NLRB Proposes New Definition of Joint Employer; 60-Day Comment Period Starts Now

NLRB logoWhen seeking musical inspiration for a post on the NLRB’s joint employment standard, look no further than the Barenaked Ladies’ 1994 album, Maybe You Should Drive. Like an on-again, off-again relationship, the Board keeps changing its joint employment standard. Between 2015 and today, the test has been, at various times:

  • Direct control (pre-Browning-Ferris, 1984-2015),
  • Indirect control (Browning-Ferris, 2015-Dec. 2017),
  • Direct control (Hy-Brand overrules Browning-Ferris, Dec. 2017-Feb. 2018), and
  • Indirect control (Board vacates Hy-Brand, restoring Browning-Ferris, Feb 2018-present).

But with this newest change coming in the form of a proposed regulation, the proposed change can be expected, once it’s enacted, to remain in effect long term.

Cue the Barenaked Ladies, in “Everything Old Is New Again” (1994):

Everything old is new again, everything under the sun.

Now that I’m back with you again,

We hug and we kiss, we sit and make lists,

We drink and I bandage your wrists.

The proposed new standard would make it much more difficult to establish that a business is a joint employer.

The new test will help franchisors, who need to protect their brand and marks, but do not exercise day-to-day control over hiring and scheduling of a franchise owner’s employees. The new test will help businesses that subcontract labor and that want to ensure certain tasks are performed but do not exercise day-to-day control over how the work is performed or over how subcontractor hires, schedules, and supervises its employees.

In a Notice of Proposed Rulemaking released late last week, the NLRB proposes a new regulation to interpret the National Labor Relations Act. New 29 CFR §103.40,which would define joint employer.

Under the proposed regulation, an employer may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction. A putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine.

There’s a lot packed into that definition:

  • The proposed joint employer must share or codetermine the workers’ terms and conditions of  employment;
  • These terms have to be essential terms of employment, such as hiring, firing, discipline, supervision, and direction;
  • It is not enough to have the right to control these terms; the proposed joint employer must actually exercise this control;
  • The control must be direct, substantial, and immediate; and
  • It is not sufficient to exert control that is limited and routine.

“Limited and routine” control means directing another business’s employees as to what work to perform, or where and when to perform it. Under the new rule, that will not be enough to show joint employment. Control that is not “limited and routine” would include providing direction on how to do the work — in other words, supervision.

For those of you asking, “So what? Who cares?” (my parents, for example), here’s why the change matters.

Under the new rule, a business that retains another company to perform work but has no control over that company’s hiring, compensation, scheduling, or supervision:

  • Will no longer be obligated to collectively bargain with that other company’s unionized workers;
  • Will no longer be held jointly liable for that other company’s unfair labor practices; and
  • Will no longer be drawn into collective bargaining or unfair labor practice disputes with that other company’s employees.

It’s a big deal. Unions won’t like it since the new rule will reduce their influence, but the new rule is a common sense, pro-business proposal that will add predictability and certainty to economic and legal relationships.

So what’s next?

There is a now a 60-day period for comment. The Board will then have the opportunity to consider the comments and revise or reject the proposed rule.  The soonest the rule can be implemented is late 2018 but more likely early 2019.

Then, assuming the rule is implemented, we go back to the standard that existed before Browning-Ferris, but with a lot more clarity and permanence. Everything old is new again. But this time, the change should be long-term since it will be memorialized in a  federal regulation.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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“Maybe Later”: California Legislature Declines Business Community’s Request to Fix ABC Test

California ABC Test legiuslative efforts fail 2018

Peter Gabriel’s 1986 album, So, includes the song “Don’t Give Up.” It is a mournful duet with Kate Bush that must not be included on anyone’s workout playlist. The blend of an inspirational title and weepy output, though, seems appropriate for this post.

Today we’re following up on the state of independent contractor misclassification in California, five months after the Dynamex decision and its contractor-hatin’ ABC Test.

This summer, in response to Dynamex, California businesses that rely on independent contractor gig workers engaged in a coordinated effort to persuade the California legislature to suspend the Dynamex ruling and to reinstate a common sense balancing test for determining Independent Contractor vs. Employee.

For now, they have failed.

California’s 2018 legislative session just ended. The Democratically controlled Assembly and Senate declined to consider any legislation that would affect the Dynamex ruling and its new ABC Test.

In a recent interview with California’s Capital Public Radio, three weeks before the legislative session closed, Assembly Speaker Anthony Rendon admitted that he is a much weaker hitter than the Washington Nationals third baseman who shares his name and has 19 more home runs this year than the Speaker. (Actual quote unavailable.) But, more relevant to this post, Rendon also said that there would be no action this year on legislation to define Who Is My Employee?

“Ultimately, this decision is about the future of the way work looks. And that requires us to be thoughtful and deliberate,“ Rendon said. “And there’s no way we can be thoughtful and deliberate in three weeks.”

Senate President pro tem Toni Atkins, who may or may not have been in the late-80s-early-90s soul/R&B group Tony! Toni! Toné!, expressed similar sentiments: “The California Supreme Court voted unanimously for this new test. I agree with Speaker Rendon that forging any legislative review or response to their decision in just three weeks isn’t workable.”

Let’s break that down.

When my oldest daughter was little and didn’t want to do something, she developed a polite way of saying “no f-ing way.”  She’d say, “Maybe later.”  We all knew what that meant.

I am hearing the same thing from Rendon and Atkins when they say that three weeks wasn’t enough time to draft new legislation. All they had to do was reinstate the status quo before Dynamex, which was a well-established balancing test for determining whether someone is an employee or an independent contractor.

But instead they gave us the legislative equivalent of “maybe later.” I won’t be putting that on my workout playlist either. And it’s not gonna get worked out any time soon. The ABC Test in California is here to stay. (Cue weepy mournful background music.)

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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When Are Shareholders Also Employees? (Disney-Themed Version)

When are shareholders considered employees

I have always believed that in the song made famous by Happy, Dopey, Sneezy and friends, they were saying “Off to work we go,” but I just checked a few sites for lyrics and the lyrics all show the dwarves singing, “It’s home from work we go.” Can this be true? Have I been mixed up all these years about which way the dwarves were going to dig dig dig with a shovel or a pick?

Work can be confusing. A non-cartoon-dwarf scenario that can be confusing is trying to determine whether shareholders in a business are also employees of that business. In today’s post, we examine that question by celebrating the 15th anniversary of a 2003 Supreme Court case. (Happy Anniversary, case! 🎂)

Like many tests for determining Who Is My Employee?, this one comes down to control and the familiar Right to Control Test.

In Clackamas Gastroenterology Associates, P. C. v. Wells, an employee of this Oregon-based medical clinic tried to sue for disability discrimination under the federal Americans with Disabilities Act (ADA). To bring claim under the ADA, though, the plaintiff must show that her employer has 15 or more employees.

The clinic had four owner/shareholders who were also physicians. If they were also employees, then the clinic had 15 employees and Ms. Wells could pursue her ADA lawsuit. If these physicians were just shareholders and not employees, then the clinic had fewer than 15, and Ms. Wells would be SOL.

The dispute made its way to the U.S. Supreme Court. The Court ruled that the proper way to determine whether the physician/shareholders counted as employees was to apply a Right to Control Test. But which version?

The standard Right to Control Test tries to distinguish between an employee and an independent contractor. Because the question here is a bit different, the test had to be adapted to fit the situation.

The Court decided that these six factors were most important for deciding whether the physician/shareholders were also employees:

1. Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work;
2. Whether and, if so, to what extent the organization supervises the individual’s work;
3. Whether the individual reports to someone higher in the organization;
4. Whether and, if so, to what extent the individual is able to influence the organization;
5. Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
6. Whether the individual shares in the profits, losses, and liabilities of the organization.

Like the traditional Right to Control Test, this is a balancing test. Some factors may weigh in one direction, some may tilt the other way. Ultimately, a judge (or jury) needs to weigh the factors and make a determination.

In this case, the Supreme Court did not do the weighing. Instead, it articulated the test and sent the case back to the Oregon district court to weigh the factors.

So for Ms. Wells, the case left the Supreme Court and went back to the federal court in Oregon. And so the real question is: For Ms. Wells after the Supreme Court’s ruling, was it “off to court we go” (headed back to Oregon) or “home from court we go” (leaving D.C.)? I bet she never thought about that.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Court Expands Use of ABC Test in California, Commits Candy Land Party Foul

Dynamex ABC Test Candy Land

Suppose you are dominating an important game of Candy Land, having picked the orange card first, which gave you the privilege of taking Rainbow Trail across half the board to a distant purple square, leaving your toddler opponent in tears, whining, “No Fair!” Well, your toddler would be wrong since that was perfectly fair and within the rules. But you feel bad for young Timmy and so you allow him to change the rules mid-game so that no one can use Rainbow Trail, forcing you to plod slowly across all the regular squares, bored to tears because this stinking game takes forever.

Sometimes we make exceptions for bratty toddlers, but in real life it’s no fair to change the rules in the middle of the game. You may have built your entire Candy Land strategy around trying to pick the Orange square card first. It’s not fair to block you from Rainbow Trail after the game has started.

The same is true in business. Businesses hire employees or retain independent contractors according to the rules in place when they make those decisions.

An important ruling last week threatens to change the Independent Contractor vs. Employee rules midway through the game — but this is no game.

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Free Smells! Jimmy John’s Avoids Franchisor Joint Liability

Joint employment jimmy john’s overtime litigation

The famous bank robber Willie Sutton supposedly once said that he robs banks “because that’s where the money is.” I doubt he said that since it seems rather incriminating. (“I’m sorry, your honor. What I meant is ‘If I did it…” See, Simpson, O.J.). But that’s the legend anyway. You can read more here on whether it’s true.

The strategy for plaintiffs in overtime cases is much the same. Sue the deepest pockets. That’s where the money is. When the deepest pocket is not your employer, allege joint employment.

That’s what happened in the recent overtime lawsuit against some Jimmy John’s franchise owners (the direct employers) and the franchisor (corporate Jimmy John’s). The lawsuit is cleverly titled In Re: Jimmy John’s Overtime Litigation. Like many lawsuits, the case has dragged on for four years. It has not been freaky fast.

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Do ABC Tests Matter if my Business is not in California? (Yes!!!)

ABC Test Califoirnia Dynbamex Massachusetts other states

According to Michael Jackson and his brothers (don’t forget Tito), ABC is easy as 1-2-3, and it’s also easy as do-re-mi. According to Julie Andrews, in Do-Re-Mi, once you know the notes to sing, you can sing most anything. This is not technically true, as once demonstrated by William Hung.

ABC may sound easy, and some people might think they can sing anything.  But actual compliance with ABC Tests is not easy — and yes, every business needs to think about how it would comply with ABC Tests. (For background on What is an ABC Test?, read here and here.)

ABC Tests are not just in California. Massachusetts uses an ABC Test to determine who is an employee under state wage law. New Jersey uses an ABC Test to determine whether someone is an employee or independent contractor for state wage law. Unemployment too.

For unemployment purposes, lots of states use ABC tests to determine whether someone seeking unemployment coverage was your employee or an independent contractor. These states include Connecticut, Delaware, Illinois, Indiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, Vermont, Washington, and West Virginia. There are more but I started prioritizing my list by number of electoral votes.

Because ABC Tests are stricter than ordinary balancing tests (like Right to Control or Economic Realities tests), your company may be required to make unemployment contributions for individuals who are independent contractors under most laws but are employees under your state’s unemployment compensation law. You could owe back assessments and penalties for failing to pay into the state unemployment insurance fund.

New York, Pennsylvania, and D.C. use ABC Tests for work performed in the construction industry.

Some states use even tougher multi-factor tests to determine whether an individual presumed to be an independent contractor is really an employee. Maine has an ABCDE Test, meaning each of five factors must be met (plus another 3 from a list of 7, creating a veritable menu of family-style Chinese take-out for misclassification). New Hampshire uses an ABCDEFG Test to determine whether someone is an employee subject to its workers compensation and wage and hour laws.

Congressional Democrats, including Bernie Sanders and his hair, have introduced a bill that would use an ABC Test to determine whether someone is an employee under the NLRA. The bill has no chance to become law unless (until?) the Democrats control both houses of Congress and the Presidency, but for now, it’s worth noting that there is a desire among some lawmakers to adopt sweeping changes to the definition of employee.

The point is that ABC tests are prevalent already — and they are expanding. The California decision adopting an ABC Test was issued three years after the New Jersey Supreme Court adopted a similar (but less stringent) ABC Test for its state wage and hour laws.

With more state legislatures and state supreme courts considering changing the tests, we can expect this trend to continue. We can expect more states to adopt ABC Tests, especially in states where the courts (like in California) make up ABC Tests without legislative input. For a legislature to pass an ABC Test, it takes some work, bicameral support, and usually the signature of a governor. For courts to make up new ABC Tests, however, it’s easy as 1-2-3, do-re-mi.

Business should be thinking proactively about whether their contracts, relationships, and public-facing statements (such as in websites) will allow them to support independent contractor status when an ABC Test is used to determine WhoIs My Employee?

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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California’s New Killer Bee: How Should Businesses Deal with Part B of California’s New Independent Contractor Test?

California ABC test Dynamex Killer Part BAccording to pestworld.org, Africanized honey bees have been known to chase people for more than a quarter mile once they get excited and aggressive. This is why they earned the nickname “killer bee.”

In its recent Dynamex decision, the California Supreme has introduced its own Killer B into California wage and hour law. This new Killer B could make plaintiffs’ lawyers excited and aggressive, chasing down businesses that use independent contractors and filing lawsuits alleging they are really employees. Those lawsuits could really sting!

Today we look at two questions: What is the new Killer Part B, and what do businesses need to know about it?

What’s the Issue?

Several states now use ABC Tests to determine whether a worker is an employee or independent contractor, at least under certain state laws. California joined the party with its 4/30/18 Supreme Court decision (Dynamex), adopting an ABC Test to determine who is an employee under most of California’s wage and hour laws.

Part B of the new California test can be difficult to meet. To be a true independent contractor, the worker must be performing work that is outside the hiring party’s “usual course of business.” We’ll call this a Strict ABC Test.

Some states have a more forgiving version of an ABC Test, allowing Part B to be satisfied if the worker performs the services either outside the usual scope of business or off of the hiring party’s premises. New Jersey, Illinois, and Connecticut use the more forgiving test. We’ll call that version the Standard ABC Test.

What’s the Concern with Part B in California’s New Test?

Part B can be hard to meet.  Lots of workers who are otherwise independent contractors will be considered employees because of Part B — especially under a California-style Strict ABC Test. If the type of services being provided are within the hiring party’s “usual course of business,” the worker must be treated as an employee under California’s wage orders.

Although this Strict ABC Test is new to California employers, it’s not new to multi-state employers. Massachusetts has been using a Strict ABC Test for its wage and hour laws since 2004, when it passed the Massachusetts Independent Contractor Law. In 2008, the Massachusetts Attorney General’s Office issued an advisory memo on its interpretation of the law, especially Part B.

What Can We Learn From Massachusetts?

The key to success under Part B is establishing that the contractor’s services are outside of the “usual course” of your business. That means the contractor does something that your business doesn’t do.

Companies should consider taking steps to define more precisely its “usual business,” and then memorialize that in multiple ways — internally, externally (website: About Us page?), and contractually in agreements with independent contractors.  Keep in mind the importance of differentiating between the scope of what your business does and the scope of what the independent contractor will be doing.  If you want to satisfy Part B, these things should be different.

You may need to define the scope of your services more narrowly. For example, if your business sells appliances but retains independent contractors to install them, you might take steps to define the scope of your business as “selling appliances but not installing them.” Consider adding language to your contracts, website, and other documents to make this distinction clear.

This is just one of many strategies that businesses in California and Massachusetts should be prepared to implement. Being proactive is the key to avoiding claims of independent contractor misclassification. Evaluate and modify your independent contractor relationships and contracts now, not after you have been sued.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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