Today’s Tip: Beware of Multi-State Issues (and Rudolf is a girl?!)

Neil deGrasse Tyson broke the news last week that Santa’s reindeer must be female, since they still have their antlers in the winter. Mind blown: Rudolf is a girl. #girlpower

It seems like should have figured that out earlier. Sometimes things are not as they seem. So let’s play some reindeer games.

Assessing independent contractors status isn’t always as it seems either. Do you pass the IRS Test? Congratulations, but that tells you nothing about whether your relationship meets state law tests. Did you win an unemployment claim on the basis that your contractor was not your employee? Congratulations, but that tells you nothing about whether your relationship has contractor status under federal wage and hour law.

To determine whether an independent contractor relationship is legitimate requires you to look at multiple tests across multiple laws across multiple jurisdictions.

Companies that retain contractors across multiple states should pay particular attention to the differences among multiple states and across multiple laws. The same relationship can be deemed employment under one test and independent contractor under another.

For example, in my home state of Ohio, the analysis of whether a worker is an independent contractor or an employee is subject to a long list of competing legal standards:

  1. Federal Income Tax: Right to Control (IRS factors)
  2. Ohio Income Tax:  Follows IRS
  3. ERISA, ADA, Title VII, ADEA: Right to Control (Darden Test)
  4. Affordable Care Act: Right to Control (Treasury Regs.)
  5. FLSA: Economic Realities Test
  6. NLRA: multi-factor hybrid/right to control test
  7. OH Unemployment (ODJFS): IRS old 20-Factor Test
  8. OH Workers Comp / Construction: Need 10 of 20 old IRS Factors
  9. OH Workers Comp / Other: Ohio Right to Control Test
  10. OH Discrimination (RC 4112): Ohio Right to Control Test

The complexity is similar in every state.  In Illinois, the list is about as long, but with different state law tests and standards:

  1. Federal Tax: Right to Control (IRS factors)
  2. ERISA, ADA, Title VII, ADEA: Right to Control (Darden Test)
  3. Affordable Care Act: Right to Control (Treasury Regs.)
  4. FLSA: Economic Realities Test
  5. NLRA: multi-factor hybrid/right to control test
  6. IL Unemployment: ABC Test
  7. IL Wage Payment & Collection Act: ABC Test
  8. IL Workers Compensation: Various factors, including control, relationship to company’s business
  9. But, if Construction, then Employee Classification Act:
    – Presumption is employee,
    – Then apply ABC Test,
    – Then apply 12-factor test to prove sole proprietorship or partnership is IC

And there are 48 more states just like these (but different).

So bottom line: Just like you can’t make assumptions about your reindeer’s gender based on its name, you can’t make assumptions about your contractor’s status based on what you call the relationship. You’ve gotta check the antlers — or the appropriate law.

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

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Buckle Up? Why The Gig Economy Should Love Biden’s HHS Pick

Back before seatbelts were a thing, Sears sold this handy Auto Strap for Front-Seat Tots. Tie your toddler to some part of the car, and drive carefree! What could go wrong?

Ok, things have changed a bit when it comes to driving. Seatbelts and airbags seem to have carried the day. Things have also changed quite a bit in the modern workforce, with the gig economy pushing aside traditional employer-employee work relationships.

Something important just happened to help California gig economy companies, and it’s gone under the radar. Biden named California Attorney General Xavier Becerra as his pick for Health & Human Services. Why should gig economy companies care who Biden’s HHS pick is? Because naming Becerra to HHS means Becerra will no longer be California’s Attorney General. And that’s good new because a key part of Becerra’s agenda as State AG had been to knock around gig economy companies as much as possible.

Becerra tried to sabotage Prop 22 by giving it a misleading description on the ballot, but voters saw through it and passed the measure anyway.

Becerra has been the driving force behind California’s lawsuits against ride share companies, trying to force them to reclassify drivers as employees.

But now, assuming he gets confirmed, someone else will take over as California AG. Hopefully it will be someone with less of an anti-gig economy agenda than Becerra. We’ll see. But for now, this pick seems to be good news. I don’t know what he’ll do as HHS Secretary, but I know what he won’t do as HHS Secretary, and that’s to pick fights with companies who help to keep the gig economy strong.

So strap in and let’s see what this new ride will bring. Just be sure to use a seatbelt, not a $1.88 standing harness.

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

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Statue or Statute? When Defending a Misclassification Claim, Don’t Forget a Limitations Defense

I took this photo in Paris. Creepy, isn’t it?

When a New Zealand man was caught snooping around with a torch at a building where he didn’t belong, someone called the authorities. When the local police arrived, the man was still there but still as a stone. He was pretending to be a statue.

The ruse failed, and the man was taken into custody.

The moral of the story, I suppose, is that elaborate ruses don’t make good excuses.

The same can be said for a group of movers who claimed that a moving company had misclassified them as independent contractors and denied them a minimum wage and overtime. The federal court hearing the case, however, threw it out because the movers filed too late. Under the Fair Labor Standards Act (FLSA), the statute of limitations on federal minimum wage and overtime claims is two years — or three years, if willful. These plaintiffs filed well after the deadline had passed.

The plaintiffs didn’t go away quietly, however. Knowing they had missed the deadline, they first tried some creative arguments as to why the court should toll — or extend — their deadline to file.

First, they argued that they the moving company had tricked them into thinking they weren’t employees and had no FLSA rights, since the moving company told them they were independent contractors. Sorry, the court ruled. If that were an excuse, there would be no statute of limitations in misclassification cases. The deadline to file would get tolled every time, and that’s not gonna happen.

Second, they argued that the moving company failed to provide the required posters that notify employees of their rights. Again, no dice. Independent contractors aren’t entitled to employee notices, so if the company thought the workers were contractors, there obviously wouldn’t be notices. This too would apply in every misclassification case and cannot be grounds for tolling the filing deadline.

Finally, they argued that they were immigrants and shouldn’t be held responsible for not knowing the rights under US law. The judge wasn’t buying that one either. Ignorance of the law is not an excuse, especially when the plaintiffs were basing their lawsuit on the very law they claimed to be ignorant of.

This case dealt with statutes not statues, and despite spellcheck’s frequent failure to see the difference, there is a difference. Anyway, the excuses by the statue guy and the movers were similarly unimpressive. The movers’ case was dismissed for failure to file within the statute of limitations, and the court never even considered whether the workers were actually misclassified.

Companies facing misclassification claims need to remember to review statutes of limitation. A claim filed too late is destined to fail, so long as the company raises that defense.

And I still can’t believe the New Zealand guy thought he could go unnoticed by holding really really still. I’d love to see the body cam footage from when the officers moved in and caught him. Swatting away the pigeons on his head probably gave him away.

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

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Discomfit a Bear? Here’s a Quick Tip To Improve Your Independent Contractor Agreements

In this story from the Illustrated Police News, 1877, we see the courageous exploits of a young lady from Runcorn, England, skillfully discomfiting a bear with her parasol. Now, I question whether this really happened as captioned. The caption says she punched the bear in the eye with her parasol, but this artist’s rendering depicts more of a body blow, so I’m not sure which to believe. But either way, as you can see, the bear was discomfited and this atypical encounter ended well.

In this instance, a parasol was more than a mere umbrella. It served as a defensive weapon.

The lesson here is that objects we take for granted can be used as a defensive weapon with some proper planning. That includes your independent contractor agreements.

Independent contractor agreements should not be generic, off-the-shelf documents. Every agreement is an opportunity to build your defense against a claim of independent contractor misclassification.

Think about all of the factors that go into determining whether someone is an employee or an independent contractor. For a refresher, you can review some earlier posts on Right to Control Tests and Economic Realities Tests. Also here.

On factors where are you do not exert control and do not need to exert control, put that in the contract. Put in the contract that the contractor controls these factors and you have no right to control them.

For example, do you care what time of day the contractor works? Do you care if the contractor retains helpers? Do you care whose tools the contractor uses?

If not, put that in the contract: The contractor decides when to work, whether to hire helpers, and what tools to use. There are dozens more factors like these to consider. The point is to customize your agreement so that it is defensive weapon to help fend off a claim.

Then go a step further and put in the contract that you have no right to control these decisions. Remember, the Right to Control tests generally focus on whether you have the right to control something, even if you don’t actually exercise that right.

If you use your agreement to memorialize the good facts—those that support independent contractor status—then you can turn that agreement into a defensive weapon.

The agreement might not help if confronted with a bear in Victorian England (“here, read this contract while I run!”), but it may help to discomfit an independent contractor misclassification lawsuit.

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

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Say Say Say: How Not to Bungle an Independent Contractor Relationship

Remember the 1983 song, Say Say Say, by Paul McCartney and Michael Jackson? “Say, say, say what you want. But don’t play games with my affection.”

The songs asks for some straight talk. Be direct. Say what you mean. Or as Michael says, “What can I do girl, to get through to you. Cause I love you, baby (baby).”

1983 was a memorable year for me for music. I had a cassette called CHART ACTION 1983 that was one of my favorites. It included songs from Dexy’s Midnight Runners, Adam Ant, the Stray Cats, Bonnie Tyler, and Golden Earring.

But it didn’t have Say, Say, Say, and that was fine by me because I don’t really like the song. If it was on CHART ACTION 1983, I’d have skipped it, but the old fashioned way: forward, forward more, a little more, oops too far, rewind, rewind, forward, got it. Hungry Like the Wolf.

“Say say say what you want” would have been good advice for a Pennsylvania agency that offered interpreter and transcription services. The agency tried to run its business with an independent contractor model, but failed to say say say the right things in its agreements.

A Pennsylvania court ruled that the agency had misclassified its interpreters as independent contractors. Under PA unemployment law, the interpreters were actually employees. (“You know I’m crying oo oo oo oo oo.”)

Let’s look at where the agency went wrong.

Bad facts, tending to support employee status: The interpreters had a set of policies and procedures they had to follow, including wearing name badges. The agency did the scheduling.

Good facts, tending to support contractor status: The interpreters are not supervised, reimbursed for their expenses, or provided benefits, training, equipment, or name badges. An interpreter could refuse work at any time.

Totally unnecessary bad fact: The interpreters had to sign a non-compete agreement. That’s evidence of employment because it restricts the interpreter’s ability to work for others as an entrepreneur would do. But it turns out that, in reality, the agency didn’t care if the interpreters worked for others, and many of the interpreters did work for others.

Even worse, the non-compete included language referencing an “existing contract of employment.” Oops. Poor choice of words when you’re trying to prove there was no employment relationship. I would bet that the agency just pulled this non-compete language off the internet, without having considered the legal implications. The court focused a lot of attention on the non-compete when ruling that the interpreters were really employees.

The non-compete was a self-inflicted wound. That misstep is a good example of why you can’t just pick template agreements off the internet and expect that they’ll be sufficient.

More bad facts were on the website: Another problem for the agency was its website, which described the extensive training provided to interpreters, referred to them as “new hires,” and indicated they were all required to undergo a final performance evaluation. These facts all suggest an employment relationship.

Pennsylvania unemployment law applies a two-part test for determining whether someone is an employee or an independent contractor. To be an independent contractor, the service had to prove that it did not exercise control (a Right to Control Test) and that the interpreters were “customarily engaged in an independently established trade, occupation, profession or business.”

This could have been done correctly. Because of the independent nature of an interpreter’s work, the agency probably could have set up legitimate independent contractor relationships. This case is a classic example of how a proactive legal review could have saved the day.

If the agency had asked a lawyer for help in setting up the business the right way, this case could have gone the other way. The agency could have eliminated the non-compete agreement (which it didn’t enforce anyway), modified the website to eliminate “new hire” language and to de-emphasize training, cut back on the specific training provided, and changed the name tag requirement to a more generic requirement to provide identification.

So to the song I say say say: You may have hit #1 in the U.S. that October, but I’m not the one who really loves you.

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

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Election News: California Voters Adopt Prop 22; Kentucky Voters Elect Dog as Mayor

Zippy evaluates the candidates.

Some elections are more consequential than others. It can be tough to lose, but in Rabbit Hash, Kentucky, the candidates for mayor are probably indifferent to the outcome. Even the winner probably doesn’t do a lot of mayoring.

That’s because the mayor of Rabbit Hash is a dog. Since 1988, the mayor has always been a dog. This year’s winner is a six-month old French bulldog named Wilbur Beast. Wilbur succeeds incumbent Brynneth Pawltro, a pit bull who has served since 2016.

Click here for an adorable photo of the winner.

In other election news (in case you were wondering whether there was anything else happening in the category of elections), voters in California passed Proposition 22. Prop 22 will allow ride share and delivery drivers in California to maintain independent contractor status, so long as the app companies provide a suite of predetermined benefits. Read more here.

That means the ABC Test in AB 5 will no longer apply to ride share or delivery drivers in California. The new exemption does not apply to other industries.

Look for intense lobbying from other industries to obtain similar treatment. Hopefully Prop 22 serves as model legislation and will adopted elsewhere throughout the country.

There was intense lobbying in the Rabbit Hash race too. Wilbur Beast’s owner, Amy Noland, told CNN that the dog had done a lot of campaigning and had hosted a lot of events.

According to the Rabbit Hash Historical Society, “The people of Rabbit Hash generally elect mayors based on the candidates’ willingness to have their belly scratched.” Based on my informal survey of other recent political races, this appears to be a anomaly.

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

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Time: More than Just a Pink Floyd Song (and Here’s What Happened This Week with Independent Contractor Cases)

The day after turning our clocks ahead, we find it’s easier to get up early to not commute to work, to not drop the kids off at school, and to not be late for any meeting you’d ordinarily attend in person since there are none. Welcome to pandemic-style Standard Time.

A bit of Daylight Savings Time trivia for you: In January 1974, the whole country went on DST for what was supposed to be 16 straight months in response to the energy crisis. But the people resisted, complaining about school kids waiting for buses in the dark, and Congress repealed the Emergency Daylight Saving Time Act in October 1974.

Today, Arizona and Hawaii are the only states that do not observe Daylight Savings Time, although in a sense they do observe it but just choose not to participate, sort of like how most of us observed school dances in junior high from inside the gym but far from the dance floor.

Today’s post takes a look back in time, but only a very brief look back because I’m going to recap events from last week. It was a busy week in the courts for independent contractor misclassification issues.

  • The Texas Supreme Court heard arguments in a case invoking an independent contractor trash collector whose leg was amputated after a garbage truck ran it over. The garbageperson (sanitation worker?) had been retained through a staffing agency as a 1099 IC, and the issue was whether worker’s compensation coverage was available.
  • A pair of drivers in California lost their motion seeking a temporary restraining order against Uber, seeking to prevent the company from texting drivers to ask them to support Prop 22. (Read more on Prop 22 in last week’s post).
  • A group of cable installers in Illinois won approval to proceed as a class in a case alleging they were misclassified as independent contractors. The plaintiffs claim they were really employees under the Fair Labor Standards Act and are owed overtime pay.
  • A Missouri appeals court ruled that a company’s pet sitters were employees under Missouri unemployment law, not independent contractors. The court applied a Right to Control Test.

In 1908, the town of Thunder Bay, Ontario (then known as Port Arthur) was the first place to adopt Daylight Savings Time. Regina, Saskatchewan followed in 1914; and Winnipeg and Brandon, Manitoba adopted DST in 1916. Germany and Austria jumped on the DST bandwagon in 1916, turning the clocks ahead to minimize the use of artificial lighting. The UK and France followed shortly afterward, although I am sure if you asked, they would say they got the idea from Canada, not the Germans.

I find it confusing that we shorten Daylight Savings Time to DST, but we use EST, CST, MST, and PST to refer to Standard Time—in other words, the times when we’re not using DST.

So confusion reigns with the clocks, just as it does with independent contractor misclassification issues. I hope you enjoyed your extra hour of sleep on Sunday.

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

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Signs of Trouble: California Ruling Raises Stakes for Ride Share

Please, no.

When governments try to help people, they don’t always get it right. The British Conservative party just wants to help. Or does it? This would be a rather sinister way to get rid of the homeless problem, don’t you think?

Same problem with the battle over whether ride share drivers are employees or independent contactors. Good intentions have unintended consequences. The California Attorney General claims to be helping drivers with his lawsuit against the ride share companies. But the state’s effort fails to recognize the massive unintended consequences.

In August, a California court issued a preliminary injunction requiring the major ride share companies to reclassify all California drivers as employees. The ruling was based on the California law (AB 5) and its ABC Test, which presumes that anyone performing services is an employee, unless three strict factors are met.

The August ruling was temporarily placed on hold while an appeals court reviewed it.

But on Thursday, the appeals court reviewed it and agreed that the ruling was proper. The stakes have been raised, and the future of ride share in California may now hinge on what happens with Prop 22, which is on the ballot right now in California.

Despite what the judges and the California Attorney General may think, ride share companies can’t just flip a switch and make all drivers employees. The logistics and expenses associated with making that change call into question whether the effort would even be worth it. When the initial court decision requiring reclassification came out in August, there were rumblings that ride share in California might shut down entirely, at least temporarily, while the companies re-evaluate and decide whether to re-tool.

The one saving grace would be Proposition 22.

As explained here, a Yes vote on Prop 22 would allow ride share companies to continue to classify drivers as independent contractors so long as they provide a suite of benefits and guarantees described in the proposed law. These would include:

  • 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.

The core problem with the Independent Contractor vs. Employee question is that, under U.S. law, the choice is binary. You’re one or the other. And even if ride share companies wanted to provide more benefits for drivers (and they have said they do), they are constrained by the current laws. The more companies do for the drivers, the more likely it is that the law will view those well-intentioned efforts as evidence that the drivers are really employees. This dilemma fits squarely within the box of “no good deed goes unpunished.”

Prop 22 offers a middle ground. Drivers would get more protection and benefits, and ride share companies would be protected from claims that providing those protections and benefits converts the drivers to employees. This type of law should serve as a model for how to deal with the Independent Contractor vs. Employee question–not just in California but nationwide. The choice should not be binary.

Thursday’s decision by the appeals court raises the stakes, and voters in California will decide the outcome in less than two weeks.

The homeless population in Britain thankfully has more time.

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

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Whaddaya Call It? DOL Proposes New Independent Contractor Test

Soda or pop? Pill bug or roly poly? What you call things depends on where you live. In 2014, the New York Times published this 25-question dialect quiz that will tell you, with startling accuracy, where you or your parents are from.

The test is fun, and you can see how words and dialects vary from region to region.

But some things should not vary from region to region — federal laws.

The Fair Labor Standards Act (FLSA) has one definition of “employ,” but when it comes to deciding who is an employee and who is an independent contractor, different courts in different states apply different standards.  The DOL is trying to fix that.

Under a proposed new rule, released on September 22, the same test would be used in all parts of the country, regardless of whether you call your lunch sandwich a hoagie, sub, or grinder.

Click here for the rest of the post, originally posted 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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Avoid the Crocs! Here Are the New Rules for Reporting Independent Contractor Payments

Not an alligator. Photo by Leigh Bedford. Reptilian factoids by Wikipedia.

It’s important to follow directions. Not convinced? Ask the 52-foot humpback whale that took a wrong turn on its way to Antarctica earlier this month and ended up in Australia’s East Alligator River.

Ironically (and I do not use that term lightly)* the East Alligator River has no alligators in it. It is infested with an estimated 10,000 crocodiles, so that’s still bad for the whale and, from the whale’s perspective, probably just a technicality.

*More on irony below.

As for following directions, that brings us to the IRS. Starting with the 2020 tax year, directions have changed when it comes to reporting payments made to independent contractors. Rather than Form 1099-MISC, payments will now be reported on Form 1099-NEC. That’s an acronym for Non Employee Compensation.

IRS instructions say that payments must be reported on Form 1099-NEC if they meet the following four conditions:

  • You made the payment to someone who is not your employee.
  • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
  • You made the payment to an individual, partnership, estate, or, in some cases, a corporation (but usually not payments to a corporation).
  • You made payments to the payee of at least $600 during the year.

Payments to corporations generally do not have to be reported on Form 1099-NEC, but payments for attorneys’ fees and a few other odds and ends do.

To determine whether your payments meet the $600 threshold, here’s what the IRS says you should count:

Enter nonemployee compensation (NEC) of $600 or more. Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee, and fish purchases for cash. Include oil and gas payments for a working interest, whether or not services are performed. Also include expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee. Federal executive agencies that make payments to vendors for services, including payments to corporations, must report the payments in this box. See Rev. Rul. 2003-66.

You can fund more detailed instructions here. In case you skimmed that too quickly, yes, the IRS instructions really do say “fish purchases for cash.” I didn’t sneak that in there to make sure you were paying attention.

Whales, alligators, and crocodiles are not fish, so you can purchase them freely for cash without reporting the expenditures on a Form 1099-NEC.

I don’t know whether the wayward baleen escaped the river, but I do want to know how that turned out.

*So … back to irony. There’s a term so often misused. It is irony that the East Alligator River has no alligators. It is not irony if there’s rain on your wedding day (sorry, Alanis Morissette, but no doubt you know this by now.) But it is irony that Morissette’s song is called Isn’t It Ironic when all of the supposed examples of irony in the song are examples of bad luck or coincidence, not irony. So yes, it is ironic, but only in that unintended meta kind of way.

On a personal note, I experience personal hygiene irony about once a week when getting ready for bed, when I occasionally get floss stuck in my teeth. And now you know that about me.

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

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