Independent Contractors

DOLEmployers rejoice! The Trump administration continues to roll back the anti-business positions asserted by various federal agencies under the Obama administration, as most recently evidenced by the Department of Labor’s June 7, 2017 withdrawal of two Administrator Interpretations on joint employment and independent contractor status. Continue Reading DOL Withdraws Guidance Documents on Joint Employment and Independent Contractor Status

Burlesque 2So as an employment defense attorney, I am constantly amazed by the creative arguments put forth by plaintiffs and their attorneys. I am certain that the creators of certain laws would never, in their wildest dreams, have anticipated how they could be applied. A recent example of this can be found in Stevens v. Oval Office, LLC dba Oval Office Gentlemen’s Club.

As you may know, a recent hot topic for federal and state agencies is the misclassification of employees as independent contractors. According to the U.S. Department of Labor’s newly created webpage, misclassification hurts employees by denying them: minimum wage and overtime pay, the protection of federal and state employment laws, workers’ compensation and unemployment insurance, workplace health and safety protections, and employer-provided benefits. It also hurts non-compliant employers who may be subject to fines and unpaid taxes and wages, as well compliant employers who face unfair competition from those who reduce their costs by being non-compliant. And it hurts government agencies who do not receive the appropriate employment tax revenues. Continue Reading Exotic Dancer Improperly Fined for “Faulty Workmanship”?

question-markFollowing my post last week on the EEOC’s latest pronouncement on independent contractor status, it seemed appropriate to follow up with the National Labor Relations Board’s most recent activity on this issue. The Board’s Office of the General Counsel (OGC) released an advice memorandum in which it first reviews the Board’s test for independent contractor status (which is, of course, different than that of the EEOC) and then goes on to assert that the misclassification of employees as independent contractors is a violation of the National Labor Relations Act.  (Curiously, it appears that the OGC actually issued the memo in a pending case, Pacific 9 Transportation Inc., back on December 18, 2015, but it only recently released it to the public on August 26, 2016. I suppose that the Board realized that this is an issue of significant interest to employers!) Continue Reading NLRB on Independent Contractor Status

question-markSo I was trolling through the Equal Employment Opportunity Commission’s quarterly Digest of Equal Employment Opportunity Law (because, yes, I am that much of an employment law nerd), and came across an article that I thought was of particular interest: “Stating a Claim in the EEO Process: Determining One’s Status as Either an Agency Employee or Independent Contractor.” Now this article is supposed to apply only to the federal government agencies as the employer – but I think the principles set forth in it provide guidance to what the EEOC’s position would be for private employers as well. (This is important because employees are covered by federal anti-discrimination and other employment laws; independent contractors are not). Continue Reading The EEOC on Independent Contractor Status

So the Department of Labor is on a mission to extend the reach of the Fair Labor Standards Act.  Following on the heels of the proposed overtime regulations, in which the DOL is seeking to expand the number of workers eligible for overtime pay (and thereby increase their income – at least theoretically), the DOL has now issued an Administrator’s Interpretation in which it provides guidance to employers on how to determine whether a worker is an employee or an independent contractor for purposes of the FLSA.  Notably, the DOL states that, under its analysis, most workers are employees. (Well, that’s not surprising, coming from the DOL).

The DOL uses an economic realities test, and notes that this test is broader than the common law test, which focuses on the employer’s right of control over the worker. The economic realities test analyzes whether a worker is economically dependent on the employer, and is thus an employee, or is truly in business for himself as an independent contractor.

The FLSA defines employee as “any individual employed by an employer” and defines employ to mean “suffer or permit to work.” As described in the Administrator’s Interpretation, the following six factors are considered in determining whether a worker is economically dependent on the employer:

  1. “Is the work an integral part of the employer’s business?” If so, it is more likely that the worker is economically dependent on the employer. Work can be integral to a business even if it is just one component of the business, is performed by many others, or is performed away from the employer’s premises.
  2. “Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?” This factor does not focus on whether a worker can simply choose to work more hours, but on whether the worker exercises managerial skills that affects the opportunity for profit or loss beyond the current job (such as decisions to hire others, purchase materials and equipment, advertise, rent space, manage time tables, etc.)
  3. “How does the worker’s relative investment compare to the employer’s investment?” Under this factor, not only must the worker make some investment, but the worker’s investment must be compared to the employer’s investment. If the worker’s investment is relatively minor, that suggests the worker is economically dependent on the employer.
  4. “Does the work performed require special skill and initiative?” Under this factor, a worker’s business, not technical skills, are the focus. The DOL states that “Even specialized skills do not indicate that workers are in business for themselves, especially if those skills are technical and used to perform the work.”
  5. “Is the relationship between the worker and the employer permanent or indefinite?” If so, this suggests an employment relationship. The DOL notes, however, that the lack of permanence or indefiniteness does not automatically suggest an independent contractor relationship; the reason for the lack of permanence or indefiniteness must be reviewed to determine if it is due to “operational characteristics intrinsic to the industry” (such as the use of staffing agency workers) or the worker’s “own business initiative.”
  6. “What is the nature and degree of the employer’s control?” In order to support an independent contractor designation, the worker must actually – not theoretically – control meaningful aspects of the work being performed. An employer who determines a worker’s schedule, dress, or tasks is exercising control over the worker.

The DOL states that no one factor – particularly control – is determinative of whether a worker is an employee.  All the factors must be examined in a qualitative, not quantitative, manner in the broader context of economic dependence.

What does this mean for employers?  Well, your independent contractor relationships should be examined with a critical – and conservative – eye.  And realize that the worker may be deemed an independent contractor under some laws, but an employee under others!

Employers did not need another reason to complain about the burdens of the Affordable Care Act (“ACA”). Most of us know that the law includes onerous obligations on employers that have made human resources and benefits personnel’s jobs increasingly difficult. For example, you have to figure out if the law applies to your organization (how many full-time and FTE employees do you have?), to whom you have to offer coverage (full-time, part-time, variable hour, seasonal employees?), what coverage you have to offer (minimum essential coverage that is affordable and meets the minimum value test), how to tell if the coverage you are offering is affordable (something about 9.5% of the employee’s W-2 wages, right?), how to track employees’ hours, etc., etc., etc.!

Well, I am sorry to say that for those of you that use temporary or contract workers, you have another thing to worry about under the ACA. Specifically, you need to determine whether you have to offer those temporary or contract workers health insurance benefits. The ACA requires that an applicable large employer offer health insurance benefits to its full-time employees (those that work on average 30 or hours more a week). The ACA uses the well-known IRS control test to determine who is an “employer.” That is, it does not matter what the agreement between the temporary agency and your organization spells out. If your organization exercises sufficient control over the temp or contractor employee, it will be deemed the common-law employer of that employee. And if that is the case, under ACA, your organization will be obligated to offer health care coverage to full-time workers, regardless of whether you categorize them as “temps,” “temps-to-hire” or “independent contractors.”

That being said, however, the ACA provides a workable option that enables you to – in essence – take credit for an offer of health insurance benefits by the temporary or staffing agency. Specifically, if the temporary staffing agency offers coverage that passes muster under the ACA, you can take credit for that offer. This option is spelled out in the preamble to the ACA Final Regulations on the employer shared responsibility requirements. The provision reads:

 … if certain conditions are met, an offer of coverage to an employee performing services for an employer that is a client of a professional employer organization or other staffing firm (in the typical case in which the professional employer organization or  staffing firm is not the common law employer of the individual) (referred to in this section IX.B of the preamble as a ‘‘staffing firm’’) made by the staffing firm on behalf of the client employer under a plan established or maintained by the staffing firm, is treated as an offer of coverage made by the client employer for purposes of section 4980H. For this purpose, an offer of coverage is treated as made on behalf of a client employer only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay to the staffing firm for the same employee if the employee did not enroll in health coverage under the plan.

(Emphasis added).

If you are inclined to take credit for the offer of coverage by the temporary staffing agency, you should make sure the agreement (including what the additional fee will be) is clearly spelled out in writing. In addition, while the regulations are silent on what the additional fee must be, it should be more than a token.

Now, if this seems like a headache for your organization to take on at this time, I remind you that the ACA requires applicable larger employers (defined as those with 100 or more employees in 2015; 50 or more employees in 2016) to offer coverage to “substantially all” of its full-time employees. “Substantially all” means 70% in 2015 and to 95% in 2016. Therefore, if your percentage of temporary employees falls within the less than 30% this year or 5% next year of full-time employees who are not being offered benefits, you may be fine in terms of ACA compliance. But obviously, you must carefully track the numbers of temporary employees you are using, as compared to the total workforce (including those temp agency/contractor employees) to ensure you stay within those percentages.