Take a Hike? Not This Time. CARES Act Offers Unemployment Help for Gig Workers

61C63C40-A3B8-41A8-A458-1545EB3168E8While coyotes invade San Francisco and wild boars torment Barcelona, things are a bit quieter here in Cleveland.

Last weekend, I took a few hours off from the nonstop advising on all things COVID-19 and went on a hike with my family at Cuyahoga Valley National Park, about half an hour from my house.

But then it was back to work, and back to keeping up on all the latest COVID-related legal developments, and there are a lot. One item of note for independent contractors and gig workers is the new CARES Act, passed earlier this week.

While unemployment insurance coverage traditionally has not been available for independent contractors, the CARES Act makes it possible for self-employed contractors to obtain coverage.

Hopefully this is a small first step toward allowing independent contractors to obtain more benefits without converting them to employees. The binary system we have — either you’re an employee or an independent contractor — generally means all or nothing. That’s why so many state legislators are trying to convert contractors to employees — so these workers can receive benefits and other protections that the law provides to employees but not to contractors.

There’s a better way, such as the path forward proposed by five gig economy companies in California, with a measure that hopefully will appear on the November 2020 ballot.  (You can read more here.)  We need a middle ground that allows self-employed contractors to remain contractors, while allowing them to obtain some of the benefits that employees receive.

The trail I went on last weekend was a loop. It ended right back where it started. Hopefully the CARES Act is a small step in a new direction, and we can move away from the binary legal choice we’ve been stuck with for decades.

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

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How Does the Families First Act Apply to Independent Contractors?

Families First Act Independent Contractors

Hungry for more COVID-19 info? I can help with that, but if your hunger pangs are for something more exotic — say, deep-fried bull testicles — I’m sorry to say you’re out of luck. Deerfield (Mich.) American Legion Post 392 has cancelled its 19th annual Testicle Festival, leaving festival supplier Dennis Gerth with 330 pounds of bull testicles in his freezer. That’s my 2020 submission if anyone is giving out awards for Sentences I Never Thought I’d Write.

Yes, the coronavirus is affecting society in ways we never imagined. Last week, Congress offered some relief to workers affected by the virus. While the new law doesn’t help Gerth or his ball-filled freezer, it does provide paid leave for employees of most small businesses.

But what about independent contractors?

The Families First Coronavirus Relief Act provides up to 12 weeks of partially paid time off for employees unable to work (or telework) for childcare reasons and up to 80 hours of paid sick time to employees unable to work (or telework) for six specified reasons.

Trying to apply the Act raises a lot of questions. Many are addressed here, in a conversational tone that acknowledges this is awfully confusing. But this post will focus on how the Act applies to independent contractors.

Do Independent Contractors Get the Benefits of the Act?

No. The Act provides paid sick leave and expanded Family and Medical Leave Act (FMLA) leave only to employees, and only if their employer has fewer than 500 employees.

How Does the Act Differentiate Between an Employee and an Independent Contractor?

Ah yes, the age old question of Who Is My Employee? The Act uses the definitions of “employee” in the FMLA and the Fair Labor Standards Act (FLSA). The FMLA uses the FLSA definition, so let’s focus on that.

The test for whether an independent contractor is really an employee under the FLSA is determined by using an economic realities test. This is a different test than the ones used for determining whether someone is an employee under tax, unemployment, workers compensation, and many other federal and state laws.

The economic realities test generally looks at these factors:

  1. The extent to which the services rendered are an integral part of the principal’s business.
  2. The permanency of the relationship.
  3. The amount of the alleged contractor’s investment in facilities and equipment.
  4. The nature and degree of control by the principal.
  5. The alleged contractor’s opportunities for profit and loss.
  6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
  7. The degree of independent business organization and operation.

This list is from DOL Fact Sheet #13, but it’s worth noting that different courts define the factors differently. Know your jurisdiction. Another commonly used listing of the factors can be found here.

The more independent the worker is from the business retaining his/her services, the more likely the worker is properly classified as an independent contractor.

How Could this Issue Arise?

With the economy in a cornoravirus-induced tailspin, lots of employees are losing their jobs, and lots of independent contractors are losing their engagements. When the income stream stops flowing, people look for a way to reopen the faucet.

Independent contractors might file unemployment claims. We’ve discuss the dangers of that here. They might also be tempted to file lawsuits claiming they’ve been misclassified. A successful claim could mean they’re entitled not only to the benefits of the Families First Act, but also potentially to unpaid overtime and other benefits that employees can receive.

Times are tough, and livelihoods are at stake. As contractors lose more work, we’re likely to see an increase in independent contractor misclassification claims. And that’s no bull.

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

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Nothing on TV? Read Your Contract to See If There’s a COVID-19 Exception

covid-19 force majeure

Now that everything fun is banned and workplaces are sending people home, I’m planning to spend next week getting hernia repair surgery on Wednesday. Then I’ll take it easy watching baseball NCAA basketball the NBA tennis Netflix the second part of the week.

Or so I thought. Yesterday I learned that all non-essential surgeries are likely going to be cancelled. So it may be back to work. Or home to work. Or some variation of work. I think the hernia and I will continue our relationship for a while longer.

Where does this leave you with independent contractors and staffing agency contracts?

COVID-19 is creating conditions we never anticipated, and the work to be performed by contractors or staffing agency workers may be unnecessary — or impossible.

Are you still on the hook to pay them? The answer lies within your contract. There are a few ways performance may be excused.

  1. Force majeure or impossibility clauses. Force majeure is French legalese that means, literally, “Bad stuff happens if people eat bats and pangolins.” I’m not real good at French, so I could be off slightly. But it’s close. These are the boilerplate provisions most people never read. It’s time to read them. We now have states of emergency declared, pandemic status, CDC Level 2 and 3 travel restrictions, and mandatory quarantines in various parts of the world. Any of these events may be sufficient to trigger the force majeure or impossibility clause in your contract, if there is such a clause. Most of these clauses will not be so specific as to address pandemics, but terms like “Acts of God” or similar language might suffice. These clauses generally aren’t expected to list every contingency that would trigger excusing performance. A global pandemic seems likely to fit — if the conditions make performance impossible. A general business downturn that results from the virus might not be enough.
  2. Termination without cause. A force majeure clause is probably unnecessary if performance can be cancelled without cause, either at will or after a short notice period. This may be the time to issue notice.
  3. Modification or renegotiation. Your contractor or staffing agency may be as unprepared or as unwilling to perform as you are. It’s time to have a discussion — preferably by phone or while maintaining social distancing. A side letter in which both sides agree to modify the contract may be in order.
  4. No obligation to perform. If your contract is a master services agreement, performance might not be required. Check your work orders, and maybe all you need to do is modify or terminate those.

In the meantime, consider opening that bottle of wine you’ve been saving and starting a good book. We all need to make the best of a bad situation, and Cabernet can help.

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© 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 Simple Way to Self-Audit Your Company’s Independent Contractor Misclassification Risk

yawn

The most boring concert I ever went to was Genesis, in the Orange Bowl, Miami, 1987. The sound quality was terrible, and the band just didn’t seem that into it. My dad, who was there with me, was so bored he pulled out a newspaper. (Yes, that means he anticipated being this bored and brought a newspaper, but he was not a Genesis fan. He went for me, which is something a good dad just does.) [Also: Hi, Dad, I know you’re reading!]

Three years earlier, Phil Collins released Against All Odds (Take a Look at Me Now). The song did really well, but he did not play that song or any other solo songs at the 1987 concert. I know this because… wait for it…  the internet! Yes, the set list from that March 1, 1987 show is posted here.

Segue please? Ah yes, take a look at me now.

One of the simplest ways to check your exposure to independent contractor misclassification claims is to perform a self-audit. (Take a look at me now!)

Get a printout of all 1099s your company issued last year. Is the list mostly LLCs? Or individual names? Focus on the individuals’ names, especially the ones who were paid the most. What kind of services did these individuals perform? Did they do something similar to what your W-2 employees do? Did they work side-by-side with your W-2 employees?

Have they been providing services for years? Did they used to be W-2 employees of your company?

Do they have contracts with your company? Are those contracts any good? Are they specific enough, and do they memorialize the good facts (those that support independent contractor status)?

It’s labor-intensive to do a comprehensive self-evaluation of your risk of independent contractor misclassification claims, but for rough back-of-the-envelope estimating, this can be a pretty useful exercise.

I hope it helps.

That’s All.

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

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Lost Chicken, Very Friendly: 2020 IRS Tips on Independent Contractor Status Are Now Available

Years ago, I signed up for the Next Door app, thinking it might be helpful to hear about things going on in my neighborhood. Most of the posts I see are useless — Can anyone recommend a good restaurant? Is it gonna snow tonight? Does Solon have any good proctologists?

I was ready to unsubscribe but just hadn’t gotten around to it. But then, last week, I got the post that made it all worthwhile:

36204067-6829-41E5-8647-D9C3FF88FABC

I should have clicked “Thank,” because I really do want to thank D. from South Central Solon for that post. The best part, of course, is the armchair psychoanalysis of Lost Chicken’s personality: “Very friendly.” (Lost Chicken also scores high for empathy and teamwork.)

Also known for being “Very friendly” is the IRS. New for 2020 is the Employer’s Supplemental Tax Guide, also known by its catchier, more taxlike moniker, Publication 15-A. Please don’t take my copy. You can get your own here.

Publication 15-A includes a section on independent contractor misclassification. It reminds employers that the IRS uses a Right to Control Test, which evaluates factors related to behavioral control, financial control, and the type of relationship of the parties. The specific factors are listed.

To improve readership, the IRS offers several helpful hypotheticals to illustrate the Independent Contractor vs. Employee conundrum, using memorable characters such as Vera Elm, an electrician; and Helen Bach, an auto mechanic. (But I see Helen Bach as more of a resurrected doomsday cult leader. I’m going to assume that the person who wrote this hypothetical pulled one over on the supervisor who approved it. Well played, IRS writer. Well played.)

Publication 15-A provides other helpful tips for employers at tax time. Get yours now, while supplies last. I’m going to offer a few extra copies on the Next Door app.

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

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If I Told You Once, I Told You 55,000 Times! These NYC Employment Laws Now Apply to Contractors

NYCHRL independent contractors 8-107(23)A Twinsburg, Ohio man received a statement in the mail for his daughter’s student loan. And then another. And another. And another. The lender sent him 55,000 identical letters filling 79 bins at the post office.

Even better, all of the statements were wrong. They provided an incorrect payment amount.

A recent change to New York City’s Human Rights Law (NYCHRL) doesn’t need to be explained 55,000 times. But it does need to be explained once. Correctly.

Effective January 11, 2020, the protections under the NYCHRL now apply to independent contractors, including freelancers. That means, under NYC law:

  • It is now unlawful to discriminate, harass, or retaliate against an independent contractor, based on any protected class;
  • Businesses must provide reasonable accommodations, including for needs related to pregnancy, lactation, religious observances, sexual offenses, or stalking;
  • Businesses must engage in a “cooperative dialogue” with any contractor seeking an accommodation and must provide a written determination of any accommodation that was granted or denied;
  • Businesses must follow the Fair Chance Act requirements before taking any adverse action based on the results of a criminal background check, including providing a written Artcile 23-A analysis;
  • Businesses cannot inquire about salary history;
  • Businesses cannot perform a credit check (maybe; this is unclear); and
  • Businesses may need to provide sexual harassment training to contractors, depending on the number of hours worked.

For those keeping score at home, the change is to Section 8-107(23) of the NYCHRL. This one little sentence does all the work: “The protections of this chapter relating to employees apply to interns, freelancers and independent contractors.” Boom!

The law applies to businesses in New York City that had four or more workers, including independent contractors, at any time in the previous 12 months.

The law does not apply to wage and hour issues like minimum wage and overtime payments, and the law does not change the test for determining whether someone is an independent contractor or an employee.

The Commission has published some additional guidance on how this will work, especially the sexual harassment training part. You can read it online. Thankfully, the Commission didn’t send it 55,000 times to every business in the mail.

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

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When The Rules Do Not Apply: Freelancers’ Lawsuit Challenges California’s New ABC Test

piano IMG_2111

I was headed to an appointment last week when I came upon this sign. Sometimes the people who make the rules just assume the rules don’t apply to them. Or sometimes people don’t even think about the rules and whether they make sense.

I was tempted to take the sign off the piano, in the interests of following the directive on the sign. But I just took a picture instead.

This post is about when the rules should apply.

Since California’s new ABC Test law (Assembly Bill 5) went into effect January 1st, the legal challenges have been rolling in. (See this post, for example.) The latest groups to challenge the new law are freelance writers and photographers.

Wanna know something absurd? Of course you. We all do. That’s why we read the internet on our phones during meetings. Under the new law, freelancers are exempt from the ABC Test — and can likely remain independent contractors — if they make 35 or fewer submissions to a publication in a year. But with the 36th submission, the ABC Test suddenly applies, meaning that same freelancer would more likely become an employee, retroactive to the first submission.

What is so special about the 36th submission that would convert a freelancer from an independent contractor to an employee? All together now: “Nothing!” This law is ridiculous. A newly filed lawsuit asks a court to invalidate that limit on the basis that it is arbitrary, which it absolutely is. The lawsuit alleges that the arbitrariness violates the freelancers’ Equal Protection and First Amendment Rights.

Freelancers don’t want to be employees for two reasons.

First, works created by contractors are owned by the contractors, who can license the works and earn a fee. That’s how they make money — and is the reason why freelance journalists are all so rich. (That’s for my daughter, who’s in journalism school and doesn’t eat ramen noodles. Yet.) In contrast, under the U.S. Copyright Act, works created by an employee are owned by the employer. That means the freelancer who created the work loses the rights to it. So, if we apply the new rule, that would mean Submission #36, which likely converts the freelancer to a retroactive employee, also converts ownership of Submissions #1-35 to the employer. No way that’s fair.

Second, for every action there’s a reaction. Publishers are not stupid. They don’t want freelancers to become their employees either. So what will they do once a freelancer hits the 35-submission limit? They won’t accept any more submissions. That hurts the publication and the freelancer. Or maybe they will want some freelancers to become their employees so they can commandeer ownership of Submissions #1-35. Either way, this is absurd.

If you’d like to read more, here’s a copy of the complaint. The lawsuit is pending in federal court in the Central District of California.

And please don’t place anything on top of the piano.

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

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