Would You Like Some Pepperoni with Your (Oops) Joint Employment?

Joint employment pizza 31E83EC5-E554-428A-A5D6-37F13905C3B9According to pizza.com, “There are approximately 61,269 pizzerias in the United States.” That number seems pretty precise to me, not an approximation, but who am I to question something I read on the internet?

Approximately 4 of the 61,269 pizzerias are owned by a New Yorker named Paola P., who runs each of the 4 under a different LLC. Paola’s employees can be assigned to any of the 4 pizzerias on their workdays. Seems boring so far, but stay with me. Now say this three times fast:

Paola’s practice prompted problems since Paola P’s pizzerias were impermissibly positioning personnel to prevent paying overtime. 

Pity.

Workers were being assigned to work roughly 50 hours a week, but they would work at two or three locations, less than 40 hours at each site. They received paychecks from the various LLCs (remember, each pizzeria was run as a separate company), which by itself is ok, but Paola’s mistake was that she failed to aggregate the hours from the 4 locations and failed to pay overtime when any individual exceeded 40 hours of total work.

Because the pizzerias shared ownership, management, and commingled employees, the workers were considered joint employees of the four companies. For those keeping score at home, that’s what we call “horizontal joint employment.”

Paola’s companies were liable for failure to pay overtime to each worker in any week when an employee worked more than 40 hours in the aggregate, even if no worker reached 40 hours at any individual location.

A federal court determined that the violation was flagrant and imposed the three-year statute of limitations, instead of the ordinary two-year statute.

This was a $360,000 mistake, half of which was for liquidated (double) damages.

According to our friends at Guinness, the world’s most expensive pizza can be ordered for $2,700 at Industry Kitchen in New York. This magical pie contains stilton (it’s a cheese, I had to look it up too), foie gras, caviar, truffle, and 24K gold leaves. Paola could have ordered 133 of these and still had some money left for dessert.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Can Independent Contractor Misclassification Automatically Violate Federal Labor Law? (Hint: Yes)

The past two weekends, we have seen NFL players link arms in solidarity. They protest mistreatment and injustice in society, not mistreatment and injustice by their employers. In fact, there have been several instances where owners and coaches have joined in.

Had the players been protesting actions by their employers — their teams — their actions likely would be considered “protected concerted activity” under the National Labor Relations Act (NLRA). The NLRA grants employees the right to act collectively to protest terms or conditions of their employment. Employees have these rights even if there is no union.

NLRA rights apply only to employees, not to independent contractors. Independent contractors have no right under the NLRA to engage in collective behavior. In fact, antitrust laws can sometimes prohibit independent contractors from acting collectively — such as in price fixing.

So let’s get to the issue that is the focus of this blog — the issue of Independent Contractor vs. Employee.

Here’s the question of the day:

If independent contractors have no rights under the NLRA but employees do, can the mere act of misclassifying independent contractors be considered a denial of NLRA rights? 

Yes, said an Administrative Law Judge in a recent case involving couriers.

Here’s the judge’s reasoning: Employees have NLRA rights, allowing them to act collectively. An employer violates the NLRA by denying an employee the right to act collectively. Protected concerted activity can include discussing wages with co-workers, discussing discipline, speaking out against a supervisor, criticizing work conditions, and a broad range of other activities (many of which you probably never thought were protected).

Independent contractors do not have these rights because the NLRA applies only to employees. By misclassifying a worker as a contractor, the judge ruled, a business is essentially telling the worker — who is actually an employee — that he has none of these rights.

Telling an employee that he has no right to engage in protected concerted activity is pretty clearly a violation of the NLRA.

And there you go.

So what does that mean for businesses that use independent contractors? In other posts, we have discussed many of the negative consequences of independent contractor misclassification. A business that has misclassified workers as independent contractors (when they should really be deemed employees) can be liable for failure to pay employment taxes, failure to provide workers’ compensation and unemployment coverage, failure to follow hiring and paycheck laws, failure to provide employee benefits, and more.

Now add to that list a possible automatic violation of the National Labor Relations Act — at least according to this judge.

You can’t see me, but I am kneeling in protest.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Who is the Next “Miss Classified”? Here’s How I Would Award the Prize.

IMG_1107I received an email this week from a worker claiming he was “Miss Classified.” I did not know there was a pageant for that, but I suppose congratulations were probably due. I politely responded that I only represent companies, not individuals, in disputes relating to independent contractor misclassification, and I wished him luck.

But then I started thinking, What if there was a pageant? What would it take to be crowned Miss Classified?

I came up with a few criteria.

To be named Miss Classified, a contestant would probably have a job that requires her to work a set daily schedule, with little flexibility. She’d have to ask a supervisor for time off (including to enter this pageant).

A fixed schedule suggests employment when assessing Independent Contractor vs. Employee, so I’d award that contestant a point toward becoming Miss Classified. If the supervisor denies the request for time off, I’d award an extra point toward Miss Classified status — but sadly, if denied the day off, this worthy contestant might not show up for the pageant. [🤔]

I’d award another point toward being named Miss Classified if she uses company tools and equipment. If she does office work, she’d get points if she uses someone else’s desk and computer, performs her work at the company’s primary place of business, and has a company badge. I’d award bonus points if she has a company email address.

Instead of a swimsuit competition, I’d have contestants reveal what they wear to work. Anyone wearing a swimsuit is at the wrong pageant and would be asked to leave. But anyone wearing company uniform or logo would get a point. I’d have an exception, though. If the company shirt says “Company – Authorized Contractor,” no points.

For the talent portion of the Miss Classified pageant, I’d ask candidates how they learned their special skill. I’d award no points to anyone who became licensed and trained on their own time and on their own dime. But if they learned their craft from the company they are working for, I’d award a point toward being named Miss Classified. If the company paid for the license or training, I’d award another point.

My pageant would have a monetary award for the winner (let’s just call it damages), but before awarding any economic prizes, I’d ask the contestants about their current financial situation. Are you economically reliant on one company for all your compensation? If yes, two points. That’s a candidate who might be worthy of the title Miss Classified.

On the other hand, a candidate gets no points if she performs work for several companies and advertises her services in the marketplace. Anyone using a personal business card and website to advertise her services to the public gets no points. Anyone who is simultaneously working for one company and that company’s direct competitors will be disqualified from the competition. That person is probably not Miss Classified.

I’d hold my competition in California. That would be the most likely place for someone to be named Miss Classified. California has all sorts of state laws that would influence the outcome of my competition.

I’d have Simon Cowell judge. Not for any good reason though. I just think that would be good for ratings.

And the winner is … hopefully not anyone performing services for your company!

(In case you were wondering, this would NOT be the among the world’s strangest pageants. But these are.)

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Tip of the Day: Set Up a Gatekeeper

door-gate-entrance-gateway

What you don’t know can hurt you.

Claims of independent contractor misclassification can sneak up on companies that don’t even know they have a problem.

Businesses usually treat the retention of contractors as an expenditure, not an increase in headcount. Since no new employees are being hired, Human Resources Departments and Legal Departments often have no idea when operations managers have retained contractors–sometimes at distant locations.

Operations managers usually don’t know the risks of independent contractor misclassification. Why would they? They don’t know what to look for in contracts or what words to avoid. They need a job to be done, and they find someone to do it. End of story, right? No! It feels great if you can trust your operations managers to solve their own problems, but if this is what happens at your company, you may have hidden misclassification risks.

One way to prevent these unforeseen risks is to create an internal gatekeeping process. Require approval by a point person before any manager can retain an independent contractor. The same rules would  apply for outsourcing any work to a consultant or an agency. This gatekeeper would be trained to spot potential misclassification risks.

The gatekeeper could approve or disapprove requests to retain contractors and could guide managers on best practices for overseeing contractors’ work without exerting too much control.

Summary:  Large organizations can benefit from designating a gatekeeper who must approve all requests to retain independent contractors. The gatekeeper process can help to ensure that misclassification risks are evaluated and controlled proactively.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Misclassification settlement strips $6 million from Club Assets

IMG_1090When I was an undergrad at Michigan, any time I would drive to the airport or to Tiger Stadium, I’d see billboards for Deja Vu, a strip club with (apparently) lots of locations. I never visited (not into that sort of thing, thanks for asking), and I never thought much of it. I certainly did not expect to be writing about Deja Vu and independent contractor misclassification 25 years later. But here goes.

When patrons of these fine establishments partake in the traditional lap dance, it’s doubtful they’re thinking about whether these often-single-mom “entertainers” who are just trying to make a living have been properly classified under wage and hour law. More likely, they’re thinking about — never mind.

But that’s an important issue, as Deja Vu recently learned, when it was sued by a class of 28,177 dancers alleging they were misclassified as independent contractors, rather than paid as employees. The class alleged that the clubs intentionally misclassified them as contractors, failed to pay them minimum wage, unlawfully required them to split gratuities, and unlawfully deducted wages through rents, fines, and penalties.

After a fairness hearing in federal court in Detroit, the parties finalized a $6.55 million dollar settlement. In addition to cash compensation, the settlement includes an unusual provision allowing dancers to choose whether to be contractors or employees.

Dancers will receive between $443 and $6,007 each. Their lawyers will enjoy a payout of $1.2 million in fees, which could buy them a lot of — never mind.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Podcast: What You Need to Know About Independent Contractor Misclassification

IMG_1073This week, I am encouraging readers to tune in to this podcast from XpertHR, in which I discuss issues and hot topics related to independent contractor misclassification.

Topics covered include:

  • The attack on business models that rely on the use of independent contractors;
  • The future of misclassification claims;
  • Possible updates to the FLSA;
  • Industries that are most at risk for independent contractor misclassification claims; and
  • Common misconceptions.

I hope you enjoy this interview, and thank you to David Weisenfeld and Xpert HR.

Security Guards: Employees or Contractors?

security guard employee or independent contractorI never saw the movie Paul Blart: Mall Cop and almost certainly never will. (Do I really need explain that decision?)

The Independent Contractor vs. Employee question often arises in the context of security guards, though. I confess to not knowing how Paul Blart was classified but, for companies who retain security guards, the decision whether to hire them as employees or to contract with a security firm is an important one.

The main advantage of hiring security guards as employees is the ability to retain control over how an individual guard does the job. The company can select who it wants to work and when, and can provide as much supervision and direction as needed.

The biggest disadvantage to using employees for security work, however, is the risk of liability. The very purpose of the role is to guard against dangerous or threatening situations. Where a security guard overreacts, or where someone gets hurt by a guard acting in the normal course, lawsuits are sure to result. And the injuries are likely to involve more than hurt feelings.

A recent Texas case, Henderson v. CC-Parque View, illustrates the benefit of using contractors rather than employees to provide security services. In that case, a management company contracted with a security firm to provide guards at an apartment complex.

One night, an overzealous guard (we’ll call him Blart, because that truly is a great name for an overzealous guard) ordered Henderson (that’s Henderson’s real name), who was sitting in a parked car at the complex, to get out of his car. Henderson got out, but an argument ensued.

In an attempt to proclaim his invincibility, Henderson (I imagine this is how it went down) shouted, “I’m rubber and you’re glue and anything you say bounces off me and sticks to you.”

The guard, an avid fan of MythBusters, did not believe his antagonist’s impromptu physics lesson and shot him in the abdomen with a rubber bullet. It did not bounce. And it hurt.

Henderson sustained injuries. He sued the guard, the security company that employed the guard, and the management company of the apartment complex.

The suit against the guard and security company proceeded, but the management company successfully argued that the guard was not its employee and that it could not be liable for his actions.

The court ruled that the guard was a contractor, not an employee of the management company; and the management company was dismissed from the lawsuit.

Had the guard been hired directly by the management company as its employee, the outcome likely would have been very different, since employers are commonly held liable for the acts of their employees, when in the course of employment.

This case is a good reminder of the benefit of retaining an outside security firm, rather than hiring employees, to provide security services.

And did you hear there’s a Mall Cop 2? I also won’t watch that.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.