Tag Archives: Independent Contractor vs. Employee

09.16.24
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Try These Steps to Reduce IC Misclassification Risks, in the Long Run

Don Henley used to hurry a lot, he used to worry a lot, he used to stay out till the break of day.

But you don’t need to carry on that way. — at least when it comes to reducing your company’s risk of independent contractor misclassification. Here are four steps you can take that will proactively reduce risk, in the long run:

1. Review & Modify Actual Practices

Courts answer the question of Who Is My Employee? By reviewing the actual facts, not what the parties intend or what the contract says. Make sure the facts on the ground are consistent with economic independence of the contractor and a lack of control by the hiring party. Change the facts when you can.

2.Create a Vendor Qualification Questionnaire

Require vendors to make a set of written representations that support their status as independent contractors. Then rely on this set of representations when deciding whether to retain each contractor. These representations also help to pin down a contractor who later claims to be an employee.

3.Create a Gatekeeper Process

Sometimes contractors are retained by operations people who don’t know the first thing about misclassification and related legal risks. A gatekeeper process requires all retentions of independent contractors to flow through a designated person who can issue-spot and evaluate whether the proposed retention is consistent with independent contractor status. The gatekeeper has the discretion to approve or deny requests to retain a contractor.

4.Draft Customized Contracts

Any independent contractor agreement you find on the internet is pure garbage. Contracts should be customized:

  • To memorialize the specific facts that support independent contractor status in the relationship
  • To prohibit the exercise of control by the hiring party over various aspects of the relationship
  • To impose indemnity obligations and insurance requirements, and
  • To make it more difficult for a contractor to challenge the independent contractor classification

Taking proactive steps like these can help you to answer this question in the affirmative, when facing an independent contractor classification challenge: Who is gonna make it? We’ll find out, in the long run.

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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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09.09.24
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Hungry Serpents: Contractor Who Admitted Being Self-Employed Loses Suit in Which He Claims to Be an Employee

Snakes may have an eating disorder. Is cannibalism an eating disorder?

A wildlife technician for the Georgia Department of Natural Resources was searching for eastern indigo snakes, when he found a four-footer with an unusual appetite. Upon capture, the snake vomited up other snakes. The snake has eaten another indigo snake (no relation?), a rate snake, and possibly a rattlesnake, which may or may not have still been alive. Published reports of the incident are unclear about the rattlesnake.

Turning on your own species is not unique to snakes. We see independent contractors try that trick all the time. They’re content to be contractors until they decide they’re unhappy, at which point they sue and claim to have been an employee all along.

A recent Fifth Circuit case stood out to me for two reasons:

(1) The contractor had made previous statements, under oath, that he was self-employed. I wanted to see if the court would hold those against him.

(2) If the court applied the economic realities test, I wanted to see which version of the test it would use. Would the court apply the new DOL version of the test?

Here’s what happened. The Killick Group provides inspection services in the oil, gas, and energy industries. When the need arises for a job, the company engages third party independent contractor inspectors to perform the work.

One of those third party inspectors was Guillermo Gray. Gray was a certified welding and coding inspector with his own company. Gray sued Killick Group, alleging that he was an employee under the Fair Labor Standards Act (FLSA) and should have received overtime pay.

In defending the claim, Killick Group used past statements by Gray against him. In 2015, Gray was convicted of driving while intoxicated. When applying to secure a work-only driver’s license, he attested that he was “self-employed” as an inspector, and he listed his own company, Veritas Inspections, Inc., as his employer.

Killick Group argued that Gray was judicially estopped from claiming to be an employee, since he attested previously that he was self-employed. Killick Group also argued that Gray did not meet the test to qualify as an employee under the FLSA.

The trial court agreed with the judicial estoppel argument and granted summary judgment. On appeal, the Fifth Circuit had some concerns with the estoppel argument and decided to analyze the case under the FLSA.

The appeals court applied an economic realities test, considering five factors:

(1) the degree of control exercised by the alleged employer;
(2) the extent of the relative investments of the worker and the
alleged employer;
(3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer;
(4) the skill and initiative required in performing the job; and
(5) the permanency of the relationship.

The court determined that Gray was an independent contractor under the test.

Two things stand out to me about this case.

First, the Fifth Circuit did not consider the version of the test created by the DOL in its recent independent contractor regulation. The Fifth Circuit applied the same five-part test that Fifth Circuit courts had applied in the past.

Second, I wish the Fifth Circuit would have analyzed the judicial estoppel argument. Since the court determined that Gray was not covered by the FLSA, the court did not consider the judicial estoppel argument. I find the judicial estoppel argument intriguing, and I like it as a tool — if it will work. Independent contractors regularly assert that they have independent businesses, such as when taking tax deductions and filing a Schedule C. As an advocate for companies, I’d like to be able to use those assertions against an individual who later claims to be an employee. It would have been helpful to have Fifth Circuit case law supporting that argument.

Both of these takeaways are worth digesting. I will digest them more thoroughly than the indigo snake digested its meals, one of which may or may not have still been alive at the time of regurgitation. The mystery of what happened to the possibly-eaten, possibly-still-alive rattlesnake remains unsolved. I choose to believe it was eaten and lived. That makes for the better story.

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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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09.03.24
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No Cukes: Appeals Court Hints That It Might Disregard DOL Independent Contractor Rule

Cucumber in our garden, not from Iceland

There’s a cucumber shortage in Iceland.

But it’s not the farmers’ fault. While Iceland has fewer than 400,000 permanent residents, the country produces about six million cucumbers per year. This BBC article blames the shortage on the popularity of a cucumber salad recipe circulating on TikTok.

I could blame TikTok for many things, but probably not that. According to experts interviewed in the article, other factors may also be responsible, including seasonal crop rotation and school going back into session.

While this journalistic deep dive created more questions for me than it answered, a recent court decision made me a little more confident in answering an entirely different question.

Remember the DOL’s new independent contractor classification test? The one that went into effect in March 2024? The rule is being challenged in court, and a Fifth Circuit Court of Appeals decision in late August may provide a clue about whether the rule will survive.

This recent Fifth Circuit case was about a different DOL rule. It addresses a restaurant industry regulation that deals with the tip credit and minimum wage law. The court said that the DOL did not have the authority to add legal requirements that are not in the Fair Labor Standards Act (FLSA).

Why is this relevant to the independent contractor test? Because the DOL is essentially doing the same thing in both contexts.

With the independent contractor rule (like the tip credit rule), the DOL is setting up a new test with requirements that are not written into the FLSA. After the Supreme Court’s recent Loper Bright decision, which limits the authority of federal agencies, the DOL may have a much harder time getting courts to apply the DOL’s regulations. It would not at all surprise me if the courts ignored or rejected the DOL independent contractor rule. With or without a DOL rule, there are already decades of case law telling courts how to determine employee status under the FLSA. Federal judges don’t need the DOL to tell them what the test should be.

We’ll continue to watch what happens with the DOL independent contractor rule. You could grab a box of popcorn and watch things unfold slowly. Or maybe you prefer to shop for other snacks. Just don’t expect to find cucumber salad if you’re shopping in Iceland.

For now, businesses should assume that the DOL will apply its independent contractor test in its own enforcement actions, even if the courts may be more skeptical.

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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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08.26.24
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“Relative Nature”: Can You Bear This Broad Workers Comp Test for Employee Status?

Nature can be cruel. Friends can be crueler.

A 32-year old man was attacked by a brown bear earlier this month while hunting near Cooper Landing, Alaska. The man survived the bear attack, but then his hunting buddy shot him in the leg when trying to kill the bear. Thanks, buddy!

(No, it was not Dick Cheney.)

Nature makes its way into independent contractor status tests too, sometimes — relative nature, that is. Today’s post is about a test sometimes used in workers compensation cases.

In D.C., the test for whether someone is an employee under the workers’ comp law is a “relative nature of the work test.” States that have adopted this broad test have moved away from the more common “right to control” test.

Under this test, an employment relationship is found when (1) the work being done is an integral part of the regular business of the employer and (2) the worker, relative to the employer, does not furnish an independent business or professional service.

Here’s how D.C. courts interpret the two parts.

The first part focuses on the “nature and character of the claimant’s work or business” and requires consideration of three factors: (a) the degree of skill involved in the work in question; (b) the degree to which it is a separate calling or business; and (c) the extent to which it can be expected to carry its own accident burden.

The second part of the test focuses on the relation of the claimant’s work to the employer’s business and also requires consideration of three factors: (a) the extent to which the claimant’s work is a regular part of the employer’s regular work; (b) whether it is continuous or intermittent; and (c) whether its duration is sufficient to amount to the hiring of continuing services, as distinguished from contracting for the completion of a particular job.

In states that use this type of workers comp test, more relationships will be captured than under other, more traditional worker classification tests.

But this might not be a bad thing. The benefit of workers comp coverage for businesses is that it protects them from tort liability. In industries like construction, where injuries can be serious, coverage can be helpful. The disadvantage is that workers comp is no-fault, and you’re required to pay for the coverage.

So next time you’re hunting to see whether you might need to provide workers comp coverage to your contractor or causal laborer, remember that some states have pretty broad tests. Not broad enough to get coverage if your hunting buddy shoots you in the leg, but you get the idea.

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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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08.19.24
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A New Gambit? DOL Independent Contractor Rule Still Facing Court Challenges

There are lots of strategies for winning a chess match. Most gambits are named for people, but some have funny names like the Alien Gambit, the Zilbermints Double Countergambit, and the Fried Liver Attack.

At a chess tournament earlier this month in Makhachkala, Russia, one competitor tried a new strategy. She (allegedly) smeared mercury on the board and chess pieces of her opponent before the match. There’s video. This seems a bit outside the rules. After her opponent began experiencing respiratory distress and tasted iron in her mouth, the Mercury Gambit proved not to be a long-term winning play.

The saboteur now faces criminal prosecution and a lifetime chess ban. So don’t try this at home.

The DOL is facing an array of gambits too. But these gambits are lawsuits, each trying to get a court to revoke the DOL’s recently adopted independent contractor rule. The rule went into effect March 11, 2024, and we wrote about it here.

I’m aware of four pending challenges to the rule, all in federal court:

  • In a Texas case brought by a coalition of business groups, the plaintiffs filed a brief July 1st arguing that under the Supreme Court’s Loper Bright decision, the DOL lacked authority to issue the rule. Coalition for Workforce Innovation v Su, E.D. Texas.
  • In a Georgia case filed by freelance writers and editors, the parties have filed cross-motions for summary judgment, all of which are still pending. Warren v Su, N.D. Ga.
  • In a Louisiana case, a family-owned trucking company sought a temporary restraining order to prevent the rule from taking effect. The motion was denied, and the plaintiffs intend to appeal. The court has stayed the case pending the appeal. Frisard’s Transportation v DOL, E.D. La.
  • In a Tennessee case, two writers filed suit to try to enjoin the rule, and the parties have filed cross-motions for summary judgment. Pittman v. DOL, M.D., Tenn.

When compared to mercury poisoning, court challenges really seem to be the way to go. I commend the strategy. Perhaps not as original, but tried and true.

The DOL’s 2024 independent contractor rule remains in effect for now, and businesses should structure their independent contractor arrangements to comply.

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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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08.12.24
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Smashing! House Committee Presses DOL to Reveal Any Changes to Its Independent Contractor Enforcement Strategy

In this video, Muhammad Rashid of Pakistan, crushes 39 cans in 30 seconds. With his head. (I like the little fist pump he gives at the end.)

Why would a person do this? To get attention, I imagine. It caught my attention.

The House Committee of Education and the Workforce may also be trying to solicit a bit of attention, but I do want to know the answers to the Committee’s questions.

On August 8, they sent this letter to Acting Secretary of Labor Julie Su, asking her for information about the DOL’s enforcement activity under its new independent contractor rule. The Committee would like the DOL to answer three questions:

1) Since January 20, 2021, how many instances of misclassification have Wage and Hour Division (WHD) inspectors found? Please provide the total number of instances across each occupation that has been subject to investigation.

2) Please provide the number of misclassification enforcement investigations WHD has initiated for each specific industry sector since January 20, 2021.

3) Has DOL initiated any investigations related to misclassification based on its coordination with the National Labor Relations Board and the Federal Trade Commission? If so, please provide the number of investigations DOL has undertaken, broken down by each specific industry segment.

Committee Chair Virginia Foxx (R-not from Virginia) writes that she asked Su these questions when Su appeared before the Committee on May 1, but Su failed to answer. The letter begins by knocking Su around a bit, alleging that the DOL with its new independent contractor rule is trying to destroy all independent contractor relationships.

Maybe yes, maybe no. I don’t know where this letter falls on the continuum of publicity stunt vs. actual relevance for policy making, but I think these are good questions. It would be hopeful for businesses to know whether the DOL’s enforcement strategy has shifted since enactment of the new rule. And if so, how.

The Committee might get the answers it seeks, or it might just be banging its head against the wall cans. But it never hurts to ask.

What Mr. Rashid was doing, on the other hand, does hurt. Or it should hurt. And if it doesn’t hurt, then maybe that tells us something too. Also, I think Mr. Rashid owes someone the cost of 39 beers.

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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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07.01.24
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How Long Can You Retain an Independent Contractor?

Commas are important. See, for example, Let’s Eat, Grandma and the Rachael Ray magazine blurb proclaiming that Rachael Ray finds inspiration in cooking her family and her dog. (The latter, sadly, turned out to be a fake. The real magazine blurb had the commas.)

If I had put a comma in the title above, after How Long, you may have thought this post was intended for Pro Football Hall of Famer Howie Long. It’s not. Howie played 13 seasons with the Raiders but almost certainly does not read this blog.

This post, instead, is intended for anyone who wants to know how long you can retain an independent contractor before that person becomes an employee.

Before I can provide a helpful answer, I’ll need some information first. (Just the basic facts, can you show me where it hurts?)

Question: Is the worker a 1099 independent contractor or a staffing agency’s W2 employee?

We need to know which legal issue to address. If the worker is a 1099 independent contractor, then the issue is independent contractor misclassification. In other words, is the worker really an employee, entitled to the various benefits and protections that the law gives to employees?

But if the worker is employed by a staffing agency and treated by the agency as the agency’s W2 employee, then the worker is already entitled to the benefits and protections of employment. The issue here would be joint employment. Is your business a joint employer?

If your question is about joint employment, an earlier post here addresses that question.

On the other hand, if the worker is a 1099 independent contractor, duration of assignment can be one of many factors that indirectly increases the risk that the worker is really an employee. Factors in the independent contractor classification analysis can include:

  • Is the assignment indefinite in duration, or instead for a specific project or fixed term?
  • Can the assignment be terminated at any time for any reason, or does early termination require cause or some other specified event?
  • Does your business have W2 employees who are performing the same or similar work?

If the assignment is indefinite or can be terminated at will, those are factors that weigh toward employment status. If the worker is performing the same function as employees, then the worker is going to look like an employee, and more so the longer this goes on.

But if the contractor is (1) engaged for a specific project or fixed term, and (2) the work is not something your employees are also doing, then duration is not necessarily a concern. A true independent contractor can be retained for a project that lasts many months or even years. We see this sometimes with implementation of electronic systems, like HRIS or enterprise software. Or there might be a third party contractor you’ve engaged for years to provide a repeating, project-based service that is entirely unrelated to your business, like your plumber or window washer or event photographer.

But if the work relates somewhat to your business, you may have a problem if the long duration is because of mission creep (not Mission CREEP). If the worker finished one project and then is given another and another, that starts to look like indefinite retention, which points toward employment.

If the worker is a 1099 independent contractor, duration of assignment might increase the misclassification risk, but the risk will depend more on how the other questions are answered. Duration is not directly a factor, but a longer duration may be an indication that other factors are starting to point in the direction of employment.

Further analysis would be needed.

The other question you may have is why I haven’t yet referenced the 1974 single by Ace, “How Long (Has This Been Going On),” which will now be stuck in your head the rest of the day, you’re welcome. Turns out, I learned here, that the song is not about romantic infidelity. Vocalist Paul Carrack wrote the song upon learning that bassist Terry “Tex” Comer had been secretly recording with two other bands.

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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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06.24.24
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Uncomfortably Numb: Minnesota’s New 14-Part Independent Contractor Test

Friday night I saw The Gilmour Project play at Northfield MGM, a smallish venue near Cleveland. Great show with plenty of Pink Floyd deep cuts and a “how did they just do that?” version of The Great Gig in the Sky with an electric guitar handling the Clare Torry solo vocals.

And, as many of you know, there is a law requiring that the last song at any Pink Floyd tribute show must be “Comfortably Numb.” There were no violations of law at this concert.

Last week I came across another law that, in a totally unrelated way, left me uncomfortably numb.

Tucked away in a 1,492-page omnibus bill that regulates, among other things, firearms law, agricultural policy, specialty dentist licensure, minerals taxes, combative sports, and broadband appropriation transfer authority, the Minnesota legislature adopted a new test for determining who is an independent contractor under state law, limited to the construction industry. Page 183.

To satisfy the test, each of 14 factors must be present. Construction includes building improvement but not landscaping services [@LKE: saved you an email].

Why am I posting about such a niche classification test? Two reasons.

First, I suffered through reading it, so I am sharing my pain.

Second, and more important, it’s a good reminder that there are so many worker classification laws out there, with different tests applying across different laws in different states and across different industries.

Minnesota is the champion of this nonsense. The state that brought us rollerblades, water skis, and diaper adhesives has 32 different tests for determining who is an employee under state workers’ compensation law, with different tests applicable to different types of work.

If you are working with large numbers of independent contractors across multiple jurisdictions, there’s a lot to know if you want to do it right. Penalties for noncompliance can be severe, including criminal penalties in some states.

Bonus tip: If you need to fall asleep, pull out that omnibus bill and skip to page 1,086 for the new regulations covering natural organic reduction vessels for human remains. Subdivision 19 prohibits the commingling of bodies in crematorium vessels. I guess that’s good. A different kind of comfortably numb maybe.

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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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06.17.24
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Famous Olsons? Ninth Circuit Rejects Constitutional Challenge to California’s AB 5

If I type “Olson” into google, my top results are Matt Olson, first baseman for Atlanta (makes sense since a lot of my web activity is baseball-related); James A. Olson Guitars (no idea why since the only place I play guitar is on the radio); and Major John Olson of the U.S. Space Force (also no idea why since I have never been to outer space).

The most relevant Olson for me today though is none of these. Instead, it’s a long-awaited decision in a case called Olson v California. In this case, a group of app-based gig economy companies sued the State of California, alleging that AB 5 and its ABC Test are unconstitutional.

Their argument is that the arbitrary grab bag of exceptions to AB 5 is arbitrary and that the law unfairly targets rideshare and delivery drivers.

An 11-judge panel of the Ninth Circuit heard the case en banc, and rejected these arguments.

The Ninth Circuit ruled that AB 5 is constitutional and that the legislature had a rational basis for including and excluding various types of workers from the ABC Test.

The result: AB 5 remains in place. As for rideshare and delivery app companies, Prop 22 created an exception allowing them to treat drivers as independent contractors, although the validity of Prop 22 is being challenged as well. More on that in a future post. The California Supreme Court is hearing arguments on Prop 22 and when a decision is issued, I’ll post about it. But I expect the Prop 22 will survive, just like AB 5 survived.

If I googled Olsen instead of Olson, that might have been more fun. I hopefully would have landed on Keith Olsen, who produced a number of classic rock albums, including Fleetwood Mac by Fleetwood Mac, Double Vision by Foreigner, and a Rick Springfield album with one of the all-time great album covers, Working Class Dog.

Nice tie, pup!

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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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05.28.24
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Weigh This Way: Baking Company Wins, Appeals Court Agrees that Distribution Route Drivers are Independent Contractors

About six months ago in Cambridge, Ontario, Sonny Ayres was born, the fifth child of parents Britteney and Chance. But Sonny was no ordinary baby. He weighed 14 1/2 pounds. (Yes, for the benefit of those moms reading this and looking aghast, he was delivered by c-section.)

According to Guinness (the book, not the beer), the heaviest recorded birth was 22 pounds, in 1879 in Seville, Ohio. That baby lived just 11 hours.

A different kind of weighing was at issue in a recent decision by the Third Circuit Court of Appeals, determining independent contractor status.

The issue was whether three plaintiffs who owned Pepperidge Farm distribution routes should have been considered employees under Pennsylvania’s wage and hour laws. The district court granted summary judgment for Pepperidge Farm, ruling that they were not employees, and the drivers appealed.

The drivers argued that the court should not have granted summary judgment because the job of weighing the evidence is supposed to be left to the jury. But, as the Third Circuit explained, it is the judge’s role to weigh the relevant legal factors. The judge can apply the undisputed facts to the relevant legal factors and can make a legal determination whether each factor supports employment or independent contractor status. And that’s exactly what the Third Circuit did here.

Applying a ten-factor Right to Control Test, the court determined that 8 of 10 factors supported independent contractor status, and so the plaintiffs were properly classified as contractors, not employees.

The plaintiffs argued that Pepperidge Farm set parameters and expectations for the distribution routes, thereby exerting control. The Third Circuit, however, explained that setting parameters and expectations is consistent with either independent contractor or employee status. The control factor tilts toward employee status when the hiring party sets parameters and expectations and directs the time, place, and manner of performance.

In this case, the right-to-control factors supported independent contractor status because the drivers determined the time, place, and manner for performing deliveries. The drivers bought and sold routes, organized their own distribution businesses, hired their own employees, set their own hours, and made deliveries when and how they chose.

This case is a good reminder of what type of control is relevant in the right-to-control analysis and what type of control is not. Some control is exerted over every relationship, whether it’s independent contractor or employment. The trick is knowing which type of control can be exerted without tipping the scales.

Pepperidge Farm prevailed in this case because it did not reserve or exercise the kind of control that supports employee status. And for that, we say Weigh to Go!

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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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