Tag Archives: independent contractor

The NLRB Joins the employee misclassification bandwagon

A current hot topic in wage and hour law is Worker Misclassification (i.e. classifying a worker as an independent contractor instead of an employee). As we reported earlier, most recently in “DOL Partnership Regarding Worker Misclassification — 34 States and Counting”, the US Department of Labor has taken a very active role in attempting to combat worker misclassification – both by partnering with at least 35 states and other federal agencies when conducting worker classification investigations.

Not to be outdone by the Department of Labor, the General Counsel of the National Labor Relations Board recently issued an advice memorandum stating that the NLRB was to treat employee misclassifications as a violation of the National Labor Relations Act. Specifically, the General Counsel stated that that by informing workers that they are not employees, but rather independent contractors, an employer effectively interferes with the workers’ rights under Section 7 of the NLRA to organize a union and engage in other protected concerted activity.

This new memorandum is important to all employers because it adds another “player” in the misclassification game and with that, adds a whole new set of penalties that can be issued against an employer for misclassification of independent contractors. It is recommended that employers carefully review any independent contractor relationships they might have and work with either an HR Professional or qualified legal counsel to determine if the worker truly is an independent contractor.

DOL Partnership regarding worker misclassification — 34 States and Counting

Thirty-five states have agreed to “team up” with the US Department of Labor to investigate worker misclassification. Is your state one of them?

In 2015, Department of Labor launched an initiative to combat the misclassification of employees as independent contractors. As a part of this initiative, the Department of Labor sought to partner with the state agencies and agree to share information and conduct joint investigations regarding independent contractor misclassification. To date, 35 states have entered into a memorandum of understanding regarding worker misclassification issues.

These states are:

  • Alabama
  • Alaska
  • Arkansas
  • California
  • Colorado
  • Connecticut
  • Florida
  • Hawaii
  • Idaho
  • Illinois
  • Iowa
  • Kentucky
  • Louisiana
  • Maryland
  • Massachusetts
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Hampshire
  • New Mexico
  • New York
  • North Carolina
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • South Dakota
  • Texas
  • Utah
  • Vermont
  • Virginia
  • Washington
  • Wisconsin
  • Wyoming

What does this mean for employers in these states?

Employers in the above-listed states should expect collaborative efforts between their state agencies and the Department of Labor during a investigation into potential employee misclassification as the state and the Department of Labor will share information. This could lead to simultaneous, multi-agency investigations into worker classification. It is recommended that companies have qualified legal counsel review any existing independent contractor arrangements. In addition, before entering into an independent contractor relationship, speak with an HR Professional or qualified legal counsel to verify that the worker truly is an independent contractor.

Clarification On The Connecticut Independent Contractor Test

In a recently released decision (Standard Oil of Connecticut, Inc. v. Administrator, Unemployment Compensation Act), the Connecticut Supreme Court has provided clarification on the Connecticut Department of Labor’s ABC Test for determining independent contractor status. To be properly classified as an independent contractor under this test, a worker must meet all three of the following requirements:

  1. The worker must be free from direction and control in the performance of the service, both under the contract of hire and in fact; and
  2. The worker’s services must be performed either outside the usual course of the employer’s business or outside all of the employer’s place of business; and
  3. The worker must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service being provided.

The Case

This case involved a dispute as to whether the installers/technicians Standard Oil used to install and service home heating and alarm systems for its residential customers were properly classified as independent contractors.

When this question was brought before the Connecticut Department of Labor (CTDOL), it determined these workers were improperly classified because (a) they performed work that was part of Standard Oil’s usual course of business and (b) they performed work at customers’ homes, which the CTDOL determined constituted Standard Oil’s places of business. As a result, these workers did not meet 2 of the 3 prongs of the ABC Test and were employees of the Company.

The Connecticut Supreme Court disagreed with this ruling and issued clarification on the factors that should be taken into consideration when evaluating prongs A and B of the ABC Test.

Clarification of Prong B – Defining Place of Business

Prong B of the ABC Test focuses on whether the worker’s services are performed either (a) outside the usual course of the employer’s business or (b) outside all of the employer’s place of business. In this case, the Court’s focus was on the question of whether a customer’s residence would be considered part of the “employer’s place of business” when the work is performed at the residence.

Prior to this decision, the term “place of business” was undefined in Connecticut’s Unemployment Compensation Act. In looking at the legislative history, the Court found that “the employer’s place of business” meant locations that were “in, on or around premises under such employer’s control” – like the employer’s business offices, warehouses and other facilities. In situations where the worker is working at a customer’s residence unaccompanied by company employees and without company supervision, the Court found that the worker would not be performing work at the employer’s place of business. Instead, because the customers (1) determine when the worker can access their homes, (2) bring the worker to the place(s) on their home/property where equipment was to be installed, and (3) identify problems, the customer is in control of the worksite.

Based on this interpretation of “place of business,” the Court determined that the workers did meet Prong B of the ABC Test.

 

Prong A — Free from Direction and Control

Analysis of Prong A of the ABC Test requires a weighing of several different factors to determine whether the workers were under the company’s control and direction. Here, while the Court agreed that there were several factors that indicated the company did exercise some control over the workers, those factors were outweighed by other factors, which demonstrated that the company did not have the right to control the means and methods of the work performed by the workers.

The factors that indicated the company exercised “some control” over the workers were:

  • Workers were prohibited from subcontracting work;
  • Workers were encouraged to wear apparel bearing the company name and display the logo on their vehicles;
  • Workers were paid a set piece rate;
  • Workers could only install equipment provided by the company; and
  • The company retained the right to terminate the workers

However, the following factors indicated that the company did not exercise control and direction over the workers:

  • The company did not own or operate the tools, machinery, or heavy duty vehicles required to perform the work. These were owned/provided by the workers;
  • The company contracted with licensed and certified installers/technicians to perform the work and these workers routinely performed such services for their own businesses or through self-employment;
  • The contracts between the company and the workers provided that the workers exercised independent judgment and control in the execution of any work they performed for the company;
  • The company did not supervise or inspect the work performed by the workers, instead, the workers were monitored by the customers;
  • The workers were free to accept or reject any assignment offered to them without adverse consequences;
  • The company did not provide the workers with an employee handbook;
  • The company did not pay for the workers’ training or require any specific training relating to its products;
  • While the workers were encouraged to wear apparel bearing the company name and display the logo on their vehicles – this was not required;
  • While the workers were paid a set piece rate, the workers submitted invoices to the company and they could realize a profit or loss from the services rendered;
  • The workers paid for their own transportation.

Impact on Connecticut Employers

Employers should consider reevaluating the classification of their independent contractors in light of this decision. When doing this analysis, keep in mind that worker classification is an individualized determination based on the specific facts of each worker relationship. While this case may provide helpful guidance for employers in determining whether an independent contractor is properly classified, the individual circumstances of a specific worker relationship will govern.

North Carolina’s Industrial Commission is Targeting Worker Misclassification in 2016

Through an Executive Order signed on December 18, 2015, North Carolina Governor Pat McCrory has created a new section within the North Carolina Industrial Commission (called the Employee Classification Section) which is tasked with overseeing employee misclassification enforcement.

Specifically, the new Employee Classification Section is responsible for receiving reports of employee misclassification and referring those reports to appropriate state agencies (e.g. the Department of Revenue, the Industrial Commission, and the Division of Employment Security for the Department of Commerce) for investigation. Following the investigation, the state agencies will be responsible for reporting the results of their investigations to the Director of the Employee Classification Section, who, in turn, must publish an annual report regarding these investigations to the Governor. In addition to the foregoing, the Employee Classification Section is also responsible for developing a procedure for the various state agencies to communicate their findings regarding employee misclassification.

What this means for North Carolina employers …

The increased focus on employee misclassification by North Carolina state agencies means that North Carolina employers need to take steps to verify their employees are properly classified before a state agency comes knocking at the door. Employers should conduct a self-audit of their exempt/nonexempt employees and their independent contractors to verify that these workers are properly classified.

Big Changes for Independent Contractors

This week the Department of Labor issued “Administrative Interpretation 2015-1“, seeking to clarify the test used to determine whether an individual is an independent contractor or an employee.  How a worker is classified has significant consequences.  Employees, for example, are subject to the many wage and hour laws governing the employee/employer relationship: e.g., minimum wage, and overtime. On the other hand, independent contractors are not subject to these, and other, regulations.

Broad Definition of “Employee”

The DOL’s definition of an “employee” is very broad.  Indeed, the DOL writes in the Administrative Interpretation that “most workers are employees under the FLSA.”

The DOL’s interpretation requires the “economic realities” test, commonly used by courts to determine whether a worker is an employee or an independent contractor, be considered in light of the FLSA’s broad definition of “employ”.  The definition of employ is to “suffer or permit to work”.

The economic realities test holds that an “entity ‘suffers or permits’ an individual to work if, as a matter of economic reality, the individual is dependent on the entity.”  In making the determination, the economic realities test considers many factors. “The factors typically include: (A) the extent to which the work performed is an integral part of the employer’s business; (B) the worker’s opportunity for profit or loss depending on his or her managerial skill; (C) the extent of the relative investments of the employer and the worker; (D) whether the work performed requires special skills and initiative; (E) the permanency of the relationship; and (F) the degree of control exercised or retained by the employer. In undertaking this analysis, each factor is examined and analyzed in relation to one another, and no single factor is determinative.”

“Title” is Not Determinative

One quote from the DOL says it all, “[m]oreover, the economic realities of the relationship, and not the label an employer gives it, are determinative.”  In other words, it is irrelevant whether the employer labels the worker as an independent contract or an employee.  The economic reality of the relationship, i.e., the dependence on the employer, will decide whether or not a worker has been correctly classified.

Employers should take a new look at workers currently classified as independent contractors.

 

 

Nevada Supreme Court – What is an Employee?

Misclassifying independent contractors cost one Nevada employer over 10 million dollars. Employers in Nevada should carefully evaluate the status of any independent contractors in light of the Nevada Supreme Court’s recent ruling in Terry, et al., v. Sapphire Gentlemen’s Club.  For the first time, the Court explicitly adopted the “economic realities” test for assessing independent contractor versus employee status in Nevada. The case involved a class of dancers from the Sapphire Gentlemen’s Club.  The Club treated the dancers as independent contractors, not employees.  The club didn’t pay the dancers or set their schedules.  However, the club put several requirements on the dancers when they were at the club.  For example, the dancers were required to be at the club working for no less than six hours on days that they were at the club, minimum number of “stage” dances, etc. The Court analyzed the facts under the economic realities test under the Fair Labor Standards Act (FLSA).  In applying the test, the Court found that the Club exercised control over and “monitor[ed]” the performers including, the dancers’ appearance, work schedules and their movements while working.  The Court also noted that dancers’ opportunity for profit was limited, and that their financial contributions are restricted primarily to their appearance-related expenses and house fees.  These factors weighed in favor of finding an employment relationship.  The Club argued that the dancers have to have a special skill, “hustling,” and that dancers can perform at other clubs as well.  The Court found the Club’s argument unpersuasive.

New California Law! Employers Liable for Employment Violations of Labor Contractors

New Labor Code Section 2810.3

Labor Code Section 2810.3 is effective January 1, 2015.  Labor Code Section 2810.3 makes organizations with 25 or more employees that obtain, or are provided, workers to perform work within their “usual course of business” from companies that provide workers (i.e., “labor contractors”,  “temp agencies”) liable for:

  • payment of wages to the contractor’s employees
  • the contractor’s failure to secure valid workers’ compensation coverage
  • compliance with all occupational health and safety requirements.

Definitions

“Usual course of business” is defined as “the regular and customary work of a business, performed within or upon the premises or worksite of the client employer.”

The term “workers” excludes employees who are exempt from overtime as executive, administrative, or professional employees under California law.

Employer Take-Away

If you don’t already, make sure to carefully select labor contracting agencies and, once selected, ensure that you maintain continued oversight.

 

Totality of the Circumstances Will Determine Status

Yesterday the Colorado Supreme Court decided that whether a worker is “customarily engaged in an independent trade, occupation, profession, or business” in order to be deemed an “independent contractor” under Colorado’s unemployment insurance benefits,  requires an evaluation of the totality of the circumstances surrounding the relationship between the worker and the putative employer (the organization challenging the availability of unemployment insurance benefits).

It is the putative employer’s burden to prove that the individual was an independent contractor, not an employee.  According to the court, the employer may introduce evidence bearing upon the nine factors set forth in statute, showing that the putative employer did not:

  1. Require the worker to work exclusively for the putative employer; except that the worker may choose to work exclusively for that business for a finite period of time specified in the independent contractor agreement;
  2. Establish a quality standard for the worker; except that the putative employer can provide plans and specifications regarding the work but cannot oversee the actual work or instruct the worker as to how the work will be performed;
  3. Pay a salary or hourly rate but rather a fixed or contract rate;
  4. Terminate the worker during the contract period unless the worker violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
  5. Provide more than minimal training for the worker;
  6. Provide tools or benefits to the worker; except that materials and equipment may be supplied;
  7. Dictate the time of performance; except that a completion schedule and a range of mutually agreeable work hours may be established;
  8. Pay the worker personally but rather makes checks payable to the trade or business name of the worker; and
  9. Combine the putative employer’s business operations in any way with the worker’s business, but instead maintains such operations as separate and distinct.

“New York State Commercial Goods Transportation Industry Fair Play Act” Signed by Gov. Cuomo

Under the New York State Commercial Goods Transportation Act (the Act), all workers in the commercial goods transportation industry will be considered to be employees unless the employer can prove otherwise through the tests set forth in the Act.  New York commercial goods transportation contractors will have to meet all of the prongs of one of two codified tests in order to prove that a worker is a not an employee of the company.  The two tests are The ABC Test for Independent Contractor Status and the  “Separate Business Entity” Test.  For more information on the codified tests, go to http://www.lexology.com/library/detail.aspx?g=be8ef2bf-b3e3-4a34-8f6d-bff433233797