I have blogged numerous times about the strictness of the New Jersey A-B-C test as applied to possible independent contractors.  The prime example of this is the very recent assessment of Uber for $650,000,000 in back-due unemployment contributions.  This incredibly large assessment, certain to be litigated about for years, is a sign to employers, large, small or otherwise, that the State of New Jersey has declared war against any designation of an individual as an “independent contractor.”

Uber will certainly fight this to the hilt, as such an unbelievable assessment is a direct, systemic threat to its business model.  The Company stated that it is “challenging this preliminary but incorrect determination, because drivers are independent contractors in New Jersey and elsewhere.”

Uber can (and will likely) seek an informal meeting with NJDOL officials, with someone titled the Redetermination Auditor to see if it can cut a deal.  The reality is that the DOL will never agree that all (or any) of these individuals are independent contractors and Uber will likely never concede that any of them are employees because that would have nationwide consequences.  Even if the NJDOI agreed to cut the assessments down to nominal, nuisance value amounts, Uber would be compelled to treat all of its New Jersey drivers as statutory employees going forward.  The Company will never voluntarily do that.

A further cruel irony awaits Uber (or any putative employer).  If the Company cannot cut an acceptable deal with the Redetermination Auditor, the case will proceed to trial in the Office of Administrative Law (OAL), before a neutral Administrative Law Judge (ALJ), who is not a DOL employee. Even if the Company completely prevails before the ALJ, the Commissioner of Labor, the head of the agency that the Company has just beaten, then has forty-five days to sustain, modify, or reverse the ALJ decision.  Any bets as to which option the Commissioner would choose?

Uber could then go through the New Jersey courts, starting with the Appellate Division but courts greatly defer to the position (and decision) of a State agency.  Thus, it is very dangerous to take a case to OAL because even if you win, you may well, in the end, lose.

The Takeaway

The end result, potentially, is that Uber has to change its business model or create some indicia of true employment.  As one commentator has put it, there may be born a cadre of individuals known as “dependent contractors where there is some melding of the attributes of employee and independent contractor.

But, for sure, some revenue will flow to the State…

The New Jersey test for independent contractor status under the unemployment laws is already very tough, the very infamous, A-B-C standard.  That is seemingly not enough for this Administration and Commissioner Asaro-Angelo.  The Senate Labor Committee has just passed Senate Bill 4204 which will revise the last two prongs of this tri-partite test, making it even more difficult for a single individual (e.g. a sole proprietor or LLC) to be found to be an “independent contractor.”

The putative employer must prove that all three prongs of the test.  The first prong, the control prong, requires that the individual will be free from control or direction over the manner in which he performs the services; the person must be able to come and go as he pleases, set his own hours, reject work, not report to an office and other similar indicia.  This prong, usually not a problem for a putative employer to meet, has been left unchanged.

The fun begins with Prong B.  The revision would toughen up this prong by requiring that the “individual’s service is outside the usual course of the business for which that service is performed.” Thus, even if the contractor performed all of his duties away from the employer’s place of business (which today would meet the prong), the B prong would still not be satisfied if the contractor was in the same business or field as the putative employer.  Thus, a lawyer who was free lancing for a law firm would not be outside the “usual business” of his putative employer.

The third prong has always been the toughest to meet.  Of the 100 or so independent contractor audits (most under this test) I have defended, most go south for the employer on the third prong because making that showing is numerical, and based on the magical 30% of income from sources other than the (audited) employer.  The revision here mandates that this other income must be derived from a trade or business/profession “of the same nature as that involved in the work performed.”  Before this, an individual could show they had their own business independent of the putative employer but now they would have to be operating in the same field of endeavor as the type of services they are providing to the particular employer.  For example, the lawyer in the above example who was engaged by a college to teach Evidence would not be providing lawyer-like services to the college.

Lastly, there is some potentially troubling language that states that even if an individual meets the new A-B-C test, that person would still be an employee “unless and until” the Commissioner finds otherwise.  This might mean that the Commissioner (or his designee) needs to assert/affirm that a certain individual was in fact an independent contractor, even if the employer proved, in a lawsuit, that the person met the new test.  This seems to be to be an almost nonsensical interpretation of the statute but who knows?

The Takeaway

This law would, beyond dispute, make New Jersey the toughest State to prove independent contractor status.  I believe the bill will pass, probably with ease.  If so, as I harp on all the time, it behooves all employers to conduct internal audits of their independent contractors, the agreements evidencing those relationships, and most importantly, if the conditions “on the ground” would satisfy the new draconian standards.

Ounce of prevention, you know…

It is fairly easy for a plaintiff to get conditional certification in a FLSA class action case, but that is not the end of the story.  The next step, much harder, is fending off the defendant’s anticipated motion to stop the class from receiving final certification.  It is even more difficult to withstand that defendant’s challenge when the Judge that approved conditional certification indicates getting final certification will be a lot harder.  A recent example of this is an exemption misclassification case that just settled.  The case is entitled Porter v. Merrill Lynch Pierce Fenner & Smith Inc., and was filed in federal court in the District of New Jersey.

The employees are supervision analysts employed on an electronic communication review team in Pennington, New Jersey, there were more than fifty (50) class members.  These workers were classified as exempt.  The plaintiff’s lawyers (including Mitchell Schley, Esq., a law school classmate) calculated the possible damages as exceeding one million dollars (including liquidated damages) and noted that the plaintiffs could have recovered a maximum wage award of $533,000.

The motion to the Court advised that “by reaching a mutually acceptable settlement prior to class and collective action certification briefing, depositions, dispositive motions, possibly a trial, and possibly appeals, the parties have reduced their risks and avoided significant expense and delay.”  The papers continued by asserting that “the maximum settlement amount also represents a fair value in light of the attendant risks of litigation, even though a greater recovery may be possible if Porter were 100% successful in every phase of the litigation, including possible appeals,” according to the brief.

The plaintiff alleged that she and the others were non-exempt and then reclassified as exempt in 2011.  The employees reviewed all emails sent/received by financial advisers, especially those kicked out by the computers that utilized certain criteria to determine emails warranting closer inspection.  Early in the case, the Judge found that they had presented a “requisite factual nexus between her situation and the situation of other employees sufficient to determine that they are similarly situated.”  The Company had, however, presented evidence that the email reviewers had more significant responsibilities than the plaintiff and that they were exempt.  Thus, the Judge warned that obtaining final certification would be tougher, a clear sign that the case was going south.

The Takeaway

The plaintiff was well advised to settle here, as it was evident that final certification might not be granted.  This is an interesting twist on the usual course of these cases, meaning that once conditional certification is granted the case usually (and quickly) settles.  Here, a deep-pocket defendant which had the funds to fight to final certification coupled with perhaps a pretty good case on the merits turned the tables on the plaintiffs.

But, with that said, plaintiffs still got a pretty good deal…

 

Many industries and businesses are seasonal and I have been often approached with a client question to the effect of whether the client can change the exempt status of workers, depending on the season.  This occurs, for example, in the case of an employee who is the Head Coach of an athletic team for a college, when that particular season is over.  Can the status be changed (and compensation reduced) so as to lower labor costs?  The answer is, under the Fair Labor Standards Act, an employer is able to do so.

Head Coaches, who are salaried at $455 or more per week (the current salary threshold), are considered exempt employees under the executive exemption of FLSA/state law.  During the off-season, they may engage in some recruiting activities or other preparatory work, but the number of hours they work is considerably lower than what they work during the season.  By still paying the agreed-upon salary, a College is spending money needlessly, given the work produced during the off-season which stresses the labor budget.

The issue of whether an employee is exempt is a week to week analysis.  For example, if an otherwise exempt employee performs an inordinate amount of non-exempt work in a particular week, the exemption will be lost for that week and the employee would be due overtime if he worked in excess of forty hours in that week.  If, in the following week, the employee performs exempt work the requisite amount of time, the exemption is re-gained.

It is possible to re-classify, in this example, the Head Coaches (or other employees) as non-exempt employees during the off-season, by paying them on an hourly basis and, naturally, paying them time and one-half overtime should they (by chance) work in excess of forty hours in any particular week.  Importantly, this seasonal switch will not jeopardize their exempt status when the sports season gets underway, provided they are switched back to a salaried status and perform the exempt work they had been doing previously.  Wage Hour Opinion Letter No. 93 (November 11, 1970).

As indicated in this Opinion Letter, however, “recurrent changes in an employee’s status may lead to an across-the-board denial of the exemption.”  In other words, a seasonal change in status is acceptable and will not impact the overall exempt status of employees, but frequent changes, (e.g. monthly) might have such an adverse impact.  Accord Wage-Hour Opinion Letter (November 29, 1968) (approving change in compensation from salaried to hourly and back again to account for seasonal variations in work flow, provided notice was given to the employees of the proposed changes and when they would take effect).

The Takeaway

So, it is possible to change the status of Head Coaches or other employees to account for seasonal swings in their work hours, provided that such changes are not done frequently.  The employer need not be tied to or imprisoned by the “yoke” of exempt status.

Tis’ the season…

I like how the USDOL is moving along with proposals and plans that assist employers in running their businesses, compensating their employees fairly, and, importantly, not running afoul of the Fair Labor Standards Act (FLSA).  The agency has now proposed a rule that would allow employers to use the so-called “fluctuating workweek” formula for overtime computation to account for the bonuses of the workers.

The agency has issued a notice of proposed rulemaking on this matter.  If implemented, it would do away with an Obama-implemented regulation that tried to stop employers from transferring, in essence, a big chunk of employee base salaries into bonuses.  There will be thirty days for comment, after which the agency will issue its decision, accepting or rejecting the comments and the suggestions therein.

Cheryl Stanton, the Administrator, thought highly of the fluctuating workweek initiative.  She asserted that regulations have resulted in employers’ “uncertainty regarding their ability to provide bonus pay for workers with fluctuating workweeks.”  She added that “this proposed rule will provide much-needed clarity for job creators who are looking for new ways to better compensate their workers.”

This method of computing overtime allows for basically a half-time method of calculation for each week, depending on the number of hours worked, which may fluctuate.  It allows employers to pay overtime hours at “reduced” rates provided that the employees receive a base salary, without regard to the number of hours worked in that particular week.  For example, an employee salaried at $500 per week and who worked forty-five (45) hours would receive the base salary of $500 plus five hours at half their regular rate for that week (the computations yields $11.11) for total pay of $527.78.

Courts administering the fluctuating workweek structure have disagreed about whether employers should be allowed to pay workers overtime, the DOL said in its proposed rule.  The agency stated that it is no longer concerned that employers will seek to “nickel and dime” their employees by using this method to dilute bonuses.  The agency observed that one study opined that bonuses make up “a relatively small portion” of total pay for workers.  Thus, the recommendation from the DOL was to permit employers to pay bonuses as long as they became a component of the computation of the regular rate.

The Takeaway

This is good news for employers.  It clears things up and allows employers to use a favorable method of computing overtime for bonus eligible employees at the same time complying with the FLSA.  I believe most States will defer to this interpretation.

And courts will as well…

There has been a lot of talk about how much more pro-business the U.S. Department of Labor was going to be under this Administration.  Well, appearances can be deceiving, as a report has just come out indicating that the agency collected in excess of $322 million last year for workers who did not receive proper overtime or other compensation.  This represents an increase of over $18 million from the year before.

The Secretary of Labor observed that “these record-breaking numbers top the department’s totals from last year, which also set records, and confirm our ongoing commitment to strong enforcement and to providing employers with the tools they need to comply with the law.”  Significantly, another component of the agency, the Office of Federal Contract Compliance, just announced it had smashed its record on this front and brought in excess of $40 million.  That figure included a $9.9 million dollar settlement with Goldman Sachs and a 7 million dollar settlement with Dell.

The agency also garnered almost $4,000,000 in back due overtime for hundreds of workers who were employed by a major pipeline construction management company Team Environmental LLC.  The DOL also secured millions from federal contractors who underpaid workers, including an almost $2,000,000 settlement with a McKesson Corp. subsidiary.  The Administrator of the Wage and Hour Division stated that the agency is “delivering a level playing field for employers and employees alike.”

The Administrator continued by emphasizing that “we are delivering more back wages for workers than ever before, and we are steadfastly eliminating any unfair economic advantage employers may try to gain by skirting the rules.  We are protecting those who do the right thing, pay their employees what they have legally earned and operate in compliance.”

The agency also seeks to expand on its initiatives to target certain industries and businesses for audits and inspections.  The DOL will use an “improving and expanding … data-driven approach” to identify these industries and will focus strong attention to that particular sector.

The Takeaway

Seems like the agency hit the jackpot last year for employees and seems intent on upping that mark for this year.  The best protection for employers who do not want to be on the government’s scorecard is to conduct an internal, self-audit of all of its compensation practices to determine if it is in compliance with wage hour laws and then fixing what may be broken.

Before the USDOL does it for you.  And charges you for that “service”…

The truth is that cannabis has now become (and continues to become) big business and the issue of regulation, much, none or in the middle, is now coming to the forefront in legal circles.  Many firms (my own included) have cannabis practice groups and are advising companies in this burgeoning field about the rules of the road, in many areas of the law.  One of these is the wage hour laws and the trend has been for courts to find that the Fair Labor Standards Act applies to workers in this industry.  Yet another federal court, this time an appellate court, has held that the FLSA applies to these workers.  The case is entitled Kenney v. Helix TCS and issued form the Court of Appeals for the Tenth Circuit.

The Court held that the federal Fair Labor Standards Act applied to workers who worked for a business whose existence violated another federal law, the Controlled Substances Act (CSA).  This seems paradoxical but maybe not, given the salutary purpose of the FLSA, i.e. protecting workers from being underpaid and taken advantage of.

In Kenney a group of security guards employed by a cannabis entity filed a collective action, charging that they were misclassified as exempt and thus were deprived of overtime.  The employer defended by contending that the FLSA did not apply to its workers because they worked with a substance that was deemed illegal under the Controlled Substances Act.  Thus, the employer reasoned that it did not have to pay overtime.  The lower federal court did not agree and neither did the Tenth Circuit disagreed.

The Tenth Circuit observed that there was no doubt that the FLSA covered marijuana workers.  The Court stated that “Congress has actually amended the FLSA many times since the enactment of the CSA without excluding employees working in the marijuana industry, despite specifically exempting other categories of workers.”  The Court held that a “plain reading and the overall purposes … does not require disavowal of the CSA.”

The Court also held that both of the purposes of both laws were advanced because allegedly illegal businesses were not shielded from the compliance costs that lawful businesses have to deal with.  In conclusion, the Court labeled the employer’s contention that the FLSA did not apply as a “legal theory as flawed today as it was in 1931 when jurors convicted Al Capone of failing to pay taxes on illicit income.”

The Takeaway

The Tenth Circuit may have given the roadmap for courts to extend this reasoning to other types of controversies.  Certainly, federal courts nationwide may take this as a sign to extend the reach of federal law to the cannabis industry in a manner as to not conflict with the CSA.  The end result may be an equalizing effect, as ensuring that all entities in the legal cannabis industry comply with some common standards, like the FLSA.

Many times, plaintiff lawyers will try to file FLSA class actions as nationwide lawsuits so the size of the class and potential recovery can be magnified geometrically.  Well, that just got a little harder to do as a federal judge rejected an attempt by a group of Outback Steakhouse front-of-house managers to continue as a countrywide class in a Fair Labor Standards Act overtime case.  The Judge did acknowledge that she harbored “serious concerns” about what her ruling portends for other such collective actions.  The case is entitled Chavira v. OS Restaurant Services LLC and was filed in federal court in the District of Massachusetts.

The Judge denied the motion for conditional certification in the lawsuit which charged the employer has misclassified the Managers as exempt.  The Judge also granted the motion to strike the opt-in notices signed by plaintiffs who worked outside of Massachusetts.  In so doing, the Judge relied on the US Supreme Court’s decision in Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County.

The Judge observed that she had “serious concerns regarding the implications of the ruling on the future of FLSA collective actions.”  She did, however, need to follow the precedent established by the highest Court in the country.  That holding, the Bristol-Myers Squibb case, held that in a class action, a California court did not have jurisdiction over plaintiffs who lived elsewhere because there was an insufficient connection between those plaintiffs and the State of California.  Herein, as the named plaintiff could not demonstrate that there was a connection between the activities of the steakhouse in Massachusetts and those locations elsewhere, the Court had no jurisdiction over them.

The Judge also concluded that was an insufficient basis for a class action because the named Plaintiff had not shown he was similar to others.  His affidavit was very localized in geographical scope.  Therefore, the Court ruled that he had not sustained the burden of showing similarity and it could not be done “on plaintiff’s representations alone.”  As the Court aptly put it, “to allow a putative collective action to proceed to the notice stage on the basis of one named plaintiff’s affidavit, without supporting documentation relevant to Massachusetts locations, pushes an already ‘low’ burden significantly lower.”

The Takeaway

This is a very interesting legal turn, down the path, for a change, of the employer.  Hopefully, it will be a trend.  I wonder if it will make the plaintiff’s bar more reasonable in their often inflated settlement demands.

I wonder…

 

I have defended many claims and lawsuits involving working time, especially travel time.  Employees are continually seeking innovative ways to convert their otherwise non-compensable home-to-work travel into compensable work hours.  These efforts often fail, as illustrated by a recent case where Chicago police officers sought pay for transporting and storing their guns and then retrieving them.  The Court found this activity was not sufficiently connected to or integral to their primary duties.  The case is entitled Bartlett et al. v. City Of Chicago, and was filed in federal court in the Northern District of Illinois.

The officers’ theory was that the time was compensable because it helped them be ready for their primary function of responding, on a moment’s notice, to dangerous situations.  The Judge disagreed, finding that although the activity of storing and retrieving their guns supported their primary function that did not “mean that they are integral and indispensable” to that function.

The Judge aptly noted that the effect of finding this small amount of time was compensable would mean that the commuting time of the officers from their homes to the police station would be compensable, as their work day would have already started.  The Judge stated that “the law prohibits a finding that such efforts are compensable when they primarily consist of commute time.”

The Judge also was guided by a Ninth Circuit decision where firefighters tried to claim overtime compensation for loading and transporting their gear to fire stations.  The Ninth Circuit found that these activities were “two steps removed” from their primary duties and the Judge here also found the activity too attenuated to the primary duty of the police officers to warrant compensation.

The Court held, quite aptly, that “while keeping SWAT gear at home may promote the overall goal of critical incident response, it is not integral and indispensable in much the same way that a firefighter’s loading and transporting of gear is not integral and indispensable to fire suppression.”  That, to me, is the essence of the holding.

The Takeaway

Employees are always seeking to elevate the status of things they may have to carry or keep in their cars so as to make all their home-to-work travel time compensable.  In the 1990s, canine police officers did it by claiming carrying their dogs in their patrol cars converted the time.  I won a Second Circuit case, Kavanaugh v Grand Union, where the worker claimed his transporting his tools converted his travel time.  They keep trying.

And failing…

It has finally happened! The USDOL has announced that it is setting the new exempt salary threshold for the “white collar” exemptions at about $35,000, about $700 per week.  The exact salary is $35,368 annually.  This is far lower than the Obama-proposed $47,000 per annum, almost $900 per week.  The new salary level takes take effect on January 1, 2020.

The acting Secretary of Labor noted that “for the first time in over 15 years, America’s workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans.”  The agency decided on the new level in March 2019 and just finalized the new rule, with few changes from that proposed in the spring.

The Highly Compensated Exemption (HCE) threshold rose from $100,000 to $107,432. The Obama proposal would have set this level at approximately $147,000.  This exemption applies to well-paid workers who perform a single exempt duty.  On another note, and this is very important, there is no escalator provision in the rule.

The agency believes that approximately 1.3 million workers will now become overtime eligible.  There was, however, political backlash, as Congressman Bobby Scott, D-Va., Chairman of the House Committee on Education and Labor, asserts that many millions will not receive the overtime that they should.  He stated that “the Obama administration’s rule, which was a modest but significant effort to restore overtime protections, would have covered a third of salaried workers.  The Trump overtime rule will cover less than 15 percent of these workers.”  He also lamented the failure to provide for a mechanism for automatic increases to the base salary for exempt status.

The Takeaway

I may be a voice crying out in the wilderness, but I don’t think this is such a big deal.  My experience with my clients is that the vast majority of them, of employers, are already paying $700 per week to workers they deem exempt, even first level supervisors.

Much ado about nothing?