Worker protection laws are a bit different in China.
According to this report, a Chinese company forces its employees to eat raw eggs as punishment if their work does not meet expectations. When one intern complained, the HR Manager allegedly responded, “What law is preventing you from eating a raw egg?”
Even if the company’s motivational techniques could be challenged under Chinese labor law, Chinese legal experts caution that the intern is probably not the right person to complain. His unpaid internship apparently doesn’t make him an employee under Chinese law. And there it is: The age old questionof Who Is My Employee? is a thing in China too.
Back in the U.S., we know that the employee vs. independent contractor question makes all the difference in whether several types of employment, tax, and benefits laws apply. But what about military leave law?
Under the Uniformed Services Employment and Reemployment Rights Act (USERRA), employees are guaranteed reinstatement and other job protection rights after taking military leave. And employers must grant military leave when requested.
Do the same protections apply to independent contractors?
According to federal regulations, the answer is no — so long as the contractor is properly classified as a contractor.
Under USERRA, independent contractor status is evaluated using a Right to Control Test. The regulations say these six factors should be considered:
1. The extent of the employer’s right to control the manner in which the individual’s work is to be performed;
2. The opportunity for profit or loss that depends upon the individual’s managerial skill;
3. Any investment in equipment or materials required for the individual’s tasks, or his or her employment of helpers;
4. Whether the service the individual performs requires a special skill;
5. The permanence of the individual’s working relationship; and,
6. Whether the service the individual performs is an integral part of the employer’s business.
No single factor is controlling, but all are relevant for determining whether an individual is an employee or an independent contractor.
As with so many other laws, it’s not enough just to assume USERRA doesn’t apply because a worker is classified as an independent contractor. The workers has to be properly classified as an independent contractor, according to the test that applies to that particular law.
Getting it wrong means failure to comply with military leave law. That sounds unpatriotic and unfair. And it could leave you with egg on your face.
[Note to self for future blog post idea: Can you require independent contractors to eat raw eggs in the U.S.?]
Zippy practices for the 13th Annual Lying Down Championships
Lying down in the face of a challenge is rarely a good strategy. I did, however, find one exception.
A man from Montenegro recently won the 12th Annual Lying Down Championships, beating out nine other competitors by remaining horizontal under a tree for 60 hours. As a reward for his (lack of) effort, he received 350 euros, lunch for two at a restaurant, a weekend stay at a local village, and a rafting trip.
Then things got weird. Local media reported that shortly after the competition, the winner was taken into police custody for (allegedly) physically attacking journalists and damaging the headquarters of a newspaper that called him “the biggest swindler in all of Montenegro.”
I suppose there’s a lesson in here somewhere: Offer a man an award and he’ll lie still for 60 hours, but call him a swindler and he won’t take that lying down.
But I digress. In this post, I want to share some tips gleaned from a recent New Jersey Supreme Court case involving prong C of the ABC Test. The case also serves as a reminder never to take a misclassification audit lying down.
The dispute involved East Bay, a drywall installation company that used independent contractor drywall installers for residential jobs. Until 2013, the company treated its installers as employees. It then switched to an independent contractor model. Risky move. This sparked an audit.
The New Jersey Department of Labor and Workforce Development wanted to know why this company, which was still active, suddenly lacked employees. The audit looked at the individuals who continued to install drywall and examined whether, under New Jersey’s ABC Test, they were independent contractors or employees.
You can guess what happened next. The Department found that 16 installers were misclassified, and it issued a hefty back assessment against the company for failing to pay into the state unemployment fund. The company appealed and lost.
The New Jersey Supreme Court’s opinion focused largely on what it takes to prove prong C of the ABC Test — that the individual “is customarily engaged in an independently established trade, occupation, profession, or business.” (You can read more about New Jersey’s ABC Test here, but otherwise I am going to assume that readers are familiar with the basic concept of the ABC Test.)
The drywall company put forth evidence that the independent contractors had registered business entities and certificates of insurance. The New Jersey Supreme Court held that wasn’t enough to satisfy prong C. This evidence wasn’t enough to prove that the individuals truly operated independently. Evidence in support of prong C should demonstrate that the independent contractor would not become unemployed if the work from this company went away.
The Court gave some examples of evidence that would have been more persuasive in satisfying prong C, including:
That the IC’s business will continue when this engagement ends;
That the IC’s business is stable and lasting, or other evidence of longevity;
That the IC has other customers;
That the IC has other sources of revenue, and the company being audited is not the primary source of income for the IC;
That the IC provides the tools, equipment, vehicles, and other resources needed to perform the work;
That the IC has telephone listings or business stationery;
That the IC advertises;
That the IC has its own employees;
That the IC maintains inventory;
That the IC bears the risk of loss;
That the IC benefits from the goodwill generated from a job well done;
That the IC is required to maintain educational and licensure requirements;
That the IC is permitted to obtain work from other businesses; and
That the IC in fact performs work for other businesses.
The court cited these as examples of the types of evidence that would have been helpful to prove prong C. This is not a mandatory list. The point here was just that business registrations and certificates of insurance were not enough. Strategically, there is other evidence that would be helpful too, and there are steps that can be taken when retaining ICs to help build a defense. I maintain a longer list but, hey, I can’t give away all the secrets here.
Other observations from the New Jersey Supreme Court decision:
1. How to invite an audit. Switching from an employee model to an independent contractor model is, by itself, enough to prompt an audit.
2. An ominous footnote about prong B. There was also a dispute in this case over the meaning of prong B. Remember, New Jersey has a standard ABC Test, which allows prong B to be satisfied by showing either the work is outside the hiring party’s usual course of business or the work is performed outside of the places of business of the hiring party. (This is different than the California version of the ABC Test.) All drywall installation work was performed at customers’ residences. After the audit, the Commissioner of Labor found (inexplicably) that prong B was not satisfied. It is unclear from the opinion whether that was based on a conclusion that the customers’ residences were East Bay’s places of business or was based on some other fact, such as some kind of work being done at East Bay’s place of business. If the Commissioner believed customer’s residences to be East Bay’s places of business, then it is hard to see how the latter part of prong B could ever be satisfied. But the NJ Supreme Court did not consider prong B in its decision. The Court ruled that prong C was not satisfied, and so it chose not to wade into the morass of prong B.
But there is an ominous footnote. When the Court declined to consider prong B, it noted that in its prior decisions, the place of business meant locations where the hiring party had a “physical plant or conducts an integral part of its business.” That’s consistent with common sense and would exclude a customer’s residence. The Court then, however, invited the Department of Labor to issue regulations explaining how the Department thinks prong B should be interpreted. Yikes!
3. You need to fight unemployment claims by ICs at the initial audit level; you can’t expect a court to save you on appeal. Courts will defer to the findings of an agency if its factual findings have any support in the record, no matter how flimsy. In other words, the agency can be wrong in its overall weighing of the factors, but a court is supposed to affirm the agency’s decision if there’s evidence to support it. Not “a preponderance of evidence” or “ample evidence” or even “sufficient evidence.” Just “evidence.” Folks, the reason we have trials is because there’s almost always at least some evidence on both sides, even if the preponderance of the evidence leans the other way. You shouldn’t have to pitch a shutout to win the game.
I have seen the same deference standard applied to unemployment decisions in New York and Ohio. The courts defer to the agencies. It is unfair. The result can be that the agency’s decision gets affirmed, even if it made the objectively wrong decision.
This unfair standard highlights how important it is to win at the earliest stages in an unemployment claim, if independent contractor status is being challenged. The initial investigation is your best chance to defend independent contractor status. If you wait, it’s too late. Provide the auditor your best evidence on every factor, and don’t hold back.
Remember the consequences too. If one contractor is misclassified, the agency will likely deem all other similarly situated contractors to be misclassified, and you’ll be on the hook for unpaid assessments for all of them. The stakes are high. Companies using independent contractors should spend the time and money to mount a full defense of their contractor’s status at the audit stage. It’s worth the investment, especially because the state courts will generally defer to the agency’s findings, even if the agency is wrong.
Here’s the ultimate takeaway: If you’ve entered a Lying Down Competition, it’s ok to lie down for as long as you want. But if you’re faced with a worker classification audit, or a 1099 audit, or an unemployment claim by a former independent contractor, do not take that lying down.
You need to fight hard in the audit, producing evidence to support independent contractor status. You’ll have the right to appeal if you lose, but don’t expect a fair chance to prove your case. You’ve got to do your best to win any classification dispute at the initial audit. That’s the time to retain counsel and invest time and resources. If you lose the audit and bring an appeal, you’re fighting a steep uphill climb.
In 2009, the James Brown compilation album The Godfather’s Smackdown, Live! was released. It’s a two-disc compilation of live shows from 1980. I never saw James Brown live, but I did see James Brown’s Celebrity Hot Tub.
The D.C. Circuit Court of Appeals issued a different kind of smackdown, chastising the National Labor Relations Board (NLRB) for ignoring the Circuit Court’s earlier directive about the joint employer test. Believe it or not, this case is another chapter in the ongoing Browning-Ferris saga.
Click here to read the rest, originally posted on the BakerHostetler Employment Law Spotlight blog.
Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment.
Good news for old passengers traveling to New York!
The caption above may be too small to read, but it’s from a recent New York Times article about updates to the airport. The caption says, “An old passenger walkway in the process of being demolished at La Guardia Airport.”
You might not think this applies to you, but I say it’s about time! The idea of a walkway for old passengers doesn’t seem right, and old passengers should be allowed to use the same walkway as everyone else.
Another area where I sometimes hear “this doesn’t apply to me” is when we talk about the National Labor Relations Board’s views on independent contractor misclassification. But even if your business is union-free (meaning no union, not that the union is complimentary), the NLRB’s position on independent contractor misclassification matters. (Also, how is it that we intuitively know caffeine free means there’s no caffeine, rather than there’s lots of it and there’s no extra charge?)
The NLRB wants to make it harder to maintain independent contractor status under the National Labor Relations Act (NLRA).
Here are four reasons your non-union business should care about the NLRB’s views on independent contractor misclassification:
The NLRB’s General Counsel has issued a policy memo indicated that she intends to have independent contractor misclassification declared to be an automatic unfair labor practice (ULP). This spring, the Board issued a complaint in a case that may help it achieve this policy goal. If misclassification becomes an automatic ULP, that would overturn the Board’s 2019 decision in Velox Express, when the Board said it was reasonable for a company to express its opinion that a worker was a contractor, not an employee, even if the company turned out to be wrong.
If the NLRB rules that your contractors are employees, you can hang up a welcome shingle for your favorite union. (Aside: I don’t think anyone would welcome shingles, but you can buy welcome shingles on amazon.) Such a ruling would empower the unions to try to organize your newly-declared employees. If some independent contractors were already feeling mistreated enough to seek employee status, they’ll likely welcome union representation to help them fight back against The Man.
The protections granted to employees under the NLRA apply to non-union employees too. But the NLRA doesn’t apply to independent contractors. Non-union employees have the right to engage in protected, concerted activity without fear of retaliation or reprisal. Contractors don’t. Protected, concerted activity can include more than you might think. Any time two employees get together to object to a business practice, that’s potentially protected, concerted activity. If two contractors jointly complain, the NLRA doesn’t apply.
The NLRB has an information sharing agreement with the Department of Labor (DOL). If the NLRB thinks your contractors are misclassified, they’re probably gonna tell on you. The DOL may then starts its own investigation, viewing your company as an easy target for misclassification, even though the tests for employee status are different under the NLRA and the federal wage and hour laws administered by the DOL.
Like La Guardia, the NLRB is trying to do a little remodeling, but the NLRB’s remodeling is not for the benefit of old passengers. Instead, the Board is trying to make it harder to classify a worker as an independent contractor. The Board also wants to declare worker misclassification to be an automatic ULP.
Whether your workforce is union or non-union, businesses should pay attention. This is a rebuild that’s worth watching.
This weekend we tried goat yoga. Highly recommended. It was a mix of basic yoga (my kind of yoga) to help get me stretched out, but held in a pen with goats who know no boundaries.
We then toured the farm, which featured llamas, long-haired pigs, guinea hens, a few obligatory dogs, and several varieties of goats, including the kind of fainting goats featured in that George Clooney movie.
Having to watch my back during yoga was something I signed up for and was part of the fun. Not so for California’s AB 5, which should be watching its back after what we saw at the Ninth Circuit last week.
The Ninth Circuit held oral argument in a case brought by Uber called Olson v State of California. Uber is arguing that AB 5 is unconstitutional.
While it’s hard to predict cases based on oral argument, the three judges on the panel seemed pretty sympathetic to Uber’s argument, which is that the statute arbitrarily picks winners and losers, i.e., the exemptions make no sense from an equal protection/due process standpoint.
Unlike the strict ABC Test in Massachusetts, the California ABC Test codified in AB 5 (and later AB 2257) contains loads of exceptions. The statute says to use the ABC Test to determine employee vs independent contractor status for all workers — except for dozens of categories of workers and other situations.
Let’s not pretend. We all know this bill was written to target ride share and delivery app companies. The unfairness of making this law apply to everyone soon became apparent and led to the insertion of dozens of exceptions. If an exception applies, the Borello balancing test applies instead of the ABC Test.
The exceptions just about swallow the rule, and a law targeting a handful of companies presents constitutional problems. Or so the argument goes.
We can expect a decision in the next few months, and this is one to watch. Unlike me at goat yoga, imagining a decision that strikes down or severely limits AB 5 is not a big stretch.
This weekend we tried goat yoga. Highly recommended. It was a mix of basic yoga (my kind of yoga) to help get me stretched out, but held in a pen with goats who know no boundaries.
We then toured the farm, which featured llamas, long-haired pigs, guinea hens, a few obligatory dogs, and several varieties of goats, including the kind of fainting goats featured in that George Clooney movie.
Having to watch my back during yoga was something I signed up for and was part of the fun. Not so for California’s AB 5, which should be watching its back after what we saw at the Ninth Circuit last week.
The Ninth Circuit held oral argument in a case brought by Uber called Olson v State of California. Uber is arguing that AB 5 is unconstitutional.
While it’s hard to predict cases based on oral argument, the three judges on the panel seemed pretty sympathetic to Uber’s argument, which is that the statute arbitrarily picks winners and losers, i.e., the exemptions make no sense from an equal protection/due process standpoint.
Unlike the strict ABC Test in Massachusetts, the California ABC Test codified in AB 5 (and later AB 2257) contains loads of exceptions. The statute says to use the ABC Test to determine employee vs independent contractor status for all workers — except for dozens of categories of workers and various other situations.
Let’s not pretend. We all know this bill was written to target ride share and delivery app companies. The unfairness of making this law apply to everyone soon became apparent and led to the insertion of dozens of exceptions. If an exception applies, the Borello balancing test applies instead of the ABC Test.
The exceptions just about swallow the rule, and a law targeting a handful of companies presents constitutional problems. Or so the argument goes.
We can expect a decision in the next few months, and this is one to watch. Unlike me at goat yoga, imagining a decision that strikes down or severely limits AB 5 is not a big stretch.
For businesses using independent contractor vendors, misclassification claims are usually well-suited for class certification. A plaintiff’s path toward certifying a class can be relatively smooth when all vendors of a particular kind are treated as contractors. The argument goes that if one is misclassified, all are misclassified.
But a new Ninth Circuit ruling may help businesses change the path toward class certification into a dead-end road.
Click here to read the rest of the post, originally published on BakerHostetler’s Employment Class Action Blog.
Have you heard? There’s a baby goat in Pakistan who may have set the world record for Longest Ears by a Goat. The ears are each 1.6 feet long. Which also means there’s category for Longest Ears by a Goat.
The goat, named Simba, reportedly trips on its ears, which are so long that they drag on the ground. That’s a problem, I hear.
I’m also hearing of a problem in Massachusetts, but it’s of a different sort entirely.
Efforts to add exceptions to Massachusetts’ ABC Test for independent contractor misclassification have been scuttled by the state’s Supreme Judicial Court. A ballot measure modeled after California’s Prop 22* would have created exemptions to support independent contractor status for app-based rideshare and delivery drivers. The Court, however, ruled that the proposed ballot measure covered too many subjects and could not lawfully be placed on the ballot.
What does all this mean?
As many of you know, Massachusetts has the toughest test in the nation when it comes to classifying independent contractors. Under Massachusetts wage and hour law, a worker is deemed an employee unless —
A) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
B) the service is performed outside the usual course of the business of the employer; and,
C) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
That’s a strict ABC Test, like California’s. But California’s ABC Test has a slew of exceptions, memorialized in AB 2257, formerly AB 5. The Massachusetts Independent Contractor Law has no exceptions, which makes Massachusetts a favorite venue for plaintiffs’ lawyers who like to bring misclassification cases.
With the ballot measure struck down, voters will not have an opportunity to pass a Prop 22-like bill in Massachusetts that would have allowed app-based rideshare and delivery drivers to maintain independent contractor status, so long as certain requirements were met.
States with ABC Tests continue to pose significant compliance risks for businesses that rely on independent contractors. It’s easy to trip and fall, regardless of the size of one’s goat ears.
*California’s Prop 22 is in limbo too. As explained here, a state court ruled the ballot measure unconstitutional. The issue is now on appeal.
I drove behind this band of safety-conscious paddle boarders near Chicago recently. The guy in back is secured in by bungy cord. At least he looks comfortable.
The NLRB is about to make things a lot more uncomfortable for businesses concerned about joint employment.
As discussed here, the NLRB made clear earlier this year that it wants to revamp the independent contractor vs. employee test under the National Labor Relations Act.
Expect a new rule on joint employment to drop any day. The NLRB indicated several months ago that the joint employment rule was a target in its rulemaking agenda, and the expected release date is July 00, 2022.
Like most of you, I switched from the Julian calendar to the Gregorian calendar in 1752. While the changeover caused 11 days in September 1752 to be lost, I missed the memo about inserting a 0th day in July, starting 270 years later. Since I could find no way to mark the expected release date in my iPhone, I’ll give the NRLB the benefit of doubt and assume the date is a placeholder for “sometime in July.”
On Friday, it will be “sometime in July.” So get your bungy cord ready. You may need to take steps to better protect your business against joint employment risks.
The new rule will displace the current Trump-era regulation, which currently requires direct and substantial control over essential terms and conditions of employment before joint employment can be found.
Expect the new rule to track the Browning-Ferrisstandard imposed by the Board in 2015. Under Browning-Ferris, when one company has the right to control aspects of the work, joint employment exists — regardless of whether control is actually exerted, and regardless of whether the control is over wages, hours, scheduling or anything else that fits within the meaning of essential terms and conditions.
Joint employment under the NLRA can have several effects:
1. It can force you to the bargaining table for matters involving workers you did not consider to be your employees.
2. It can open the door to bargaining units that include workers you didn’t think were your employees.
3. It can open another door to bring union organizing activity into your business – through non-employee workers.
4. It can convert illegal secondary picketing into lawful primary picketing. If another company’s employees picket your site but the workers turn out to be your joint employees, they have the right to be there.
5. Each business that is a joint employer may be found jointly and severally liable for the other’s unfair labor practices.
When the new rule is posted, we’ll discuss what employers should do in response. Until then, enjoy the summer and try paddle boarding. But try to use a car with enough seats.
I saw this truck while driving home last week from my daughter’s college graduation. Now I’m no livestock dietician (I failed that course in law school), but this seems like the worst possible thing to feed your animals.
Whoever’s behind the labeling also needs some help with marketing. I know I wouldn’t buy that.
I’m also not buying the DOL’s recent announcement that it’s holding two public forums to help it decide what to do about a new independent contractor misclassification test. I think we all know what the DOL is going to do already.
The DOL will hold an Employer Forum on June 24, then a Worker Forum on June 29. Anyone can attend. RSVP links are here (6/24) and here (6/29).
After this charade open-minded exchange of viewpoints, the DOL will get to work preparing a new rule for determining who is an employee under the Fair Labor Standards Act (FLSA). The current regulation, issued by the Trump DOL, refocuses the traditional Economic Realities Test inquiry on two core factors: (1) the nature and degree of the individual’s control over the work, and (2) the individual’s opportunity for profit or loss. The Biden DOL tried (unsuccessfully) to prevent the Trump rule from going into effect, but a federal court ruled that the Biden DOL’s attempt to dismantle the rule was flawed, and the Trump rule therefore went into effect.
Now, let’s not kid ourselves. Just because a court told the Biden DOL that it’s stuck with this Trump-made rule doesn’t mean anyone at the DOL is actually applying it. The Biden DOL has said it plans to rewrite the rule, pronto. The new rule will make it harder to classify workers as independent contractors under the FLSA. We already know that’s going to happen, even if we don’t know the precise language to be used.
In late 2022, the DOL will issue its new rule, which will be like the old rule that we had before the Trump DOL’s new rule. Meet the new boss, same as the old boss. And with each new administration, it will become harder then easier then harder to be classified as a contractor under the FLSA.
So I will not be wasting my time listening in on these forums. I expect they’ll be as useful as inedible food. Which cannot be good for the GI tract.
Who Is My Employee? 