Wage & Hour Counsel : Wage & Hour Lawyer & Attorney : Littler Mendelson Law Firm : Employment Law, Labor Relations

A recent decision by a Texas federal court, in Chapman v. ASUI Healthcare of Texas Inc., underscores the importance for healthcare entities of carefully assessing the nature of their relationship with workers to determine whether they may be classified as independent contractors.

After having worked at ASUI for a number of years, the plaintiffs brought suit for unpaid wages and overtime under the FLSA, claiming they were misclassified as independent contractors instead of employees. To determine whether the plaintiffs were properly classified as independent contractors, the district court used the traditional five-factor “economic realities” test, assessing: (1) the degree of control exercised by ASUI; (2) the extent of the relative investments of the plaintiffs and ASUI; (3) the degree to which the plaintiffs’ opportunity for profit or loss was determined by ASUI; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship. The court found that each of these factors reflected that the plaintiffs were employees under the FLSA, not independent contractors.

To learn more about the decision and its potential implications for employers, please continue reading at Littler's Healthcare Employment Counsel blog.

• Print
• Trackbacks
• Share Link

By Julie Adams

On August 22, 2012, Governor Beverly Perdue issued Executive Order 125 establishing a task force to address concerns that North Carolina employers are allegedly misclassifying employees as independent contractors to avoid obligations under federal and state laws, including laws governing wage and hour issues. According to the Order, the primary purposes of the “Task Force on Employee Misclassification” are “to enhance coordination and communication among various state agencies,” and “to identify effective mechanisms to combat unlawful practices like employee misclassification that harm workers.” The Task Force will be chaired by the Commissioner of Insurance and include heads of various state agencies, or their designees, and representatives of other entities with expertise on these issues, such as the Commissioner of Labor.

Of particular significance to North Carolina companies who use independent contractors, Governor Purdue directed the Task Force to “[i]dentify sectors of the economy where misclassification occurs most frequently” and “[i]dentify ways to increase the filing of complaints by employees and other members of the public against noncompliant employers.” One goal of the Task Force is to “utilize a cooperative approach in working with employers and community groups” in an effort “to reduce the prevalence of employee misclassification” through the promotion of education materials explaining the distinction between employees and independent contractors, and raising public awareness of the problems arising from misclassification.

The panel will also consider changes to North Carolina laws and regulations and work with state and local investigators and prosecutors to enhance enforcement and develop procedures to ensure that “appropriate” misclassification cases are referred for criminal prosecution.

Reports regarding the Task Force’s activities, including summaries of the panel’s accomplishments and proposed legislative and regulatory changes are due to the Governor every six months.

• Print
• Trackbacks
• Share Link

By William Hays Weissman

In Arnold v. Mutual of Omaha Insurance Company, a California appellate court issued a published decision holding that insurance agents are not employees under the California Labor Code. This appears to be the first time the court has addressed the status of insurance agents.

The plaintiff filed a putative class action asserting that she was misclassified as an independent contractor and therefore denied reimbursement of business related expenses under Labor Code section 2802, and was not paid all wages in a timely fashion. She also asserted that failure to pay business expenses constituted an unfair business practice.

• Print
• Trackbacks
• Share Link

Rep. Lynn Woolsey (D-CA) has reintroduced legislation that would create new record-keeping requirements for employers that hire independent contractors, and impose stricter penalties for misclassification. Notably, the Employee Misclassification Prevention Act (H.R. 3178) would amend the Fair Labor Standards Act (FLSA) to require employers to keep records on and notify workers of their employment or independent contractor classification and their right to challenge that classification. To learn more about the proposed legislation and its potential implications for employers, please continue reading at Littler's D.C. Employment Law Update blog.

• Print
• Trackbacks
• Share Link

On January 20, 2011, the Governor of Maine, Paul R. LePage, issued an Executive Order abolishing the State’s Joint Task Force on Employee Misclassification. The Task Force was established by former Governor John Baldacci in 2009 to address concerns that employers allegedly were misclassifying employees as independent contractors to avoid obligations under federal and state laws, including laws governing wage and hour issues. According to the Executive Order issued by Governor LePage, the Task Force added an unnecessary “extra layer of bureaucracy, to take actions on a matter within the shared jurisdiction of the Legislature, the Executive Department and the Judicial Department.” The Executive Order also notes that future legislation could negate or alter the Task Force’s determinations and that the Task Force has created uncertainty within the business community. Governor LePage has expressed concern that the various definitions and rules governing independent contractors under state and federal law have gone “too far” and caused some businesses to virtually eliminate their use of independent contractors. Accordingly, the Governor asked his staff to draft legislation addressing the varying classification standards and establishing the same definition of “independent contractor” for all agencies and businesses.

This entry was written by Sarah Green.

• Print
• Trackbacks
• Share Link

On October 13, 2010, Governor Rendell signed into law the Construction Workplace Misclassification Act. The Act curtails the circumstances under which a construction worker may be classified as an independent contractor for purposes of workers’ compensation and unemployment insurance.

Under the Act, to be classified as an independent contractor, a construction worker must meet three criteria: (1) have a written contract to perform services; (2) be free from the hiring party’s control or direction when performing such services; and (3) be customarily engaged in an independently established trade, occupation, profession or business.

• Print
• Trackbacks
• Share Link

Senator John Kerry (D-MA) and Rep. Jim McDermott (D-WA) have introduced a bill that would curtail the use of a federal “safe harbor” that allows businesses to treat workers as independent contractors for federal employment tax purposes, regardless of the employee’s actual status under the common law test. The Fair Playing Field Act of 2010 (pdf) (H.R. 6128, S. 3786) would, among other things, require the Secretary of the Treasury to issue prospective guidance on worker classification for federal employment tax purposes. The safe harbor provided under section 530 of the Revenue Act of 1978 would continue to be available until the date an individual’s employment status is reclassified. The worker’s reclassification date would be the earlier of (a) the first day of the first calendar quarter beginning more than 180 days after the date of an employee classification determination by the Secretary of the Treasury; or (b) the effective date of the “first application final regulation” issued by the Secretary of the Treasury with respect to such individual (or if later, the first day of the first calendar quarter beginning more than 180 days after such regulation is issued). To learn more about the bill and its potential implications for employers, please continue reading at Littler's Washington, D.C. Employment Law Update blog.

Photo credit: SchulteProductions

• Print
• Trackbacks
• Share Link

New York recently enacted the “New York State Construction Industry Fair Play Act.” Under this law, which becomes effective on October 26, 2010, a construction worker is presumed to be an employee—as opposed to an independent contractor—unless the worker is a separate business entity, as defined by the law, or the worker: (1) is free from control and direction in performing the job, both under his or her contract and in fact; (2) the service performed is outside the usual course of business; and (3) the worker is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue. If all three criteria are met, the worker may be considered an independent contractor.

• Print
• Trackbacks
• Share Link

The Ninth Circuit Court of Appeals recently rejected a Texas corporation’s argument that drivers who performed services for the company were independent contractors—and therefore not subject to the requirements of the California Labor Code—because their contracts with the company contained a Texas choice of law provision. In Narayan v. EGL, Inc., the Ninth Circuit reversed the district court’s decision to grant the company’s motion for summary judgment and instead remanded the case for trial. In so holding, the Ninth Circuit demonstrated the heavy burden imposed on companies seeking to establish an independent contractor relationship, even when the company has a written contract designating the workers as independent contractors.

• Print
• Trackbacks
• Share Link

On May 12, 2010, Wisconsin Governor Jim Doyle signed into law two pieces of legislation regarding the misclassification of employees. Senate Bill 672, which will become effective January 1, 2011, requires the Department of Workforce Development (DWD) to establish a system ensuring the proper classification of workers under unemployment insurance, worker’s compensation and labor standards laws. Specifically, the DWD is required to educate employers, employees and the public about the proper classification of persons performing services for an employer; receive and investigate complaints alleging misclassification; conduct investigations on its own initiative; inform other state or local agencies of misclassification of employees; and appoint attorneys to conduct hearings and issue decisions as appeal tribunals.

• Print
• Trackbacks
• Share Link

On May 5, 2010, Connecticut Governor Jodi Rell signed into law "An Act Implementing the Recommendations of the Joint Enforcement Commission on Employee Misclassification." The legislation will increase the state's civil penalty for independent contractor misclassification, currently $300 per violation, to $300 per day per violation. It also will expand criminal liability for employers who knowingly misclassify workers with the intent to injure, defraud or deceive the state because of their failure to pay workers' compensation or second injury fund assessments. The new act is scheduled to become effective on October 1, 2010. Nothing in the legislation reconciles the conflicting interpretations of independent contractor status under state and federal law. To continue reading about this development, see Littler’s ASAP Stiffer Penalties on the Horizon for Independent Contractor Misclassification in Connecticut? by GJ Stillson MacDonnell and Stephen Rosenberg.

• Print
• Trackbacks
• Share Link

Legislation introduced in both the House and Senate would impose new record-keeping requirements on employers that hire independent contractors, and impose stricter penalties for misclassification. Introduced by Rep. Lynn Woolsey (D-CA) and Sen. Sherrod Brown (D-OH), the Employee Misclassification Prevention Act (H.R. 5107, S. 3254) would amend the Fair Labor Standards Act (FLSA) to require employers to keep records on and notify workers of their employment or independent contractor classification and their right to challenge that classification. For more information on the legislation and its implications for employers, continue reading at Littler's D.C. Employment Law Update blog.

• Print
• Trackbacks
• Share Link

The fiscal year 2011 federal budget (pdf) released on Monday contains provisions to combat misclassification of employees as independent contractors. Included in this $3.8 trillion spending measure is a proposal to be jointly administered by the Departments of Labor and the Treasury to eliminate legal incentives for employers to misclassify their employees. Continue reading about this development on Littler's Washington D.C. Employment Law Update blog.

• Print
• Trackbacks
• Share Link

On August 21, 2009, the Massachusetts Supreme Judicial Court unanimously ruled that a worker who has been misclassified as an independent contractor may seek damages from his former employer even if the employer establishes that the worker would have been paid less had he been classified as an employee.

The plaintiff in Somers v. Converged Access , 454 Mass. 582 (2009) worked for a software company as a quality assurance engineer. He was classified as an independent contractor and, as a result, did not receive overtime, vacation pay, or benefits. The company paid him at a rate of $65 per hour. The plaintiff initially agreed to work for a sixty-day term. He later agreed to a ninety-day extension of that term.

The plaintiff subsequently applied for a permanent quality assurance engineer position. After the company did not select him for the position, the plaintiff brought suit claiming, among other things, that he had been misclassified as an independent contractor.

• Print
• Trackbacks
• Share Link