Tag Archives: Independent Contractor vs. Employee

04.29.24
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Think Big: Ninth Circuit Provides Another Reason to Engage Entities, Not Individuals, in Independent Contractor Agreements

The world’s largest passenger elevator is inside the Jio World Center building in Mumbai, India. It can hold 235 people and is designed to cater to large gatherings, such as weddings or convention attendees.

The elevator has glass windows, offers panoramic views of the gardens below, and features a crystal-studded ceiling. It has two sofas so passengers can relax while ascending the maximum five floors at the slow but deliberate rate of 1 meter per second.

Thinking big doesn’t just work when building elevators. It also works when building independent contractor agreements.

Here’s what I mean.

When lots of contractors are being retained, an important feature to include in independent contractor agreements is the requirement to arbitrate disputes on an individual basis, with a waiver of class claims. Under the Federal Arbitration Act (FAA), arbitration agreements and class action waivers are generally valid and enforceable.

But there’s that pesky transportation exemption in Section 1 of the FAA, which says that the FAA does not apply to transportation workers. The Supreme Court recently issued its decision in Bissonette v. LePage Bakeries, holding that to determine whether the transportation worker exception applies, you need to look at what the worker does, not what industry the worker is in. But this post isn’t about Bissonette. It’s about a Ninth Circuit decision issued a few weeks earlier.

The Ninth Circuit ruled that the transportation exemption applies only to individual workers, not to entities. Why does that matter? Well, is your independent contractor agreement with an individual or an entity?

If it’s with an individual, and the worker is engaged in transportation work related to interstate commerce, the transportation worker exception of the FAA might apply, which means the FAA and all of its protections for mandatory arbitration agreements would not apply.

But, according to the Ninth Circuit, if your arbitration agreement is with a business entity, then the transportation worker exception does not apply, since it is inapplicable to business-to-business disputes. That means the FAA does apply.

Engaging small businesses, even single member LLCs, can offer a number of advantages when trying to protect independent contractor status. This recent Ninth Circuit decision offers another advantage, better protecting the parties’ ability to require arbitration of disputes and waivers of class claims.

So when engaging independent contractors, remember to think bigger than the individual. If you can contract with an entity, even a single member LLC, you might be better off — for lots of reasons, even if none of them come with a sofa or panoramic views.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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04.08.24
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It’s No Eclipse Myth: FTC Considers Alleging Independent Contractor Misclassification Claims

I’m taking today off for the eclipse. The Federal Trade Commission never takes the day off. More on that below. But first, some fun facts, courtesy of exploratorium.edu.

-> In Vietnam, legend has it that a giant frog swallows the Sun. Its master, the lord of Hahn, then convinces the frog to spit it out.

-> In Javanese mythology, the god of darkness, Batara Kala, swallows the Sun. Javanese villagers try to make Batara Kala release the Sun by offering sacrifices and beating drums.

-> In Andean mythology, a puma devours the Sun. To prevent the Sun’s death, the puma must be frightened away by the screams of children and the cries of animals.

I don’t feel the need to ask my children or animals to scream away the eclipse, but I may do some crying and screaming on my own if the FTC has its way and starts getting involved in independent contractor classification disputes.

According to a recent speech by FTC Commissioner Alvaro Bedoya, the FTC may consider trying to bring independent contractor misclassification claims.

Misclassification has always been viewed as an issue of employment and tax law. But according to Bedoya, the FTC may choose to see misclassification as an unfair competition issue, thereby granting it jurisdiction (so he says) to bring enforcement actions of its own.

In his published remarks, Bedoya outlined several examples of egregious misclassification that would not pass muster under any law. Then he used these extreme and unusual examples as reasons why the FTC should get involved in pursuing misclassification wrongdoers. He argues that the FTC should get involved because misclassifiers are engaging in unfair competition, in violation of section 5 of the FTC Act.

But if the examples he gave already violate the FLSA and NLRA and state laws, why does the FTC need to pile on? It doesn’t.

Bedoya acknowledged that the DOL and the NLRB “are doing everything they can to stop it.” But then in the next sentence he said he thinks the FTC should “step up to the plate” too.

We have already seen that the FTC is trying to flex its muscle on issues like noncompete agreements, seeking to expand its authority beyond the traditional antitrust arena. Fighting misclassification might be the next battle the FTC wants to take on.

Businesses should remain vigilant and know that misclassification claims can come from lots of different places. Soon we may need to add the FTC to that list.

I think for now he’s just testing the waters and floating the idea to see what kind of support it might garner. I doubt the FTC truly has the jurisdiction or authority to enforce worker misclassification, but that doesn’t mean it won’t try — just like it’s trying to prohibit noncompete agreements by calling them a tool of unfair competition.

We’ll watch what the FTC does, but if it gets more aggressive on this issue, I may need to gather some children and animals to try to scream the FTC away.

I would not go so far as to offer sacrifices or beat drums. I’ll leave that to the ancient Javans.

If you’re in the line of totality, enjoy the eclipse!

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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04.01.24
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Stumpy’s Demise: How Do Most Claims of Independent Contractor Misclassification Arise?

Last weekend, I didn’t post because I was in D.C., where I had my first tour of the cherry blossoms. One of the most beloved trees at the Tidal Basin is this poor shrub of a tree affectionately known as Stumpy.

Stumpy looks dead, but every March he (he?) sprouts a cheery hat of blooming cherry blossoms. But this bloom will be Stumpy’s last. Because of repeated flooding around the Tidal Basin, the sea wall is being raised, which will require the chopping down of 150 trees.

While Stumpy is in for a rude surprise after the bloom, companies using independent contractors can plan in advance to avoid their own demise.

I was asked recently what are the most common ways that claims of independent contractor arise. I thought, that’s a good blog post topic. So here goes.

Here are the most common way that a claim of independent contractor misclassification can arise:

  • Individual lawsuit
  • Class action lawsuit
  • Government audit, random – IRS, DOL, state DOLs, state tax agencies
  • Government audit, based on complaint – IRS, DOL, state DOLs, state tax agencies
  • Former IC files for unemployment. Employer denies IC was an employee, but the agency investigates and concludes the worker was misclassified. Typically, the agency will then assume all similarly situated ICs were also misclassified and the employer failed to pay into the unemployment system for the lookback period (probably 3-4 years) and will then issue a large bill for unpaid assessments, often six figures+.
  • Workers’ compensation claim, same scenario as for unemployment

There are also unexpected and odd situations that can arise, like here.

A similar list for Stumpy might look like this:

Most likely ways that Stumpy might meet his demise:

  • Chainsaw
  • Axe
  • Lightning strike
  • George Washington’s chopping method of choice if he could tell a lie
  • Typhoon

Ok, typhoon seems unlikely. I assume it’ll be a chainsaw.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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01.29.24
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The Clash: Supreme Court to Decide About Arbitration in a Misclassification Case

The 1982 release by the Clash asked, “Should I Stay or Should I Go?” The song included backing vocals in Spanish, but since none of the band members spoke Spanish, they had tape operator, Eddie, call his mother, who was Ecuadorian. Eddies’ mom translated the backing vocals into what we hear on the recording (Yo me enfrio o lo soplo).

The Supreme Court agreed last month to address the same question — should I stay or should I go? — but in a different context.

The case involves independent contractors who sued, alleging misclassification, the contractors had signed individual arbitration agreements, and the business successfully moved to compel arbitration. So far, this is all very ordinary.

But when a court sends a case to arbitration, should it stay the case or dismiss it? Different federal courts handle this differently. There’s a good ol’ fashioned circuit split, and the Supreme Court will decide whether courts have the discretion to dismiss cases instead of merely staying them.

Why does it matter? In most cases, it won’t matter. But there are varying points of view. A dismissed case can be appealed; the decision to stay a case usually cannot. A stayed case may require updates to be filed; a dismissed case does not. A stayed case may lead to a streamlined order adopting the arbitrator’s decision; a dismissed case would require a new filing.

Sometimes cases have claims that are subject to arbitration and claims that are not. In those instances, a stay is probably the only logical option. When the arbitration is done, the court will decide the remaining claims. But when all parties have agreed, by contract, that their dispute must be arbitrated, many courts see no basis for staying the case, and they dismiss it.

The textualist argument is that a stay is the only way to go (see what I did there?). Section 3 of the Federal Arbitration Act says that a court, “shall on application of one of the parties stay the trial of the action until such arbitration has been had….”

But if there’s no dispute that the court can hear, because all parties have agreed to arbitrate disputes, then there’s nothing left for the court, and dismissal would seem proper.

We’ll continue to watch this case. The Supreme Court will likely hear the matter in late 2024.

In the meantime, This indecision’s buggin’ me (esta indecisión me molesta).

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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01.22.24
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Face It: The New DOL Independent Contractor Rule Faces Court Challenges

“Faces” is a useful word.

It can mean the front part of the head, as in this selfie featuring two hairy-faced beasts. The one on the left has a wet drippy beard after sloppily drinking water from a bowl. No, I meant on your left.

It can mean the English rock band formed in 1969, which featured Rod Stewart and Ronnie Wood. Their 1971 album, A Nod Is As Good As a Wink… to a Blind Horse, reached #2 in the UK charts.

Or it can be a verb, as in “DOL Independent Contractor Test Faces Court Challenges.” In today’s post, we’re going with verb.

As expected, the independent contractor rule released by the DOL earlier this month is already being challenged in court.

A coalition of business groups is trying to invalidate the rule by asking the Fifth Circuit to reopen an earlier case. In the earlier case, these groups challenged the Biden DOL’s effort to withdraw the Trump DOL’s 2021 version of the independent contractor rule. The 2021 version would have simplified the test, focusing the analysis on two key factors — control and opportunity for profit or loss. In the lawsuit, the business groups argued that the Biden DOL’s efforts to delay and withdraw the Trump DOL’s 2021 rule violated the Administrative Procedure Act (APA).

These groups now argue that the new rule contains the same legal flaws and that that the Trump DOL rule should be the rule that rules. The case is Coalition for Workforce Innovation v. Su, 5th Cir., No. 22-40316.

A second challenge has been filed by freelancer writers and editors who argue that the new rule is impermissibly vague and “freewheeling” (an excellent word choice) and that it violates the APA. They claim that the new rule impermissibly threatens their ability to work as independent contractors and is too vague to allow them to reasonably structure their businesses.

These challenges will take a while to resolve, and more may be filed. Unless a court issues an injunction staying the rule while these cases proceed, the new rule will take effect March 11th.

In the meantime, we’ll keep watching to see what happens. It’s a real face off!

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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01.15.24
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Don’t Read This Post (Read This Instead)

I didn’t post last week because I was waiting for the DOL’s new independent contractor rule to drop.

And then it did. And I’m still focused on it. And businesses using independent contractors should be aware of it too.

So today, leave this page and don’t read this post.

Instead read this Client Alert, in which I break down the new DOL rule, its likely impact, and the practical implications for businesses.

https://www.bakerlaw.com/insights/the-dols-new-independent-contractor-test-just-dropped-now-what/

See you all next week!

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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01.02.24
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Snakes! And Other Things to Watch for in 2024

This is a venomous Eastern Brown Snake, native to Australia. Stay away.

Tennis star Dominic Thiem knew what to watch for in his match this past weekend in Brisbane. It was on-court hazard he couldn’t ignore.

Play was interrupted when a “really poisonous snake” slithered onto the court near the ballkids. The intruder, an Eastern Brown Snake, “has the unfortunate distinction of causing more deaths by snake bite than any other species of snake in Australia.” The snake’s venom causes “progressive paralysis and uncontrollable bleeding,” which is not one of the on-court hazards typically of ballkidding.

(I don’t know if ballkidding is the real word for this, but it should be. Or ballkiddery maybe. I also learned from the snake bite article that the proper term for being bit by a venomous snake is “envenomation,” which is a word I hope to use elsewhere in a sentence sometime in 2024. So there’s a New Year’s resolution. [@Lisa, take note, I made one, even though you {correctly} say I am no fun because I won’t play the New Year’s Resolution game.])

The Eastern Brown Snake is not present in the U.S., so we don’t have to watch for any in 2024.

But here are several other things that could bite you in the behind in 2024 if you’re not paying attention:

1. New DOL test for independent contractor misclassification. The DOL issued its proposed new rule in October 2022 and targeted the fall of 2023 for release of a new final rule. The proposed rule would identify seven factors to consider when evaluating whether someone is an employee under the Fair Labor Standards Act (FLSA). The final rule will likely be very similar. We’re still waiting, and the final rule could be released at any time.

2. The new NLRB test for joint employment takes effect Feb. 26, 2024. Unless it doesn’t. The new rule is being challenged in both a federal district court in Texas and the U.S. Court of Appeals in D.C. Either court could quash the rule. The new rule will substantially expand who is a joint employer under the NLRA, even for worksites without unions.

3. Increased state and local enforcement activity. States and localities are filing their own lawsuits alleging worker misclassification. The New Jersey Attorney General recently filed a major lawsuit. The California Attorney General and California localities have been pursuing misclassification lawsuits too. Remember this: As much as I advocate for individual arbitration agreements with class waivers, they have no effect on enforcement actions brought by a state or local government. These lawsuits pose a substantial risk, and the governments love to issue one-sided accusatory press releases when they file the lawsuits.

4. The feds are doing this too. The DOL is bringing its own enforcement actions and publicizing them.

5. State and local laws that affect independent contractor classification and joint employment. We’re seeing legislative activity in three main areas:

(a) laws to change the tests;
(b) laws that provide a safe harbor for independent contractor classification if certain protections are provided to the workers (Cal. Prop 22, this proposed Mass. state law); and
(c) Freelancers laws that impose various requirements when retaining a solo independent contractor (currently: NY, IL, Los Angeles, Minneapolis, Seattle, NYC, Columbus).

6. State laws that criminalize worker misclassification. Take a look at recent legislation passed in NY State and Rhode Island.

7. State laws governing the use of temporary workers. Look for more states to enact laws like the Illinois Day and Temporary Worker Services Act (amended in Aug. 2023) and the New Jersey Temporary Workers’ Bill of Rights (enacted in Aug, 2023). These laws force companies that use staffing agencies to disclose the wages and benefits being paid to direct employees.

8. California’s AB 5 is still being challenged. This is the law that codified the ABC Test for most independent contractor relationships. But it also included a grab bag of miscellaneous and arbitrary exceptions. A full en banc Ninth Circuit has agreed to rehear Olson v. State of California, which challenges the constitutionality of AB 5.

Wishing you a happy, healthy, and litigation-free 2024.

Best wishes,
Todd

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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12.04.23
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Beware of Falling Tortoises: Large Fines Are the Law for Willful Misclassification in California

Aeschylus (525-456 BC) was a Greek playwright and is often described as the father of tragedy. While only seven of his estimated 70+ plays have survived, the story of his death remains solidly entrenched atop the list of all-time oddest deaths (if it’s true).

Apparently, Aeschylus died after being struck in the head by a tortoise dropped by an eagle which had mistaken his head for a rock suitable for shattering the shell. That qualifies as a surprise ending to an otherwise successful career.

Today’s post is intended to help businesses in California avoid their own surprising deaths, sans tortoises.

Businesses using independent contractors in California are reminded that misclassification risks extend beyond the usual laws you’d think to be worried about. The California Labor Code has a special section devoted to making willful misclassification of workers illegal, period, end stop, and the law imposes substantial fines.

In other words, if you are working with independent contractors who should — under California law — be classified as employees instead, your business may be subject to substantial fines, even if you are not violating any of the laws addressing overtime, meal and rest breaks, reimbursement of expenses, etc.

Under Labor Code section 226.8, “willful misclassification” of independent contractors is, by itself, unlawful. Penalties start at “not less than” $5,000 and “not more than” $15,000 for each violation. If the Labor and Workforce Development Agency or a court determines that the violations are part of a pattern or practice, the fines jump to “not less than” $10,000 and “not more than” $25,000 for each violation.

Violators will also be required to post a notice on their website or in a location accessible to the public.

If your business is registered with the Contractors’ State Licensing Board, violations will also be reported to the Board for disciplinary proceedings.

The law defines “willful misclassification” as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The law applies to “any person or employer,” raising questions as to whether individuals may be penalized too.

So if you’re doing business with independent contractors in California, be aware of the usual range of potential violations — overtime, meal and rest breaks, wage statements, expense reimbursements, etc. But also be aware that willful misclassification is, by itself, unlawful. Fines under Labor Code section 226.8 should be something you’re aware of. Enforcement is more frequent and more likely than being hit in the head by a falling tortoise.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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10.16.23
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Weighing Heavy: Rhode Island Makes Some Misclassification a Felony

Because of gravitational pull, topography, and geology, people apparently weigh a bit more when in Southern Illinois than in Ohio or Indiana.

For an adult human, the difference is only about .02 pounds, so relocation is probably not a viable weight loss strategy. But still. Who knew?

Meanwhile, in Rhode Island a new wage theft law is going to weigh heavily on some buysinesses, no matter what the gravitational pull might be in Providence.

Amendments to the Rhode Island Payment of Wages Act, effective 1.1.2024, drastically increase the penalties for independent contractor misclassification.

Outside of the construction industry, penalties for misclassification will include fines between $1,500 and $5,000 per misclassified employee. Complaints will result in an investigation and, if a violation is found, a lengthy new administrative process ensues that may result in referral to the state attorney general for criminal prosecution.

In the construction industry, independent contractor misclassification will now be a felony, punishable by up to three years in prison, if the violation (a) is knowing and willful, (b) is a second violation of the Rhode Island law, and (c) is valued at $1,500 or more. First violations, if knowing and willful, are misdemeanors punishable by up to one year of imprisonment, for violations valued at $1,500 or less. Violations may also result in a fine of up to $1,000, instead of or in addition to imprisonment.

The amendment contains a possible drafting error (using “and” instead of “or), creating ambiguity as to whether a first violation in the construction industry may be punishable as a felony if the offense is knowing and willful and results in an underpayment of more than $1,500. The questionably drafted section is 28-14-19.1(i)(2)(i).

“Construction industry” is defined broadly and includes remodeling, repairing, improving, and maintaining any building.

“Employer” is also defined broadly and includes “any agent” of the employing entity.

The standard for determining misclassification will be the same standard that applies to the Fair Labor Standards Act (FLSA). That means an Economic Realities Test.

The amendments also impose criminal felony penalties for other selected wage and hour violations, if knowing and willful, including (a) failure to follow payday requirements, (b) failure to timely pay wages or accrued unused vacation upon termination, and (c) failure to timely pay an employee’s family wages due upon an employee’s death. Penalties for violations of these provisions include imprisonment for up to three years.

According to this article on SHRM.org, the Rhode Island Attorney General supported the amendments as providing enhanced tools and penalties for wage theft violations. The Attorney General seems particularly focused on going after independent contractor misclassification in the construction industry.

Businesses with employees and contractors in Rhode Island should review their current practices and double check for misclassification risks. The penalties for wage and hour violations in Rhode Island will be heavier than ever, starting in 2024.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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10.09.23
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Guard Your ‘Stache: Massachusetts May Consider Its Own Version of Prop 22

This is the Moustache Guard.

Invented by Virgil A. Gates of West Virginia, the Guard is intended for “holding the moustache out of the way of food or liquid while eating or drinking.” As you may have already guessed, Virgil filed for a patent in 1876. Why would you have guessed that? Because 1876 was the last time anyone was named Virgil.

Moustaches, while certainly worth guarding (especially those of the handlebar variety), aren’t the only thing in need of protection. Solo independent business owners in the delivery and rideshare industries have been under attack, as class action lawsuits and government agency activity increasingly seek to take away their independence by declaring them employees.

In 2020, California enacted Prop 22, which preserved independent contractor status for these drivers so long as the app companies provided a list of preset benefits and guaranteed pay. In a statewide vote, Prop 22 passed overwhelmingly with 59% of the vote.

Massachusetts may soon follow suit. A similar ballot measure is likely to be considered by voters in the Bay State about a year from now.

The ballot measure, if successful, would create a system like Prop 22 in Massachusetts. Delivery and rideshare drivers would be granted independent contractor status, so long as the app company they were using provided them with a litany of worker benefits. The required benefits would include:

  • Guaranteed pay at 120% of state minimum wage for time spent completing delivery or rideshare requests;
  • Additional per mile pay for each mile driven in a personal vehicle;
  • A healthcare stipend for drivers who average 25 or more hours per week;
  • One hour of paid sick time per 30 hours worked;
  • Accident insurance; and
  • Prohibitions on discrimination based on race, sex, sexual orientation, and other protected characteristics.

Click here for the official summary of the proposed law.

If the ballot initiative receives enough signatures, it may appear on the ballot for a statewide vote in November 2024. Alternatively, the legislature may choose to consider the issue on its own, before the 2024 general election.

Initiatives like this one and California’s successful Prop 22 provide a reasonable, common sense third alternative to what is usually a binary choice between classification as an independent contractor (with no employee rights) and an employee. Rideshare and delivery drivers generally value their independence and the ability to operate their own business. Laws like this one allow them to do so as contractors while receiving certain benefits and guarantees.

And that’s worth protecting.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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