Independent Contractor – Law and the Workplace Mon, 05 Oct 2020 14:38:46 +0000 en-US hourly 1 https://wordpress.org/?v=5.5.3&lxb_maple_bar_source=lxb_maple_bar_source [Podcast]: DOL’s Proposed Rule on Independent Contractors /2020/10/podcast-dols-proposed-rule-on-independent-contractors/ Mon, 05 Oct 2020 14:38:14 +0000 /?p=6230 Continue Reading]]>

In this episode of The Proskauer Brief, partners Harris Mufson and Allan Bloom discuss the U.S. Department of Labor’s proposed new rule on independent contractor classification.  In recent years, the misclassification of workers as independent contractors has been the subject of a number of private lawsuits and investigations by government agencies.  This is true for traditional industries and also companies within the gig economy, which rely heavily on independent contractors.  So be sure to tune in as we address how this proposed rule may impact employers’ classification of workers.

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Harris Mufson:  Welcome to The Proskauer Brief: Hot Topics in Labor and Employment Law.  I’m Harris Mufson and on today’s episode I’m joined by Allan Bloom and we’re going to discuss the Department of Labor’s proposed new rule on independent contractor’s classification.  So Allan, Employment Law really divides workers into two categories: one employees and the others independent contractors, and the Department of Labor has proposed a new rule regarding the classification of workers as independent contractors.  Can you describe that rule?

Allan Bloom:  Harris that’s right. Employees are generally covered by the federal wage and hour laws so that means minimum wage that means overtime pay but independent contractors are not covered so whether a worker is an employee or an independent contractor is a major issue under the wage and hour laws in addition to a number of other laws. Particularly in the last few years the misclassification of workers as independent contractors has been the subject of a number of private lawsuits a number of investigations by government labor agencies and tax agencies and this is not only in traditional industries but also in businesses within the gig economy or the on-demand economy that rely heavily on independently contracted workers.  So the legal rights of these types of workers has been the subject of a lot of debate in the last few years and has become increasingly political.  Some states have taken steps to make it harder for businesses to classify workers as independent contractors.

A great example is California, which recently enacted what they called AB5 Assembly Bill Five legislation under which many workers are deemed to be employees for purposes of California’s wage and hour laws unless the services they provide are outside the usual course of the business of the company that engages them.  Now you have the U.S. Department of Labor the federal agency publishing a proposed rule today September 25th to clarify whether a worker is or isn’t an independent contractor for purposes of the Fair Labor Standards Act: the federal law governing wages and hours.

Harris Mufson:  So why don’t we talk a little bit about the specifics of the proposed rule can you outline the highlights of that for our listeners?

Allan Bloom: Harris, the rules start out by confirming that independent contractors are not employees for purposes of the federal wage law.  That means that under the Fair Labor Standards Act a business does not have to pay minimum wage or overtime to an independent contractor.  So what makes somebody an independent contractor?  The determining factor for the Department of Labor is economic dependence and according to the agency a worker is an employee under the federal wage laws if as a matter of economic reality that worker is dependent on the business that engages him or her.  On the other hand, a worker is an independent contractor if he or she as a matter of economic reality is in business for himself or herself.  How will the Department of Labor determine whether or not a worker is economically dependent on a business? There are two core factors and three other factors. The two core factors are the most important ones and they’re the ones that are going to be afforded the greater weight in the analysis. If both of them point to the same classification, whether its employee or independent contractor, then there’s going to be a substantial likelihood that’s the right answer regardless of how the three other factors play out. So the first core factor is the nature and degree of the individual’s control over the work.

Under this factor a worker is going to be viewed as an independent contractor if the worker exercises substantial control over key aspects of the performance of the work like setting their own schedule, selecting the projects they want to work on, being able to work for other clients, that’s the individual controlling the work.  On the other hand if the business exercises substantial control over the performance of the work such as by controlling the worker’s schedule by prohibiting the worker from working for other companies or clients.  That’s the kind of thing that’s going to point to the worker being an employee. The second core factor is the individual’s opportunity for profit or loss.

Under this factor a worker is going to be likely more viewed as an independent contractor if he or she has the ability to earn profit or incur losses based on their exercise of initiative like managerial skills or business acumen or judgment or based on their investment or capital expenditure on material or equipment or helpers.  Those kinds of investments in that kind of exercise of initiative and managerial skills is going to point towards an independent contractor. On the other hand, if the only way a worker can increase his or her earnings is by working more hours or working more efficiently, that would suggest the worker is an employee.  So those are the two core factors control over the work by the individual and the individual’s opportunity for profit and loss.

The other three factors are as follows: number one, the amount of skill required for the work. Does the work require specialized training or specialized skill that the business does not have or its employees do not have? If so, that would suggest the worker is an independent contractor. If on the other hand the worker has the same skills as the company’s employees it’s just supplementing the workforce, as it were. That would suggest the worker is an employee and not a contractor. The next factor is the degree of permanence of the working relationship. So if you have a working relationship that is definite in duration or sporadic, short-term well-defined, that would weigh in favor of the worker being an independent contractor.  On the other hand if the work is by design indefinite in duration or ongoing or continuous that would suggest the worker is an employee and it makes sense. You would bring in a contractor to work on a defined project or a defined set of services, where an employee might be an employee going forward until such time as that employment relationship ends.  And the last factor is whether the work is part of an integrated unit of production. Is it part of the business’s production process for a good or a service? If so that would suggest employment. If on the other hand the work is segregable from the business’ production process that would suggest an independent contractor relationship.

And the Department of Labor points out that this factor is different from one that merely looks at whether the worker’s services are important to or integral to or central to the business. And in that way it differs from a number of state law tests on these issues because a number of state law tests will look at whether the services are integral to the business. The DOL’s test is a little bit different it’s whether the work is part of an integrated unit of production.

Harris Mufson: So Allan in terms of the factors that the DOL has laid out, what is the practical implication of those for companies that utilize independent contractor services and anticipate doing so in the future?

Allan Bloom: Harris, it really depends on where the company is because you have not only federal law but state or local law and if state or local law comes out differently and would suggest that someone’s an employee that’s going to govern.  These DOL factors may end up governing if there is no state law or local law that’s different, but there is in a number of states so businesses would have to take into consideration those state and local laws.

Harris Mufson: Okay and then this is a proposed rule and so what is the timeline that this proposed rule would actually be adopted formally by the Department of Labor?

Allan Bloom: Public comments on the rule are due on October 26th.  After that date the DOL will review the comments and at some point publish a final rule and at that point it would become effective either when it’s published or a number of days after that. Don’t expect it to happen before the election.

Harris Mufson: It’s something we’ll certainly continue to monitor and publish on our blog and also continue to do some podcasts about this independent contractor issue.  So thank you very much Allan, and thank you to all of our listeners for joining us on The Proskauer Brief today.  Stay tuned for more insights on the latest Hot Topics in Labor and Employment Law and be sure to follow us on Apple Podcasts, Spotify and Google Play.

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Hearing Scheduled On Proposed Amendments to Massachusetts Paid Family and Medical Leave Law /2020/06/hearing-scheduled-on-proposed-amendments-to-massachusetts-paid-family-and-medical-leave-law/ Thu, 11 Jun 2020 17:38:37 +0000 /?p=6082 Continue Reading]]> On June 11, 2020, the Department of Family and Medical Leave (“DFML”) will hold a virtual public hearing on its recent proposed amendments to the final regulations pertaining to the Massachusetts Paid Family and Medical Leave Law (“PFML”) issued in June 2019.  (Instructions for registering for the virtual hearing are available at this link).  A number of the amendments are particularly noteworthy for businesses in the Commonwealth:

  • Private Plan Exemptions:

The proposed amendments offer additional details regarding a covered business entity’s right to seek an exemption under the PFML on the basis that its own private leave plan satisfies the PFML’s requirements.  In particular, the proposed amendments clarify that an exemption may not be granted if a private plan only covers a part, but not all, of the workforce.  However, a covered business entity may apply to an exemption just from the requirement to make contributions for medical leave coverage, or just for family leave coverage, or both.

The proposed amendments also set forth three new requirements for covered businesses to satisfy in order to obtain a private plan exemption:

  • A private plan must offer covered individuals an internal appeals process with the plan administrator that is to be invoked before the employee may appeal to the DFML. An employee must have at least ten calendar days after receiving notice of the determination in order to submit an appeal, or more time if the individual proves to the DFML that circumstances “beyond the individual’s control” prevented filing of a timely appeal.
  • When issuing determinations, the private plan must notify covered individuals of their rights both under the private plan and under the PFML.
  • A private plan shall calculate the weekly benefit amount owed pursuant to the wages earned by the individual as a result of performing services for the covered business entity at the time the employee applied for benefits.
  • Coverage for Contract Workers:

The proposed regulations offer some clarity on the extent to which MA 1099-MISC contractors should be counted as covered individuals under the PFML.  In accordance with prior informal guidance issued by the DFML, the proposed regulations confirm that a 1099 MISC contractor may be counted as a covered individual only if that contractor performs services “as an individual entity” in Massachusetts and resides in Massachusetts, and is not classified as an independent contractor pursuant to M.G.L. c. 151A, § 2 (Massachusetts’ unemployment statute).  This means that any individuals properly classified as contractors for purposes of unemployment in the Commonwealth should not be counted as covered individuals under the PFML.

  • Presumptive Retaliation:

The PFML provides that any negative change in status or adverse action taken against an employee during PFML leave – or within six months following that leave – is to be presumptively considered retaliation.  An employer may rebut the presumption of retaliation by providing clear and convincing evidence of non-retaliatory reasons for the change in status or adverse action.  The proposed amendments offer some additional clarifications:

  • It shall not be presumed retaliatory for an employer to provide notice to the DFML of its bona fide belief that an employee has committed fraud in connection with his or her application for benefits.
  • A “trivial, or subjectively perceived inconvenience that affects de minimis aspects of an employee’s work” will not constitute adverse action for purposes of raising a presumption of retaliation.
  • The presumption of retaliation applies to all leave “associated with a qualifying reason” allowable under the PFML, regardless of whether the employee “has actually filed an application for benefits” with the DFML.
  • To the extent an employer offers a preexisting employment rule or policy as a basis for adverse action or change in status, that rule or policy shall be deemed to be clear and convincing evidence for purposes of rebutting the presumption of retaliation.
  • Applications for Benefits:

The proposed amendments revise and clarify the procedure for applying for benefits.  An individual must provide notice to a covered business entity no less than 30 days before the anticipated start of family or medical leave (or as soon as practicable if a delay is beyond the individual’s control), and prior to making an application to the DFML for family or medical leave benefits.  The individual’s application for benefits to the DFML must include proof of having provided such notice.  An individual may not file an application with the DFML more than 60 days before the anticipated start date of the leave, but must aim to do so at least 30 calendar days prior to the leave (or as soon as practicable if the individual is unable to do so “for reasons beyond the covered individual’s reasonable control”).

Significantly, the proposed amendments also newly provide that a covered business entity may submit an application for benefits on behalf of a covered individual, so long as it adheres to all other requirements under the PFML.

Finally, the proposed amendments clarify the terms of the initial seven-day waiting period, elaborating further upon the rule that no benefits are payable during the first seven calendar days of approved leave.  Where benefits are taken on an intermittent or reduced leave schedule, the wait period commences “from the date of the first instance of leave from the employer” rather than the aggregate accumulation of seven days of leave.  A new seven-day waiting period shall apply at the beginning of each application for benefits.  However, if documentation from a health care provider confirms that medical leave during pregnancy or recovery from childbirth is to be followed immediately by family leave, a subsequent seven-day waiting period for the family leave portion of the benefits is not required.

  • Reduction of Benefits:

The PFML provides that benefits are to be reduced by any wage replacement or wages received by the individual from a government program or law, including state or federal disability benefits laws. The proposed amendments further provide that benefits are to be reduced by any benefits an individual receives from a covered business entity in accordance with an approved, exempted private plan or through self-employment, as well as by any outstanding tax obligations or obligations for child support.

  • Reimbursement for Covered Business Entities:

An employee may choose to use accrued paid leave (now defined in the proposed amendments to include sick leave, annual leave, vacation leave, personal leave, compensatory leave or paid time off) provided by a covered business entity, which is to run concurrently with PFML benefits.  However, a covered business entity is only eligible for reimbursement from the DFML if the individual need not use PFML benefits as a result of having taken leave under the covered business entity’s temporary disability policy or program, or paid family/medical leave policy, which – critically – must be “separate from and in addition to any sick leave, annual leave, vacation, personal leave, or accrued paid time off that is made available to the covered individual.”  This means that no reimbursement is available where a covered individual has elected to utilize any other accrued paid leave.

***

It bears emphasis that these are only some of the many proposed revisions made to the PFML regulations.  We will continue to follow and report on any further developments to the regulations, as we anticipate final changes to the regulations will be made in the months following the virtual public hearing on June 11, 2020.  PFML benefits are still scheduled to become available on January 1, 2021.

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Seventh Circuit Reaffirms Test for Employee Status /2019/05/seventh-circuit-reaffirms-test-for-employee-status/ Tue, 14 May 2019 19:33:15 +0000 /?p=5303 Continue Reading]]> On May 8, 2019, the Seventh Circuit reaffirmed its test for determining employee status under federal anti-discrimination laws, holding that a physician lacked standing to bring Title VII claims against the hospital at which she maintained practice privileges because she was not an employee. Levitin v. Northwest Community Hospital, No. 16-cv-3774.

Background
Plaintiff owned and operated her own private practice, but maintained practice privileges and performed surgeries at the defendant hospital. After a series of complaints, the hospital subjected Plaintiff to a peer-review process, which ultimately led to the termination of her practice privileges. Plaintiff proceeded to file suit, claiming her privileges were terminated in retaliation for her complaint in violation of Title VII. She claimed the hospital effectively employed her because it subjected her to on-call requirements, reporting requirements, supplied her tools to use during surgery, restricted the types of procedures that she could perform, and subjected her to a peer-review process. Plaintiff argued that the peer-review process held her to a higher standard than basic professional or regulatory medical education standards, and thus amounted to sufficient control over her work as a surgeon such that the hospital was her employer.

Ruling
The U.S. District Court for the Northern District of Illinois granted summary judgment in the hospital’s favor, concluding Plaintiff was not an employee and therefore not subject to Title VII’s protections. The Seventh Circuit affirmed, reaffirming its test for determining employee status under Title VII.

The Seventh Circuit examined the “economic realities of the relationship” by considering the following factors:

(1) the extent of the employer’s control and supervision over the worker, including directions on scheduling and performance of work;
(2) the kind of occupation and nature of skill required, including whether skills are obtained in the workplace;
(3) responsibility for the costs of operation, such as equipment, supplies, fees, licenses, workplace, and maintenance of operations;
(4) the method and form of payment and benefits; and
(5) the length of job commitment and/or expectations.

The Seventh Circuit emphasized the significance of the first factor, stating “‘[t]he employer’s right to control is the most important’ of these factors.”

In reaching its conclusion that Plaintiff did not share an employer-employee relationship with the hospital, the court considered the following facts: the hospital did not provide Plaintiff with employment benefits or pay her professional licensing dues; Plaintiff owned her own medical practice; Plaintiff billed her own patients directly; Plaintiff filed taxes as a self-employed physician; Plaintiff set her own hours; Plaintiff could obtain practice privileges at other hospitals; Plaintiff could use her own staff in surgeries; and Plaintiff made her own treatment decisions for patients. Moreover, the Seventh Circuit noted that even if the peer review proceedings went beyond typical regulatory standards, they did not result in sufficient control over Plaintiff so as to create an employer-employee relationship, in part because Plaintiff ultimately made her own decisions regarding patient care.

Implications
This ruling reaffirms the Seventh Circuit’s test regarding the employer-employee relationship, which was first articulated in Knight v. United Farm Bureau Mut. Ins. Co., 950 F.2d 377 (7th Cir. 1991). It also provides clarity and guidance on worker classifications, particularly for healthcare entities.

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[Podcast]: Recent Developments in California Law /2018/06/podcast-recent-developments-in-california-law/ Tue, 05 Jun 2018 15:00:12 +0000 /?p=4855 Continue Reading]]> the proskauer brief logo image

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In this episode of The Proskauer Brief, partner Tony Oncidi and senior counsel Harris Mufson discuss key developments in California employment law, including a new test to determine whether workers are independent contractors or employees and what’s new on the #MeToo front.

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Harris Mufson: Hello, welcome to the Proskauer Brief Hot Topics on Labor and Employment Law. I’m Harris Mufson. On today’s episode I’m joined by Anthony Oncidi and we’re going to discuss recent developments in California Law.

So, Tony, on April 30 the California Supreme Court issued a unanimous decision in a case involving a new test for independent contractors. Can you describe what happened in that case?

Anthony Oncidi: Sure. What the California Supreme Court did in that case is essentially overrule itself from a 30 year precedent. The rules had been well-established in California with respect to who was and was not an independent contractor and the net result of this ruling is that far fewer workers now can be or will be properly characterized as independent contractors, which means that far more workers will be characterized as employees and that has a number of very significant implications obviously.

Harris Mufson: And so this California Supreme Court ruled that a new test applies to assess whether or not an individual is an employee versus an independent contractor. Can you describe the new test that now is applicable to analyze that issue?

Anthony Oncidi: It’s actually relatively simple and they dub it the ABC test. It’s almost schoolyard simple and maybe that’s good news, maybe that’s bad news. It’s perhaps good news in terms of being able to follow what the rules may be I think always a good thing – maybe – but maybe bad news in terms of the application that we’re going to probably see, which is, as I say, sweeping many more people into an employment relationship who – many of them may not have wanted to be in an employment relationship, that’s one of the interesting aspects of the independent contractor situation.

There’s almost a conspiracy many times between the hirer and the worker to be so characterized as an independent contractor not as an employee because there are benefits that flow to both parties by having the independent contractor status.

So the ABC test is three parts, obviously. The first of which is that the worker must be free from the control and direction of the hirer in connection with the performance of the work so there’s essentially going to be no supervision that’s being exercised over the independent contractor. Number two, the worker must perform work that’s outside the usual course of the hiring entity’s business. That’s the biggest problem I think for most of these workers – you have a situation where if you’re hiring an individual who’s essentially doing the same thing your business is doing or some aspect of what your business is, that’s probably not going to be an independent contractor that’s going to be an employee of some sort. The Supreme Court gives the example of a department store hiring somebody to do work on the plumbing. Well the department store is not in the business of plumbing and so they are bringing in an individual to work on their plumbing: that probably would be an independent contractor. On the other hand if they’re bringing in somebody who’s going to work in the capacity that the business itself operates, much less likely that’s going to be an independent contractor. And then finally, the worker must be customarily engaged in an independently established business or trade of the same nature as the work that he or she is performing for the hiring entity. Against essentially suggesting there’s got to be an independent business that they are in which is separate from the business that they are performing services for.

Harris Mufson: I thought one other interesting aspect of this decision is that the Court now ruled that workers in California are presumed – the default presumption is that they are employees as opposed to independent contractors, and also I guess there’s now this distinction between the economic realities test that is applied under Federal Law versus the ABC test that is now applicable in California.

Anthony Oncidi: Correct

The Multifactor Test, which is really what this ABC Test replaces, was a little bit more fuzzy and I think there are some disadvantages that come with some kind of ambiguity like that but the clarity of this test and the severity of this test is going to make it much more difficult for many employers I think to deal with this because I think many were caught flatfooted by this development, where we’re going to see an immediate and significant impact, obviously, in the gig economy where you have essentially all Uber drivers for the most part and all Lyft drivers for the most part and all Grub Hub delivery people basically treated as independent contractors now. Of course, there’s been tons of litigation over that but this may very well close down that debate and they will all now quite possibly be characterized as employees.

Harris Mufson: So in addition to the Supreme Court’s decision addressing the tests associated with independent contractors versus employees there’s also been some additional key developments in California law or potential legislative developments. Can you talk a little about the pending bills in the State senate?

Anthony Oncidi: Sure. This is a species of what I call “don’t just stand there do something,” and since the Me Too Movement began last October there have been efforts on both the state and federal level to do something about what is perceived to be this significant wave of sexual harassment allegations and activities. I’m not sure anything has changed since last October other than the fact that it’s become much more apparent because many more people are talking about it, and I think many more people are bringing claims but I’m not sure activities have spiked since last October.

Nonetheless what legislatures such as California are doing are considering new laws and sharpening existing laws in a way that would make it essentially easier for victims of discrimination and harassment to file and win their claims. And so right now there are pending at least three separate pieces of legislation in California, none of which are yet passed, none of which yet been signed into law, but all of which may in some form or another make it into law; and, essentially what these do is they limit or they ban nondisclosure agreements in the context of sexual harassment or sexual assault allegations and lawsuits. They make it easier for victims of sexual harassment to prove their cases by adjusting the standards that need to be satisfied in order to prove a case in instances of situations where you got the already existing laws that protect non employees, for example, unpaid interns, volunteers, independent contractors.

There’s an extension now of liability not only for sexual harassment but all forms of harassment and discrimination, which would be a significant change in the law. There’s an expansion of training that would be required right now in California for large employers with fifty or more employees, they need to train supervisors once every two years for at least two hours. This would expand the requirement of training to non-supervisors in addition to the existing employers that must be trained and that alone is going to be a significant change because many employers don’t currently train in a formalistic way their non-supervisory employees and this may now become a new requirement.

And then finally, and maybe even most importantly, is the fact that the whole Me Too Movement is being used, I think, in some respects, by the plaintiff’s bar as a way to, kind of as a Trojan horse, to attack arbitration agreements. They don’t like arbitration agreements. In California, we have seen with alarming regularity ten and fifteen million dollar single plaintiff verdicts come down from the juries in Los Angeles and some of the other big cities. Plaintiff’s lawyers obviously like to have those kinds of verdicts, either in fact, or by way of threat when you’re trying to settle a case – that rarely happens in an arbitration context. And so as a result of that most plaintiffs’ lawyers in California don’t like arbitration and so they are jumping, I think, on the bandwagon with respect to this Me Too set of developments by saying “oh and by the way let’s also get rid of arbitration agreements” and I think that’s a completely different debate. It has nothing to do with real liability issues. It has to do with the expected potential outcome of a particular case.

Harris Mufson: It’s interesting that as the Me Too Movement has developed we haven’t seen much legislation on the Federal front. I mean there’s been an IRS regulation that was passed in connection with the tax cut bill but beyond that there really hasn’t been any legislation from the Federal level, but States are now picking up the ball. So we’ve seen some recent legislation in New York that has passed both the State and the New York City level that has mandated additional training, has expanded statutes of limitations, has addressed the issue of arbitration agreements, etc. We actually had a podcast on that the other day. So I think we’ll continue to see more states, particularly blue states, picking up the ball and generating additional legislation on this front.

Anthony Oncidi: Yeah I think that’s right and especially we’re in an election year and so this is a great issue for legislators to run on – either candidates who are already in office or those who seek to be in office and, as I said, it’s a perfect example of “don’t just stand there do something.” So everybody wants to be viewed as being proactive in this important area.

Harris Mufson: Yes, that’s something we’ll continue to monitor. Thank you for joining us on the Proskauer Brief today. Stay tuned for more insights on the latest Hot Topics in Labor & Employment Law and be sure to follow us on iTunes.

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New Rules Implementing the NYC Freelance Isn’t Free Act To Become Effective on July 24, 2017 /2017/07/new-rules-implementing-the-nyc-freelance-isnt-free-act-to-become-effective-on-july-24-2017/ Wed, 12 Jul 2017 13:59:26 +0000 /?p=4406 Continue Reading]]> As we previously reported, in November 2016, NYC Mayor De Blasio signed into law the Freelance Isn’t Free Act, establishing protections for freelance workers, including the right to receive a written contract for work valued at $800 or more, the right to be paid timely and in full, and the right to be free from retaliation.  The Act became effective on May 15, 2017.

The NYC Department of Consumer Affairs has since published final rules implementing the Act, intended to “clarify provisions in the law, establish requirements to implement and meet the goals of the law, and provide guidance to covered hiring parties and protected freelance workers.”  The new rules will become effective on July 24, 2017.

Highlights of the rules include the following:

  • The text of the Act states that it applies to “hiring parties,” defined as “any person who retains a freelance worker to provide any service” (with the exception of government entities). The rules expand upon the coverage of the Act to now apply to actions taken by “a hiring party, their actual or apparent agent, or any other person acting directly or indirectly on behalf of a hiring party.”
  • The rules place significant limitations on the terms and conditions that may be included in a contract entered into between a freelance worker and a hiring party. Specifically, any such agreement may not include: (i) a prospective waiver or limitation of rights under the Act; (ii) a waiver or limitation on the right of the freelance worker to participate in or receive any relief (monetary or otherwise) from a class or collective action lawsuit or proceeding; (iii) a waiver of “any other procedural right normally afforded to a part in a civil or administrative action” (such as procedural rights under the federal or state rules of evidence or civil procedure); and (iv) confidentiality provisions that restrict a freelance worker’s ability to disclose the terms of the agreement to the Director of the NYC Office of Labor Standards.
  • As noted above, under the Act, covered entities may not retaliate against freelance workers for exercising or attempting to exercise their rights under the law. The rules further define what constitutes an adverse action in violation of the anti-retaliation provisions of the Act, namely: “any action . . .  that would constitute a threat, intimidation, discipline, harassment, denial of a work opportunity, or discrimination, or any other act that penalizes a freelance worker for, or is reasonably likely to deter a freelance worker from, exercising or attempting to exercise any right” guaranteed under the Act.
  • The rules further state that retaliation “may be established when a freelance worker shows that the exercise or attempt to exercise any right under the [Act] was a motivating factor for an adverse action, even if other factors also motivated the adverse action.” Thus, the final rules  establish a motivating factor causation standard for claims of retaliation, as opposed to a “but-for” standard where retaliation would need to be the sole factor underlying the reason for the adverse action taken.
  • The rules clarify that freelance workers are entitled to the protections of the Act “regardless of immigration status” and that prohibited retaliation includes “any adverse action relating to perceived immigration status or work ization.”
  • For purposes of defining the value of a contract between a freelance worker and a hiring party (both to establish coverage under the Act and to calculate statutory damages for violations of the Act), the rules state that such value includes “the reasonable value of all services performed and/or anticipated, and the reasonable costs for supplies and other expenses reasonably incurred by the freelance worker.”

We will continue to report on any further developments regarding the Act and the implementation of the new rules.

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DOL Withdraws Obama-Era Administrator’s Interpretations on Independent Contractors and Joint Employment /2017/06/dol-withdraws-obama-era-administrators-interpretations-on-independent-contractors-and-joint-employment/ Wed, 07 Jun 2017 15:41:43 +0000 /?p=4344 Continue Reading]]> Employers across the U.S. were troubled by the sub-regulatory guidance issued by the DOL in 2015 and 2016 on independent contractors and joint employment.  Today, the DOL announced the withdrawal of that guidance (Administrator’s Interpretations No. 2015-01 (July 15, 2015, on independent contractors) and No. 2016-01 (Jan. 20, 2016, on joint employment)).

As you may recall, the DOL began issuing Administrator’s Interpretations– broad pronouncements of the agency’s views on issues–in 2010, in a significant departure from its prior practice of issuing guidance in the form of regulations (generally subject to public notice-and-comment rulemaking procedures) and opinion letters (which were responsive to specific fact patterns submitted by the public, and usually characterized as limited to the specific facts presented).  Critics of the Administrator’s Interpretations pointed to the ways in which they departed from the case law, statutes, and regulations on their subjects.  And many businesses viewed them as yet another way the Obama-era federal agencies were circumventing the traditional rulemaking process in furtherance of a pro-worker agenda.

This is the first major sign that the Trump DOL–with a Secretary of Labor now in place–intends to undo some of the activism of the prior administration.

Stay tuned for additional commentary on this major development.

 

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Connecticut Supreme Court Issues Important Clarification For Independent Contractor Test /2017/03/connecticut-supreme-court-issues-important-clarification-for-independent-contractor-test/ Thu, 23 Mar 2017 17:37:03 +0000 /?p=4243 Continue Reading]]> On March 21, 2017, the Connecticut Supreme Court issued an important ruling, finding that an individual may be still considered an independent contractor under the state’s Unemployment Insurance Act even if he/she only provides services to one business or entity.  In so doing, the Connecticut Supreme Court reversed a decision by the Unemployment Insurance Board finding certain workers to be employees simply because the putative employer could not show that they performed work for other companies.

Procedural Background

In Southwest Appraisal Group, LLC v. Administrator, Unemployment Compensation Act, the Plaintiff-Appellant, Southwest Appraisal Group, LLC (“Southwest”) operated an automotive appraisal company and exclusively utilized independent contractors as its appraisers.  The Connecticut Unemployment Insurance Administrator audited Southwest in 2011 and determined that certain of the contractors were in fact employees.  The Administrator assessed back taxes against Southwest, who appealed the assessment to the Unemployment Insurance Board.  The Board affirmed the Administrator’s assessment with regard to three individuals.  Southwest appealed the decision to the Connecticut Superior Court.

The ABC Test and the Trial Court’s Decision

In determining whether a worker is an employee or independent contractor for purposes of the Connecticut Unemployment Insurance Act, courts apply a three-prong “ABC test” which examines the following factors in order to determine independent contractor status:

  1. the worker is free from direction and control of the employer;
  2. the services the worker provides are outside the employer’s usual course and/or place of business; and
  3. the worker is customarily engaged in an independently established business of the same nature as the services performed. See CT General Statutes § 31-222 (a)(1)(B)(ii).

In order to be deemed an independent contractor, all three prongs of the ABC test must be met.

The trial court in Southwest determined that, while the appraisers satisfied the first two prongs of the ABC test, they were not “customarily engaged in an independently established business” because they only provided appraisal services for Southwest.  While the appraisers were all free to contract with other entities and owned their own appraisal businesses (with independently-maintained offices, equipment, and business cards) the trial court found that “there is no indication on this record that any of these three businesses would survive without their relationship with the plaintiff.”  According to the lower court, this economic dependency was dispositive to the analysis, as termination of the relationship with Southwest would “result in the unemployment of the putative employees.”

Southwest appealed the decision to the Connecticut Supreme Court.  The sole issue on appeal was whether part C of the ABC test does, in fact, require proof that the workers performed services for third parties other than the putative employer in order for them to be deemed independent contractors.

Analysis and Holding

The Connecticut Supreme Court reversed the trial court’s decision, holding that the trial court placed too much emphasis on breadth of the contractors’ client base. Rather, it held that the crux of the inquiry under part C is whether “the worker is wearing the hat of an employee of the employing company, or is wearing the hat of his own independent enterprise.”  The Court instructed that “part C must be considered in relation to the totality of the circumstances, with that inquiry guided by a multifactor test. . . . [J]ust as the mere freedom to provide services . . . for third parties is not by itself dispositive under part C . . .  whether the individual actually provided services for someone other than the employer is [not] dispositive proof of an employer-employee relationship.’’

The Court then provided a non-exhaustive list of ten factors to consider in “evaluating the totality of the circumstances under part C”:

  1. the existence of state licensure or specialized skills;
  2. whether the putative employee holds himself or herself out as an independent business through the existence of business cards, printed invoices, or advertising;
  3. the existence of a place of business separate from that of the putative employer;
  4. the putative employee’s capital investment in the independent business, such as vehicles and equipment;
  5. whether the putative employee manages risk by handling his or her own liability insurance;
  6. whether services are performed under the individual’s own name as opposed to the putative employer;
  7. whether the putative employee employs or subcontracts others;
  8. whether the putative employee has a saleable business or going concern with the existence of an established clientele;
  9. whether the individual performs services for more than one entity; and
  10. whether the performance of services affects the goodwill of the putative employee rather than the employer.

The Court added that “improper primacy” should not be attributed to “the relative size or success of the putative employee’s otherwise independent business in connection with the totality of the circumstances analysis under part C.”  Such emphasis on that particular factor would unfairly subject the putative employer to “the decisions of the putative employee and an unpredictable hindsight review,” without consideration of ‘‘the intent of the parties, the number of weekly hours the putative employee actually worked for the employer, or whether the putative employee even sought other work in the field.”

Impact

Southwest Appraisal Group, LLC v. Administrator, Unemployment Compensation Act is a welcome development for Connecticut businesses that engage independent contractors, eliminating concern over the inflexible requirement that such workers must provide services for third parties – a fact that, to the extent it is known to the principal, can change over time. Despite this favorable decision, companies should regularly evaluate their relationships with independent contractors under the “totality of the circumstances” test described above, which certainly includes consideration of whether the worker provides services to others. Employers should likewise bear in mind that the Southwest holding only addresses independent contractor classification under Connecticut’s Unemployment Insurance Act. Companies in Connecticut that utilize independent contractors need to be aware that different tests applicable under other statutes and regulations, both state and federal, remain in effect.

 

 

 

 

 

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Proskauer’s Value Insights Survey is Now Live /2017/01/proskauers-value-insights-survey-is-now-live/ Tue, 17 Jan 2017 14:13:50 +0000 /?p=4153 Continue Reading]]> Proskauer’s second Value Insights: Delivering Value in Labor and Employment Law survey is now live and we want to hear from you. Value Insights explores how in-house counsel can maximize the value they provide to their business partners and correspondingly, how they can most effectively partner with outside counsel on managing labor and employment work.

To take the short web survey, please click here.

We look forward to sharing a report based on the findings with respondents, and hope that understanding the approach and practices of your peers will provide you with tools and ideas to be value leaders in your organizations.

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Appellate Division Rules That Paid Blogger Was Not An “Employee” Entitled To Unemployment Benefits, Signaling Trend Toward More Searching Judicial Review of Agency Decisions /2017/01/appellate-division-rules-that-paid-blogger-was-not-an-employee-entitled-to-unemployment-benefits-signaling-trend-toward-more-searching-judicial-review-of-agency-decisions/ Fri, 06 Jan 2017 14:52:31 +0000 /?p=4142 Continue Reading]]> One of the recurring themes in workplace law in 2016 was the continued crackdown on independent contractor misclassification.  Both federal and state agencies, as well as the plaintiffs’ bar, invested significant resources to challenge employers in the “gig economy”—as well as in more traditional businesses—that rely heavily on contractors, freelancers, and other third-party service providers.

In New York, many of these challenges arise in the first instance at the Unemployment Insurance (UI) Division of the State Department of Labor (NYSDOL), where the fact that a worker was paid on a Form 1099 basis—as opposed to a Form W-2 basis—will almost always trigger an investigation into the merits of that “non-employee” classification.  Often, these investigations lead to a broader inquiry into the company’s classification practices.  Even outside the context of an individual claim for benefits, the NYSDOL has the ity, under Section 575 of the Labor Law, to conduct both “random” and targeted audits of businesses.  Any employer that has received a “Section 575” audit letter—often demanding the disclosure of three years’ worth of payroll records, tax returns, and “general ledgers”—is familiar with the disruption and potential exposure associated with such investigations.  If the UI investigator or auditor determines that one or more individuals were misclassified as independent contractors, the NYSDOL will likely deem that conclusion to apply to all similarly situated workers performing like services and demand the payment of up to three years’ worth of back taxes and interest.  Potentially more troubling, such a determination may embolden the affected workers to pursue employment-related claims outside the unemployment context, such as for minimum wage, overtime, and benefits.

A company seeking to challenge a UI determination must be prepared to defend its classification not only at an evidentiary hearing before an administrative law judge, but potentially on appeals to the UI Appeal Board, the Appellate Division, and the Court of Appeals.  Many businesses assume—based on first-hand experience or broader research—that the chances of reversing a UI determination of employment are slim, especially given the historically deferential standard of review in such cases (whether there is “substantial evidence” in the record to support the decision below, even if that evidence could have supported a finding of an independent contractor relationship).

But all hope is not lost for businesses.  In an encouraging decision last week, the Appellate Division, Third Department—in Mitchell v. The Nation Co. Ltd. Partners (Dec. 29, 2016)—reversed two decisions of the UI Appeal Board and held that a paid blogger for the respondent media company was indeed an independent contractor and not an employee.  In Mitchell, the claimant—an established writer and publisher—entered into a freelance contract with The Nation to write and manage one of its blogs on a daily or near-daily basis.  The Nation paid the claimant $46,800 annually, in monthly installments.

The Appellate Division first acknowledged that, under the “substantial evidence” standard, it has not traditionally been the court’s role to review and weigh independently the evidence adduced at the administrative hearings before the NYSDOL.  This said, mindful of the Court of Appeals’ recent decision in Matter of Yoga Vida, NYC, Inc.—which relied on a “more detailed, qualitative and arguably less deferential analysis” of the various employment factors to hold that certain yoga instructors were independent contractors and not employees—the Appellate Division examined the record below and concluded that the determination of an employment relationship was not, in fact, supported by substantial evidence.

While there were facts in Mitchell that could have supported a finding of an employment relationship (e.g., the claimant was required to identify himself as a writer for The Nation; was paid an annual salary in monthly installments; was reimbursed for certain business-related expenses; was assigned an intern by The Nation; was required to use the publisher’s content management system; was required to comply with the publisher’s style guidelines; and The Nation had staff writers as well as freelance writers), there were other facts that suggested that the claimant’s classification as an independent contractor was appropriate (e.g., during the period of his services to The Nation, the claimant also blogged for other publications and independently wrote eight books; he was not formally interviewed by The Nation; he worked from 凯发国际版home using his personal laptop; he set his own hours and was not penalized for not blogging on a given day; he did not have a supervisor at The Nation; he was not permitted to work from The Nation’s offices; he was not assigned particular topics; and he could post a story prior to it being edited by The Nation’s staff).  While The Nation’s editors encouraged the claimant to write on certain general subjects and to avoid others, he had the right to reject particular suggestions as to content and the general freedom to write about subjects of interest to him.

The Appellate Division concluded, on “the record as a whole,” that The Nation did not exercise “control over important aspects of the services performed” by the claimant, and therefore that he and similar situated individuals were not employees of The Nation for unemployment insurance purposes.

The opinion in Mitchell is helpful for businesses in at least two significant respects.  First, it confirms that freelance writers and other content providers who are strongly affiliated with a particular publisher and whose contributions are subject to the latter’s style guidelines and editorial input can nonetheless be independent contractors.  This should be viewed as a positive development for media companies and other content platforms that operate on a freelance contribution model either exclusively or to supplement their staff writers.  Second, when read in conjunction with Matter of Yoga Vida, it signals that the courts are willing to take a more searching and plenary analysis of the facts in the record that support and do not support a finding of an employment relationship—as opposed to viewing the “substantial evidence” standard as requiring a more limited and deferential analysis.  And this should be encouraging to all New York businesses, in any industry.

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Yoga Instructors Can Be Independent Contractors, Says NY Court of Appeals /2016/10/yoga-instructors-can-be-independent-contractors-says-ny-court-of-appeals/ Fri, 28 Oct 2016 13:36:40 +0000 /?p=3995 Continue Reading]]> Earlier this week, the New York State Court of Appeals in Yoga Vida NYC, Inc. v. Commissioner of Labor., No. 130 (N.Y. Oct. 25, 2016), issued a rare decision concerning an unemployment determination, reversing the Appellate Division and concluding that the employer yoga studio did not exercise sufficient control over certain of its instructors to create an employment relationship.

Yoga Vida, a yoga studio in Manhattan, offers classes taught by both staff instructors, classified as employees, and non-staff instructors, classified as independent contractors.  The State’s Unemployment Insurance Appeal Board held that the non-staff instructors were misclassified as independent contractors, rendering Yoga Vida liable for additional unemployment contributions.  Yoga Vida appealed to the Appellate Division, which affirmed the determination of the UIAB.  The Court of Appeals reversed, finding that the non-staff instructors were not employees because Yoga Vida did not exercise sufficient control “over the results produced and the means used to achieve the results.”

In support of its conclusion, the Court found that:

  • The instructors made their own schedules and chose how they were paid (either hourly or on a percentage basis);
  • Unlike other instructors, who were paid regardless of whether anyone attended a class, the instructors at issue were paid only if a certain number of students attend their classes;
  • The studio did not place any restrictions on the instructors’ ability to teach for other studios; and
  • The instructors were not required to attend staff meetings or receive training.

The Court further held the “incidental control” Yoga Vida did exercise–such as determining if the instructors had proper licenses; publishing a master schedule on its web site; providing space  for the classes; and providing a substitute instructor if the non-staff instructor was unable to teach a class and could not find a substitute–did not warrant a finding of employee status.  The Court likewise did not view as dispositive that Yoga Vida generally determined the fee it charged to students and collected it directly from the students.  Finally, the Court held that students providing feedback on the non-staff instructors did not render the instructors employees, as “[t]he requirement that the work be done properly is a condition just as readily required of an independent contractor as of an employee and not conclusive as to either.”

Although this decision is encouraging for companies that engage independent contractors, it is important to remember that this determination, like all employment classification inquiries, is highly fact-dependent.  Businesses should conduct a self-assessment of their independent contractor models–ideally with under the supervision of counsel and subject to privilege–to determine the risk of a classification challenge from their independent contractors or government agencies.

 

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Mayor Signs Into Law NYC Bill Protecting Freelance Workers, Effective May 15, 2017 /2016/10/nyc-council-passes-bill-protecting-freelance-workers/ Fri, 28 Oct 2016 12:58:41 +0000 /?p=3992 Continue Reading]]> On November 16, 2016, NYC Mayor De Blasio signed into law the Freelance Isn’t Free Act, a local law (No. 1017-2015) establishing protections for freelance workers.

The law, amending Title 10 of the N.Y.C. Administrative Code, establishes and enhances protections for freelance workers, including the right to receive a written contract, the right to be paid timely and in full, and the right to be free from retaliation.  The law creates penalties for violations of these rights, including statutory damages, double damages, injunctive relief, and attorney’s fees.  Highlights of the new law, which applies to private employers and takes effect on May 15, 2017, include the following:

  • Contracts between a hiring party and a freelance worker valued at $800 or more must be reduced to writing and contain, at a minimum, the name and mailing address of both the hiring party and the freelance worker; an itemization of all services to be provided by the freelance worker; the value of the services to be provided pursuant to the contract and the rate and method of compensation; and the date on which the hiring party must pay the contracted compensation or the mechanism by which such date will be determined.
  • The contracted compensation must be paid to the freelance worker either on or before the date such compensation is due under the terms of the contract, or if the contract is silent, not later than 30 days after the completion of services.
  • Hiring parties are prohibited from threatening, intimidating, disciplining, harassing, denying a work opportunity to, or discriminating against a freelance worker, or taking any other action that penalizes a freelance worker for, or is reasonably likely to deter a freelancer worker from, exercising or attempting to exercise any right guaranteed under the new law, or from obtaining future work opportunity because the freelance worker has done so.
  • A freelance worker who is aggrieved by a violation of the new law may file an administrative complaint with the City within two years after the acts alleged to have violated the law or a civil action against the hiring party within two or six years after such acts (depending on whether the claim is for failure to have a contract in place, failure to make a payment, or retaliation), but the freelance worker must make an election between administrative and court remedies.
  • A freelance worker who prevails on a claim under the new law can recover, depending on the nature of the claim, the contracted value of the services, double damages, reasonable attorney’s fees and costs, injunctive relief, statutory damages, and “other such remedies as may be appropriate.”
  • The City may commence a civil action against a hiring party engaged in a pattern or practice of violations of the new law and seek up to $25,000 in civil penalties.
  • The new law does not limit a freelance worker’s right to bring common law or other legal claims against the hiring party, including for breach of contract.
  • The law will take effect 180 days after the Mayor signs it and will apply only to contracts entered into on or after that effective date.
  • The City’s Office of Labor Standards will be ized to take any actions necessary to implement the law, including the promulgation of rules.

We will keep you posted on developments under this new City law.

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