Summer of Fun? FTC Announces Plans to Crack Down on Gig Economy

Zippy at her first reggae concert

In my house, we have declared this to be the Summer of Fun, and we’ve committed to going to events around Cleveland that we haven’t tried before. Sometimes the dog gets to come too. Last month, we took Zippy to her first reggae concert. You can tell she enjoyed it because she’s smiling. (Or she’s thirsty. Still not sure.)

No concert t-shirt for Zippy though. They had suitably small sizes but nothing with four arm holes.

The Federal Trade Commission is also trying new things this summer. In a July press release, the FTC announced that one of its new initiatives is a crackdown on gig economy abuses.

The FTC can’t bring independent contractor misclassification cases, but it can bring enforcement actions when it believes there have been unfair or deceptive business practices that disadvantage gig workers.

The FTC announced that “the agency will continue to take action to stop deceptive and unfair acts and practices aimed at workers; particularly those in the ‘gig economy’ who often don’t enjoy the full protections of traditional employment relationships.” The press release then listed several examples of enforcement actions the FTC has been pursuing against gig economy companies. The cases tend to involve deceptive claims about earning opportunities, including for gig workers who use their platforms.

The FTC further announced that it’s teaming up with the NLRB to share information about alleged wrongdoers in the gig space. We already know that the NLRB’s General Counsel is on a mission to crack down on independent contractor business models. The decisions by the NLRB and FTC to join forces only heightens the risks for companies using an independent contractor business model.

Business using an independent contractor model need to remember that misclassification claims are not the only legal risk. Be sure that representations made to independent contractors about potential earning opportunities and other business practices are accurate and realistic.

Otherwise, despite it being the Summer of Fun, with reggae concerts and other goodness, the FTC may soon be on your doorstep, ready to Stir It Up.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Watch Your Back, AB 5! Ninth Circuit Case Could Wipe Out California’s ABC Test

Yes, that’s a goat on my back.

This weekend we tried goat yoga. Highly recommended. It was a mix of basic yoga (my kind of yoga) to help get me stretched out, but held in a pen with goats who know no boundaries.

We then toured the farm, which featured llamas, long-haired pigs, guinea hens, a few obligatory dogs, and several varieties of goats, including the kind of fainting goats featured in that George Clooney movie.

Having to watch my back during yoga was something I signed up for and was part of the fun. Not so for California’s AB 5, which should be watching its back after what we saw at the Ninth Circuit last week.

The Ninth Circuit held oral argument in a case brought by Uber called Olson v State of California. Uber is arguing that AB 5 is unconstitutional.

While it’s hard to predict cases based on oral argument, the three judges on the panel seemed pretty sympathetic to Uber’s argument, which is that the statute arbitrarily picks winners and losers, i.e., the exemptions make no sense from an equal protection/due process standpoint.

Unlike the strict ABC Test in Massachusetts, the California ABC Test codified in AB 5 (and later AB 2257) contains loads of exceptions. The statute says to use the ABC Test to determine employee vs independent contractor status for all workers — except for dozens of categories of workers and other situations.

Let’s not pretend. We all know this bill was written to target ride share and delivery app companies. The unfairness of making this law apply to everyone soon became apparent and led to the insertion of dozens of exceptions. If an exception applies, the Borello balancing test applies instead of the ABC Test.

The exceptions just about swallow the rule, and a law targeting a handful of companies presents constitutional problems. Or so the argument goes.

We can expect a decision in the next few months, and this is one to watch. Unlike me at goat yoga, imagining a decision that strikes down or severely limits AB 5 is not a big stretch.

AB 5, watch your back.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Watch Your Back, AB 5! Ninth Circuit Case Could Wipe Out California’s ABC Test

Yes, that’s a goat on my back.

This weekend we tried goat yoga. Highly recommended. It was a mix of basic yoga (my kind of yoga) to help get me stretched out, but held in a pen with goats who know no boundaries.

We then toured the farm, which featured llamas, long-haired pigs, guinea hens, a few obligatory dogs, and several varieties of goats, including the kind of fainting goats featured in that George Clooney movie.

Having to watch my back during yoga was something I signed up for and was part of the fun. Not so for California’s AB 5, which should be watching its back after what we saw at the Ninth Circuit last week.

The Ninth Circuit held oral argument in a case brought by Uber called Olson v State of California. Uber is arguing that AB 5 is unconstitutional.

While it’s hard to predict cases based on oral argument, the three judges on the panel seemed pretty sympathetic to Uber’s argument, which is that the statute arbitrarily picks winners and losers, i.e., the exemptions make no sense from an equal protection/due process standpoint.

Unlike the strict ABC Test in Massachusetts, the California ABC Test codified in AB 5 (and later AB 2257) contains loads of exceptions. The statute says to use the ABC Test to determine employee vs independent contractor status for all workers — except for dozens of categories of workers and various other situations.

Let’s not pretend. We all know this bill was written to target ride share and delivery app companies. The unfairness of making this law apply to everyone soon became apparent and led to the insertion of dozens of exceptions. If an exception applies, the Borello balancing test applies instead of the ABC Test.

The exceptions just about swallow the rule, and a law targeting a handful of companies presents constitutional problems. Or so the argument goes.

We can expect a decision in the next few months, and this is one to watch. Unlike me at goat yoga, imagining a decision that strikes down or severely limits AB 5 is not a big stretch.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Dead End for Class Certification? Ninth Circuit Provides Roadmap for Defending Independent Contractor Misclassification Class Claims

For businesses using independent contractor vendors, misclassification claims are usually well-suited for class certification. A plaintiff’s path toward certifying a class can be relatively smooth when all vendors of a particular kind are treated as contractors. The argument goes that if one is misclassified, all are misclassified.

But a new Ninth Circuit ruling may help businesses change the path toward class certification into a dead-end road.

Click here to read the rest of the post, originally published on BakerHostetler’s Employment Class Action Blog.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Hear This: Ballot Measure to Limit Mass. ABC Test is Blocked

Have you heard? There’s a baby goat in Pakistan who may have set the world record for Longest Ears by a Goat. The ears are each 1.6 feet long. Which also means there’s category for Longest Ears by a Goat.

The goat, named Simba, reportedly trips on its ears, which are so long that they drag on the ground. That’s a problem, I hear.

I’m also hearing of a problem in Massachusetts, but it’s of a different sort entirely.

Efforts to add exceptions to Massachusetts’ ABC Test for independent contractor misclassification have been scuttled by the state’s Supreme Judicial Court. A ballot measure modeled after California’s Prop 22* would have created exemptions to support independent contractor status for app-based rideshare and delivery drivers. The Court, however, ruled that the proposed ballot measure covered too many subjects and could not lawfully be placed on the ballot.

What does all this mean?

As many of you know, Massachusetts has the toughest test in the nation when it comes to classifying independent contractors. Under Massachusetts wage and hour law, a worker is deemed an employee unless —

A) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

B) the service is performed outside the usual course of the business of the employer; and,

C) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

That’s a strict ABC Test, like California’s. But California’s ABC Test has a slew of exceptions, memorialized in AB 2257, formerly AB 5. The Massachusetts Independent Contractor Law has no exceptions, which makes Massachusetts a favorite venue for plaintiffs’ lawyers who like to bring misclassification cases.

With the ballot measure struck down, voters will not have an opportunity to pass a Prop 22-like bill in Massachusetts that would have allowed app-based rideshare and delivery drivers to maintain independent contractor status, so long as certain requirements were met.

States with ABC Tests continue to pose significant compliance risks for businesses that rely on independent contractors. It’s easy to trip and fall, regardless of the size of one’s goat ears.

*California’s Prop 22 is in limbo too. As explained here, a state court ruled the ballot measure unconstitutional. The issue is now on appeal.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Inedible Food: DOL Starts New Rulemaking Process to Toughen FLSA Independent Contractor Test

I saw this truck while driving home last week from my daughter’s college graduation. Now I’m no livestock dietician (I failed that course in law school), but this seems like the worst possible thing to feed your animals.

Whoever’s behind the labeling also needs some help with marketing. I know I wouldn’t buy that.

I’m also not buying the DOL’s recent announcement that it’s holding two public forums to help it decide what to do about a new independent contractor misclassification test. I think we all know what the DOL is going to do already.

The DOL will hold an Employer Forum on June 24, then a Worker Forum on June 29. Anyone can attend. RSVP links are here (6/24) and here (6/29).

After this charade open-minded exchange of viewpoints, the DOL will get to work preparing a new rule for determining who is an employee under the Fair Labor Standards Act (FLSA). The current regulation, issued by the Trump DOL, refocuses the traditional Economic Realities Test inquiry on two core factors: (1) the nature and degree of the individual’s control over the work, and (2) the individual’s opportunity for profit or loss. The Biden DOL tried (unsuccessfully) to prevent the Trump rule from going into effect, but a federal court ruled that the Biden DOL’s attempt to dismantle the rule was flawed, and the Trump rule therefore went into effect.

Now, let’s not kid ourselves. Just because a court told the Biden DOL that it’s stuck with this Trump-made rule doesn’t mean anyone at the DOL is actually applying it. The Biden DOL has said it plans to rewrite the rule, pronto. The new rule will make it harder to classify workers as independent contractors under the FLSA. We already know that’s going to happen, even if we don’t know the precise language to be used.

In late 2022, the DOL will issue its new rule, which will be like the old rule that we had before the Trump DOL’s new rule. Meet the new boss, same as the old boss. And with each new administration, it will become harder then easier then harder to be classified as a contractor under the FLSA.

So I will not be wasting my time listening in on these forums. I expect they’ll be as useful as inedible food. Which cannot be good for the GI tract.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Get Aligned on Commissions: Ten Tips For Using Independent Sales Reps

Zippy incorrectly chooses portrait instead of landscape

Getting properly aligned is important. That’s true not only when using a dog bed, but also when using independent sales reps.

Sales reps generally receive commissions. When commissions systems are unclear, disputes arise. We don’t want disputes. You may think your commission system is clear, whether by tradition or otherwise. But it’s probably not as clear as you think. Unclear commission plans lead to lawsuits, especially after the relationship with a sales rep ends.

Here are ten tips for avoiding commission disputes. These tips are helpful whether your sales rep is an independent contractor or an employee.

1. Put the commission plan in writing, and get the rep to sign it. Many states require written, signed commission plans for employees. (California, I’m looking at you!) But even when not required by law, a clearly drafted and accepted plan is the best way to avoid disputes.

2. Define what constitutes a sale. Is a sale complete when the customer pays for the good? When the good is delivered? When it’s accepted? When some period for returns has expired? Whatever you decide, state it clearly.

3. Define when a commission is earned. Usually there are several things that have to happen before a commission is earned. List them all, and make clear that a commission is not earned until all of these things have occurred.

4. Specify the timing of when commission payments are due. For employee sales reps, you might have less flexibility than with contractors, since state laws often require that employees are paid at certain intervals. But you can also create some space for yourself in your definition of when a commission is considered “earned.”

5. Clarify whether the sales rep must still be employed (or still under contract) to earn a commission. This term will be viewed in tandem with your explanation of when a commission is considered “earned.” Some states (hey there, California!) require that the commission has been paid if the employee has basically done everything needed to earn the commission, even if employment has ended. Calling the rep a contractor won’t necessarily get around that, since as we know, California does not grant a lot of deference to classifying workers as contractors instead of employees.

6. Explain how the commission amount is calculated. The formula might be A times B times C. Whatever it is, write it out.

7. Clarify the relevant time period. If the commission plan is for 2022 only, say so. If the commission plan overrides all prior year plans, say that too.

8. What about charge backs? Are there circumstances when a commission might be paid but you’d have to recoup some of the payment through a charge back? Describe when chargebacks are permitted, if at all.

9. Don’t assume. Spell everything out. Just because there haven’t been commission disputes in the past doesn’t mean they won’t happen in the future. A recently departed sales rep is going to be more aggressive about a commission dispute than one who is still happily engaged, especially if the rep just closed a big deal was separated before the company received payment from the customer. Without a clearly drafted plan, that’s a lawsuit waiting to happen.

10. Write for the jury. A stranger reading your commission plan should be able to tell whether a commission is earned or not, how much the commission should be, and when the commission is due. It needs to be that clear. If there’s ambiguity, expect that the disputed term will be interpreted in favor of the sales rep. After all, you wrote the plan, not the rep.

Bonus 11th Tip: Don’t forget state law. State law may contain requirements for commission plans. Know where your salespeople are working and where they are selling. If multiple states are involved, consider adding a choice of law clause.

Getting aligned on commissions before there’s a dispute can go a long way toward preventing a dispute. Getting misaligned on a dog bed may lead to back pain or a funny picture, but getting misaligned on commissions can lead to expensive litigation.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

The Ohio Supreme Court Just Made It Much Harder to Win a Misclassification Dispute

In the middle of the Bering Sea sit two islands, Little Diomede (U.S.) and Big Diomede (Russia). They sit less than three miles apart, but Big Diomede is 21 hours ahead. That’s because the International Date Line straddles the two. This would make scheduling play dates nearly impossible, but fortunately no one lives on Big Diomede. Little Diomede is home to about 115 brave (and very isolated) souls.

The Diomedes are a great example of being close but still so far away. The Ohio Supreme Court gave us another example in a worker misclassification dispute earlier this month. Ohio companies should pay close attention to this surprising — and bad — decision.

In this case, the Bureau of Workers’ Compensation (BWC) had determined that an underground-cable installation company had misclassified its workers as independent contractors rather than as employees.

The BWC looked back 5 years and handed the company a bill for $350,000 in back assessments for failing to pay into the workers compensation system. Companies pay into the system for employees, but not for contractors. The company appealed, arguing that under Ohio’s Right to Control Test, the installers were properly classified as contractors, meaning the back assessments were not warranted. The company provided evidence showing that the Right to Control factors tilted in favor of contractor status.

The Ohio Supreme Court reviewed the evidence and did not disagree with the company. You’d think, therefore, that they’d reverse the BWC decision, and the company would be relieved from paying the back assessments.

Nope.

The company was close, but oh so far from winning its appeal. That’s because the deck is stacked heavily against companies when it comes to challenging the BWC on worker classification determinations.

The Ohio Supreme Court ruled that, under Ohio law, so long as there is “some evidence” that could support the BWC’s conclusion, the BWC’s decision was untouchable. This is insane.

In every case involving a balancing test — like the Right to Control Test used here — there will be at least some evidence supporting employee status and some evidence supporting contractor status. The point of the test is to weight the competing factors and see which direction the scales tilt.

But according to this ruling, Ohio law grants the BWC an absurd level of deference. The decision appears to say that a court must accept the BWC’s conclusion, even if the scales tilt the other way, so long as there is “some evidence” to support the BWC’s findings.

For Ohio businesses using independent contractors, this ruling means trouble. The BWC is, of course, incentivized to find misclassification because it means more money for the state. After this ruling, companies appear to have little recourse for challenging the BWC, even when the BWC is wrong.

Ohio companies should immediately evaluate their misclassification risks. If a contractor gets hurt and brings a workers comp claim, the BWC will look for misclassification. If the BWC finds it, the BWC will not only grant workers comp coverage for the injured contractor, it will issue back assessments against the company for failing to pay into the workers comp system — with a look back of five years.

Back assessments can also be triggered by an audit.

Same for unemployment. An unemployment claim by a contractor can lead to the same result, with Ohio Job & Family Services making the misclassification call. Back assessments would issue in that scenario too for failing to pay into the unemployment fund.

This ruling goes against the whole point of having a balancing test. I might have expected this level of deference from California or New York, but not Ohio. This ruling was issued by a Republican-majority Supreme Court.

Like the Diomedes Islands, what appears close can be so far away. Your business might be able to show all the reasons why your contractors are properly classified, but it doesn’t even have to be a close call for you to lose. If BWC finds misclassification and there’s merely “some evidence “ to support its conclusion, you might as well be arguing your point in Russian, the language of all zero inhabitants of Big Diomede.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

No Laughing Matter: Here’s Why States Think Your Independent Contractors Are Misclassified

The best twitter account you’re not yet following is Depths of Wikipedia @depthsofwiki, which finds all the crazy fascinating stuff on Wikipedia that you wish you had time to look for.

Such as this gem from last week:

I didn’t know who Chrysippus was, but this is top shelf information. He died of laughter after witnessing a donkey eat his figs?!

That would make for one f***d-up game of Clue.

Here’s something that’s not a laughing matter.

Ever wondered why states seem so aggressive in fighting against companies that classify workers as independent contractors? Ok, yeah, there’s the crowd-pleasing pitch that they’re looking out for the little guy, and workers are being denied benefits, and companies are cheating the systems, etc.

But also comes down to money. State governments claim they are losing hundreds of millions of dollars a year in unpaid taxes and unpaid contributions to unemployment and workers compensation funds. This policy brief by the National Employment Law Project cites to 30 state law studies with varying estimates of losses to state coffers.

Are these studies accurate, or are they merely self-serving reports designed to justify misclassification audits? Probably some of both, but the point is that it doesn’t matter. Whether motivated by workers’ rights or bolstering state coffers, states are doing two things to make it harder to classify workers as independent contractors.

First, several pending state bills would make it harder to classify workers as independent contractors.

Second, states are taking enforcement seriously. Through audits and lawsuits, the states are going after companies directly.

For companies, defending against state action can be a lot harder than defending against private lawsuits. State prosecutors and agencies claim to be fighting for the little guy, and they tend to get dug in with their positions. State prosecutors and agency enforcers get paid the same salary, win or lose, and it can be harder to persuade them that your company’s classifications are legitimate and that they should be spending their limited time and resources elsewhere.

Plaintiffs’ lawyers, on the other hand, are business people and are generally more open to business solutions that are driven by a cost-benefit analysis of how best to use their limited time and resources. A strong set of facts supporting independent contractor classification can lead to a victory in court or can create leverage for a favorable settlement with private litigants. Private settlements can also be reached with no admission of wrongdoing.

The lesson here is that enforcement efforts by state governments are no laughing matter. While a donkey trying to eat your figs may be drop-dead hilarious, an enforcement action by the state isn’t so funny. But it can still kill your business.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge
 

Not Dead Yet: Arbitration Agreements May Sit Dormant, But They Can Still Save You From a Class/Collective Action

Not dead yet. @SCMPNews

This spring has been a bad time for injured civilians who prefer not to be buried alive.

In Peru last month, a funeral procession was interrupted when the 36-year old car accident victim was heard banging on the lid of her coffin, trying to get out. Days earlier the woman had been pronounced dead, in what turned out to be an unfortunate mispronunciation.

In Shanghai, a nursing home mourned the passing of an elderly resident, who was placed in a body bag and sent to the mortuary. As seen in this video taken by a bystander, the mortuary workers unzipped the bag and found the man still moving. He was transferred to a hospital, which seems to me like a more appropriate place for someone still alive.

People may go quiet, but that doesn’t mean they should be treated as dead. The same holds true for individual arbitration agreements. They may exist quietly in the background, but courts can’t just ignore them, as a recent Fifth Circuit Court of Appeals decision made clear.

A plaintiff alleged violations of the Fair Labor Standards Act (FLSA), claiming she was misclassified as an independent contractor and therefore was denied overtime pay. She asked the court to treat her lawsuit as a collective action, claiming that other contractors were also misclassified and were also denied overtime pay. In FLSA cases, plaintiffs have to opt in to join the class. The district court approved the distribution of opt-in notices to similarly situated contractors, letting them know about the lawsuit and their right to participate.

The defendant opposed the notices, pointing out that the contractors had all signed individual arbitration agreements that included class action waivers. They couldn’t opt in, the defendant argued, so they should not get the notice. When the court approved the notices anyway, the defendant filed a writ of mandamus with the Fifth Circuit Court of Appeals, asking the appeals court to intervene and stop the notices from going out.

The Fifth Circuit granted the writ and stopped the notices from going out. The Court of Appeals ruled that the arbitration agreements required all disputes to be resolved through individual arbitration, and therefore the contractors could not opt in to the lawsuit. Since they could not opt in, they could not be sent notices inviting them to opt in.

It’s unusual for a Court of Appeals to grant a writ of mandamus. But here, the Court of Appeals recognized that the arbitration agreements were very much alive, even if the contractors who signed them were silent in the background.

This case is a good reminder of the value of individual arbitration agreements with class action waivers. A well-drafted arbitration agreement will require all claims to be resolved on an individual basis and will include a waiver of the right to participate in any class or collective action. The agreement should also deprive the arbitrator of jurisdiction to preside over a class or collective action.

Businesses that rely on independent contractors should check their agreements and consider adding robust, carefully-drafted arbitration clauses.

Arbitration agreements can sit silently in the background for years, but that doesn’t mean they are dead.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

2018_Web100Badge