Tag: independent contractors

As the Season Changes, Don’t Fall Behind: 4 Key Employment Law Trends

As the seasons change, so do manufacturers’ priorities. Fall is typically one of the busiest hiring periods of the calendar year, so many manufacturers are likely bracing themselves for this challenge. That said, there were several significant labor and employment updates this spring and summer of which manufacturers should be aware; below are four key trends that may require action to ensure compliance.

1. Worker Classification – Independent Contractor Versus Employees

Earlier this year, the U.S. Department of Labor (DOL) issued a final rule regarding employee and independent contractor status under the Fair Labor Standards Act (FLSA). The new rule, which took effect March 11, 2024, adheres to a “totality of the circumstances” approach and involves consideration of six factors. Manufacturers who rely on independent contractors to perform work and provide services should consider reviewing those relationships to ensure they are adequately characterized as independent contractors rather than employees.

2. Salary Threshold for Exempt Employees Increasing

This past spring, the U.S. DOL issued a final rule that included raising in the federal minimum salary threshold for exempt employees. Previously, the salary threshold for executive, administrative, and professional employees was $684 per week (or $35,568 per year). Effective July 1, 2024, however, the salary threshold became $844 per week ($43,888 per year), and on January 1, 2025, it will once again rise to $1,128 per week ($58,656 per year). The final rule also states that the threshold will increase on July 1, 2027, and every three years thereafter. Manufacturers should review these thresholds, as well as any state or local thresholds that may exist to ensure compliance and prepare for the January 1, 2025, increase.

3. Pay Transparency Laws

Pay transparency laws, including those requiring employers to provide the pay range to applicants, candidates, and employees or to include it in job postings, continue to be passed in states nationwide. On July 31, 2024, Massachusetts passed a law requiring employers to include a “pay range” in all job postings, including those posted by third parties, such as recruiters. Massachusetts joins several other states, including Washington, DC, which passed a similar law that recently took effect on June 30, 2024; Maryland, which passed a law taking effect on October 1, 2024; laws in Minnesota and Illinois that both take effect on January 1, 2025; and a Vermont law will take effect on July 1, 2025. Notably, the Massachusetts law also contains pay data reporting requirements for employers that are subjected to annual federal Equal Employment Opportunity (EEO) report requirements, which includes many manufacturers. Specifically, covered manufacturers must submit an annual report of pay data categorized by race, ethnicity, sex, and job category to the Secretary of the Commonwealth, with the first report due no later than February 1, 2025. Manufacturers might consider reviewing the pay transparency and pay data reporting laws in the states in where they employ employees or engage in recruiting.

4. Paid Sick Leave Laws

While paid sick leave has been trending for a number of years, there have been significant developments in recent months. In Connecticut, the sick leave law was recently expanded significantly, and now nearly all private employees are entitled to such leave. New York has also recently become the first state in the nation to enact paid prenatal leave benefits for pregnant workers. Specifically, effective January 1, 2025, pregnant workers will be entitled to up to 20 hours of paid leave in a 52-week period to attend prenatal medical appointments and procedures. This leave is not accrued; rather, it must be immediately available to employees, and it is in addition to the paid sick and safe leave to which employees are already entitled. Manufacturers who are multi-state employers should consider engaging in a comprehensive review of their PTO and sick leave policies to ensure compliance with these recent advancements.

Copyright © 2024 Robinson & Cole LLP. All rights reserved.
For more news on Employment Law Trends for Fall 2024, visit the NLR Labor Employment section.

DOL Announces New Independent Contractor Rule

On January 9, 2024, the United States Department of Labor (“DOL”) announced a new rule, effective March 11, 2024, that could impact countless businesses that use independent contractors. The new rule establishes a six-factor analysis to determine whether independent contractors are deemed to be “employees” of those businesses, and thus imposes obligations on those businesses relating to those workers including:  maintaining detailed records of their compensation and hours worked; paying them regular and overtime wages; and addressing payroll withholdings and payments, such as those mandated by the Federal Insurance Contributions Act (“FICA” for Social Security and Medicare), the Federal Unemployment Tax Act (“FUTA”), and federal income tax laws. Further, workers claiming employee status under this rule may claim entitlement to coverage under the businesses’ group health insurance, 401(k), and other benefits programs.

The DOL’s new rule applies to the federal Fair Labor Standards Act (“FLSA”) which sets forth federally established standards for the protection of workers with respect to minimum wage, overtime pay, recordkeeping, and child labor. In its prefatory statement that accompanied the new rule’s publication in the Federal Register, the DOL noted that because the FLSA applies only to “employees” and not to “independent contractors,” employees misclassified as independent contractors are denied the FLSA’s “basic protections.”

Accordingly, when the new rule goes into effect on March 11, 2024, the DOL will use its new, multi-factor test to determine whether, as a matter of “economic reality,” a worker is truly in business for themself (and is, therefore, an independent contractor), or whether the worker is economically dependent on the employer for work (and is, therefore, an employee).

While the DOL advises that additional factors may be considered under appropriate circumstances, it states that the rule’s six, primary factors are: (1) whether the work performed provides the worker with an opportunity to earn profits or suffer losses depending on the worker’s managerial skill; (2) the relative investments made by the worker and the potential employer and whether those made by the worker are to grow and expand their own business; (3) the degree of permanence of the work relationship between the worker and the potential employer; (4) the nature and degree of control by the potential employer; (5) the extent to which the work performed is an integral part of the potential employer’s business; and (6) whether the worker uses specialized skills and initiative to perform the work.

In its announcement, the DOL emphasized that, unlike its earlier independent contractor test which accorded extra weight to certain factors, the new rule’s six primary factors are to be assessed equally. Nevertheless, the breadth and impreciseness of the factors’ wording, along with the fact that each factor is itself assessed through numerous sub-factors, make the rule’s application very fact-specific. For example, through a Fact Sheet the DOL recently issued for the new rule, it explains that the first factor – opportunity for profit or loss depending on managerial skill – primarily looks at whether a worker can earn profits or suffer losses through their own independent effort and decision making, which will be influenced by the presence of such factors as whether the worker: (i) determines or meaningfully negotiates their compensation; (ii) decides whether to accept or decline work or has power over work scheduling; (iii) advertises their business, or engages in other efforts to expand business or secure more work; and (iv) makes decisions as to hiring their own workers, purchasing materials, or renting space. Similar sub-factors exist with respect to the rule’s other primary factors and are explained in the DOL’s Fact Sheet.

The rule will likely face legal challenges by business groups. Further, according to the online newsletter of the U.S. Senate Health, Education, Labor and Pensions Committee, its ranking member, Senator Bill Cassidy, has indicated that he will seek to repeal the rule. Also, in the coming months, the United States Supreme Court is expected to decide two cases that could significantly weaken the regulations issued by federal agencies like the DOL’s new independent contractor rule, Loper Bright Enterprises v. Raimondo and Relentless Inc. v. U.S. Dept. of Commerce. We will continue to monitor these developments.1

In the meantime, we recommend that businesses engaging or about to engage independent contractors take heed. Incorrect worker classification exposes employers to the FLSA’s significant statutory liabilities, including back pay, liquidated damages, attorneys’ fees to prevailing plaintiffs, and in some case, fines and criminal penalties. Moreover, a finding that an independent contractor has “employee” status under the FLSA may be considered persuasive evidence of employee status under other laws, such as discrimination laws. Additionally, existing state law tests for determining employee versus independent contractor status must also be considered.

1 The DOL’s independent contractor rule is not the only new federal agency rule being challenged. On January 12, 2024, the U.S. House of Representatives voted to repeal the NLRB’s recently announced joint-employer rule, which we discussed in our Client Alert of November 10, 2023.

Eric Moreno contributed to this article.

© Copyright 2024 Sills Cummis & Gross P.C.
For more on the Independent Contractor Rule, visit the NLR Labor & Employment section.

Upcoming Proposed Changes to DOL’s Independent Contractor and Overtime Rules

The Department of Labor’s Wage and Hour Division is expected to propose new rules on independent contractor classification and overtime entitlement requirements in the coming weeks.  The proposals would alter the qualifications for certain employees to receive overtime payments under the Fair Labor Standards Act when they work in excess of 40 hours in one week.

The Fair Labor Standards Act (“FLSA”) grants the Department of Labor authority regarding overtime eligibility under the statute.  Currently and among other considerations, employees are non-exempt under the FLSA when they earn less than a guaranteed $684 per week or $35,568 per year.  If the DOL raises this salary threshold, as it is considering, an even larger swath of the workforce could be entitled to overtime payments.

The proposals follow President Biden’s withdrawal of former President Trump’s independent contractor rule in May 2021, which had not yet taken effect when President Biden took office.  However, United States District Judge Marcia A. Crone held in March 2022 that the DOL had not properly followed the requirements for withdrawal as set forth in the Administrative Procedure Act.  In so holding, Judge Crone gave the Trump administration’s independent contractor rule the effect of law as if it had gone into effect in March 2021, as scheduled. The Biden administration’s proposed changes to the existing rule will likely affect the salary basis and exemption requirements of the employee versus independent contractor misclassification analysis under the FLSA.  Employers should prepare for these upcoming changes by reviewing their employee job descriptions and time record procedures.  Employers should also engage counsel to re-examine their employee classifications at large to ensure their exempt employees are truly exempt under the current rules and that they understand that changes may need to be implemented when the new rules take effect.

Article By Holly H. Williamson and Savannah R. Gibbs of Hunton Andrews Kurth

For more government contractor legal news, click here to visit the National Law Review.

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.

Crosshairs: Labor Board Targets Gig Economy, Noncompete Agreements, and More

Many employers in the “gig economy” – such as rideshare companies – rely heavily on independent contractors for various functions within their organizations. Because independent contractors are exempt from coverage under the National Labor Relations Act (NLRA), which includes the right to form or join unions, this appears to have garnered the attention of the National Labor Relations Board’s (NLRB) top lawyer. And it appears the NLRB may be seeking to disrupt those companies’ current staffing models.

According to a recent press release from the agency:

“National Labor Relations Board (NLRB) General Counsel Jennifer A. Abruzzo and Federal Trade Commission (FTC) Chair Lina M. Khan executed a Memorandum of Understanding (MOU) forming a partnership between the agencies that will promote fair competition and advance workers’ rights. The agreement enables the NLRB and FTC to closely collaborate by sharing information, conducting cross-training for staff at each agency, and partnering on investigative efforts within each agency’s authority.”

The statement then goes on to describe specifically how the agencies will be targeting the gig economy:

“The MOU identifies areas of mutual interest for the two agencies, including: labor market developments relating to the ‘gig economy’ such as misclassification of workers and algorithmic decision-making; the imposition of one-sided and restrictive contract provisions, such as noncompete and nondisclosure provisions; the extent and impact of labor market concentration; and the ability of workers to act collectively.”

What does this mean for employers? For one thing, it reinforces that the NLRB is going to be taking a much closer look at workers classified as independent contractors – and likely finding independent contractor status more often. For another, it means the NLRB may soon be looking at noncompete agreements and similar restrictive covenants and finding the maintenance of overbroad terms to be violations of labor law. And while the memorandum calls out the gig economy, it is not limited solely to companies operating in that space.

Employers – in the gig economy and otherwise – should take note of these agencies’ moves and be aware that these issues are likely to receive much scrutiny in the coming months and years.

Article By David J. Pryzbylski of Barnes & Thornburg LLP

For more labor and employment legal news, click here to visit the National Law Review.

© 2022 BARNES & THORNBURG LLP

No Relief in Sight for NJ Employers: Six Newly-Enacted State Employment Laws to Tackle

On January 21, 2020, New Jersey Governor Phil Murphy signed five employee-friendly bills into law, including statutorily mandated requirements that increase penalties on employers that misclassify workers and obligate employers to pay severance to workers impacted by mass layoffs. Also, on December 19, 2019, the Governor signed the “Create a Respectful and Open Workplace for Natural Hair Act” (“CROWN Act”), which clarifies that discrimination based on hair textures and styles violates the New Jersey Law Against Discrimination (“LAD”).

In line with states like California and New York, the enactment of these new laws places New Jersey among a handful of states that provide markedly heightened protections for employees. The amalgamation of these new laws dramatically expands employee rights in the workplace.

Increased Employer Fines for Misclassification

Effective immediately, A.B. 5839 authorizes the state’s Department of Labor and Workforce Development to assess fines against employers for misclassifying workers. Under the new law, New Jersey employers or staffing agencies that misclassify workers may be issued up to a $250 fine per employee for the first violation and up to $1,000 per employee for subsequent violations. The amount of the penalty to be assessed will depend on such factors as the history of prior violations, the severity of the violation, the size of the employer’s business and the good faith of the employer. In addition, an employer found to have misclassified a worker may have to pay a fine to the misclassified worker of up to 5% of their gross earnings over the previous year.

New Employer Posting Requirement

Effective March 1, 2020, A.B. 5843 requires employers to post a conspicuous notice regarding employee misclassification. The New Jersey Department of Labor and Workforce Development will issue a form of notice, which will include a prohibition on misclassification, description of what constitutes worker misclassification, employee rights and remedies, and the process for reporting employer misclassifications.

In addition, the newly enacted statute prohibits employer retaliation against workers who make complaints about potential unlawful employee misclassifications. Employer retaliation carries a fine of $100 to $1,000 for each offense, and employees found to be terminated in retaliation for such protected conduct are entitled to reinstatement in addition to back pay and legal fees.

Managers Potentially on the Hook

Effective immediately, A.B. 5840 amends New Jersey’s recently passed Wage Theft Act and provides that employers and labor contractors will be jointly and severally liable for state wage and hour law violations and tax law violations, including with respect to worker misclassifications. The law broadly provides that any person acting on “behalf of an employer,” including an owner, director, officer or manager of the employer, may be held liable as the employer.

Business Shutdowns for Violations

Effective immediately, A.B. 5838 permits state regulators to issue “stop-work orders” upon seven days’ advance notice to sites where employers are found to have violated state wage, benefits, or tax laws, subjecting employers to a steep penalty of $5,000 per day against an employer for each day that it conducts business operations that are in violation of the stop-work order.

The law gives the state’s Commissioner of Labor and Workforce Development the authority to issue stop-work orders requiring cessation of all business operations at the specific place of business where any wage, benefit, or employment tax law violation is found. Employers subject to a stop-work order will have 72 hours following receipt of the order to exercise their right to make a written appeal to contest the stop-work order. Importantly, while employers may appeal the finding, that process may take weeks, risking potentially large losses for the implicated business.

Severance for Mass Layoffs

Effective July 19, 2020, S.B. 3170 dramatically amends the New Jersey state WARN Act in several significant respects. In the event of a covered mass layoff or termination or transfer of operations, the amendment increases the advance notice required to affected employees from 60 days to 90 days. New Jersey was previously aligned with the federal WARN Act which requires 60 days in advance of certain mass layoffs or plant closings. With respect to the length of notice now required in New Jersey, the new 90- day prior notice period mirrors New York State’s advance notice requirement, though threshold standards defining when notice must be given under these statutes differ. Upon the effective date, New Jersey employers now will need to consider two different statutory schemes to determine to what extent advance notice is required.

The amendment requires covered employers to provide severance pay to employees when there is a mass layoff or termination/transfer or operations impacting at least 50 full-time workers laid off in a 30-day period. Under the statute, severance is calculated at one week’s pay for each full year the worker has been employed and is required even when the requisite notice has been provided. In addition, when an employer fails to meet its advance notice mandate, the new law requires employers to give affected employees an additional four weeks of severance pay. In contrast, severance is currently a penalty for non-compliance with the New Jersey WARN Act.

Further, the required severance must be paid to the affected employee at the same time as the final paycheck. The severance cannot be used as consideration to negotiate a general release of claims from the terminated employee. Employers can, however, obtain a release of claims where additional consideration is offered to the impacted employee for that specific purpose.

The Crown Act

S.B. 3945 amends the LAD to clarify that race discrimination includes discrimination on the basis of “traits historically associated with race, including, but not limited to, hair texture, hair type, and protective hairstyles.” Governor Murphy enacted the CROWN Act exactly one year after an incident involving an African-American high school wrestler who was forced to cut off his locks in order to compete in a match. The wrestling incident prompted the introduction of S.B. 3945 and garnered widespread media attention. We reported on the CROWN Act in detail in our October 2019 alert. Effective immediately, the CROWN Act codifies guidance issued by the New Jersey’s Division on Civil Rights (DCR) stating that the DCR considered “hairstyles closely associated with Black people,” such as “twists, braids, cornrows, Afros, locks, Bantu knots, and fades” to be included in the definition of racial characteristics protected under the LAD.

New Jersey has become the third state to ban discrimination based on natural hair and hairstyles, following New York (effective on July 12, 2019) and California (effective on January 1, 2020). The New York City Commission on Human Rights issued similar guidance in February 2019 that clarifies that the New York City Human Rights Law includes discrimination based on natural hair and hairstyles as a form of race discrimination. Several other states and municipalities have similar legislation pending. Also, Senator Cory Booker introduced federal legislation on December 5, 2019 that would ban discrimination based on hair textures and hairstyles that are commonly associated with a particular race or national origin, and Representative Cedric Richmond introduced companion legislation in the House of Representatives.

Takeaways:

New Jersey continues to take steps to dramatically increase employee rights in the workplace. New Jersey employers should take appropriate measures now to ensure that (i) owners, directors, officers, managers, and others involved in the process of classifying workers are mindful of the new employee classification requirements for businesses and their potential exposure based on individual liability for misclassifications, (ii) their businesses are compliant with new posting requirements regarding New Jersey’s recently passed employee misclassification laws, and (iii) managers and supervisors are trained on the new retaliation protections afforded employees who report alleged violations concerning employee misclassification.

New Jersey employers also should review their grooming policies to determine whether they discourage natural hairstyles and hair textures, and determine whether any policies pertaining to appearance or aesthetics implicate any other proxies to race. With similar laws in other states, like New York, and pending elsewhere, employers across the nation should review their policies regarding grooming, appearance and aesthetics.

Lastly, the amendments to the New Jersey WARN Act will require careful analysis to determine an employer’s obligations and to minimize risks in connection with a mass layoff or transfer/termination of operations. The new severance obligations undoubtedly will impose substantial financial burdens on employers who have made the decision to reduce costs and/or operations.

© Copyright 2020 Sills Cummis & Gross P.C.

For more on employment laws in New Jersey and elsewhere, see the National Law Review Labor & Employment law page.

‘ABC Test’ for Independent Contractors Set to Take Effect in California Jan. 1

As 2019 draws to a close, every business with a California presence should consider evaluating its workforce in the Golden State to ensure compliance with AB 5, which will be effective Jan. 1, 2020.

Through AB 5, the California legislature codified and expanded the reach of the so-called “ABC Test” for determining whether a worker should be classified as an independent contractor. This new law expands the reach of the California Supreme Court’s Dynamex decision which applied to coverage under the California Industrial Welfare Commission’s Wage Orders. AB 5 applies this new test to businesses under the California Labor Code and the California Unemployment Insurance Code.

Currently, California businesses are subject to a variety of tests of employee status, depending upon the law in question. Under most federal and California laws, the common law agency test applies. For workers’ compensation laws, the California Supreme Court adopted an “economic realities” test 30 years ago in S.G. Borello & Sons v. Department of Industrial Relations.

However, as of Jan. 1, 2020, the default standard for independent contractor treatment will be the ABC Test.

The ABC Test significantly narrows the scope of work for which businesses may classify workers as independent contractors, rather than employees, and expands the application of this new standard to nearly all employers doing business in California.

Businesses that do not adapt to the ABC Test may face an increased risk of claims from workers asserting that they were misclassified as independent contractors, on an individual and class or collective basis.

ABC Test Explained

Under the ABC Test, a worker is assumed to be an employee unless the business demonstrates:

A. That the worker is free from the control and direction of the hiring entity in performing the work, both in the contract for performance and in fact

B. That the worker performs work that is outside of the usual course of the hiring entity’s business

C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity

It is Prong B of the test that will likely cause the most difficulty for companies that regularly engage independent contractors.

Prong B excludes from the assumption of employee status workers who perform duties outside the “usual course of the hiring entity’s business.” While AB 5 does not specifically define the phrase, many businesses use contractors to help them perform their regular business. California courts are expected to be tasked with interpreting the scope of this requirement.

Many industries lobbied hard to obtain exemptions from the ABC Test. The new statute excludes seven different categories of occupations or business, each with its own separate test for qualifying for the exclusion. These exclusions cover diverse occupations ranging from professionals such as architects and lawyers to non-professionals such as grant writers, tutors, truck drivers, and manicurists. Each category has a slightly different requirement to qualify for the exclusion from the ABC Test. However, qualifying for the exclusion from the ABC Test merely defaults the workers to a determination under the Borello test. Complicating matters further is that for all these occupations, a determination of employee status under federal law, such as under the National Labor Relations Act, likely remains under the common law agency test.

Application and Enforcement

While the California Labor Commissioner is officially tasked with enforcing many of the provisions of AB 5, claims of worker misclassification will more commonly be asserted in private civil actions either individually or on a class basis. In other words, companies will increasingly see independent contractors bring claims for wage and hour law lawsuits or class actions (i.e. overtime claims, meal and rest break claims, wage statement claims, etc.).

Employer Takeaways

Although several industry groups are expected to challenge the new law, businesses operating in California should review and update their practices relative to independent contractors before Jan. 1, 2020 – whether through potentially reclassifying independent contractors as employees or revising independent contractor agreements.

© 2019 BARNES & THORNBURG LLP\

More on independent contractor compliance via the National Law Review Labor & Employment law page.

A Dark Day for Franchising: Ninth Circuit Reinstates its Misguided Vazquez Decision, Undermining the Franchise Business Model

In the course of a politically-charged frenzy to eliminate the misclassification of employees as independent contractors, the franchise business model has been trampled without respect by both the courts and the legislature in California, disrupting commercial relationships that have been a vital driver of the state’s economy for more than fifty years.  Only five years ago, the California Supreme Court acknowledged the vital importance of franchising to the California economy in generating “trillions of dollars in total sales,” “billions of dollars” of payroll and the “millions of people” franchising employs.  Patterson v. Domino’s Pizza, LLC (2014) 60 Cal.4th 474, 489.

Taking into account the “ubiquitous, lucrative, and thriving” franchise business model and its “profound” effects on the economy, the Patterson court held that the usual tests for “determining the circumstances under which an employment or agency relationship exists” could not be applied to franchises.  Id. at 477, 489 and 503.  To avoid disruption of the franchise relationship and turning the model “on its head,” a different test that took into account the practical realities of franchising had to be applied to franchise relationships.  Id. at 498, 499 and 503.  The “imposition and enforcement of a uniform marketing and operational plan cannot automatically saddle the franchisor with responsibility.”  Id. at 478.  A franchisor is liable “only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.”  Id. at 497-98.  The special rule for franchising has been commonly referred to as the “Patterson gloss.”

On September 25, 2019, a panel of the Ninth Circuit Court reinstated an opinion it had previously published on May 2, 2019, then withdrew on July 22, 2019, recklessly undermining the delicate framework of the franchise business model in derogation of the California Supreme Court’s “Patterson gloss.”  Vazquez v. Jan-Pro, 923 F.3d 575 (9th Cir. May 2, 2019), opinion withdrawn, 2019 US App. Lexis 21687 (July 22, 2019), opinion reinstated, 2019 BL 357978 (9th Cir. September 24, 2019).

The “Patterson gloss” arose from the California Supreme Court’s subtle appreciation for the historical development of the franchise business model.  At the heart of all franchise relationships is a trademark license.  At common law, trademark licenses were seen as a representation to the public of the source of a product.  An attempt to license a trademark risked the forfeiture of any right to royalties and the abandonment of the licensed mark.  See Lea v. New Home Sewing Mach. Co., 139 F. 732 (C.C.E.D.N.Y. 1905); Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358, 367 (2d Cir. 1959).

Although the Trademark Act of 1905 did not allow for the licensing of trademarks, the Trademark Act of 1946, the Lanham Act, 15 U.S.C. § 1051, did allow a trademark to be licensed, but only where the licensee was “controlled by the registrant. . . in respect to the nature and quality of the goods or services in connection with which the mark is used.”  15 U.S.C. § 1127.   After the passage of the Lanham Act, a trademark could be licensed, as long as “the plaintiff sufficiently policed and inspected its licensees’ operations to guarantee the quality of the products they sold under its trademarks to the public.”  Dawn Donut, at 367.  After the Lanham Act had legitimized trademark licensing, the franchise model began to emerge in the 1950s, as the Patterson court noted (at 489), leading to the explosive growth of franchising over the last seven decades.

“Franchising is a heavily regulated form of business in California.”  Cislaw v. Southland Corporation (1992) 4 Cal.App.4th 1284, 1288.  Franchisors must provide prospective franchisees with detailed pre-sale disclosure documents under the California Franchise Investment Law, Corporations Code § 31000 et seq. and the FTC Rule, 39 Fed. Reg. 30360 (1974).  There are criminal, civil and administrative consequences for failure to comply.  Franchisees’ rights are protected by the California Franchise Relations Act, Business & Professions Code § 20000, et seq., which includes recently enhanced penalties for non-compliance.

Over the years, California courts have acknowledged the fundamental obligation of franchisors to impose controls over their licensees and have uniformly held that such controls do not create an employment or agency relationship.  See, e.g., Cislaw, 4 Cal.App.4th at 1295 (the owner of a brand may impose restrictions on a licensee “without incurring the responsibilities or acquiring the immunities of a master, with respect to the person controlled.”); Kaplan v. Coldwell Banker (1997) 59 Cal.App.4th 746, (“If the law were otherwise, every franchisee who independently owned and operated a franchise would be the true agent or employee of the franchisor.”).  This doctrine came to be known as the “Patterson gloss” and is the glue that holds the franchise business model together—allowing the franchisor to exert the controls necessary to license a trademark without incurring the responsibilities of an employer.

In its September 25, 2019 decision in Vazquez, the Ninth Circuit once again discarded the Patterson gloss like an extra part found in the bottom of an Ikea box after the hasty assembly of an end table.  According to the Vazquez court, Patterson had no relevance because it was just a vicarious liability decision, not an employment decision.  But Patterson was an employment case.

Patterson was a Fair Employment and Housing claim brought by a teenage girl after her supervisor had repeatedly groped her breasts and buttocks.  Patterson, at 479.  It is hard to understand why the Vazquez court considered the wage order claims before it to be more significant than Taylor Patterson’s right to pursue legal claims for sexual harassment.

Even more disturbingly, the Vazquez court disregarded the “Patterson gloss” because Dynamex [Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903] had favorably cited two Massachusetts decisions that applied the ABC test in the franchise context.  Id. at 39.  The Massachusetts cases were cited in Dynamex only as examples of cases where it had been more efficient to address “the latter two parts of the [ABC] standard” on a dispositive motion, rather than all three prongs.  Dynamex, 4 Cal.5th at 48.  The court never mentions franchising or the inconsequential fact that the parties in cited cases were franchises.  The Dynamex court could not be fairly understood to have abandoned its stalwart embrace of the franchise business model in its 2014 Patterson decision, without ever bothering to mention the case or to make any reference to franchising.  Yet the Vazquez court concluded that a passing citation to cases that happened to involve franchise companies in the Dynamex opinion—to make a procedural point that was unrelated to franchising in any way—was an occult signal from the California Supreme Court that the “Patterson gloss” had been abandoned by implication five years after its creation.

Nor was it valid for the Vazquez court to confine the “Patterson gloss” to vicarious liability cases.  As Witkin points out, California law on vicarious liability and employment developed together, so that most “of the rules relating to duties, authority, liability, etc. are applicable to employees as well as other agents.”  Witkin, Summary of California Law (10th ed., Agency & Employment, § 4).  The core obligation to control a trademark licensee—hard-wired by the Lanham Act into every franchise relationship—must be respected in both vicarious liability and employment cases if the franchise business model is to be preserved.

The Vazquez court had it right when it withdrew and de-published its original decision on July 22, 2019.  When the court certified the retroactivity issue to the California Supreme Court that day, it could have also certified the franchise issue back to the court that created the Patterson gloss, but it did not do so.  Franchisors are now left to wonder how they are to maintain existing long-term commercial relationships and to continue to sell franchises after the Vazquez opinion has taken from them the fundamental right to license trademarks without incurring the unintended liabilities of employers.

© 2019 Bryan Cave Leighton Paisner LLP

Read more on the topic on the National Law Review Franchising Law page.

Are New Jersey Uber Drivers Covered By Workers’ Compensation Insurance?

You might ask yourself the above question if you are considering signing up to drive for the transportation service Uber. Uber promises that anyone with a valid driver’s license, personal car insurance, a clean record, and a four-door car can meet the New Jersey requirements to drive for Uber.

The Uber driver makes his or her own hours and is free to pick up or drop off a rider anywhere they chose and the driver can work as much or as little as they choose. Uber requires its drivers to carry the appropriate automobile insurance to cover the driver’s liability to other parties, damage to the vehicle and injury to the driver.

Uber provides commercial auto liability insurance for drivers to protect against injury to others. Uber drivers are paid a percentage of the fares they generate and receive a 1099 form yearly from Uber so that they can declare their earnings and pay their own taxes on the money they earn.

Since Uber does not consider its drivers employees, or provide workers’ compensation coverage in the event an Uber driver is injured, it is important to know what you are giving up by being an Independent Contractor/Uber driver.

Workers’ compensation coverage in New Jersey includes weekly wage replacement paid at 70% of wages, medical care paid 100% by the workers’ compensation carrier, and partial or total permanency benefits paid for a period of time if the injured worker is left with an impairment after all of the medical treatment is provided.

The courts in New Jersey have not decided any workers’ compensation cases for Uber drivers, however, they have decided cases for other employees who drive for other car services. Although the facts of each individual case vary, the case explained below gives an idea of the factors the court considers when deciding if a driver is an independent contractor or an employee.

The courts have outlined a 12-part test to determine if a person is an employee or an independent contractor, for the purpose of whether or not New Jersey workers’ compensation coverage applies. These factors include the employer’s right to control the manner of the work, the extent of supervision needed, who furnishes the equipment, how the person is paid, whether there is paid vacation and sick time, and whether the “employer” pays Social Security taxes, and the intention of the parties.

In a recent court case in New Jersey, the Appellate Division found that a limousine driver for the XYZ Two Way Radio Company was an independent contractor and not an employee when the driver was injured in a serious motor vehicle accident. The court analyzed the above factors and found that XYZ Two Way Radio Company exercised little control over the driver since he could work as many or as few hours as he wanted.

The Court noted that the driver supplied his own equipment, including his own vehicle and auto insurance, and that the company only provided a small car computer that was used to communicate with the office. The driver was paid a percentage of the fares he generated, and was free to reject any pick-up sent to him by the company. The driver was sent a 1099 form every year and no Social Security or wage taxes were paid by the company.

Based on all of these circumstances the Court found that the driver for XYZ Two Way Radio was an independent contractor, and not an employee entitled to workers’ compensation coverage. This was despite the fact that that the driver worked for the company for 23 years, was told what type of car he must drive and what to wear, and worked a fairly regular schedule.

Comparing the above case to the factors relevant to the Uber driver, courts in New Jersey may consider Uber drivers independent contractors and not employees subject to workers’ compensation coverage. Uber is still taking the position that its drivers are Independent contractors, not subject to workers’ compensation in New Jersey.

However, this has not yet been the subject of an Appellate Court decision. If you work for Uber and get injured in an accident while working, your own automobile coverage would provide some medical care, and possibly some weekly wage replacement benefits, but probably not to the level of coverage provided under the workers’ compensation laws in New Jersey.

Your own automobile policy would not provide the permanency benefits provided under the workers’ compensation statute in this state. Probably not a deal breaker for many given the flexibility offered by Uber, but at least Uber drivers should be aware of the workers’ compensation benefits they may be giving up.

 

COPYRIGHT © 2019, Stark & Stark.
This post was written by Marci Hill Jordan of Stark & Stark.

The U.S. Department of Labor Rolls Back Obama-Era Guidance on Joint Employers and Independent Contractors

The U.S. Department of Labor (“DOL”) announced today that it was rolling back an Obama-era policy that attempted to increase regulatory oversight of joint employer and contractor businesses.

Courts and agencies use the joint employer doctrine to determine whether a business effectively controls the workplace policies of another company, such as a subsidiary or sub-contractor. That control could be over things like wages, the hiring process, or scheduling.

Legal IT ConsultantIn a short statement, the DOL signaled that it was returning to a “direct control” standard. “U.S. Secretary of Labor Alexander Acosta today announced the withdrawal of the U.S. Department of Labor’s 2015 and 2016 informal guidance on joint employment and independent contractors. Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law.”

Until 2015, the DOL interpreted the joint employer doctrine to apply only to cases in which a business had “direct control” over another business’s workplace. In 2015 and then again in 2016, under then-Labor Secretary Tom Perez (currently the Democratic National Committee Chair), the DOL changed its interpretation to state that a business may be a joint employer even if it exerted “indirect control” over another’s workplace. The 2015 and 2016 guidance effectively expanded the conditions for when one business can be held liable for employment and civil rights law violations at another company. Critics of this “indirect control” language argued that it was ambiguous and threatened to throw franchise, parent-subsidiary, and independent contractor relationships between businesses into disarray. Companies, particularly franchises, were particularly concerned that they could face liability at workplaces they did not directly oversee or control.

However, the DOL’s announcement today rescinded its guidance on “indirect control” and also rescinded guidance on independent contractors, which essentially stated that the DOL considered most workers to be employees under the Fair Labor Standards Act and that it was likely to apply a broad definition of “employee” and “employer” when investigating a company’s practices. This decision is a big win for businesses and business groups.

Despite the DOL’s reversal, the Obama-era standard can still be applied to businesses through the National Labor Relations Board (“NLRB”), an independent agency that serves as the government’s main labor law enforcer. The NLRB considers a company jointly liable for its contractors’ compliance with the National Labor Relations Act if they have “indirect” control over the terms and conditions of employment or have “reserved authority to do so.” The NLRB has not rescinded its interpretation. President Trump has yet to pick nominees for the five-member board’s two open seats, which will likely affect the NLRB’s interpretation of the joint employer doctrine and many other NLRB rules, interpretations, and guidance.

The DOL’s guidance does not affect actions taken by other federal agencies.

This post was written by James R. Hays and Jason P. Brown  Sheppard Mullin Richter & Hampton LLP.

Uber Aims to Settle Two Class Actions; Approximately 385,000 Uber Drivers in California and Massachusetts to Remain Independent Contractors – At Least for Now

Last Thursday, Uber settled two closely-watched class actions contesting Uber’s classification of approximately 385,000 drivers in California and Massachusetts as independent contractors as opposed to employees. While the plaintiffs viewed the settlement as a victory, so likely did Uber, as it allows Uber to continue to pursue an on-demand independent contractor service business model.  The court, however, still needs to approve the settlement and whether it will do so is not clear.

As part of the proposed settlement, Uber agreed to pay $84 million to the drivers. If Uber holds an initial public offering and its valuation goes above $93.75 billion within one year, Uber will pay an additional $16 million to the drivers bringing the total settlement to $100 million.  After reducing the pot to account for attorneys’ fees and other costs, the individual payments, based on the number of miles driven by each driver, range from nominal amounts up to $8,000, although the majority of class members may just walk away with less than $100.  Uber further agreed to revise its termination practices so that drivers must generally be given warnings and explanations before Uber can deactivate them from its software application.  Drivers will also be able to appeal terminations and will enjoy a more driver-friendly tipping policy.

Many consider $84 million, or even $100 million, a well-spent business expense for Uber, who potentially had to spend hundreds of millions, if not billions, of dollars to reclassify its drivers and comply with the requirements of minimum wage, overtime, workers compensation, anti-discrimination, benefits, sick leave, and other federal, state and local laws that apply to employees.

But Uber is not out of the woods yet. First, as mentioned earlier, the court must approve the settlement and there is no guarantee that it will.  Just a few weeks earlier, a California judge rejected a proposed settlement of similar litigation between Uber’s competitor, Lyft, and its drivers in part because it “short-changed” those drivers.  Under that settlement, Lyft drivers would have received an average of $56.  Second, Uber is settling lawsuits with its former and existing drivers in California and Massachusetts, but lawsuits in other states remain outstanding and new ones could be on the way.  Stay tuned for further developments.

Article By Michael S. Arnold & Gauri P. Punjabi of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

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