California’s AB 5 Has Been Repealed, Sort Of.

Rain rain go away, come again another day.

When Zeus sends his thunderbolts into Cleveland, Zippy gets scared. The snow, wind, and rain don’t bother her, but the thunder and lightning cause her to shake. Usually she hides in the shower.

Seeking shelter from the storm (apologies to Robert Zimmerman) is what California businesses are doing too. Assembly Bill 5 (AB 5), codifying the ABC Test for determining who is an employee, has been in effect since January 1, 2020.

On Friday, a new law repealed and replaced it. This new law, AB 2257, passed both chambers in the California legislature unanimously and was signed into law September 4 by Gov. Newsom. It contains an urgency clause, which means it takes immediate effect. So AB 5 is gone.

Great news for businesses, right? Not exactly.

AB 2257 moves the ABC test to a different part of the California Labor Code– new Sections 2775 through 2787–and cleans up some of the confusing and poorly considered language in AB 5. It does not, however, provide relief from the ABC Test for most large businesses.

The revisions make it easier for entertainers, freelance writers and photographers, and digital content aggregators to maintain independent contractor status. It scraps the arbitrary 35-article limit for freelance writers to maintain independent contractor status. It allows entertainers to perform single event gigs without becoming employees. It cleans up some other language too, but it does not make substantial changes that would excuse large businesses from the ABC test.

For example, subsection 2750.3(f) of AB 5 addressed whether an exception applies for work requiring a license from the Contractors State License Board (CSLB). The exception, with its multi-part test, is unchanged. It just moves to a new section of the Labor Code, new Section 2781.

One small glimmer of hope comes from some clarifying language for the business-to-business exception. That exception still does not apply for work that requires a CSLB license. To fall within that exception (meaning that the ABC Test would not apply), one of the requirements is that the work must be performed for the benefit of the contracting business, not its customers. Under the revised law, that requirement goes away if “the business service provider’s employees are solely performing the services under the contract under the name of the business service provider and the business service provider regularly contracts with other businesses.” For grammarians who despise double negatives, this is an exception to the exception. You’re welcome. What it means is if your subcontractor has its own employees, operates as its own business, and performs work not requiring a CSLB license, it may be easier to meet the business-to-business exception, thereby avoiding the ABC test.

So where does that leave us? On one hand, the fact that the bill passed both chambers unanimously shows a recognition that AB 5 had some serious flaws. But on the other hand, the fixes that both chambers thought were appropriate are of minimal help to large businesses. It’s like unleashing a horrible lab-created supermonster, then deciding that its eyelashes should be less curly. The largely-superficial changes in AB 2257 are mainly designed to help maintain independent contractor status for individuals who truly run their own businesses, particularly in the entertainment, journalism, and digital content fields.

This new law obliterates AB 5 in name, but not in function.

Like the blanket I gave Zippy, this move by the California legislature is not likely to provide any shelter from the storm. The ABC Test in California remains alive and well. Whether you grab a blanket or hide in the shower, the ABC Test is here to stay.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Cut Off This, But Not That! Here’s Today’s Independent Contractor Tip

In 1877, the Police News reported the story of a dancer’s amputated leg sold at auction. But the story might not be as it seems, says Dr. Bob Nicholson, who studies news clippings from the Victorian era and is a fun follow on twitter.

Cutting off legs might not be a good way to raise money, but cutting independent contractors off from certain privileges may save your busienss money.

Whenever possible, cut off contractors from doing things that link them to your business. They should appear to the public as independent businesses, which hopefully they are.

To prevent contractors from portraying themselves in a way that may make them seem like employees, consider adding a clause like this one to your independent contractor agreements:

Contractor shall not use the Company’s name or logo in any of Contractor’s marketing or publicity materials, on clothing or other attire, on business cards, on a website, on social media, or in any other manner, unless the Company has granted permission in advance, in writing.

Sometimes you need your contractors to display your company logo, such as if they are being sent to customers’ homes for an installation. In those circumstances, consider adding “INDEPENDENT CONTRACTOR” in prominent language on any clothing that includes your company’s logo or name.

Proactive steps like this can help bolster your defense against misclassification claims. For balancing tests like the Right to Control Test and the Economic Realities Test, every good fact helps, and every bad fact hurts. Put as many brick on the good facts side of the scale as you can.

And if things don’t work out, you can always use this neat trick with your parasol to keep away bears.

Thanks again, Dr. Bob!

 

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Never Surrender: Appeals Court Grants Reprieve for Ride Share App Companies; Focus Turns to Prop 22.

Album cover: Boy in the Box.
Label: Aquarius in Canada, EMI America in the U.S.
Sleeves: Definitely rolled up if you could see them.

Thank you to Canadian singer Corey Hart for providing the theme to this week’s post. The Number 3 song this week in 1985 opens with, “Just a little more time is all we’re asking for.” The song, of course, is Never Surrender.

Last week we wrote about the preliminary injunction granted by a California Superior Court, preventing ride share app companies statewide from continuing to classify drivers as independent contractors. We called that ruling “Act I” because the matter was headed to appeal.

As expected, the matter was immediately appealed. Now it’s time to queue up Canada’s Juno Award winner for 1985 “Single of the Year“:

Just a little more time is all we’re asking for.

‘Cause just a little more time could open closing doors.

In a more musical world, those would have been the opening lines to the Motion for Stay in the Court of Appeals. Regardless, the motion was granted, and the ride share app companies are not going to reclassify anyone quite yet.

If the stay was not granted, the ride share app companies had threatened to shut down in California.

Oral arguments are scheduled for mid-October, which means a decision is months away. As we expected in last week’s post, the real action is on Proposition 22, on the ballot this November.

If Proposition 22 passes, the new ABC Test in Assembly Bill 5 (which went into effect Jan. 1, 2020) would not apply to workers in the app-based rideshare and delivery business. Instead, those workers could stay classified as independent contractors, but the app-based companies must ensure that the drivers receive a predetermined level of compensation and benefits, including:

  • Earnings Minimum. The measure would require app-based companies to pay at least 120 percent of the minimum wage for each hour a driver spends driving—but not time spent waiting for requests.
  • Health Insurance Stipend. The measure would require rideshare and delivery companies to provide a health insurance stipend of about $400 per month to drivers who regularly work more than 25 hours per week (not including waiting time). Drivers who average 15 driving hours per week but less than 25 driving hours would receive half as much.
  • Medical Expenses and Disability Insurance. The measure would require that companies buy insurance to cover driver medical expenses and provide disability pay when a driver is injured while driving.
  • Rest Policy. The measure would prohibit drivers from working more than 12 hours in a 24 hour period for a single rideshare or delivery company.
  • Other. The measure would require that rideshare and delivery companies have sexual harassment prevention policies and conduct criminal background checks and safety training for all drivers. It also would prohibit discrimination in hiring and firing.

The measure would also prevent cities and counties from passing further restrictions on driver classification.

Here’s the webpage for Yes on 22. Keep a close eye on the results of the vote because it will probably determine the future of ride share in California.

And don’t forget to wear your sunglasses at night.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Something Is Rotten in the State of California? Ride Share Misclassification Ruling Is Merely Act I

CA flag pole

“To be or not to be” are the opening words of a soliloquy by Prince Hamlet. With that, I have exhausted what I remember about Shakespearean plays without consulting Wikipedia. Having consulted Wikipedia, I can confirm that this soliloquy occurs in Hamlet, Act III, Scene 1.

A lot happens in Act III and beyond, and if you stopped reading Hamlet after Act I, you’d miss most of the action, including assorted plotting, scheming and mayhem.

Last week in California, a different kind of mayhem began in a major case involving alleged independent contractor misclassification. In California v. Uber, a state superior court judge granted a preliminary injunction, requiring ride-sharing app companies to reclassify California drivers as employees. But this order might not be the poisoned blade it seems to be. Either the ruling is a substantial blow, or it’s much ado about nothing. For now, it’s too early to tell. We’re still in Act I. Like in Hamlet, the real action will be in the later acts.

Read the rest of the post here, on BakerHostetler’s Employment Law Spotlight Blog.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Identity Unclear? Court Adds to Confusion for Enforcing Arbitration Agreements

chickenZoanthropy is a mental disorder in which a person believes he or she is an animal. In this recent case, a 54-year old Belgian woman mistook herself for a chicken. The rare condition — and the woman’s clucking — stopped suddenly when she had a seizure, which apparently is a decidedly un-chickenlike thing to have.

Identity crises continue to plague the courts too. As we reported here, arbitration agreements can become unenforceable when applied to drivers of goods, if those drivers are in “interstate commerce.” What it means to drive in “interstate commerce” is not so clear. We reported last month on seemingly contradictory decisions by the New Jersey Supreme Court and the First Circuit Court of Appeals.

Last week, the Seventh Circuit Court of Appeals muddied things up more, ruling that GrubHub’s arbitration agreements with independent contractor drivers were enforceable, meaning that drivers who sued, claiming employee status, had to bring their claims individually through arbitration, not in a class action in court. The court ruled that these local food delivery drivers were not driving in “interstate commerce.” (Tip: If you’re craving fries, order from a fast food joint in your home state. )

That’s a nice win for GrubHub and for the enforcement of arbitration agreements in general.

Eventually, the Supreme Court is going to have to sort this out and tell us when drivers of goods are in “interstate commerce” and when they are not. Courts have tried to draw distinctions around whether the drivers cross state lines, whether the goods cross state lines even if the drivers do not, and whether the goods were “at rest” before being driven the last mile. We have different standards being used by different courts in different states — even though they’re all just trying to interpret the meaning of an exception in a federal law, the Federal Arbitration Act.

The end result is that companies using arbitration agreements with drivers of goods may — or may not — be able to enforce their arbitration agreements under the Federal Arbitration Act.

For now, confusion reigns. But at least our Belgian chicken lady is back to normal. OddityCentral reports that some cases of zoanthropy have lasted decades.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Up North, Uber Can’t Make Drivers Go to Amsterdam to Sue. (Wait, What?)

exposI bought a Montreal Expos t-shirt last week. Why? I needed some new work clothes.

I’ve been emailing with a friend in Ontario about the difference between the U.S. and Canada when it comes to coronavirus precautions, and we both agree it’s a good idea to keep the border closed for now. Did you see the Maid of the Mist pictures showing the Canadian boat with six well-distanced (and undoubtedly polite) passengers and the American boat packed like it’s 2019. Canada has hardly any cases. Anyway, I digress. As usual.

While Canada is on my mind, I’ll share a recent decision by the Supreme Court of Canada. The ruling will allow a proposed $400 million class action against Uber to proceed in Ontario on the issue of whether drivers are misclassified as independent contractors.

At issue was the validity of Uber’s arbitration agreements for drivers in Canada. The agreement required drivers to arbitrate any disputes in Amsterdam, following the rules of the International Chamber of Commerce and Netherlands law. Wait. What? Yes.

And there’s this: Filing a case would cost a driver US $14,500 in up-front administrative fees.

The Court’s opinion called the arbitration clause “unconscionable,” and Uber responded by confirming to The Star that it planned to update its arbitration agreements accordingly.

Gig economy platforms are under attack in Ontario, much like in the U.S. Think of Ontario as Canada’s version of California or Massachusetts but with better access to poutine.

According to The Star, the Ontario labour relations board ruled earlier this year that couriers for a food delivery app were not true independent contractors and therefore had the right to join a union. Drivers using the Uber Black platform are also challenging their classification as contractors. American expats are challenging the use of a superfluous U by the labour relations board.

Lesson: If you’re going to require arbitration, be reasonable. Amsterdam might be a nice place to visit (see the Vondelpark!), but it’s too much of a stretch to require an Ontario rideshare driver to go there to file a claim. Next time, try Greenland?

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Do Not Break Glass: Arbitration Clauses May Shatter in Agreements with Independent Contractor Delivery Drivers

largest-glass-blown-sculpture

Photo: CGTN/CFP

When your kids were little, did they ever run around in places they shouldn’t, causing you to fear what would happen if they broke something? Well you’re not alone. The world’s largest glass-blown sculpture sits in a museum in Shanghai. At least it did until recently. On May 30, two children accidentally broke it while running through the museum playing. There was a protective belt to try to prevent this sort of thing, but the kids ran right through it.

The moral of the story is that protective belts are not always good enough. The same is true when it comes to independent contractor agreements. One of the most useful protective belts we can install to protect against misclassification claims is a well-drafted arbitration clause with a class action waiver. That forces any independent contractor who claims to be an employee to fight that battle on an individual basis in front of an arbitrator. No court, no class action.

But this protective belt doesn’t always work, especially in the transportation industry.

Arbitration agreements with class action waivers work well in most industries. Under the Federal Arbitration Act (FAA), these agreements are generally enforceable, and they’ve saved many a large company from having to face gigantic misclassification class actions.

But the FAA has an exception. It doesn’t apply to transportation workers engaged in interstate commerce. There’s been lots of litigation over what that means and how broad the exception is.

A pair of decisions last week tried to address this question with respect to last-mile delivery drivers.

Both cases assumed the last-mile drivers were transportation workers engaged in interstate commerce, even though they generally did not cross state lines.  (We don’t know how the US Supreme Court would rule on that question). Since the FAA did not apply, the question then became whether the arbitration clauses and class action waivers were enforceable under state law.

Two courts, two cases, and two states resulted in two very different outcomes.

The New Jersey Supreme Court ruled that arbitration agreements with delivery drivers are enforceable under New Jersey Arbitration Act, even if not under the Federal Arbitration Act (FAA).

But a federal appeals court took the opposite view of the same issue under Massachusetts law, ruling that a class action waiver in an arbitration clause is void because it is contrary to Massachusetts public policy.

So what does this mean for companies who use independent contractors in the transportation industry?

Depending on the facts and the court, the FAA might or might not apply. If the FAA does not apply, the question of whether the arbitration clause and class action waiver can be enforced will depend on state law.

That means companies need to be very careful in drafting their choice of law provisions and their severability clauses. If parts of the arbitration clause are unenforceable because of the class action waiver, will the whole clause be cut or just the class action waiver? If a court severs only the class action waiver, could you end up in class arbitration? The contract should also anticipate that possibility, and the arbitration clause should contain language prohibiting the arbitrator from hearing a class action. The effect of that clause would be to force the class action back to federal court. Most companies, if faced with a class action, would prefer to defend class claims in court rather than in arbitration.

These two cases highlight the importance of considering these issues when drafting independent contractor agreements in the transportation industry. While different state laws may lead to different outcomes, your contract should plan for the worst and be written to protect against the least desired outcome.

And if you are put in charge of security at a museum, try a better protective belt.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Silver Linings? DOL Looks to Adopt New Independent Contractor Test Before Year End

canoe

The past few months have included many silver linings — more family time, a Lake Michigan vacation, and professional cornhole on TV. I’ve also learned new things — governors have more power than I thought, remote work is more doable than many of us thought, and there’s such a thing as professional cornhole.

Now the Department of Labor wants us to learn something new too — about independent contractor status. (Too many long dashes so far? I’m flagging myself for excessive use.)

Last week the DOL published a notice that it intends to fast-track a new regulation covering the test for independent contractor vs employee under the Fair Labor Standards Act.

What would that test look like? The DOL gave no hints, but here is my educated guess.

The test for independent contractor status under the FLSA is an Economic Realities Test.  That is a court-created test, it’s well-established, and it’s not likely to change. If the DOL did try to change it, I don’t think the courts would follow the new regulation anyway. So the DOL is going to have to work more around the edges.

I expect the regulation to define more precisely the factors to be taken into account under the Economic Realities Test. Right now, different courts use different versions of it. Some uniformity would be helpful.

I also expect some examples to help illustrate how the factors should be applied. Look for sample fact patterns that seem like close calls but perhaps would be deemed supportive of independent contractor status under a new DOL interpretation.

We can expect the DOL will gently place its fingers on the scales, making it a bit easier to maintain independent contractor status under the FLSA. Don’t expect a full rewrite of the test.

The DOL will want to implement the new rule quickly, in case a new administration takes over in January. Look for a proposed regulation shortly, a quick public comment period, and a new regulation on the books late this year.

Hopefully by the time we see a final rule, we can watch real sports on TV and demote cornhole to livestream only. That way both people who care could still watch.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Here’s a Question I Was Asked Three Times This Week (and the Answer)

Zippy sunset Charlevoix

Zippy on vacation

The word “sunset” can be used to signify many things. My personal favorite is the one pictured here. That’s Zippy enjoying the view this past weekend in Charlevoix, Michigan.

Another meaning of Sunset” is to fade out or to discontinue. That’s the meaning I’m after here.

One question came up multiple times this week, with some slight variations. Here it is, along with the answer.

Question:  When the pandemic began, we laid off an employee. We now have some work for that employee, but not as much as before. Can I bring back the employee as an independent contractor?

Answer:  Sunset that idea. Let it fade away. Discontinue that thinking. Probably not.

Any time the same individual receives a W-2 and a 1099 in the same calendar year, red flags go up. It’s a strong indicator of misclassification. If the worker’s work was employment before the pandemic, it’s almost certainly employment now — even if the hours are reduced or the recall is for a limited time.

Remember, the Employee vs. Independent Contractor question is answered by looking at the facts related to the work and how it is performed, regardless of what the parties call the relationship. If you’re bringing back an employee to perform similar work, you should probably be bringing that employee back as an employee.

In the IRS’s handbook for Worker Classification Determinations, the Service instructs its agents that when a worker has received a W-2 and a 1099 in the same year, the agent is to perform a full status review. It’s a likely sign of misclassification. Also, you probably don’t want the IRS to do a full anything.

There may be situations where it’s ok, such as if the laid off worker quickly established her own business, advertised to the public, secured other clients, and wants to bring on your business as a new client. But it’s pretty unlikely all that has happened since March.

The pandemic has given us all enough to deal with. Let’s not add a misclassification claim to the list of concerns.

Remember, it’s ok to bring back an employee as a part-time employee, or for a limited time with a projected end date. But retain the worker’s status as an employee.

And for those looking to get away during the pandemic, I highly recommend finding a beach house on Lake Michigan. Can’t beat these views!

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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New Seattle Sick Pay Law for Gig Workers: Squishy or Full of Venom?

jellyfish

Horrifying images not intended to scare children. Thanks, PBS Learning.

I learned this week that a species of jellyfish found off the coast of China, Japan, and Korea can weigh up to 440 pounds. There’s a video here, and the size of this thing is terrifying.

In Finding Nemo, I learned that you can bounce on the fleshy heads of jellyfish without getting stung, and this creature has an abundantly fleshy head. The tentacles, though, are a different story. There are a lot of them. So the lesson here is that when approaching a Nomura’s Jellyfish, as they are called, be thoughtful in how you approach.

Which brings me to the City of Seattle. Seattle has been relentless in looking for ways to provide gig workers benefits of some kind, without getting caught up in the Independent Contractor vs. Employee question. The city has been aiming to grant gig workers certain rights, whether they are employees or not.

Seattle’s strategy is to aim for the jellyfish’s head, not wanting to get caught up in the tentacles of a dispute over whether the gig workers are employees or not.

In its latest head shot, Seattle has enacted an ordinance requiring transportation network companies and food delivery network companies (app based) to provide paid sick time to gig workers who perform services in Seattle. The requirement applies regardless of whether the workers are contractors or employees. The law was signed on June 12, 2020.

This move may signal a new strategy for states and localities that wish to provide benefits to gig workers. They can require benefits for gig workers, regardless of whether the workers are deemed employees.

This approach, if it works, may introduce other problems for app-based companies.

If companies start providing benefits such as paid sick leave to workers they consider to be independent contractors, that fact could be used against them as evidence the workers are being treated as employees.

In other words, this ordinance sets a trap. App-based companies will still be able to argue that they are providing sick leave only because they are required by local law, but surely the plaintiffs’ bar will argue that providing sick leave is evidence of employment status.

It’s a dangerous game, trying to bounce of the heads of the squishies while avoiding the sting. We’ll see how it plays out. In the meantime, obey beach hazard signs and try to avoid getting stung.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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