2019 Employment Concerns in the Gig Economy

Nenhuma nota no slide

How can you tell?

Misclassified employees lose workplace protections, including:
the right to join a union;
face an increased tax burden;
receive no overtime pay;
and are often ineligible for unemployment insurance and disability compensation.

Companies who misclassify employees as independent contractors can be forced to pay back pay in the form of: unpaid overtime compensation, employee benefits, workers’ compensation benefits, insurance premiums, social security, unemployment, tax obligations, liquidated damages (damages that are a fixed amount); and civil monetary penalties.

According to IRS reporting , at least 11.8% of US workers are receiving income from part-time work facilitated by app-based providers like Lyft and Gubhub.
Of those gig workers, the IRS reports that only 1/3 report their self-employment income

The use of independent contracting has grown dramatically over the past decade, with one estimate suggesting it has increased by almost 40%, going from 6.9% of employment in 2005 to 9.6% in 2015.

According to a 2009 report issued by the United States Government Accountability Office, a significant portion of independent contracting doesn’t pass the smell test and in fact represents misclassification of workers. For example, about one-third of construction workers in the U.S. South, an industry where the problem has been long entrenched, were estimated to be misclassified.

This number isn’t exceptional, as state-level data shows that anywhere from 10% to 20% of employers misclassify at least one employee.
https://hbr.org/2017/07/lots-of-employees-get-misclassified-as-contractors-heres-why-it-matters

Colorado, Maine, Maryland, Nevada, New Jersey, Rhode Island, Tennessee, Virginia, and Wisconsin have created initiatives or established formal task forces to evaluate how their state agencies are identifying and investigating employee misclassification.

Some initiatives have resulted in significant information sharing between agencies. Sharing of information between taxing authorities, unemployment agencies, and workers’ compensation.

The result is more companies using an independent contractors have become targets of agency investigations and enforcement actions.

How can you tell?

Internal Revenue Service Test
The IRS has a stake in identifying the misclassification of employees because it typically results in lost tax revenue. However, the IRS does not have one set of qualifications that it uses to determine the status of “employee” or “independent contractor.” Instead, the IRS looks at a number of factors that help it determine whether an employer has the right to control the details of how the worker(s) performs the services. Generally, if the employer controls the services the worker performs, then the worker is an employee, not an independent contractor.

According to the IRS, the facts that provide evidence of the degree of control and independence fall into three categories:
Behavioral: Does the company control or have the right to control the worker as well as how the worker does his or her job? For example, if a company provides training for the worker, this signals an expectation to follow company guidelines and therefore indicates that the worker is likely an employee.
Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how a worker is paid, whether expenses are reimbursed, who provides tools, supplies, etc.). Only an independent contractor can realize a profit or incur a financial loss from his or her work.
Type of Relationship: Are there written contracts or employee-type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue, and is the work a key aspect of the business?

2. The Economic Reality Test:
The DOL uses an “economic reality test” to determine who is an employee and, thus, eligible for FLSA benefits, by trying to establish whether the worker is economically dependent on the supposed employer. According to the DOL, “an employee, as distinguished from a person who is engaged in a business of his or her own, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business which he or she serves”

Seven factors the Court has considered significant:
The extent to which the services rendered are an integral part of the principal’s business.
The permanency of the relationship.
The amount of the alleged contractor’s investment in facilities and equipment.
The nature and degree of control by the principal.
The alleged contractor’s opportunities for profit and loss.
The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
The degree of independent business organization and operation.[8]

3. Ohio’s Test
Ohio follows a test that is similar to the DOL economic realities test. They consider several factors, all pointing to the level of CONTROL the employer had over the worker.
Details and quality of work
Hours worked
Materials, tools, personnel
Length of employment
Type of business
Method of payment

Courts look at the reality of the relationship. You can’t insulate yourself by formality.

Not an excuse:
Giving a 1099
If the employee agrees – signs an independent contractor agreement
He works remotely
It’s common industry practice

California Assembly Bill 5 (AB5)

The California senate passed AB5 on September 10, 2019

We can’t have this conversation without discussing California. And even if you don’t employ anyone in California, it is important to see its laws as a growing trend.
As defined in Assembly Bill 5 — and as most people might understand it — an independent contractor is a person who runs an independent business; who is hired by a company to do something outside of that company's usual course of business; and who has full say over how, where and when they complete that job.

On September 18, 2019, California Governor Gavin Newsom signed into law A.B. 5, codifying the “ABC test” adopted in the California Supreme Court decision, Dynamex (see, e.g. prior posts here, here, and here) and ensuring that most California workers should appropriately be classified as employees instead of independent contractors. The bill goes into effect January 1, 2020. Though supporters state that the bill is aimed primarily at the so-called “gig economy,” in reality A.B. 5 affects virtually every type of business in California.

Test
The default is that the worker is an employee and it’s the employer’s burden to establish that the worker is actually an independent contractor
A worker is an independent contractor if:
The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under contract for the performance of the work and in fact
The worker performs work outside the usual course of the hiring entity’s business
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature of the work performed

Who would pass this test? Example: an electrician hired by a newspaper company.
That electrician is free from the direct control of the newspaper company; he is performing work that is outside the usual course of the newspaper company’s business; and the electrician is customarily engaged in an independently established trade, occupation, or businesss of the same nature as the work performed

Example: that same newspaper company hires a writer to write journalistic pieces for their weekly publication. That person is an employee because she is not free from their control, she is performing the work which is their business; prong C might actually be in favor of a finding of IC – se is customarily engaged in a business of the same nature - but that prong alone might not suffice. Each o of the three parts must be satisfied.

Example: an electrician hired by a newspaper company.
That electrician is free from the direct control of the newspaper company; he is performing work that is outside the usual course of the newspaper company’s business; and the electrician is customarily engaged in an independently established trade, occupation, or businesss of the same nature as the work performed

Example: that same newspaper company hires a writer to write journalistic pieces for their weekly publication. That person is an employee because she is not free from their control, she is performing the work which is their business; prong C might actually be in favor of a finding of IC – se is customarily engaged in a business of the same nature - but that prong alone might not suffice. Each o of the three parts must be satisfied.

First, I’m going to go over some cases from the last year – either these cases haven’t been decided or they were settled – either way they weren’t decided on the merits.

COURT APPROVES $9 MILLION IC MISCLASSIFICATION CLASS ACTION SETTLEMENT BY BAKED GOODS COMPANY WITH ITS DISTRIBUTORS. A Tennessee federal judge has approved a settlement of $9 million between baked goods company, Flowers Foods Inc., and about 900 distributors of their bakery products in resolution of a Fair Labor Standards Act collective action alleging the distributors had been misclassified as independent contractors. Flowers Foods is one of the largest producers of packaged bakery foods in the United States, including brands such as Wonder Bread, Tastykake, Sunbeam and Nature’s Own. Following mediation that encompassed 12 different misclassification lawsuits involving the company (and its related entities) and distributors in Alabama, Kentucky, Texas, Mississippi, North Carolina, Tennessee, Virginia and Missouri, the parties entered into a Global Settlement Agreement and Release. The $9 million settlement provides $3.6 million in attorney’s fees and $5.4 million for the named plaintiffs and settlement class members, depending on the amount of time they worked for the company. Green v. Flowers Foods Inc., No. 19-cv-01021 (W. D. Tenn. Feb. 27, 2019).

DIRECTV INSTALLATION PROVIDER SUED BY TECHNICIANS IN IC MISCLASSIFICATION CLASS ACTION.
Installation technicians have filed a collective and class action complaint against Synergies3 TEC Services, LLC, a satellite television installation provider for DirecTV, alleging violations of state (Illinois and Missouri) and federal (FLSA) overtime laws due to their alleged misclassification as independent contractors and not employees. According to the complaint, the installation technicians were subject to direction and control by the company as they were required to follow the company’s instructions, processes, and policies regarding the methods by which work was to be completed; were supervised and required to use specific apps to open and close orders; could not sell or advertise their services to the general public or work for other companies; were required to attend meetings and communicate any changes in their work schedule/hours to the company in advance ; were subject to discipline by the company for failure to follow the company’s standards, policies and procedures; and were not permitted to negotiate rates of pay or determine or set their own schedules. Jackson v. Synergies3 TEC Services, LLC, No. 4:19-cv-00178 (E.D. Mo. Feb. 4, 2019).

DENTAL CARE COMPANY SUED FOR IC MISCLASSIFICATION BY DENTIST. An Illinois dentist has reportedly sued Bright Dental Care P.C. d/b/a Smile Dental Care and others in state court alleging breach of contract and violations of the Illinois Wage Payment and Collection Act due to his alleged misclassification as an independent contractor and not an employee. According to the Cook County Record published on February 20, 2019, the dentist claims he is owed over $65,000 plus 45 percent of the fees collected by the defendants for work he performed. Despite that parties’ agreement, the dentist reportedly alleges that the defendants failed to pay him for all of his work, including his final compensation and wages required by the Illinois statute. Salem v. Bright Dental Care P.C., No. 2019L001584 (Cook County Cir. Ct. Ill. Feb. 13, 2019).

New Jersey law firm prevailed against the claim of one of its paralegals.

New Jersey has one of the toughest tests for employers to prevail upon. So, this was a big case for employers. The worker filed for unemployment after she was terminated. She had been engaged to integrate the law firm’s files into a web-based computer software. The law firm identified the files to be integrated, but provided no instruction on how the person would actually do this integration. The parties entered into a consulting agreement for 3-6 months. The worker was not paid for her expenses, had to take care of her own taxes and recited that she was an independent contractor.

PLEASE CHANGE TO SOMETHING THAT SAYS – LET’S PLAY A GAME – EMPLOYEE OR INDEPENDENT CONTRACTOR

Let’s go through some recent decisions in the past year. I’ll describe what happened and I want you to guess whether the court decided the worker was an employee or an independent contractor.

Police officers moonlighting as private security and traffic control personnel for customers of Off Duty Police Services, Inc. (ODPS) were classified as independent contractors instead of being classified as employees. ODPS offers private security and traffic control services in Kentucky, engaging both sworn officers (those currently working for law-enforcement entities) and nonsworn workers (those who typically have no law enforcement background). Customers contact ODPS specifying the profiles of the workers they are seeking; ODPS then offers the assignment to those in its network matching the specific qualifications requested. The Department of Labor initiated this FLSA suit alleging that all of ODPS’s workers are employees entitled to overtime compensation and that ODPS violated the FLSA’s recordkeeping requirements by failing to keep accurate employment records. The district court determined that ODPS’s nonsworn workers were employees entitled to overtime wages, but that the sworn workers were independent contractors because they “simply were not economically dependent on ODPS and instead used ODPS to supplement their incomes.”
On appeal, the Sixth Circuit applied the six-factor “economic reality” test and concluded with respect to the first five factors that the services offered by ODPS’s workers are integral to the company; the services do not require the skill or training of a licensed police officer; there is limited investment in specialized equipment; the length and consistency of the relationship between ODPS and the workers suggests permanence; and there was no opportunity for profit because the workers earned set wages to perform low-skilled jobs for fixed periods of time and could not make earn more profit by managing different commitments. Those five factors favored employee status for both the sworn and nonsworn officers. The court held that the sixth factor, ODPS’s right to control the manner of the worker’s performance, favored employee status for the nonsworn officers but did not favor either IC or employee status for the sworn officers. Considering all of the six factors “with an eye on the ultimate question of economic dependence,” the court decided that all of the officers were employees entitled to overtime wages under the FLSA. Acosta v. Off Duty Police Services, Inc., Nos. 17-5995/6071 (6th Cir. Feb. 12, 2019).

*** Who thinks they were independent contractors? Employees?
Answer: EMPLOYEE

This was a lawsuit brought by direct drilling consultants. Some workers were employees and some were IC’s and the only difference between the two was that an IC had the ability to turn down work and negotiate pay. BOTH were told where to work, when to work, and what equipment could be used. BOTH had to undergo mandatory safety training, comply with employer’s drug and alcohol policy,e nsure they had fire retardant clothing, and confirm they were “supervised by a coordinator, but also performed their task with little to no intervention. As to the first factor – degree of control – the Fifth Circuit found it favored IC status because, although the directional drilling consultant was required to work prescribed shifts and coordinate drilling projects with the company’s personnel, the consultant’s right to accept or reject a project, was more meaningful and demonstrated an overall lack of control. Regarding the second factor – the relative investments of the consultant and the company – the court found that factor “merits little weight in light of the other summary-judgment record evidence supporting IC-status.” The appellate court next considered the worker’s opportunity for profit and risk of loss, and concluded that the consultant’s work on his goat farm when not providing services to Premier favored IC status and was more persuasive than the restriction on subcontracting imposed by Premier. With regard to the fourth factor, skill and initiative, the Fifth Circuit found the consultant was highly skilled, thereby favoring IC status. The final factor considered – the permanency of the relationship – also favored IC status because the work was contracted on a project-by-project basis, even though the consultant chose to provide services only to Premier. Finally, the Fifth Circuit considered other factors bearing on IC status, including the presence of an express IC agreement and industry standards that demonstrated that the consultants were regarded as ICs in the industry, even though Premier also employed directional drilling employees doing similar work. The appellate court thus concluded the applicable factors supported independent contractor status. Parrish v. Premier Directional Drilling, L.P., No. 17-51089 (5th Cir. Feb. 28, 2019).

*** Who thinks they were independent contractors? Employees?
Answer: INDEPENDENT CONTRACTOR

A former driver for logistics services provider, RR Donnelley Logistics Services, may continue his discriminatory discharge action against the company under Title VII of the Civil Rights Act and the Age Discrimination in Employment Act despite being classified by the company as an IC. An Alabama federal court denied the company’s motion to dismiss and summary judgment motions, rejecting the company’s argument that the driver was an independent contractor and not an employee. The court found that the driver established facts that would allow him to prove that he was an employee for purposes of Title VII and the ADEA, including that his work was supervised; delivery routes were selected for and assigned to him; he was required to use a company-furnished “Real Time Delivery Program” on his phone; and a supervisor had the power to discharge him.
The court also denied the company’s motion for summary judgment because of disputed issues of fact concerning the degree of control the company exercised over the driver’s work, such as copies of e-mails and text messages referring to “payday” being on certain days of the month, a request by his supervisor for his photo on an ID badge, and a demand that the driver appear for a drug test. In denying the motion for summary judgment, the court also concluded that although the IC agreement signed by the driver contained independent contractor-centric terms, the driver provided information that, in practice, business operations may not have transpired consistent with the contract. Nemo v. RR Donnelley Logistics Services, No. 17-cv-02130 (N.D. Ala. Feb. 8, 2019).

*** Who thinks they were independent contractors? Employees?
Answer: EMPLOYEE

Service providers for a virtual marketplace company (VMC)
The VMC describes itself as “an online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide range of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, and household services.

Factors
Service providers can use the platform to engage in directly with the consumers
There is default pricing, but service provider can negotiate differentiates
Can reject or accept opportunities
Can offer its services on competing VMC’s or other platforms
Service providers underwent background and identity checks
Service provider can be removed for frequent cancellations
No training or managerial control

Employee or Independent Contractor?

Answer: Independent Contractor
The Department of Labor released an opinion letter, providing a road map for online brokers of services provided by independent contactors to ensure they are not misclassified as employees.

Takeaway
VMC did not exert control over the service providers – they could choose when, where, how and for whom to work
VMC did not inspect the work

This is the a reflection of the political leaning of the current administration as being more “business friendly”

Two talk radio hosts
Pat was not negotiable
Radio station’s producer worked collaboratively with the workers to suggest show content and guests
The station developed a schedule dictating what type of content should fill each minute of the radio show
Workers were required to attend staff meetings
Radio station provided the workers with cubicles, desks, business cards, computers, printers, telephones, office supplies, and studio equipment

Employee or Independent Contractor??Employee. The Oregon Bureau of Labor and Industries determined that they had been incorrectly classified as independent contractors and were entitled to $55,000 in penalties and back wages.

But my ICs are really independent

Maybe

What about the IC who starts out independent and does such good work that you keep giving them more projects and more projects and eventually they work almost exclusively for you?

So Misclassification is my only issue right?

Not so fast my friend…

EEOC says
The employer will be liable for harassment by non-employees over whom it has control (e.g., independent contractors or customers on the premises), if it knew, or should have known about the harassment and failed to take prompt and appropriate corrective action.

Sexual harassment protections for Independent Contractors?
Not from EEOC
State protections?

Contractual protections

Independent Contractor negligence

Lawsuit against Lyft related to sexual assaults by drivers

Allegations Lyft failed to conduct background checks and take prompt action after complaints

Lawsuit against DoorDash for negligent hiring.
Independent Contractor-Driver assaults restaurant owner.

Are these drivers independent contractors?
Amazon directs, through an app, the order of the deliveries and the route to each destination
Amazon software tracks drivers’ progress
Dispatcher in an Amazon warehouse can call drivers if they fall behind schedule.
Amazon requires that 999 out of 1,000 deliveries arrive on time.

*** Who thinks they were independent contractors? Employees?
Answer: EMPLOYEE

60 accidents since June 2015 involving Amazon delivery contractors that resulted in serious injuries, including 10 deaths.

How does Amazon shield itself?
It’s all in the contract.

And enforcing the contract.

Branding issues with use of independent contractors
Providing ICs with your intellectual property
How much protection do you have?
Who owns the work product?

ICs who work with your employees

Google’s TVC’s
Morale issues
Unionization concern?
Misclassification

ICs who interact with clients

Do you give them a business card?
How do you evaluate their performance?
What do you do if its bad?
What about cars?

IC Non-compete issues

Can you enforce it?
For how long?
How broadly?
How do you police it?

Possible solutions
Hire them as employees
IC Contract remedies
Staffing Company?

2019 Employment Concerns in the Gig Economy

Kegler Brown Hill + Ritter

2019 Employment Concerns in the Gig Economy