Don’t be a goat: Know the joint employment law before going to trial

Joint employment goatI took a picture of this goat right before it tried to eat a small paper cup. The paper cup had food in it, but the paper cup was not the food. This confusion is understandable because, well, it’s a goat. The bar is set low for a goat.

The bar needs to be set higher when retaining counsel to defend against claims of joint employment. A recent California case shows what happens when your lawyer doesn’t understand the proper test for joint employment.

In the lawsuit, a staffing agency employee had been retained to work in a supervisory role as a line lead in a production department. We’ll call the place where she worked the “contracting company.” The worker was accused of bullying, then she accused another worker of harassment, and the contracting company terminated its her relationship with her. We don’t know whether the staffing agency terminated her direct employment, but that’s not important for now. The point is that the contracting company terminated its relationship with her.

She then sued the contracting company for having terminated her role there, accusing the contracting company of sexual harassment and retaliation. Because her direct employer was the staffing agency, she would have to prove that the contracting company was her joint employer. That’s because you can only allege employment discrimination claims against an employer. In other words, to bring a claim of employment discrimination against the contracting company, she had to prove that she was an employee of the contracting company.

Under California anti-discrimination law, a right to control test is used to determine whether a business is a joint employer. The test looks at how much control the business had over how the worker did her work. Because she was a line lead and a supervisor for the contracting business, there were plenty of facts that could support a finding of joint employment.

The lawyers for the contracting business either didn’t understand the joint employment test or they knew their goose was cooked, so they tried a different approach. Instead of arguing that the contracting business did not have a right to control her work, they argued that the jury should look at who had more control — the staffing agency or the contracting business. They argued that the staffing agency hired her and paid her, so it must have had more control over the essential terms of her employment. The staffing agency, they argued, was therefore her real (and only) employer.

The jury bought this argument, finding that the contracting company was not a joint employer because it exerted less control than the staffing agency.

But this argument was too clever by half. That’s not the test. So last week, a California Court of Appeals reversed the judgment, sending the case back for a new trial. You’ve got to use the proper test.

The test for joint employment is not about who had the most control. It’s just about who had the right to exert certain types of control. If more than one business exerts the right kinds of control, there can be more than one employer. That’s the whole point of joint employment.

Here’s an analogy that may be useful. Suppose a worker has a manager, who reports to a general manager. Both the direct manager and the general manager have control over the worker, even though the direct manager has more day-to-day and direct control. But they both are managers, and both have the right to control how the worker does the job. It’s not about which of the two managers has more control. They both manage the employee. Jointly.

To effectively defend against claims of joint employment, it’s necessary to understand the legal test for joint employment. Here, the contracting company argued the wrong test and scored a hollow victory at trial. In goat-speak, they overlooked the food and ate the paper cup. Now they’ll have to do it all over again, costing the contracting company a boatload in additional legal expenses for a second trial.

The lesson here is: Know the law, and know the tests. It’s hard to mount a real defense against joint employment if you don’t.

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© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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In Contract Labor Agreements, This Simple Clause Can Be Your Pillow

Joint employment contract clauseFor humans, some things are essential. Like a good pillow. For non-humans, the anti pillow sometimes works too. Not sure how. But the non-human in this picture generally sleeps like this.

For businesses contracting for labor, some things are essential too. One clause you are likely to have in contract with a supplier of labor is the right to remove a bad apple from the project.

The bad apple clause typically reads something like this: “We have the right to remove any individual supplied by contractor from the project for any reason at any time.”

That’s useful, but does it create an argument that your business is taking control over the individual’s employment in a way that could make your business an employer (or joint employer) of an individual you remove?

Here’s a simple fix to improve your contracts and limit the viability of that argument:

“We have the right to remove any individual supplied by contractor from the project for any reason at any time. We do not, however, have any right to control the individual’s employment status with contractor. Contractor retains the sole right to make all decisions regarding the hiring, termination, and other conditions of employment for all individuals assigned to the project or removed from the project.”

Consider the addition of that extra sentence or two to be a fluffy pillow.  It will help you sleep better if faced with a misclassification or joint employment claim.

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© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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A New Smell: Ninth Circuit Rejects ABC Test for Determining Joint Employment

Joint employment dogsWhere I play tennis, there’s a lake with a beach that is open all summer. Like most places in the Midwest, it closes for the season on Labor Day. The weekend after Labor Day, they open it up for everyone to bring their dogs to run around, jump off the high dive (I wish!), and sniff each other’s butts. Because dogs are not typically allowed at the lake, these dogs are unfamiliar with each other, so there’s even more butt-sniffing than you might normally see at a canine networking event. 

My daughter captured this gem of a photo — a five-dog sniffing train.

An unfamiliar smell wafted our way from the Ninth Circuit Court of Appeals last week too. And this was a more pleasant scent for California businesses than usual.

The case was a joint employment case involving a franchisor. A local franchisee was accused of miscalculating overtime and failing to provide sufficient meal and rest breaks. The plaintiff-employees settled with the franchisee but continued to go after the deeper pockets, the franchisor. They made several arguments.

Two were of the most interest to me.

First, they argued that the Dynamex ABC Test should be used to determine whether the franchisee’s employees were also the franchisor’s employees. The Court rejected this argument, holding that the Dynamex ABC Test applies only to the question of whether someone is an independent contractor or an employee. To determine whether someone is a joint employee, a different test is used.

Second, they argued that under California’s broad definition of employ, the franchisor “permitted” the franchisee’s employees to work and therefore was a joint employer and jointly liable for the franchisee’s mistakes.

The Ninth Circuit rejected that argument too. To determine whether someone is a joint employer under California wage and hour law, the Court said you look at three alternative definitions of employ: control, “suffer or permit to work,” and the common law S.G. Borello balancing test. If any of these three tests is met, there’s joint employment. The “suffer or permit to work” definition is the broadest and is the one that is most likely to tag a company with joint employer status.

The Court determined that even that broadest of definitions could not be met. The franchisor had no control over day-to-day operations, hiring, firing, scheduling, or worker pay.

For California businesses, the key takeaways from this case are (1) that the ABC Test is used only to determine independent contractor misclassification, not to determine joint employment, and (2) that the test for joint employment is relatively easy to meet but it’s not automatic, even for a franchisor.

The Court acknowledged that the nature of a franchisee-franchisor relationship necessarily involves franchisor control over the product, but that does not mean it controls the employees. It is the franchisor’s relationship with the franchisee’s employees that must be looked at to determine whether there is joint employment.

We have seen plenty of decisions from of the federal and state courts in California that have threatened to expand joint employment and threatened the franchise business model. But this decision smells good, even if a bit unexpected — like an unfamiliar but friendly dog at the beach.

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© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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The Monster with Three Eyes Can Help You Avoid Claims of Joint Employment

Some monsters are scary. There’s Godzilla, who terrorized Tokyo and whose name in Japanese translates roughly to gorilla-whale. (Thanks, wikipedia!) There’s Frankenstein’s monster, Dracula (also Count Chocula), and the Creature from the Black Lagoon, which was filmed in terrorizingly implausible black and white 3-D.

But on the other hand, some monsters are friendly and educational, like Cookie Monster, E.T., or, dare I say, Elmo. (“Kids look at these crayons… Kids look at these crayons.”)

This post is about a friendly and educational monster: The Monster with Three Eyes.

If you want to help your business avoid claims of joint employment, remember the Monster with Three Eyes when drafting contracts with staffing agencies or other vendors that supply labor.

Confession: The “three eyes” really should be the letter I three times, but when I try to write that out, it looks like “three is,” which is neither memorable nor a suitable name for a monster, even a friendly and educational one. So we go with three eyes. When I say it aloud — making sure first that no one is listening because why would a person say something like that aloud for seemingly no reason? — it sounds the same.

Here are the three main ingredients you’ll want to include in each contract with a vendor that supplies labor:

1. Identify the sole responsibilities of the vendor with respect to its employees. List these responsibilities. List the various obligations of an employer — things like properly recording all hours worked, paying overtime, paying a minimum wage, handling payroll, reimbursing expenses, providing meal and rest breaks, stuff like that. List these responsibilities specifically in the contract. Don’t just say the agency agrees it is the sole employer. Remember, joint employment is a legal doctrine that holds your business responsible if the vendor failed to do something it’s supposed to do. If your found to be legally liable, you want to be able to point to a specific contractual obligation the vendor failed to satisfy.

2. Indemnify. The indemnification provision needs specificity. It should require the vendor to indemnify your business for any claims of joint employment and for any claims arising out of the vendor failing to comply with any of its contractual obligations. That’s why you’re listing the specific contractual obligations of the vendor. When seeking indemnification, you want to be able to point to a specific contractual obligation the vendor failed to meet, which triggers the indemnification requirement.

3. Insure. Insurance requirements are just as important as indemnity. The indemnity clause is of no value if the vendor goes out of business or is liable for more than it can pay. Vendors who supply labor should be able to demonstrate that they have sufficient insurance so that if there is a joint employment claim and your business seeks indemnity, someone (the insurer) has the ability to pay.

Because joint employment is a legal doctrine that can hold your business fully liable for the misdeeds of a vendor, the key to limiting your business’s exposure is a carefully drafted contract. Even if your business is jointly liable under the law, you want to have a contractual claim against the vendor that failed to do what it was supposed to do, along with indemnity and insurance so that your business can be made whole.

So remember the Monster with Three Eyes when drafting or reviewing your next contract with a vendor that is providing laborers. If the vendor fails to meet its legal obligations, a contract drafted with these lessons in mind will be the gorilla-whale you need to get out of paying for the vendor’s mistakes.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Future of “Joint Employment” Test May Be at Issue, as NLRB Chair Files Complaint Against NLRB’s Inspector General.

F35D8CDD-3497-4FCC-83D8-732CC87B195A

From the county sheriff’s scratch-and-sniff twitter account

Police officers in Clay County, Missouri were searching for a suspect wanted for felony possession. They brought out the K9 crew. The suspect was hiding and, so far so good. But then…

According to Fox 4 in Kansas City, the suspect passed gas so loudly that he gave his location away. The police sniffed him out and cuffed him. Stinks for that guy.

There’s another search-and-destroy mission going on at the NLRB. It’s a power struggle that could be described as a complicated game of cat vs. mouse vs. cat, and — bizarre as it seems — the result of this internal power struggle may ultimately decide the test for joint employment.

Board Chairman John Ring is trying to sack NLRB Inspector General David Berry, who is trying to disqualify Republican-appointed Board member William Emanuel from participating in two key joint employment cases. Member Emanuel is likely to be the deciding vote in favor of a stricter, more pro-business definition of joint employment in either of two significant joint employment cases before the Board. (The cases are Hy-Brand and McDonald’s.)

According to this piece of excellent reporting by Bloomberg Law’s @HassanKanu, Chairman Ring has filed a formal complaint against Inspector General Berry, seeking to have him removed from his post for inappropriate conduct. The complaint, according to Kanu, alleges that Berry has mistreated agency employees, and it references an EEOC complaint filed againt Berry.

So how does this affect joint employment?

Inspector General Berry has been the driving force behind efforts to disqualify Member Emanuel (R) from participating in two key joint employment cases — the Hy-Brand case (in which the Board tried to overturn the Browning-Ferris joint employment test) and the pending McDonald’s case.

Berry claims that Member Emanuel has a conflict of interest that prevents him from particpating in these two cases, stemming from Emanuel having been a partner at the Littler law firm.

If Berry is removed, a new Inspector General may view the conflict issue differently.

From my point of view, there’s no conflict and Member Emanuel should be allowed to participate. For those of you who like to peek behind the curtain, here is a copy of the amicus brief that I filed on behalf of the Restaurant Law Center. The brief argues in support of McDonald’s position that Member Emanuel should not be recused. (There have been similar efforts to try to recuse Ring too.) But that issue remains unresolved.

If a new Inspector General concludes that there is no conflict, then a three-member Republican majority of the Board is likely to rule, at its first opportunity, that the test for determining joint employment should be changed.

The Hy-Brand decision in late 2017 described the test the Republican majority wants to implement. Read more here. The test the Board wants to implement would make it much harder to prove that joint employment exists under federal labor law. Although the Board adopted the new test in the Hy-Brand case, it later withdrew the Hy-Brand ruling because of the conflict issue. The Board wants to go back to the Hy-Brand test but needs to clear up the conflict/recusal issue first.

If Inspector General Berry is forced out, the recusal obstacle could go away.

The recusal issue could also go away if the Board just sits on the pending McDonald’s case until October. September 2019 marks two years since Member Emanuel was appointed to the Board, and any conflict issue related to his previous role as a partner at the Littler firm should drop off. There are two ethics rules in play. One has a one-year lookback period, and the other has a two-year lookback period. If the Board delays deciding the McDonald’s case, the conflict issue might just go away because of the passage of time. (More detail in the amicus brief, here.)

So where does that leave us? Ring is going after Berry, who is trying to interfere with Ring’s effort to adopt a new pro-business definition of joint employment. Sound complicated? That’s high drama within the NLRB!

Will Berry survive the complaint? Will Ring oust his rival? Will Emanuel be allowed to participate in joint employment decisions? Will the Board find a way to implement its desired new definition of joint employment? Can the whole recusal issue be avoided if the Board just waits until October before doing anything? Can the Board get around the whole recusal issue by relying on the rulemaking process to implement a new test for joint employment?

There’s a lot to keep watching here. A change to the test for joint employment would be welcomed by the business community.

Until then, keep checking here for the latest developments on joint employment, and keep checking Fox 4 in K.C. for the latest developments on suspects who fart away their hiding places.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

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“This is a Cabinet”: DOL Proposes New Definition of Joint Employer, Seeks to Clear Up a Confusing Label

This post was originally published as a BakerHostetler Employment Alert on April 3, 2019. Cabinet joint employmentSometimes it’s obvious what something is, and you don’t need a label. Other times it’s not so obvious, and you do need a label. Then there’s the rare instance when it’s obvious what something is, but someone feels compelled to supply a label anyway. That third scenario is what I saw when I went to my daughter’s volleyball tournament last weekend and snapped this photo of a cabinet in the lobby. The label is small, but if you look closely, you’ll see that it helpfully declares the item to be a “cabinet.” It further announces, in red handwriting, that the item has been “sold,” thereby allaying my concerns that my daughter was spending her Saturday playing volleyball in a den of cabinet thieves.

The second scenario – label needed – is the focus of this Alert. And the territory is familiar ground ‒ joint employment.

It’s rarely obvious what that phrase means, and companies that use workers supplied by other companies have been seeking clarity for some time now. Ignoring Ronald Reagan’s famous quip about the nine most terrifying words in the English language, the Department of Labor (DOL) announced on Monday that it’s here to help.

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Too Many Beef Livers? NLRB Addresses How It Will Review 29,000 Comments on Its Proposed Joint Employer Rule

NRLB Ring too many beef livers avocadosToo much of a good thing can be a bad thing. For example, according to this article in Popular Science, consuming 240 avocados in one sitting would put the average man at risk of sudden death by potassium poisoning. (It doesn’t say how many avocados an above-average man could eat, but presumably the number is similar.) 

A similarly bad outcome can result from over-consumption of beef livers, although it would take approximately 431 pounds of beef livers before the toxicity of excessive vitamin A might cause a man to think he should have stopped after 430.

Lots of comments can overwhelm an administrative agency’s internal organs as well. As we discussed here, the NLRB has proposed a new regulation that would make it harder to establish joint employment under the National Labor Relations Act. In response to the Notice of Proposed Rulemaking, the Board has received nearly 29,000 comments from interested organizations, unions, academics, business owners and individual workers (like Cindy, perhaps) about the proposed new rule.

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We’ve Got Baby Steps Toward a New Definition of Joint Employment Under the FLSA.

Baby steps joint employment FLSA new rule

I still don’t know what this is, but I got it from Wikipedia.

According to Wikipedia, which knows everything, or thinks it does, Baby Steps is the name of a Japanese manga series by Hikaru Katsuki. I have no idea what that means, but apparently it’s a story of some sort, which I infer from the following description: “The story is centered on Eiichirō Maruo, a first year honor student who one day decides that he is lacking exercise.”

This does not make me want to watch it.

I will, however, be watching the baby steps being taken by the Department of Labor’s Wage and Hour Division (WHD). On February 28, the WHD submitted a proposed new rule on joint employment to the White House Office of Information and Regulatory Affairs (OIRA). The new rule would modify the meaning of “joint employment” under the Fair Labor Standards Act (FLSA), which is the federal law governing minimum wage and overtime requirements.

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Joint Employment Update: Ohio Law Throws Franchisors a Bone, But It’s Not Entirely Delicious

This is Zippy enjoying a delicious treat.

When I throw my dog a bone, she is so happy. She goes and gets it, eats it, and wonders why she is unable to speak to express her gratitude. She doesn’t wonder, “Why is he throwing me a mere bone instead of an entire squirrel?” The bone is enough for complete contentment.

Ohio lawmakers have thrown franchisors a bone. They’ve limited the circumstances when franchisors can be held jointly liable if individual franchise owners commit certain Ohio employment law violations.

Under the new law, franchisors are not jointly liable for minimum wage, overtime, or pay frequency violations by franchise owners and are not jointly responsible for franchise owners’ responsibilities under unemployment insurance and workers’ compensation law — unless: Continue reading

Fecal Matter Meets Electrical Wind Machine: NLRB Scrambles to Re-Evaluate Joint Employment

NLRB rulemaking update browniong-ferris Hits the fanAccording to the British site, The Phrase Finder, the expression When the shit hits the fan “alludes to the unmissable effects of shit being thrown into an electric fan.” That’s lovely. The Cambridge Dictionary (also U.K.) describes the idiom a bit more delicately: “also, when the shit flies, [when] a situation suddenly causes a lot of trouble for someone.”

Thank you, British internet!

In any event, this expression seems to capture the predicament the NLRB suddenly finds itself in after the D.C. Court of Appeals issued its unexpected ruling a couple weeks ago in the ongoing Browning-Ferris case, which we wrote about here.

The ruling vastly complicated the NLRB’s efforts to adopt a more pro-business definition of “joint employment” that would require direct control over essential terms of employment before joint employment could be found. The D.C. Court of Appeals ruled that the meaning of “joint employment” under the National Labor Relations Act is determined by the common law Right to Control Test, and that the NLRB has no authority to change the definition in a way that is inconsistent with the common law meaning.

The common law Right to Control Test, to the current Board’s dismay, allows for a finding of joint employment when control is reserved, even if the right to control is not actually exercised. That ruling is contrary to the definition being proposed by the NLRB as part of its ongoing effort to enact a new regulation through the rulemaking process.

Since the D.C. Court of Appeals ruling, here’s what’s been happening:

First, two key Democratic lawmakers sent a letter to Board Chair John Ring, asking that the Board abandon its rulemaking effort in light of the court’s ruling. Nice effort, but that’s not likely to happen.

Second, “in light of the unique circumstance” posed by the court’s decision, the Board has again extended the period for the public to submit comments on the proposed rule. The new deadline is January 28, 2019, with reply comments due February 11, 2019. This is the third time the Board has extended the comment period. The second extension inspired one of my favorite posts, “Amazon Users (espec. Cindy, Amy & kris), Please Don’t Submit Comments On the NLRB’s Proposed Joint Employment Rule,” which if you missed, it’s not too late.

So what happens next?  The Board has a few options:

1. It can change the proposed rule to allow for a finding of joint employment when a company reserves the right to exercise control, even if the control is indirect and is never actually exercised, but only if the right to control covers “essential” terms and conditions of employment. That change would be consistent with the D.C. Court of Appeals ruling, but it’s not as sweeping a change as current pro-business Board majority would like.

2. It can plow forward with its current rulemaking plan and ignore the D.C. Court of Appeals. The NLRB typically ignores decisions by the U.S. Courts of Appeal on the basis that there are 12 regional federal Courts of Appeal and they don’t always agree, while on the other hand, the NLRB’s authority is national, not regional. This approach often results in circuit splits, in which Courts of Appeal issue contradictory rulings, a situation that generally results in the U.S. Supreme Court deciding the issue once and for all. If the NLRB takes this approach, a circuit split could develop, and the Supreme Court would be likely to get involved, but it would probably take years before that wound its way up to the Supreme Court.

3. It can ask the full slate of D.C. Court of Appeals judges to re-hear the case. This is called an en banc proceeding. Since the decision was 2-1, there could be some momentum toward the full slate of judges agreeing to reconsider the case, but even if that happens, there is no guarantee the ruling would be any different.

4. The D.C. Court of Appeals decision can be appealed to the Supreme Court. The Supreme Court could decide to hear the case, or it could decline and allow the law to further develop. The Supreme Court often waits to hear what other Courts of Appeal have to say before it issues a final decision. But even if the Supreme Court takes the case, there is no assurance that the NLRB will get the ruling it wants.

Here’s why. On one hand, the newly constituted Supreme Court is more conservative and is regarded as more pro-business, which would appear to suggest support for the outcome that the pro-business NLRB would want — authority to narrow the definition of joint employment to situations in which control is directly exercised, not merely reserved.

But on the other hand, the current Supreme Court seems less and less inclined to defer to agencies’ interpretations of statutes. While the current Supreme Court may be sympathetic to the outcome desired by the NLRB, it is unlikely to be sympathetic to the process by which the NLRB wants to achieve that outcome. The Supreme Court’s current members seem inclined to limit the authority of federal agencies to re-interpret the law.

There are lots of ways the joint employment saga might play out. But for now, it’s fair to say that the D.C. Court of Appeals decision was unexpected and messy, in a way that alludes to the unmissable effects of excrement being thrown into an electric fan (as the Brits might say).

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Orlando on Jan. 24, Philadelphia on Feb. 26, or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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