California’s New Anti-Arbitration Law: A Hotbed of Problems

California continues to be a hotbed of activity, which got me wondering: what is a hotbed? So I looked it up.

Hotbed – noun – hot·bed |  \ ˈhät-ˌbed

/a bed of soil enclosed in glass, heated especially by fermenting manure, and used for forcing or for raising seedlings/

And now you can decide which is more useful- knowing what a hotbed is or keeping up with the latest legislation in California that makes things harder for businesses.

The latest is AB51, which bans mandatory employee arbitration agreements if they are made a condition of employment. Voluntary arbitration agreements are still permitted.

So let’s just include an opt-out provision, right? That way there’s a choice, so it’s not mandatory. That would seem to make sense. Not so fast. The law says that if you include an opt-out provision, it still counts as mandatory. Huh? That’s contrary to the meaning of opt-out.

Opt – verb \ ˈäpt

/to make a choice/

If the option to opt-in is voluntary, then the option to opt-out is voluntary. Grammarians needed in California please.

The law is also probably illegal, except maybe for jobs in the transportation industry. According to the Supreme Court, the Federal Arbitration Act (FAA) prohibits states from enacting laws that treat agreements to arbitrate differently than other agreements. If the parties agree to arbitrate, there’s an enforceable contract, and the states need to get out of the way. That’s a bit of an oversimplification, but not by much. The FAA doesn’t apply to portions of the interstate transportation industry though, so the California law might be enforceable only as to that small segment of jobs. The enforceability of this law will be tested in the courts.

The law also creates a chicken-and-egg problem for independent contractor misclassification disputes. You can still require in an independent contractor agreement that an independent contractor must arbitrate disputes. And in that arbitration agreement, you can grant the arbitrator the authority to rule on any questions about enforceability of the arbitration agreement.

But what if the dispute is over whether the independent contractor is an employee? If the California law stands, then the agreement to arbitrate the dispute is enforceable only if the arbitrator rules that the contractor is properly classified as a contractor, but the agreement to arbitrate is unenforceable if the arbitrator rules that the contractor is misclassified and should really be an employee. But if the arbitrator rules that contractor was really an employee, then under California law the agreement granting the arbitrator the right to make that decision is void. You’d have to decide the ultimate issue — independent contractor s employee — before determining who decides whether the worker is a contractor or an employee.

Is your head spinning? Good. Just in time for Halloween.

Thanks California. You give me lots to write about.

This new law applies to employee arbitration agreements entered into after January 1, 2020– unless it’s not enforceable at all. We’ll see.

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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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Can You Be at Fault if Your Subcontractor Performs Shoddy Installation Work? Ask a North Dakotan.

Interstate 94 in North Dakota near Gladstone

Interstate 94 in North Dakota, near Gladstone, demonstrating why ND is the least visited of the 50 states. Photo from Wikipedia.

According to the official tourism website for North Dakota, the Peace Garden State “leads the nation in production of spring wheat, durum wheat, dry edible peas, dry edible beans, honey, flaxseed and canola.” North Dakota is also the #1 producer of honey in the U.S., a fact you can learn more about by clicking on this official North Dakota State Bee Map, on which you can locate the most active apriaries, which is a place where bees are kept and which is a word that I did not know was a word, so you see, we have all learned something today.

In addition to giving us more dry edible beans than any one of us could safely consume, North Dakota also gives us a recent case that reminds us of an important principle: If your company contracts to perform a service and subcontracts the service, your company is probably still liable under contract law to ensure that the service is properly performed.

In Bakke v. Magi-Touch Carpet, the Supreme Court of North Dakota examined a case where Magi-Touch subcontracted the installation of a shower door, which later “imploded,” according to the narrative in the opinion. I envision something less dramatic than the implosion of the Georgia Dome (cool video), but nonetheless if it were my shower door, I’d be unhappy with that sort of installation job.

The subcontractor apparently stunk it up (too many dry edible beans?), and the homeowner sued Magi-Touch for negligence, fraud, breach of contract, and bunch of other stuff that its creative attorney could come up with. The Court ruled that this was a basic breach of contract case, not a tort case and not a negligence case. Magi-Touch had an obligation to ensure the proper installation of the door, since that what it had contracted to do. Retaining a subcontractor did not relieve Magi-Touch of its contractual obligation to install the door, and Magi-Touch could be held liable under a breach of contract theory for failing to complete the installation in a workmanlike manner.

On the bright side for Magi-Touch, it could not be held liable for negligence or other tort claims. Any damages were limited to the type of damages available for a breach of contract — namely, what it could take to repair and properly install the door.

While this may seem like an obscure shower door case from a state you’ll never visit, the principles of law discussed in the case apply fairly universally. The N.D. Supreme Court decided this case based on common law principles, which generally apply no matter where in the U.S. you are located.

The important thing to remember is that subcontracting a service that your company has contractually agreed to perform does not relieve your company of the contractual obligation to perform the service. Subcontract at your own risk, and take steps to ensure the work is properly performed before paying the subcontractor.

Be sure your contracts are clear as to whose obligations are whose — both in your contracts with customers and in your contracts with subcontractors.

And if you ever find yourself planning a trip to North Dakota, aim for September in Grand Forks and prepare to witness greatness. According to the N.D. Tourism site, “The world’s largest french fry feed is held every year in Grand Forks, during Potato Bowl USA. A new record was set on September 10, 2015, when 5,220 pounds of french fries were served.” Sounds healthy but delicious.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in 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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Subcontractors Can Be Jointly Liable for Contractors’ Labor Law Violations

Otter: “He can’t do that to our pledges.”

Boon: “Only we can do that to our pledges.”

–Animal House, 1978

Subcontractors are like pledges in a way. They have to abide by the rules that apply to the primary contractor. If they fail to do so, they are responsible. Fairness isn’t really the issue.

A recent case shows how subcontractors can be held responsible when a primary contractor improperly fails to bargain with a union. In 2014, a contractor won a bid to take over a Job Corps Youth Training Center. The Center had been a union facility, and the contract was set to expire right around the same time the contractor took over operations. The contractor brought in a subcontractor, MJLM, to handle wellness, recreation,

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Irma, Harvey and Force Majeure Clauses: What Does It All Mean?

What is Force majeure hurricane legal law irma harvey contracts IMG_1108Your contracts with staffing agencies and consultants probably include a bunch of legalese boilerplate mumbo jumbo at the end, which no one ever reads. One of those standard clauses is a “force majeure” clause. That’s French for “Skim over this clause.”

Companies affected by Irma and Harvey, however, may have good reason to check their contracts for these clauses. “Force majeure” means, literally, superior force.

These clauses typically say that So-and-so is excused from performing under the contract in the event of uncontrollable circumstances, such as war, terrorism, hurricanes, voodoo curses, other Acts of God, or anything caused by Pedro Cerrano and Joboo’s Cult (Major League) [Ed. Note: “Hats for Bats!”].

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Tip for Master Services Agreements: Protect Your Business Opportunities

Master servbice agreement protect business opportunities non-circumvention clause staffing agency agreement IMG_1095If you google “Quotes about Opportunity,” you’ll find 1273 quotes on Goodreads.com. Everyone’s interested in opportunities. But when it comes to business relationships, don’t let others take yours.

When servicing a customer, businesses often call upon use subcontractors for help. That can be a win-win, so long as the subcontractor does not try to poach the relationship once that deal is done.

Consider protecting the opportunities you present to subcontractors with a non-circumvention clause. The concept here is that when your business has introduced a subcontractor to a customer to work on a project, the subcontractor should not be Continue reading

Michael Jackson Says: Be Sure Your Subcontractor Agreements Require Adequate Insurance

Insuracne subcointractor agreement independent contractor clauses agreements IMG_1096The Michael Jackson song, “Don’t Stop Til You Get Enough” has all kinds of lyrics I can’t understand. No matter how many times I listen to that song, most of it sounds unclear to me, like nonsense syllables.

The one part of the song that is clear, though, is the title. That one phrase is repeated over and over. Leaving aside (for now) the unintelligible parts of the song, the King of Pop unwittingly provided a good lesson on insurance clauses for subcontractor agreements.

(Note to readers: I looked up the real lyrics, and they have nothing to do with subcontractor agreements or insurance clauses, but they might as well since I still can’t understand them.)

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