How Does the Families First Act Apply to Independent Contractors?

Families First Act Independent Contractors

Hungry for more COVID-19 info? I can help with that, but if your hunger pangs are for something more exotic — say, deep-fried bull testicles — I’m sorry to say you’re out of luck. Deerfield (Mich.) American Legion Post 392 has cancelled its 19th annual Testicle Festival, leaving festival supplier Dennis Gerth with 330 pounds of bull testicles in his freezer. That’s my 2020 submission if anyone is giving out awards for Sentences I Never Thought I’d Write.

Yes, the coronavirus is affecting society in ways we never imagined. Last week, Congress offered some relief to workers affected by the virus. While the new law doesn’t help Gerth or his ball-filled freezer, it does provide paid leave for employees of most small businesses.

But what about independent contractors?

The Families First Coronavirus Relief Act provides up to 12 weeks of partially paid time off for employees unable to work (or telework) for childcare reasons and up to 80 hours of paid sick time to employees unable to work (or telework) for six specified reasons.

Trying to apply the Act raises a lot of questions. Many are addressed here, in a conversational tone that acknowledges this is awfully confusing. But this post will focus on how the Act applies to independent contractors.

Do Independent Contractors Get the Benefits of the Act?

No. The Act provides paid sick leave and expanded Family and Medical Leave Act (FMLA) leave only to employees, and only if their employer has fewer than 500 employees.

How Does the Act Differentiate Between an Employee and an Independent Contractor?

Ah yes, the age old question of Who Is My Employee? The Act uses the definitions of “employee” in the FMLA and the Fair Labor Standards Act (FLSA). The FMLA uses the FLSA definition, so let’s focus on that.

The test for whether an independent contractor is really an employee under the FLSA is determined by using an economic realities test. This is a different test than the ones used for determining whether someone is an employee under tax, unemployment, workers compensation, and many other federal and state laws.

The economic realities test generally looks at these factors:

  1. The extent to which the services rendered are an integral part of the principal’s business.
  2. The permanency of the relationship.
  3. The amount of the alleged contractor’s investment in facilities and equipment.
  4. The nature and degree of control by the principal.
  5. The alleged contractor’s opportunities for profit and loss.
  6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
  7. The degree of independent business organization and operation.

This list is from DOL Fact Sheet #13, but it’s worth noting that different courts define the factors differently. Know your jurisdiction. Another commonly used listing of the factors can be found here.

The more independent the worker is from the business retaining his/her services, the more likely the worker is properly classified as an independent contractor.

How Could this Issue Arise?

With the economy in a cornoravirus-induced tailspin, lots of employees are losing their jobs, and lots of independent contractors are losing their engagements. When the income stream stops flowing, people look for a way to reopen the faucet.

Independent contractors might file unemployment claims. We’ve discuss the dangers of that here. They might also be tempted to file lawsuits claiming they’ve been misclassified. A successful claim could mean they’re entitled not only to the benefits of the Families First Act, but also potentially to unpaid overtime and other benefits that employees can receive.

Times are tough, and livelihoods are at stake. As contractors lose more work, we’re likely to see an increase in independent contractor misclassification claims. And that’s no bull.

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© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Gator in Your Basement? Nope, That’s Just the NLRB Sharpening Its Joint Employer Test

NBLRB joint employer new regulation 2020

“Be careful as you go down the stairs, officer. An alligator lives in my basement.”

Police in Madison Township, Ohio, last week found a 5-foot gator penned in the basement of a family home. The family said that “Alli” was a pet they’ve raised for 25 years, since purchasing him as an adorable little tot at a reptile shop. (My, how they grow.)

The family accepted responsibility and avoided legal liability because they allowed to police to remove the animal.

A larger battle over responsibility and legal liability was also decided last week, but this battle was over the meaning of “joint employment” under the National Labor Relations Act (NLRA).

Here’s a quick Q&A to get you up to speed on the new regulation.

What happened?

On February 26, 2020, the National Labor Relations Board (NLRB) published a new regulation that changes the rules for determining whether a business is a joint employer under the NLRA.

What do you mean by joint employer?

When one business hires another business to provide services, the business providing the services is the primary employer. We see this often in staffing agency arrangements. The staffing agency is the primary employer. The primary employer is responsible for treating its workers as W-2 employees and doing all the things an employer is supposed to do.

If the business receiving the services exercises sufficient control over the workers, it can be deemed a “joint employer” of those workers. The workers would have two employers simultaneously.

Why should I care if I am a joint employer under the NLRA?

Being a joint employer creates rights and obligations under the NLRA on issues such as collective bargaining, strike activity, and unfair labor practice liability:

  • If the employees are represented by a union, the joint employer must participate in collective bargaining over their terms and conditions of employment.
  • Picketing directed at a joint employer that would otherwise be secondary and unlawful is primary and lawful.
  • Each business comprising the joint employer may be found jointly and severally liable for the other’s unfair labor practices.

Does the new rule make it harder or easier to be deemed a joint employer?

Much harder. The new rule significantly narrows the circumstances when a business can be deemed a joint employer.

What’s the new test?

Under the new regulation, a business can only be a joint employer of another employer’s employees only if it exercises “substantial direct and immediate control” over the “essential terms and conditions” of the workers’ employment.

What are essential terms and conditions?

Wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

Can you give me an example of how that works?

No.

Please?

Ok. I was just messing with you.

Let’s look at wages. You retain a staffing agency. You negotiate a cost-plus arrangement. You negotiate the rate you’ll pay the staffing agency per worker per hour, but the staffing agency determines the rate of pay each worker will receive. That’s not substantial and direct control because the staffing agency sets the wages of the worker.

Let’s consider discharge. You want to remove a staffing agency worker from the project. You instruct the agency to remove the worker. That’s not substantial control over whether the worker is discharged from employment. It’s up to the agency what to do with the worker next — reassign the worker, discharge the worker, tar and feather, etc.

How does this affect background checks and other terms in my contract with the primary employer?

Commonplace and routine clauses, like requiring the agency to perform background checks, are not evidence of joint employment.

In a dispute over whether there’s joint employment, who has the burden of proof?

The party asserting that an entity is a joint employer has the burden of proof.

Is the NLRB’s new joint employer regulation the same as the DOL’s new joint employer regulation?

Of course not. That would make this way too easy, and you wouldn’t need your lawyers as much.

In January 2020, the Department of Labor published a new regulation that sets up a new test for determining whether an entity is a joint employer under the Fair Labor Standards Act (FLSA). There are similarities in the tests. Both tests require the actual exercise of control for there to be joint employment. Previously, the mere right to exercise control was enough. But the tests are different.

You can read more about the DOL test here.

So now there are two tests for joint employment — one under the FLSA and one under the NLRA?

Ah, so naive. Who’s coming up with these questions, anyway?

Nope, there are lots of tests for determining who is a joint employer; and the tests differ based on which law we’re looking at — and based on who’s looking at it.

The DOL announced its new regulation for determining joint employer status under the FLSA, but unless you’re in a DOL audit, that doesn’t mean much. No court has adopted the new regulation yet, and we don’t know whether courts will defer to the regulation or disregard it. There will be litigation over whether the DOL has the right to redefine “joint employer” and limit the scope of a statute (the FLSA) passed by Congress.

The states have their own tests for determining joint employer status under state employment laws. Some states might defer to the regulations, but many states won’t.

But the NLRB regulation is here to stay, right?

Maybe, maybe not. In late 2018, the D.C. Circuit Court of Appeals ruled that the NLRB has no right to redefine “joint employment,” since the question of whether someone is an employee under the NLRA is governed by the common law test of agency — essentially, a right to control test.

But the NLRB chose to disregard that decision and issued its new regulation anyway.

But how can the NLRB enforce a new regulation defining “joint employer” when a federal court has said it can’t do that?

Because the NLRB will just do it anyway. There are 12 federal circuit courts of appeal, and they often disagree. The NLRB has a longstanding practice of ignoring rulings by the federal courts of appeal, except as to the specific case and the specific parties before that specific court. The NLRB takes the position that it must follow rulings by the Supreme Court, not the federal circuit courts of appeal.

So what’s the real status of the new NLRB regulation?

The NLRB will apply this new regulation in all of its proceedings. The new regulation takes effect April 26, 2020, which is 60 days after its publication in the Federal Register.

If NLRB rulings are appealed to a court, it remains to be seen whether some courts will apply the new regulation. The D.C. Circuit Court of Appeals probably will not.

Is the new regulation permanent?

It’s intended to be. There are at least three ways it could be undone.

  • Future NLRB members with a more pro-worker orientation could enact a new regulation that changes the definition.
  • Congress could pass a statute that redefines joint employer status. The statute would override the regulation.
  • The Supreme Court could rule that the NLRB has no authority to create a joint employer test.

Until one of those three things happens, the new test will stick around for a while, like a pet alligator. The Board will apply the new test to NLRA issues.

What happened to the alligator?

It has been relocated to an animal sanctuary in Myrtle Beach, South Carolina. Despite its new residence, the gator was deemed ineligible to vote in last Saturday’s primaries.

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Lost Chicken, Very Friendly: 2020 IRS Tips on Independent Contractor Status Are Now Available

Years ago, I signed up for the Next Door app, thinking it might be helpful to hear about things going on in my neighborhood. Most of the posts I see are useless — Can anyone recommend a good restaurant? Is it gonna snow tonight? Does Solon have any good proctologists?

I was ready to unsubscribe but just hadn’t gotten around to it. But then, last week, I got the post that made it all worthwhile:

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I should have clicked “Thank,” because I really do want to thank D. from South Central Solon for that post. The best part, of course, is the armchair psychoanalysis of Lost Chicken’s personality: “Very friendly.” (Lost Chicken also scores high for empathy and teamwork.)

Also known for being “Very friendly” is the IRS. New for 2020 is the Employer’s Supplemental Tax Guide, also known by its catchier, more taxlike moniker, Publication 15-A. Please don’t take my copy. You can get your own here.

Publication 15-A includes a section on independent contractor misclassification. It reminds employers that the IRS uses a Right to Control Test, which evaluates factors related to behavioral control, financial control, and the type of relationship of the parties. The specific factors are listed.

To improve readership, the IRS offers several helpful hypotheticals to illustrate the Independent Contractor vs. Employee conundrum, using memorable characters such as Vera Elm, an electrician; and Helen Bach, an auto mechanic. (But I see Helen Bach as more of a resurrected doomsday cult leader. I’m going to assume that the person who wrote this hypothetical pulled one over on the supervisor who approved it. Well played, IRS writer. Well played.)

Publication 15-A provides other helpful tips for employers at tax time. Get yours now, while supplies last. I’m going to offer a few extra copies on the Next Door app.

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© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Bring Forth the Tiger-Dogs! Here’s a Quick Status Check on the Challenges to California’s New Independent Contractor Law

Tiger independent contractor dynamex california

Not an actual tiger. Or a dog.

When outside forces pose a threat to people’s livelihood, people will go to great lengths to fight back.

For example, when monkeys began ravaging the crops of a farmer in Karnataka, India, the imaginitive farmer painted his dog to look like a tiger, to scare away the pesky invaders. [Photo here.]

Business owners in California are taking more conventional measures to fight back againt the tyranny of Assembly Bill 5, the new California law that seeks to reclassify many of the state’s independent contractors as employee. Here’s a quick summary of the resistance:

  • Owner-operator truckers claim the new California law cannot be applied to them because of a federal law (FAAAA) that prohibits states from enacting their own laws that affect the “price, route, or service of any motor carrier with respect to the transportation of property.” They won a preliminary injunction last month, temporarily preventing the law from applying to them.
  • Freelance writers and photographers are challenging the law too. The law has an exception for freelancers, but the exemption goes away if freelancers submit 35 or more pieces to a single publication. In other words, they’re independent contractors for submissions #1 through #34, but they instantly become employees with submission #35. They argue that the exemption is arbitrary and violates their First Amendment and equal protection Rights.
  • Rideshare and food delivery apps filed their own lawsuit, alleging that the exemptions are arbitrary and violate their equal protection and due process rights.
  • Five gig economy app companies have contributed $110 million to a ballot measure that will be voted upon in the November 2020 election if the measure collects 625,000 signatures. The law would exempt app-based gig economy drivers from the new test if the companies provide workers with specific levels of pay, benefits, and rights, which are defined in the proposal.
  • Republican lawmakers have proposed a constitutional amendment (A.C.A. 19) called the “Right to Earn a Living Act,” which would overturn Assembly Bill 5 and enshrine in California law “the right to pursue a chosen business or profession free from arbitrary or excessive government interference.” The amendment would reinstate California’s S.G. Borello balancing test for determining whether a worker is an independent contractor or an employee.

Meanwhile, the California Supreme Court is considering whether the 2018 Dynamex decision, which first imposed the ABC Test for wage and hour claims, applies retroactively. If it does, then businesses can be liable for failing to comply with a test that did not yet exist. Really.

That’s a lot of action, and we’ll continue to watch for new developments. Meanwhile, California businesses that use independent contractors should tread carefully, follow the status of legal challenges, and paint their dogs to look like tigers — just in case that turns out to be effective.

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© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What Is Joint Employment? New DOL Rules Take Effect in 60 Days

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This week’s post is Family Feud Style. Name Three Things That Sound Like They Would Be “Joint Employment” But Are Not:

  1. Long-haired, easy-going product tester at the local wacky tobacky dispensary
  2. Note taker at an orthopedist’s office
  3. The guy on radio ads for non-approved supplements claiming to relieve joint pain who says, really really fast, “These statements not approved or validated by the FDA.”

Each of those jobs has something to do with joints, but that’s not what the Department of Labor (DOL) means when it addresses “joint employment.”

Under the Fair Labor Standards Act (FLSA), more than one person can be an employee’s employer, and when there’s joint employment, both employers are fully liable for any minimum wage or overtime owed to the employee. So, when is a person a joint employer?

On Sunday, the DOL issued new rules for determining when someone is a joint employer under the FLSA. The new rules take effect in 60 days. Here’s what you need to know.

Four-Part Balancing Test

When an employee’s work is for the benefit of both the W-2 employer (such as a staffing agency) and another business, the determination of whether the second business is a “joint employer” is made by evaluating whether the second business:

  1. Hires or fires the employee;
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. Determines the employee’s rate and method of payment; and
  4. Maintains the employee’s employment records.

It’s a balancing test, and no single factor is dispositive.

Actual Control Is Required; Reserved Control Is Not Enough

The new regulations focus on actual control, not merely the right to exert control. This is different from the common law test.

Under the new regulations, the potential joint employer must actually exercise control. Merely reserving control can be relevant, but only if the business actually exercises control in at least one of the four ways. Standard contract language reserving a right to act is not sufficient to demonstrate joint employment.

Different Test for Independent Contractor vs. Employee

The test for joint employment will now be different from the test for Independent Contractor vs. Employee. To determine whether someone is an employee or an independent contractor under the FLSA, the key question is whether the worker is economically dependent on the potential employer. But according to the new regulations, once the worker is someone’s employee, economic dependence is not relevant to determining whether there is a second “joint” employer.

Ordinary Sound Business Practices Are Not Evidence of Joint Employment

The regulations also provide assurance to businesses that wish to impose rules to preserve brand standards, ensure compliance with the law, or instill sound business practices. Those types of actions, according to the DOL, are not evidence of joint employment.

For example, the following actions by a potential joint employer do not make a finding of joint employment more likely:

  • Operating as a franchisor or entering into a brand and supply agreement, or using a similar business model;
  • Requiring the primary employer to comply with specific legal obligations or to meet certain standards to protect the health or safety of its employees or the public;
  • Monitoring and enforcing contractual agreements with the primary employer, such as mandating that primary employers comply with their obligations under the FLSA or other similar laws;
  • Instituting sexual harassment policies;
  • Requiring background checks;
  • Requiring primary employers to establish workplace safety practices and protocols or to provide workers training in matters such as health, safety, or legal compliance;
  • Requiring the inclusion of certain standards, policies, or procedures in an employee handbook;
  • Requiring quality control standards to ensure the consistent quality of the work product, brand, or business reputation, or the monitoring and enforcement of such requirements, including specifying the size or scope of the work project, requiring the employer to meet quantity and quality standards, and imposing deadlines;  
  • Imposing morality clauses;
  • Requiring the use of standardized products, services, or advertising to maintain brand standards;
  • Providing the employer a sample employee handbook or other forms; 
  • Allowing the employer to operate a business on its premises (including “store within a store” arrangements); 
  • Offering an association health plan or association retirement plan to the primary employer or participating in such a plan with the primary employer; or 
  • Jointly participating in an apprenticeship program with the primary employer.

FLSA Only

The new regulations apply to the FLSA only. Other agencies may impose different standards. The National Labor Relations Board (NLRB) is expected to issue its own regulations shortly to address when there is joint employment under federal labor law; and the Equal Employment Opportunity Agency (EEOC) is expected to consider issuing its own new standards for determining whether joint employment exists under federal anti-discrimination laws.

Standards issued by the NLRB or the EEOC maybe similar or may be materially different.

Reliance On The New Rules Provides a Defense

These new rules will apply to DOL investigations of FLSA compliance matters. It remains to be seen whether the federal courts will apply these rules too, but—importantly, the rules provide for Portal-to-Portal Act reliance.

That means employers are entitled to rely on these regulations as a defense to any joint employment claim. The regulations provide several examples of scenarios in which joint employment does and does not exist. Employers should review those scenarios and model their relationships accordingly.

More Information

Additional resources from the DOL can be found here:

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© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Is Another Strict ABC Test About to Muddy the Independent Contractor Waters?

NJ ABC Test independent contractorAccording to this article about the Garden State, New Jersey is about more than just the Sopranos and Snooki. Here are three fun facts about NJ:

1. Considered the “Diner Capital of the Country,” NJ has an estimated 525 diners. (I’m assuming from context that more than 525 New Jerseyans dine out, that “diners” here means those breakfast-themed restaurants that often look like rail cars, and that Uber Eats isn’t quite yet so dominant that the other 9 million NJ-ers eat at home every night.)

2. The first modern submarine ride was taken in NJ’s Passaic River. (I find this hard to believe but, if true, I’m sure the scenery was lovely.)

3. NJ was home to the first intercollegiate football game, Rutgers vs. Princeton. (The game is still in a scoreless tie.)

Another less fun fact about NJ is that its legislature may be about to adopt one of the strictest tests for independent contractor misclassification in the country. A recently proposed bill would model the state’s test for independent contractor vs. employee on the new California ABC Test.

New Jersey already uses a type of ABC Test for its wage and hour laws, but the bill would make Part B of the test much harder to meet — like California’s new law, Assembly Bill 5.

It’s no lock that the proposed law will pass, but if I am a betting man — and, fun fact, sports wagering is now legal in NJ — I would bet this one will become law sometime in 2020.

Until then, at least we can all enjoy the diner and submarine scene.

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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 Grub’s Life: Joint Employer Test or Single Employer Test. What’s the Difference?

This product kills and prevents grubs. That’s good if you have a garden, bad if you’re a grub. But in either case, there’s quite a difference between preventing grubs — that is, keeping them away but allowing them to live a happy grublike existence elsewhere, like in your neighbor’s garden — and killing the grubs.

Nuance, my friends. Small differences matter, especially to the grub.

Today’s post is about how the joint employer question is different than the single employer question.

Here’s the difference. Suppose Mary is employed by the We-Provide-Services Company. Company B retains the We-Provide-Services Company to do something or other. Mary sues both We-Provide-Services and Company B, claiming discrimination of some sort. If the We-Provide-Services Company and Company B are unrelated independent businesses, the issue is whether they are joint employers. There’s a test for that.

If the We-Provide-Services Company and Company B are related, such as through common ownership, intermingled managers, or a subsidiary or joint venture relationship, then the issue is whether they are a single employer for purposes of assessing who is liable for any bad acts toward poor Mary. There’s a test for that too, but it’s a different test.

The single employer test looks at four factors that try to assess how closely related or intermingled the companies are.

The joint employment test focuses instead on Company B’s relationship to Mary, not it’s relationship with Mary’s direct employer, the We-Provide-Services Company. (Courts in the Fourth Circuit look at this issue differently, as explained here, but this is the general rule.)

A recent case from North Dakota helps to illustrate the difference — and the confusion.

The issue related to whether a contractor’s employee was also an employee of the party that retained the contractor. The two businesses were unrelated, so this is a question of joint employment.

The lawyers on both sides, however, missed the nuanced difference. Both sides briefed the issue by presenting the judge with the single employer test and arguing about how the facts fit its four factors.

This kind of mistake is not uncommon, and judges do it too. There’s so much nuance in the laws related to Who Is My Employee?, and lots of lawyers and judges don’t understand the intricacies. Fortunately, this federal judge understood the difference. The judge’s opinion discusses the fact that the lawyers argued the wrong test, and he instead applied the facts to the proper test — a common law agency test. He called it a hybrid right to control/economic realities test, but as a practical matter, the factors were a recitation of the common law right to control test.

The point is: Be aware of the nuanced differences in circumstances that require the use of different legal tests to determine Who Is My Employee?

Which test you use can make a big difference. Even if you’re not a grub.

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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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Proposed Law Would Radically Change App Driver Protections and Legal Status; Might Also Stop Zombie Ant Apocalypse (Maybe).

california driver app law ant zombiesYou’re supposed to learn something new every day, right? Here’s something that’s definitely new, unless you are a fungus aficionado — and, lucky reader, because this is a read-only post, you do not have to identify yourself if you are indeed a fungus aficionado, and if you are, TMI, and keep it to yourself.

Anyway, there’s a fungus that attacks certain kinds of ants, takes over their ant-body cells, turns them into zombies, causes them to take a final mad bite into a certain type of leaf, then causes a plant spore to sprout from their heads. Yes, really. It’s right here in this New York Times article, complete with pictures.

The Ophiocordyceps fungus is not a dinosaur, despite its suspiciously dinosaur-sounding name, but it sounds pretty ferocious and looks like it’s threatening to kill off segments of the ant population.

Another thing that is ferocious and threatening to kill something off is California’s recent Assembly Bill 5, which would convert many independent contractors into employees under state labor laws.

The latest attempt to eradicate that ferocious law comes in the form of a ballot initiative being sponsored by some of the large ride hailing and delivery app companies.

The Protect App-Based Drivers and Services Act, if passed, would preserve the independent contractor status of app-based drivers in California if the app companies provide the drivers with a number of financial considerations and benefits, along with allowing the drivers to maintain control over when and where they work. The law imposes substantial driver protections that app companies are currently hesitant to provide, out of fear that providing these benefits and protections might cause the drivers to be deemed employees.

The law would strike a much-need balance that enhances driver rights while creating certainty on drivers’ classification status.

The app companies would have to provide an earnings guarantee of at least 120% of the local minimum wage for time engaged, a 30-cents per mile stipend to cover vehicle expenses, a healthcare subsidy contribution, occupational accident insurance, and liability insurance.

App companies would be prohibited from engaging in discrimination. Companies would also be required to implement a sexual harassment policy, conduct background checks, implement safety training, and implement a zero tolerance policy prohibiting driving while impaired. Rest periods would also be required.

In exchange, the app companies would receive assurance that the drivers are properly classified as independent contractors so long as four conditions are met:

(a) The network company does not unilaterally prescribe specific dates, times of day, or a minimum number of hours during which the app-based driver must be logged into the network company’s online-enabled application or platform.

(b) The network company does not require the app-based driver to accept any specific rideshare service or delivery service request as a condition of maintaining access to the network company’s online-enabled application or platform.

(c) The network company does not restrict the app-based driver from performing rideshare services or delivery services through other network companies except during engaged time.

(d) The network company does not restrict the app-based driver from working in any other lawful occupation or business.

The proposed law is supported by multiple prominent ride share and delivery app companies. Their hope is to gather enough signatures to place the issue on the November 2020 ballot in California.

This is worth watching. You can read more about it here. If passed, this can serve as model legislation to be applied elsewhere around the country.

In the meantime, if you see fungal spores starting to grow out of app drivers’ heads, you’ll know that Assembly Bill 5 got to them first.  We can only hope.

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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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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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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.

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

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