Tag: Independent Contractor

APPARENTLY NOT AN INDEPENDENT CONTRACTOR: Summary Judgment Denied Because Third Party Vendor May Have Had Apparent Authority To Make Calls Without Consent

Hi TCPAWorld! The Baroness here and I have a good case today.

Dickson, v. Direct Energy, LP, et al., No. 5:18-CV-00182-JRA, 2024 WL 4416856 (N.D. Ohio Oct. 4, 2024).

Let’s dive in.

Background

In this case, the plaintiff Dickson alleges the defendant Direct Energy sent him ringless voicemails (RVMs) in 2017 without consent.

Direct Energy filed a motion for summary judgment arguing that it cannot be held liable under the TCPA because it did not directly make the calls to Dickson (a third-party vendor did) and it cannot be held vicariously liable for the calls under agency principals.

More specifically, Direct Energy argues that Total Marketing Concepts (TMC) was an independent agent and was not acting with actual or apparent authority when it violated the TCPA and Direct Energy did not ratify the illegal acts of TMC.

Law

For those of you not familiar, a motion for summary judgment is granted when there is no genuine dispute as to any material facts and the movant is entitled to judgment as a matter of law.

Under the TCPA, a seller can be held either directly or vicariously liable for violations of the TCPA.

As noted above, Direct Energy did not directly deliver any RVMs to Dickson. So it cannot be directly liable for the calls. Dickson instead seeks to hold Direct Energy vicariously liable for the acts of TMC and TMC’s subvendors.

Let’s first look at the principal/agent relationship.

Direct Energy primarily argued that TMC was NOT its agent because of the terms of their agreement. Specifically, Direct Energy identified TMC as an “independent contractor.” Moreover, TMC was “expressly instructed to send RVMs only with TCPA-compliant opt-in consent.”

Importantly, however, whether an agency relationship exists is based on an assessment of the facts of the relationship and not on how the parties define their relationship.

Listen up folks—contractual terms disclaiming agency will not cut it!

While Direct Energy and TMC did have a provision in their contract which expressly disclaimed any agency relationship, the Court highlighted that the parties entered into an amended agreement which expressly authorized TMC to (among other things) close sales on Direct Energy’s behalf and thereby bind Direct Energy in contracts with customers. In other words, Direct Energy authorized TMC to enter into agreements on its behalf.

The Court also found Direct Energy exerted a high level of control over TMC:

  • Direct Energy had the ability to audit TMC’s records to ensure compliance with its contractual obligations
  • Direct Energy could audit TMC’s subcontractors in the same manner
  • Direct Energy had access to TMC facilities to ensure compliance
  • Direct Energy had the ability to terminate the contract with or without cause
  • Direct Energy authorized TMC to telemarket on its behalf using the Direct Energy trade name as if Direct Energy was making the telemarketing call

Therefore, the Court found Dickson produced evidence which a reasonable jury could find that Direct Energy exerted such a level of control over TMC such that there was a principle/agent relationship, despite their contract expressly providing otherwise.

ACTUAL AUTHORITY

Actual authority exists when a principal explicitly grants permission to an agent to act on their behalf, whether through express or implied means.

Express authority

Pursuant to the Teleservices Agreement, TMC was responsible for complying with the TCPA. Thus, there was no evidence that TMC had express actual authority to contract individuals who had not given consent.

Implied authority

Dickson argued that Direct Energy nonetheless led TMC to reasonably believe it should make telemarketing calls that violate the TCPA. However, the Court found that TMC’s authority was expressly limited to opt-in leads. So, Dickson failed to demonstrate a genuine issue of material facts showing that TMC acted actual authority—either express or implied—when it contracted potential customers who had not opted in to receiving such calls.

APPARENT AUTHORITY

Apparent authority arises when a principal’s conduct leads a third party to reasonably believe that an agent has the authority to act on the principal’s behalf, even if such authority has not been explicitly granted.

Here’s where it gets interesting.

Dickson presented evidence that Direct Energy received several thousand complaints regarding the RVMs but did not stop the conduct.

That’s a lot of complaints..

Moreover, Direct Energy authorized TMC to use its trade name and approved the scripts. Thus, Dickson argued Direct Energy allowed third-party recipients of the RVMs to reasonably believe the RVMs were from Direct Energy.

And even though TMC used other third-party telephony services, this was expressly authorized by the agreement between Direct Energy and TMC.

Therefore, the Court found that Dickson demonstrated that Direct Energy authorized and instructed TMC to use its tradename in its RVMs, approved the scripts used by TMC, and knew or should have known of TMC’s improper conduct and that did not take action to prevent that conduct from continuing.

As such, the Court found a genuine issue of material fact existed that TMC acted with apparent authority when it contracted potential customers who had not opted in to receiving such calls.

RATIFICATION

Ratification occurs when an agent acts for the principal’s benefit and the principal does not repudiate the agent’s actions.

A plaintiff must present some evidence that a principal benefitted from the alleged unlawful conduct of its purported agent to hold the principal liable for the acts of the agent under the theory of ratification.

Here, Dickson failed to produce evidence that Direct Energy received any benefit from TMC’s unlawful telemarketing acts. For example, Dickson produced no evidence of any contracts that Direct Energy secured as a result of TMC contacting potential consumers who had not given opt-in consent. Importantly, the Court stated “[p]ure conjecture that Direct Energy must have benefitted in some way because of the volume of calls made by TMC on its behalf is simply not enough to survive summary judgment.”

Therefore, the Court found Dickson failed to demonstrate the existence of a material fact as to whether Direct Energy ratified TMC’s violations of the TCPA.

In light of the above, the Court recommended denying Direct Energy’s motion for summary judgment. Although there was no genuine issue of material fact related to actual authority and ratification, the Court determined that a genuine issue of material fact does exist concerning whether TMC acted with apparent authority.

This case highlights the complexities of agency relationships in TCPA cases and serves as a reminder for companies: mere contractual disclaimers of agency will not suffice. Courts can still hold you vicariously liable for the actions of third parties acting on your behalf! Choose the companies you are working with wisely.

© 2024 Troutman Amin, LLP
For more news on Independent Contractor TCPA Liability, visit the NLR Communications, Media, & Internet section.

New Department of Labor Rule Restores Multifactor Analysis for Classifying Workers as Employees or Independent Contractors

Effective March 11, 2024, a new administrative rule will modify how the Department of Labor (DOL or Department) classifies workers as either employees or independent contractors under the Fair Labor Standards Act (FLSA). The 2024 rule will rescind the 2021 rule currently in place, which focused the Department’s classification analysis on two “core factors,” and restores the multifactor analysis that previously had been in use by courts for decades.

Given the procedural uncertainty surrounding the 2021 rule, its impact on FLSA jurisprudence has been minimal-to-nonexistent. In this sense, the 2024 rule merely codifies an analysis that federal courts never really stopped using, in the first place. But it also sends an important signal to employers operating in the modern economy: even if workers have significant autonomy over their day-to-day work lives, they should be classified as employees if, as a matter of economic reality, they are dependent on their employer’s business for work.

Background on the FLSA and Pre-2021 Classification Analysis

Under the FLSA, employers generally must pay employees at least the federal minimum wage for all hours worked and at least one and one-half times the employee’s regular rate of pay for every hour worked over 40 in a single workweek. The FLSA does not, however, extend these and other workplace protections to workers who are classified as independent contractors. Employees who are misclassified as independent contractors therefore may incur substantial losses in unpaid overtime and other lost wages as a result of their status.

Prior to 2021, federal courts applied flexible, multifactor tests rooted in Supreme Court precedent to determine whether workers should be classified as employees, and thus covered by the FLSA, or independent contractors, and thus excluded from FLSA coverage. The “ultimate inquiry” was whether, as a matter of economic reality, the worker was economically dependent on the business entity for work (employee) or was in business for herself (independent contractor).

Though the specific factors varied somewhat by circuit, the tests generally took into consideration (1) workers’ opportunity for profit or loss; (2) the amount of investment in the business by the worker; (3) the permanency of the working relationship; (4) the business’s control over the worker; (5) whether the work constituted an “integral part” of the business; and (6) the skill and initiative required to do the worker’s job. Courts tended not to assign predetermined weight to any factor or factors and engaged in a “totality-of-the-circumstances” analysis.

Prior to 2021, DOL had issued only informal guidance on classifying workers as employees or independent contractors and other than some industry-specific guidance—for example, for sharecroppers and tenant farmers and certain workers in the forestry and logging industries—had not engaged in formal rulemaking on this topic. Rather, the Department allowed federal courts to develop and hone their own classification analyses on a case-by-case basis.

The 2021 Rule

On January 7, 2021, DOL promulgated a first-of-its-kind rule identifying a total of five factors, but prioritizing only two “core factors,” for federal courts to consider in conducting the classification analysis. DOL articulated the two “core factors” as (1) the nature and degree of the worker’s control over the work and (2) the worker’s opportunity for profit or loss based on initiative, investment, or both. It articulated the three remaining factors as (3) the amount of skill required for the work; (4) the degree of permanence of the working relationship between the individual and the business; and (5) whether the work is part of an “integrated unit of production.” If the two “core factors” weighed in favor of the same classification, it likely was the correct classification, and the Department deemed it “highly unlikely” the three non-core factors could outweigh the combined probative value of the other two.

By elevating the two “core factors” above the other factors traditionally considered by federal courts, the 2021 rule focused almost exclusively on workers’ control over when and on what projects they worked and their ability to earn more money based on how efficiently or for how long they worked. This approach ignored the reality that for many workers, their work is completely dependent on their employer’s business—and vice versa—even though they may have significant autonomy over their day-to-day work lives.

The Department’s articulation of some of the non-core factors also departed from longstanding court precedent and rendered them less, not more, compatible with the modern economy. For example, the 2021 rule considered only whether a worker’s job was part of an “integrated unit of production,” akin to a job on an assembly line, rather than its importance or centrality to the business, overall. This change risked misclassifying employees who performed work that was essential to but “segregable from” an employer’s process of production or provision of services, even though modern industry is much more sprawling than the traditional assembly line. The 2021 rule also combined the distinct “investment in the business” factor with consideration of a worker’s potential for profit and loss, which improperly shifted the focus of that factor from worker inputs to worker outcomes. This change likewise risked misclassifying employees who earned more profits because of greater “investment” in their employers’ businesses, even though the costs they bore might have been non-capital in nature, e.g., an existing personal vehicle, or imposed unilaterally by the employers.

Shortly after the change in administration that took place on January 20, 2021, the Department took steps to delay and ultimately withdraw the 2021 rule based on these and other concerns about its potential to misclassify employees as independent contractors. But legal challenges to the administrative process led a Texas district court to vacate the Department’s delay and withdrawal actions, ostensibly leaving the 2021 rule in effect. Though the Department appealed the district court’s order, the Fifth Circuit stayed the action pending promulgation of the new rule. In the interim, the uncertain legal status of the 2021 rule and impending new rule meant that few courts, if any, incorporated the “core factor” analysis into their jurisprudence.[1]

The 2024 Rule

After unsuccessful efforts to delay and withdraw the 2021 rule, the Department opted to rescind and replace it altogether with the new final rule it announced on January 10, 2024. The 2024 rule, effective March 11, 2024, identifies six equally-weighted factors for courts to consider in classifying workers as independent contractors or employees: (1) opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the potential employer; (3) degree of permanence of the work relationship; (4) nature and degree of control; (5) extent to which the work performed is an integral part of the potential employer’s business; and (6) skill and initiative. Each single factor should be considered “in view of the economic reality of the whole activity” and additional factors “may be relevant” to the analysis.

Notably, the 2024 rule reverts to the “integral to the business” formulation of that factor; treats “investment in the business” as a distinct factor; differentiates between capital and non-capital investments by workers; and takes into consideration whether a particular cost was incurred based on entrepreneurial initiative or was imposed unilaterally by the employer. In these ways, the 2024 rule is much more compatible with the growing and increasingly diffuse economy than was the 2021 rule.

Ongoing and prospective legal challenges to the 2024 rule, plus the looming possibility that the Supreme Court will overturn or modify Chevron v. Natural Resources Defense Council—the 1984 decision applying deference to a federal agency’s interpretation of the statutes it administers—mean the 2024 rule may have a limited impact on FLSA jurisprudence. But it nevertheless conveys the Department’s position that employers should err on the side of classifying workers as employees, not independent contractors, and therefore subject to FLSA protections.

Given this changing landscape, employers may struggle to classify workers who were considered independent contractors under the 2021 rule but will be considered employees under the 2024 rule. If your employer has misclassified you as an independent contractor instead of an employee, you may be entitled to benefits and protections under the FLSA or state equivalents, like time-and-a-half pay for overtime work, that you are not currently receiving. If you believe you have been misclassified, consider contacting an attorney to discuss your legal options.

[1] The Fifth Circuit remanded the Texas case to the district court in light of the 2024 rule on February 19, 2024. Coal. for Workforce Innovation v. Walsh, No. 22-40316 (5th Cir. Feb. 19, 2024).

Katz Banks Kumin LLP Copyright ©
For more on Classifying Workers, visit the NLR Labor & Employment section.

New Year, (Potentially) New Rules?

SOMETIMES, THE ONLY CONSTANT IS CHANGE. THIS NEW YEAR IS NO DIFFERENT.

In 2023, we saw several developments in labor and employment law, including federal and state court decisions, regulations, and administrative agency guidance decided, enacted, or issued. This article will summarize five proposed rules and guidance issued by the Department of Labor (“DOL”), the National Labor Relations Board (“NLRB”), the United States Equal Employment Opportunity Commission (“EEOC”), and the Occupational Safety and Health Administration (“OSHA”), which will or may be enacted in 2024.

DOL’s Proposed Rule to Update the Minimum Salary Threshold for Overtime Exemptions

In 2023, the DOL announced a Notice of Proposed Rulemaking (“NPRM”) recommending significant changes to overtime and minimum wage exemptions. Key changes include:

  • Raising the minimum salary threshold: increasing the minimum weekly salary for exempt executive, administrative, and professional employees from $684 to $1,059, impacting millions of workers;
  • Higher Highly Compensated Employee (HCE) compensation threshold: increasing the total annual compensation requirement for the highly compensated employee exemption from $107,432 to $143,988; and
  • Automatic updates: automatically updating earning thresholds every three years.

These proposed changes aim to expand overtime protections for more employees and update salaries to reflect current earnings data. The public comment period closed in November 2023, so brace yourselves for a final rule in the near future. For more information: https://www.federalregister.gov/documents/2023/09/08/2023-19032/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and

DOL’s Proposed Rule on Independent Contractor Classification under the Fair Labor Standards Act

The long-awaited new independent contractor rule under the Fair Labor Standards Act (“FLSA”) may soon be on the horizon. The DOL proposed a new rule in 2022 on how to determine who is an employee or independent contractor under the FLSA. The new rule will replace the 2021 rule, which gives greater weight to two factors (nature and degree of control over work and opportunity for profit or loss), with a multifactor approach that does not elevate any one factor. The DOL intends this new rule to reduce the misclassification of employees as independent contractors and provide greater clarity to employers who engage (or wish to engage) with individuals who are in business for themselves.

The DOL is currently finalizing its independent contractor rule. It submitted a draft final rule to the Office of Management and Budget (OMB) for review in late 2023. While an exact date remains unknown, the final rule is likely to be announced in 2024. More information about the rule can be found here: https://www.federalregister.gov/documents/2022/10/13/2022-21454/employee-or-independent-contractor-classification-under-the-fair-labor-standards-act

NLRB’s Joint-Employer Standard

The NLRB has revamped its joint-employer standard under the National Labor Relations Act (“NLRA”). The NLRB replaced the 2020 standard for determining joint-employer status under the NLRA with a new rule that will likely lead to more joint-employer findings. Under the new standard, two or more entities may be considered joint employers of a group of employees if each entity: (1) has an employment relationship with the employees and (2) has the authority to control one or more of the employees’ essential terms and conditions of employment. The NLRB has defined “essential terms and conditions of employment” as:

  • Wages, benefits, and other compensation;
  • Hours of work and scheduling;
  • The assignment of duties to be performed;
  • The supervision of the performance of duties;
  • Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
  • The tenure of employment, including hiring and discharge; and
  • Working conditions related to the safety and health of employees.

The new rule further clarifies that joint-employer status can be based on indirect control or reserved control that has never been exercised. This is a major departure from the 2020 rule, which required that joint employers have “substantial direct and immediate control” over essential terms and conditions of employment.

The new standard will take effect on February 26, 2024, and will not apply to cases filed before the effective date. For more information on the final rule: https://www.federalregister.gov/documents/2023/10/27/2023-23573/standard-for-determining-joint-employer-status

EEOC’s Proposed Enforcement Guidance on Harassment

A fresh year brings fresh guidance! On October 2023, the EEOC published a notice of Proposed Enforcement Guidance on Harassment in the Workplace. The EEOC has not updated its enforcement guidance on workplace harassment since 1999. The updated proposed guidance explains the legal standards for harassment and employer liability applicable to claims of harassment. If finalized, the guidance will supersede several older documents:

  • Compliance ManualSection 615: Harassment (1987);
  • Policy Guidance on Current Issues of Sexual Harassment(1990);
  • Policy Guidance on Employer Liability under Title VII for Sexual Favoritism (1990);
  • Enforcement Guidance on Harris v. Forklift Sys., Inc. (1994); and
  • Enforcement Guidance on Vicarious Employer Liability for Unlawful Harassment by Supervisors(1999).

The EEOC accepted public comments through November 2023. After reviewing the public comments, the EEOC will decide whether to finalize the enforcement guidance. While not law itself, the enforcement guidance, if finalized, can be cited in court. For more information about the proposed guidance: https://www.eeoc.gov/proposed-enforcement-guidance-harassment-workplace

OSHA’s Proposed Rule to Amend Its Representatives of Employers and Employees Regulation

Be prepared to see changes in OSHA on-site inspections. Specifically, OSHA may reshape its Representatives of Employers and Employees regulation. In August 2023, OSHA published an NPRM titled “Worker Walkaround Representative Designation Process.” The NPRM proposes to allow employees to authorize an employee or a non-employee third party as their representative to accompany an OSHA Compliance Safety and Health Officer (“CSHO”) during a workplace inspection, provided the CSHO determines the third party is reasonably necessary to conduct the inspection. This change aims to increase employee participation during walkaround inspections. OSHA accepted public comments through November 2023. A final rule will likely be published in 2024.

For more information about the proposed rule to amend the Representatives of Employers and Employees regulation: https://www.federalregister.gov/documents/2023/08/30/2023-18695/worker-walkaround-representative-designation-process

Preparing for 2024

While 2023 proved to be a dynamic year for Labor and Employment law, 2024 could be either transformative or stagnant. Some of the proposed regulations mentioned above could turn into final rules, causing significant changes in employment law. On the other hand, given that 2024 is an election year, some of these proposed regulations could lose priority and wither on the vine. Either way, employers should stay informed of these ever-changing issues.

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For more news on 2024 Labor and Employment Laws, visit the NLR Labor & Employment section.