Archive for the 'Employee Classification' Category

The Times They Are a Changin’

So I read this great article on Forbes online today. One of our partners sent it around for us to see. The article, by a guy named Dan Schawbel, who bills himself as a “millennial expert and workplace futurist,” which is a cool title by the way, is titled “10 Workplace Trends You’ll See in 2016.” You can find it at I’ve got to tell you, I like this guy’s style. It’s not workplace trends you may see – no, it’s trends you will see. You have to like that kind of confidence.   As a matter of fact, I liked it so much that I thought I would do the same thing. Only I’m going to tell you about labor and employment law trends that you will see in 2016. And because I’m not nearly as creative as Mr. Schawbel and because I only get 800 or so words for this article, I’m only going to tell you about one trend you will see in 2016. How’s that for courage? So without further ado, that trend is . . . I need a drum roll here, don’t I? . . .

Independent Contractors are About to Become as Common as the Dinosaur

Back in July of 2015 the Administrator for the Wage and Hour Division of the Department of Labor issued Administrator’s Interpretation No. 2015-1. It was titled “The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors.” Snoozer, right? But it’s really important. It’s 15 pages long and it purports to clarify the standards for when a worker is an independent contractor. Basically, in a highly simplified way, the Guidance says that if the worker is economically dependent on an employer, that worker is an employee. The Guidance gives a bunch of tests and examples but boils it down to this: “Is that worker really in business for himself or herself?” The Guidance ends by saying, “In sum, most workers are employees under the FLSA’s broad definitions.” Doesn’t sound good if you use a lot of independent contractors, does it? And that is not all.

Uber, that uber cool ridesharing company, is being sued in California for misclassifying its drivers as independent contractors. In O’Connor, et al., v Uber Technologies Inc., et al., Case No. 3:13-cv-0386, the judge recently certified a class action alleging that Uber drivers are employees whom Uber has improperly classified as independent contractors. And in a similar suit, Uber competitor Lyft was recently denied summary judgment in a suit alleging similar misclassification issues. See Cotter v. Lyft, Inc., Case No. 13-vc-0465-VC.

Oh, and some states are weighing in too. In Uber Tech., Inc., v. Berwick, Case No. CGC-15-546387, the California Labor Commission determined that Uber driver Barbra Berwick was an employee and not an independent contractor.

So what, you say – all that is out in California and I am in the Midwest (at least you probably are if you are reading this) and that is true. But don’t forget, the Guidance is from the Department of Labor, a federal agency, and the two California cases are applying the FLSA, a federal statute, and they apply to you too. Even if your business is not as hipster chic as Uber.

So what do I do, Steve? I can hear you saying that from way over here. Well, here are some things to consider:

First, we have to get a handle on the scope of the issue for you. How many independent contractors do you use and what do you use them for? Where do you get them? And who are they?

Second, once we know who they are and what we are doing with them, let’s look at whether we have a problem. Are these folks properly classified?

And finally, if we have a problem, how can we fix it? And here you have some options, things like hiring these folks as employees, or sending them to a temp agency. Things like that.

Oh, and one more little piece of advice. Before you do this all yourself, or worse yet, hire a consultant to do it for you, remember that any documents you or your consultants create will be discoverable if you do get sued. On the other hand, communications between you and your lawyer for the purpose of securing legal advice are covered by the attorney-client privilege and documents produced by your lawyer may be covered by the work product doctrine. Keep that in mind when you are deciding who to call.



I like all kinds of music. Not every kind of music, all kinds of music.  But if I had to narrow it down to one genre as a favorite, it would be classic rock.  Over the Hills and Far Away from Led Zeppelin’s Houses of the Holy is playing while I write this.  I like the Beatles and the Rolling Stones and I even have the Turtles on my iPod. On my office wall  I have a framed Woodstock poster that my son bought me for Christmas  And while my ponytail and love bead days are way behind me, I still like the music of the 60s and 70s.

So you are probably not going to be surprised when I tell you that most — not all but most — of the over-processed, auto-tuned garbage that passes for popular music nowadays is just not my cup of tea.  And when I read a headline that says “Suit against Justin Bieber by fired bodyguard claims assault, seeks back pay” I’m jumping at the chance to write about it.  Get it?  Overtime? Auto Tune? Assault?

First, let me get to the part that made me fall out of my chair laughing.  At least one of the claims made in this lawsuit, according to both CBS and TMZ is that Mr. Bieber punched and berated his former Israeli army soldier bodyguard.  According to TMZ Mr. Beiber, who TMZ says is 5’ 7’ and weights about 130 pounds,  allegedly  punched his bodyguard “in the chest multiple times during a disagreement.”  Really?  If I were the bodyguard I would be embarrassed to even make that claim.  Why would you subject yourself to the ridicule of everyone thinking that you were “beat up” by Justin Beiber.  Then again, in words of the Mr. Beiber himself:  “”Baby take a chance or you’ll never ever ever know.  I got money in my hands that I’d really like to blow.”  (Before you make fun of me I had to go to the internet to find that little lyrical gem, I don’t know a single Justin Beiber song.   Really.)  But, that is beside the point.

On to the part of the story that is related to employment law. The bodyguard is also suing Mr. Beiber for unpaid overtime.  In fact, he is asking for just a shade over $420,000.  CBS reports that the bodyguard is claiming he worked “14 to 18 hour days between March 2011 and October 2012.” and that he “says he was mistakenly told that he wasn’t entitled to receive overtime. . . .”   Math isn’t my strong point, but 14 to 18 hour days is more than 40 hours in a week unless you are only working a couple days a week.

I don’t know the details of this particular lawsuit (because for some reason I can’t find the complaint online anywhere), but here is the general rule:  If you are not an exempt employee you are supposed to get paid overtime for all hours you work over 40 in a work week.  That’s the rule.  So when is an employee exempt?  That is the question and I’ll guess how this lawsuit is setting up.

You can bet that the bodyguard was paid a salary, and salaried employees don’t get overtime.  Right?  WRONG!  At least half wrong.  You see, under the Fair Labor Standards Act, you generally (there are some limited exceptions) have to be paid on a “salaried basis” to be exempt from overtime, but being paid on a salaried basis alone does not make you exempt from overtime.

You also have to meet one of the duty tests.  You have to be an executive employee, or an administrative employee or a professional employee. And you have to perform the duties of an executive, or administrative or professional employee.  And these duties tests are very narrowly defined.   Being a bodyguard is not any of these.  Being a bodyguard is not exempt work.  So being a bodyguard does not meet one of the duties tests and paying a bodyguard a salary does not mean you don’t also have to pay a bodyguard overtime when he or she works over 40 hours in a work week.  You see, you can be paid a salary and still be entitled to overtime under the law.

There are some other limited exceptions, like certain industry exemptions.  But these are limited, too.  So don’t think that you can just pay an employee a salary and not have to worry about overtime. That is not enough.


Well, we haven’t had a chance to chat about what it going on in Congress lately, mostly because nothing was going on for labor and employment enthusiasts like us. Instead, members of Congress  have been busy with stuff like picking at the other side of the isle, health care reform and campaigning. So, just when you think all we are going to have to worry about for the next couple of months is the incessant political ads during the football game, along come Senator Kerry and Representative McDermott. The Senator introduced S. 3786 and the Congressman simultaneously introduced HR. 6128. Both bills are entitled the Fair Playing Field Act of 2010 and they both seek to do the exact same thing:  amend the Internal Revenue Code of 1986 to allow the Secretary of the Treasury to “provide guidance allowing workers and businesses to clearly understand the proper federal tax classification of workers and to provide relief allowing an orderly transition to new rules designed to increase certainty and uniformity of treatment.”  What? Let me try that again.  The bills are designed to make more workers employees and less workers independent contractors.

According to Senator Kerry, the bills “will ensure workers are afforded protections already in the law, such as workers’ compensation, Social Security, Medicare, payment of overtime, unemployment compensation, and the minimum wage. It will also ensure employers who play by the rules are not forced to compete against those businesses that don’t.”  I like this new trend of claiming that what the Congress is really trying to do is make things fair not only for employees but for “businesses that play by the rules.”  So how does the bill close this “loophole” as Senator Kerry terms it?  Well, let’s ask Senator Kerry.     

“The Fair Playing Field Act of 2010 ends the moratorium on IRS guidance addressing the worker classification issue. The legislation requires the Secretary of Treasury to issue prospective guidance clarifying the employment status of individuals for Federal employment tax purposes. The effective date for the provision of authority to issue guidance is the date of enactment.”

In addition to closing this “loophole,” the bill will require employers who use independent contractors to provide  “a written statement to such independent contractor notifying such independent contractor of the Federal tax obligations of an independent contractor, the labor and employment law protections that do not apply to independent contractors, and the right of such independent contractor to seek a status determination from the Internal Revenue Service.”

As many of us already know, the IRS and the Department of Labor are already cracking down on what they call “employee misclassification.” So what is this bill really about? How about cash?  Don’t believe me? Let’s ask Senator Kerry:  “Federal and State revenue is lost when businesses misclassify their workers as independent contractors. A study estimated that, between 1996 and 2004, $34.7 billion of Federal tax revenues went uncollected due to the misclassification of workers and the tax loopholes that allow it.”

Now, you are probably saying, “Wait! I use independent contractors all the time. What do I do?” And when you are asking yourself that question, there is one thing I want you to be really careful about.  A cottage industry has sprung up among consultants who will tell you that, for a price, they will come in and look at all of your independent contractors and provide you with a nice report about who is properly classified and who is not. Before you go ahead and hire them, remember this: that report, done by that consultant, will be discoverable if you get sued. That’s right, you will have paid a consultant a lot of money to produce what is in essence a plaintiff’s expert report. It won’t take long for the court or a jury to read that report and decide that you are breaking the law and you knew you were doing it. Oh, by the way, it won’t do you any good to have your HR department do the report themselves, it will still be discoverable. So what should you do?  You call us (your lawyers) and let us help. In the meantime, we will keep an eye on this bill.