Recent DOL and NLRB Actions Target Joint Employers & Independent Contractors Edward R. Young 901.577.2341 (direct) eyoung@bakerdonelson.com Kathryn J. Hinton 404.223.2216 (direct) khinton@bakerdonelson.com
Today s Roadmap Joint Employment What Is It? Recent Developments by Agency Independent Contractors IC Status Why It Matters Recent Developments What s Really Going On Here? Legal Requirements Compliance Strategies 2
Joint Employment - What Is It and Why Does It Matter? Joint employment exists when a person is employed by two or more employers, such that the employers are responsible, both individually and jointly, for compliance with a statute 3
Joint Employment = Joint Liability Example #1: Cable company contracts with a subcontractor that employs cable technicians. Both companies are found to be joint employers of techs. If techs are non-exempt, both companies are responsible for ensuring they are paid OT and minimum wage under FLSA. Example #2: A staffing company places one of its IT employees with a tech company. Both companies are found to be joint employers. If the employee files a lawsuit under Title VII claiming sexual harassment on the job, both companies could be liable. 4
Each Federal Agency Has Its Own Definition of Joint Employment Equal Employment Opportunity Commission (EEOC): Title VII, ADA, ADEA, etc. National Labor Relations Board (NLRB): NLRA Department of Labor (DOL): FLSA, MSPA 5
Agency #1: The EEOC EEOC V. SKANSKA U.S.A. BUILDING, INC. DECIDED DECEMBER 10, 2013, 550 Fed. Appx 253(2013) The EEOC was arguing that Skanska was a joint employer. The following facts show how not to establish a situation where the joint employer is simple to prove. 1. Skanska could remove an operator from the site if the employee was incompetent, disorderly or otherwise unsatisfactory. 2. Skanska set their hours, collected their timesheets, taught them how to use equipment and required them to attend safety training. 6
EEOC V. SKANSKA U.S.A. BUILDING, INC. DECIDED DECEMBER 10, 2013, 550 Fed. Appx 253(2013) (cont d) 3. Skanska employees supervised the temporary employees. 4. Skanska could remove employees from the jobsite without any challenge from the subcontractor. 7
Agency # 2: The NLRB BFI NEWBY ISLAND RECYCLERY NATIONAL LABOR RELATIONS BOARD 32-RC-109684 August 27, 2015 362 NLRB No. 186 2015 BL 278454 8
The NLRB (cont d) Under the standard, the Board may find that two or more statutory employers are joint employers of the same statutory employees if they share or codetermine those matters governing the essential terms and conditions of employment. In determining whether a putative joint employer meets this standard, the initial inquiry is whether there is a common-law employment relationship with the employees in question. If this common-law employment relationship exists, the inquiry then turns to whether the putative joint employer possesses sufficient control over employees essential terms and conditions of employment to permit meaningful collective bargaining. 9
The NLRB (cont d) Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry. 10
The NLRB (cont d) Nor will we require that, to be relevant to the joint-employer inquiry, a statutory employer s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly-such as through an intermediary-may establish joint-employer status. 11
Section 220(2) of the Restatement (Second) provides that: In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered: (a) the extent of control which, by the agreement, the master may exercise over the details of the work; (b) whether or not the one employed is engaged in a district occupation or business; (c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; 12
Section 220(2) of the Restatement (Second) provides that: (cont d) (d) the skill required in the particular occupation; (e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; (f) the length of time for which the person is employed; (g) the method of payment, whether by the time or by the job; (h) whether or not the work is a part of the regular business of the employer; 13
Section 220(2) of the Restatement (Second) provides that: (cont d) (i) whether or not the parties believe they are creating the relation of master and servant; and (j) whether the principal is or is not in business. Restatement (Second) of Agency 220, comment e (addressing distinction between employees and independent contractors). 14
The NLRB (cont d) Under common-law principles, the right to control is probative of an employment relationship- whether or not that right is exercised. Sections 2(2) and 220(1) of the Restatement (Second) of Agency make this plain, in referring to a master as someone who controls or has the right to control another and to a servant as subject to the (employer s) control or right to control (emphasis added). 15
The NLRB (cont d) Where the user firm owns and controls the premises, dictates the essential nature of the job, and imposes the broad, operational contours of the work, and the supplier firm, pursuant to the user s guidance, makes specific personnel decisions and administers job performance on a day-to-day basis, employees working conditions are a byproduct of two layers of control. 16
The NLRB (cont d) The Board may find that two or more entities are joint employers of a single work force if they are both employers within the meaning of the common law, and if they share or codetermine those matters governing the essential terms and conditions of employment. In evaluating the allocation and exercise of control in the workplace, we will consider the various ways in which joint employers may share control over terms and conditions of employment or codetermine them, as the Board and the courts have done in the past. 17
The NLRB (cont d) Other examples of control over mandatory terms and conditions of employment found probative by the Board include dictating the number of workers to be supplied; controlling scheduling, seniority, and overtime; and assigning work and determining the manner and method of work performance. 18
Agency #3: The DOL WHD Administrator s Interpretation No. 2016-1 More and more, businesses are varying organizational and staffing models by, for instance, sharing employees or using third-party management companies, independent contractors, staffing agencies, or labor providers. Specific industries named: Construction; agricultural; janitorial; warehouse and logistics; staffing; and hospitality industries Available at: http://www.dol.gov/whd/flsa/joint_employment_ai.pdf 19
What Does It Mean to Be a Joint Employer As Defined by the DOL? Employee s work for the joint employers during the workweek is considered as one joint employers are jointly and severally liable for compliance with overtime requirements. Example: Maria works 25 hours at Employer A and another 30 hours at Employer B in the same workweek. If joint employers, they are both liable for her overtime compensation. 20
Two Kinds of Joint Employment May Exist Horizontal Joint Employment: employee has employment relationship with 2 or more employers, AND the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee Vertical Joint Employment: employee has employment relationship with one employer (staffing agency, subcontractor, etc.), AND the economic realities show that the employee is economically dependent on, and thus employed by, another entity involved in the work 21
Horizontal Joint Employment Look at the Relationship Between the Employers Employer A Employer B 22
Common Situations Giving Rise to Joint Employment 1. Arrangements b/w employers to share or interchange employee s services; 2. One employer acts directly or indirectly in the interest of another in relation to the employee; or 3. Employers are associated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer 23
Relevant Factors re: Association and/or Control Ownership of potential joint employers Overlapping officers, directors, executives, or managers Extent that control over operations is shared (hiring, firing, payroll, advertising, overhead costs) Operations intermingled Extent that one employer supervises another Sharing of supervisory authority over employee Treatment of employees as part of pool available to both employers Sharing of clients or customers Agreements between employers 24
Horizontal Joint Employment - Examples Employee A: Employee works at two restaurants within same restaurant brand. Operated by separate legal entities but same individual is majority owner in both. Managers at each restaurant share employee between the locations and coordinate his schedule. Use same payroll processor and share supervisory authority over him. Probably joint employers. Employee B: Employee works at one restaurant in mornings and another in afternoons. Restaurants know he works at both but have no arrangement to share employees or operations. No common management or ownership. Probably not joint employers. 25
Vertical Joint Employment Look at the Relationship Between Employee and Each Employer Potential Joint Employer Intermediary Employer 26
Typical Vertical Employment Scenarios Employment relationship already exists between employee and intermediary employer Intermediary employer typically has relationship/arrangement with potential joint employer to provide it with labor and/or perform for it some employer functions (hiring, payroll) Employee s work is typically for the benefit of potential joint employer 27
Threshold Question: Is Intermediary Employee of Potential Joint Employer? If intermediary is an employee rather than an independent contractor of the potential joint employer, then all of the intermediary s employees are also employees of the potential joint employer No further analysis necessary If intermediary is not an employee, then vertical joint employment analysis may proceed 28
Vertical Joint Employment: The Economic Realities Test DOL: It s not just about control. Core Question: Whether the employee is economically dependent on the potential joint employer who, via an arrangement with the intermediary employer, is benefitting from the work. 29
Seven Factors to Consider 1. Directing, controlling, or supervising the work performed (beyond a reasonable degree of contract oversight ) 2. Controlling employment conditions (hiring, firing, disciplining) 3. Permanency and duration of relationship 4. Repetitive and rote nature of work (less skilled = more economically dependent) 5. Integral to business 6. Work performed on premises 7. Performing administrative functions commonly performed by employers (payroll, workers comp insurance, providing necessary facilities, safety equipment, tools) 30
Independent Contractor Status Why It Matters HINT: 31
IC Status Why It Matters, (cont d) W-2 Employees: Benefits (health insurance, retirement plan) Payroll taxes (Medicare, Social Security, etc.) Unemployment benefits Overtime and minimum wage (non-exempt) Workers compensation Coverage under Title VII, ADA, ADEA, FMLA, NLRA, etc. 1099 Independent Contractors: None of the above! 32
Uber s Independent Contractor War June 2015 California Labor Commissioner s office rules that an Uber driver was an employee rather than an independent contractor re: reimbursement of expenses; mix of rulings in other states. O Connor v. Uber Technologies, (N.D. Cal.) Proposed class action Unpaid tips/reimbursement of expenses March 2015 Court denies Uber s motion for summary judgment, which means a jury will decide whether drivers were properly classified as independent contractors Trial set for June 2016 until it settled last week 33
U.S. Department of Labor Administrator s Interpretation No. 2015-1 (July 15, 2015) Administrator David Weil doubles down on DOL s ongoing efforts to combat independent contractor misclassification and provides additional guidance for deciding who is an employee After noting DOL s long-standing six-part economic realities test, Administrator Weil defines the ultimate goal as determin[ing] whether the worker is economically dependent on the employer (and thus its employee) or is really in the business for him or herself (and thus an independent contractor). Available at: www.dol.gov/whd/workers/misclassification/ai- 2015_1.pdf 34
What Has Changed? In Administrator Weil s opinion, the DOL s new guidance does not change the legal landscape; it is just another installment in an ongoing DOL initiative Indeed, the DOL announced back in 2010 that it would target the growing problem of independent contractor misclassification September 2011 DOL and IRS enter a Memorandum of Understanding to coordinate their efforts to combat independent contractor misclassification Labor departments in 25 states have entered similar Memoranda of Understanding with DOL (AK, AL, CA, CT, CO, FL, HI, IA, ID, IL, KY, LA, MA, MD, MN, MO, MT, NH, NY, RI, TX, UT, WA, WI, WY) 35
DOL Misclassification Initiative (2010) The misclassification of employees as independent contractors, presents a serious problem for affected employees, employers, and to the entire economy. Misclassified employees are often denied access to critical benefits and protections such as family and medical leave, overtime, minimum wage and unemployment insurance to which they are entitled. Employee misclassification also generates substantial losses to the Treasury and to Social Security and Medicare funds, as well as to state unemployment insurance and workers compensation funds. 36
Things Have Indeed Changed DOL s new emphasis on economic dependence and its bold statement that most workers are employees under the Fair Labor Standards Act should embolden DOL to more aggressively combat independent contractor misclassification Courts may not agree with DOL s new interpretation, but employers simply must recognize that the independent contractor classification is in the DOL s crosshairs DOL s new economic dependence analysis must be considered as an overarching consideration when reviewing the more familiar economic realities test 37
The Economic Realities Test General Principles Six factors to consider No one factor is dispositive or carries greater weight than the others (even control) Qualitative rather than quantitative analysis Remember this is one of a number of tests used to determine IC status depending on statute involved 38
The Economic Realities Test (Six Parts) 1. Is the work an integral part of the employer s business? Workers are more likely to be employees of a company if they perform the company s primary work Independent contractors, by contrast, are more likely to provide ancillary services to the company Example: In a construction company, framers most likely are employees, but software developers who design software to track bids properly may be classified as independent contractors 39
The Economic Realities Test (cont d) 2. Does the worker s managerial skill affect the worker s opportunity for profit or loss? Independent contractors in business for themselves can make management decisions (such as hiring an assistant, purchasing materials, advertising) which can directly affect their opportunity for profit or loss Employees, by contrast, do not have this ability, and their opportunities to earn more (or less) depend almost entirely on the amount of work provided by their employer, which does not depend on the employees managerial skills Example: Worker providing cleaning services to corporate clients 40
The Economic Realities Test (cont d) 3. How does the worker s relative investment compare to the employer s investment? All employees make minimal investments in their jobs; the key to this factor is to compare the worker s investment in the business to the employer s investment Independent contractors typically make capital investments to such a degree that they can operate as independent businesses 41
The Economic Realities Test (cont d) 4. Does the work performed require special skill and initiative? This factor is the source of much confusion. According to the DOL (and some courts), special skill does not mean the technical skills required to perform a particular job since many employees are skilled laborers The DOL interprets this factor to require special skill and initiative that permits independent contractors to operate as economically independent businesses Think business skills, judgment, or initiative 42
The Economic Realities Test (cont d) 5. Is the relationship between the worker and the employer permanent or indefinite? The concept here is that true independent contractors generally do not work for one company for extended periods of time; instead they are engaged for set periods of time, typically on a project basis As a result, an exclusive independent contractor relationship lasting for years is a common misclassification red flag On the other hand, short duration seasonal work does not equate to an independent contractor relationship 43
The Economic Realities Test (cont d) 6. What is the nature and degree of the employer s control? Historically, courts have considered this the most important of the six factors, but the DOL disagrees Here, the DOL places much emphasis on their new economic dependence consideration. They argue: A worker must control meaningful aspects of her work Her control must be more than theoretical, she must actually exercise it 44
The NLRB s Take on Independent Contractors Fedex Home Delivery v. NLRB, 563 F3d 492 D.C. Circuit (2009) One other case titled Fedex Home Delivery v. NLRB. In this case the NLRB was reversed, which had found that Fedex drivers were not independent contractors and were instead employees. This case is significant for additional reasons: Ted Cruz argued for Federal Express and there was a dissent by Merrick Garland who felt the NLRB was correct. Significantly, he has been proposed by President Obama to fill Antonin Scalia s seat on the Supreme Court. 45
Fedex Home Delivery v. NLRB, 563 F3d 492 D.C. Circuit (2009) (cont d) WHY THE NLRB WAS REVERSED: 1. FedEx contractor could independently incorporate. 2. One contractor negotiated with FedEx for higher fees. 3. More than 25% of the contractors hired their own employees. 4. Contractors could sell, trade, give or bequeath their routes. 5. Routes sold for a profit. 46
Other Red Flags Do you have employees performing essentially the same duties as your independent contractors? Have you classified the independent contractor as an employee in the past while she was performing essentially the same tasks as she is now? If the answer to either of these questions is YES, you may need to reconsider your classification of the worker as an independent contractor 47
Factors to Keep in Mind Employers have the burden to prove their classification of a worker as an independent contractor is correct If it s a close question, the best choice is to classify the worker as an employee Penalties for misclassification include: Payments to the government: unpaid payroll taxes (both portions), interest, statutory penalties, and/or Payments to the worker: back pay (typically overtime), value of lost benefits, coverage of work-related injuries under workers comp., unemployment comp. 48
Other Government Agencies The IRS has its own way of analyzing whether a worker is an independent contractor, which seems to emphasize the control factor more than the DOL. See http://www.irs.gov/businesses/small- Businesses-&-Self-Employed/Independent- Contractor-Self-Employed-or-Employee The National Labor Relations Board is interested in this topic as well because employees are members of a bargaining unit but independent contractors are not 49
The Value of Written Agreements Written agreements between an employer and independent contractor define the relationship and avoid confusion between the parties Further, an accurate independent contractor agreement can assist your efforts to defend the classification Nevertheless, a written agreement will not control if the classification is challenged; what the worker actually did for the employer is what matters Written agreements, therefore, must be accurate 50
Conduct a Self-Audit Soon Don t wait for an agency investigation or a lawsuit; perform a proactive self-audit of your independent contractor and potential joint employment relationships We strongly recommend having your counsel perform (or at least coordinate) the audit to maintain the attorneyclient privilege 51
Questions? 52