In the business world, it’s not quite as funny when good intentions are misunderstood. Which is why companies generally can’t offer healthcare benefits to independent contractors. Even if they would like to, they can’t.

Good intentions would be misunderstood, and the effect of offering healthcare coverage to independent contractors would likely be that they are turned into employees.

Why?

The law limits who can sell health insurance coverage. You need a license. It’s the same reason I can’t work as an Aquatic Antifouling Paint Operator in New York State. If you want to commercially apply antifouling paints, which are pesticides, on vessel hulls, boat bottoms, or other other marine surfaces to inhibit the growth of aquatic organisms, you need an Aquatic Antifouling Paint Operator license. (Apply here.)

Companies that aren’t licensed to sell healthcare insurance can’t go around selling healthcare insurance. But there’s a narrow exception, which allows companies to offer healthcare insurance to its employees. The exception doesn’t extend to vendors, suppliers, or independent contractors. Only employees.

Some of the large rideshare app companies have advocated for legal reform that would allow them to offer more benefits to independent contractor drivers. But there’s not much they can do right now. Companies without a license to sell healthcare insurance can only offer healthcare insurance to its employees, not to independent contractors.

Some companies have begun to get creative in an effort to offer more benefits to independent contractor drivers. According to benefitsnews.com, some app companies are beginning to offer limited benefits, such as access to accident insurance, free online college courses, and professional certifications.

Some states, such as New York, have considered legislation that would expand the availability of benefits to independent contractors, but the current state of the law severely restricts what companies can do.

The legal problem for companies who want to offer more benefits to contractors is not just that they can’t sell healthcare insurance to non-employees. It’s also that the more benefits they offer to contractors, the more those contractors may start to resemble employees. Since U.S. law currently sees the Employee vs. Independent Contractor issue as binary — you can only be one or the other — companies who offer increased employee-like benefits to contractors run the risk that the contractors will be deemed their employees, which creates a whole big mess of other legal problems.

A company might wish to provide healthcare coverage to independent contractors, but the company’s good intentions would be misunderstood. Which is also why if you want a haircut and dye, you should just type it into your phone’s calendar instead of just telling Siri.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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How Do I Run a Background Check on an Independent Contractor?

How do i run a background check on an independent contractorAfter the events of this past weekend, I don’t have to say anything about the risks involved in allowing dangerous people onto your premises. Before retaining an independent contractor who will have access to your business’s facilities, people, or information, it makes sense to know who you are inviting into your house.

An employment-style background check is often appropriate, but there are a few important differences between background checks being run before hiring an employee and before engaging a non-employee contractor.  [We’re talking here about 1099 contractors, not staffing agency employees.]

If the background check is being run by a third party, then the federal Fair Credit Reporting Act (FCRA) is likely to apply. But the rules are different for pre-employment background checks and non-employment background checks.

For pre-employment background checks, certain disclosures must be made before the background check is obtained, and additional disclosures have to be made before you take an “adverse action” based on the result of the background check, such as revoking a conditional offer or not hiring someone. These additional requirements apply only for background checks being run “for employment purposes.”

Ok, Todd. These don’t sound too burdensome. Can’t I just follow the more burdensome pre-employment rules just to be safe?

Yes, sort of. But a few words of caution are in order.

First, your User Agreement with the background check company requires you to certify to the background check company the purposes for which you will be requesting background checks. Review your agreement to see whether you certified that you would only run background checks “for employment purposes.” 

Since this is not a background check being run “for employment purposes,” you need to have another permissible purpose under the FCRA. The law lists several alternatives. Two are likely to apply:  You may obtain a background check (1) “in accordance with the written instructions of the consumer” or (2) if you have “a legitimate business need for the information in connection with a business transaction that is initiated by the consumer.” Here, the “consumer” would be the individual contractor.

You may need to amend your agreement with the background check company before  you run any background checks on potential independent contractors. You never want independent contractors to be considered your employees.

Second, check the federal forms you give to the individual before you run the background check. You do not want to give an independent contractor a Disclosure form or an Authorization form that says your company will run a background check “for employment purposes.” Many generic forms include that phrase because it’s a term of art used in the FCRA. For background checks being run on independent contractors, you don’t want to have the contractor sign a document that can be used to argue you were creating an employment relationship, rather than an independent contractor relationship.

Finally, check the state law forms you are using. If your background check company supplied you with a suite of forms, those forms likely include various disclosures required under state laws. States with additional pre-employment background check requirements include California, Minnesota, New Jersey, New York, Oklahoma, and Washington State, among others. Almost all of the required state law disclosures, however, apply only to background checks being run “for employment purposes.” Be careful not to use forms with language that could be used to argue you were creating an employment relationship, rather than a contractor relationship.

Final thoughts:  Running a background check on an independent contractor can be a good idea and can bring you and your business some piece of mind. Be careful, though, that you don’t solve one problem by inadvertently creating another.

Background check pitfalls can be prevented if you use the correct forms and documents ahead of time. It’s not that hard to do this correctly, but it requires a some extra attention and care.

If you’d like more information, you can review two earlier blog posts I’ve written on this topic, here and here. Or feel free to contact me directly at tlebowitz@bakerlaw.com.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

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