The test for independent contractor is often a tough one to meet.  Especially in New Jersey which has (as do many other States), the famous (or infamous) A-B-C test.  The courts also support this test as is again evidenced by the NJ Supreme Court’s refusal to take a case challenging a ruling under that test.  That ruling found exotic dancers (i.e. strippers) to be employees under the state Unemployment Insurance law.  The case is entitled Dance Inc. v. New Jersey Department of Labor and Workforce Development, and had been submitted to the New Jersey Supreme Court, which denied certification.

The Appellate Division had ruled in 2017 that these dancers were employees.  A panel of two Judges rejected the contention they were independent contractors.  The appellate panel ruled that the club had made a “frivolous” argument by asserting that “the work of exotic dancers is marginal, rather than integral, to its business.”  The Court stated that this “contention is belied by petitioner’s corporate name, its website, and the description of the club’s operation.”

The DOL Commissioner had held that “the dancers were presumed to be employees because they worked for tips.”  Thus, they did not meet the stringent statutory test which mandates that the alleged independent contractors: 1) be free from control or direction over the services they render; 2) the services rendered must either be outside the usual course of the business or “performed outside of all the places of business of the enterprise;” and, 3) the individuals must be “customarily engaged in an independently established trade, occupation, profession or business.”  It is this last prong, the independent business prong, which makes most of these cases go south for the putative employer.

The business herein sought to demonstrate that the dancers were not employees by mandating that they execute a “stage rental/license agreement.”  That document stated that they were independent contractors and that they had to “rent” their use of the stage.  There was, however, no rental fee set forth in the agreement and it was in English.  Unfortunately, the dancers only spoke Spanish or Portuguese.

The Club claimed that it exercised no control by claiming the dancers took no direction from the owner or manager, the dancers came and went as they pleased and were not ordered to work any set schedules.  The actions of the club, however, belied this contention, as noted by the Judges.  In this regard, the website showed photos of “dozens of scantily-dressed women, under the web page heading ‘Our Girls.'”  The website also reflected the dancers’ schedules who danced every day at the club.

The Takeaway

The lesson here is to be very careful about if/when to classify someone as an independent contractor.  As this ABC test is one of the strictest, I submit that every employer in whatever jurisdiction it is situate and whatever particular statute it is dealing with, should test the putative contractor’s status against this stringent ABC test.  That way, if the contractor passes that smell test, the employer can feel better about the independent contractor status.

Now that the USDOL has established $35,000 per year as the new threshold for exempt status, several groups have already taken shots at that new salary level. The deadline for comments has ended and we will see what happens. However, worker advocate groups have assailed the rule and urged the agency to revert back to the Obama level of approximately $47,000. On the other hand, some small business owners decry this new level, asserting it will cause them difficulty for their businesses. In sum, it seems no one is happy.

The new standard sets the threshold at the 20th percentile salary in the country’s lowest-paid regions. Some critics still maintain this is not taking into account that we are dealing with a weak economy. A Dairy Queen franchisee, for example, pays his supervisors a salary of $27,000; these workers, he says, consider themselves part of management, but they would not think of themselves in that way under the new law, when/if they were converted to hourly. Another small business owner asserted that prices would rise, salaried workers would be made hourly or workers would see their hours cut, all of these being unwelcome alternatives. As she said “none of these prove to be a winning solution for business growth.”

The National Restaurant Association labeled the $35,000 as too high. The Association stated that even though the lower paid South was used as the benchmark, there were many higher paying jurisdictions in this region which would skew the results upwards. Thus, restaurants and other small businesses in lower-wage regions would be adversely impacted. Some business groups, however, praised the DOL. The American Hotel and Lodging Association stated that this methodology provided employers with “an easily applied, bright-line rule that protects employees who obviously should not be exempt from overtime pay.”

However, employee advocate groups sharply attacked the rule. Under the Obama-proposed rule, there would be an additional four million employees eligible for overtime. The Center for Law and Social Policy stated that the new level will “undermine the economic security of working families” in that workers will have to work additional hours for just a little more pay. A plaintiff lawyer organization asserted that it was “gravely concerned and disappointed by the unconscionably low salary level” that the new rule would put in place.

The Takeaway

For myself, I think the $35,000 is a reasonable number, a decent compromise. The current 23,000 is way too low and the previously proposed $47,000 was way too high.

You can’t make everybody happy…

This is a very interesting case.  A group of nurses at a Texas hospital claimed they their employer intended to pay them an annual salary rather than an hourly rate and thus they were owed no back wages.  They won in the lower court and appellate court but, now, the Texas Supreme Court has reversed, finding that there was insufficient evidence to substantiate that allegation.  The case is entitled McAllen Hospitals LP et al. v. Lopez and issued from the Supreme Court of Texas.

The Court set aside the judgments for the four workers, which totaled more than $389,000.  The Court noted that there was nothing in their yearly performance reviews, payroll change forms, Employee Handbook or any policy of the accounting or HR departments to indicate, much less explicitly state, that the nurses were paid on an annual, as opposed to an hourly rate.  Instead, the Court found that the nurses’ employer made it plain that they would only earn the annual salary if they worked at least forty hours per week in the following year.  The Court found in those years in which they worked less than 2080 hours, they would not receive as much money.

The Court stated that “we hold there is no evidence that would have allowed reasonable, fair-minded people to find that the employer and its employees had a meeting of the minds on a fixed amount of pay.  We therefore reverse and render judgment that the employees take nothing.”

The nurses worked as supervisors and were classified as exempt employees under the Fair Labor Standards Act.  On an annual basis, they met with their bosses to go over their yearly evaluations and to set their pay for the new year.

The Takeaway

If the nurses were hourly paid, they were then, by definition, non-exempt.  Why did not they win on that basis alone?  The only explanation it seems is that the nurses did not work more than forty hours in any week, because if they did they would be entitled to overtime regardless of whether their annual salaries were supposed to be a certain figure.  The important lesson here is that misclassification, in and by itself, means nothing unless the employees at issue actually work more than forty hours, i.e. overtime, in a week(s).

That is a very important point…

I have blogged numerous times about these automatic lunch deduction cases and have suggested remedies.  Yet, these cases proliferate.  Another very recent example is that of a hospital that has agreed to pay more than $4,000,000 to settle a FLSA collective action where the workers allege that their employer violated the Fair Labor Standards Act by automatically deducting a thirty-minute lunch break, every day, whether or not the employees allegedly worked through lunch.  The case is entitled Small et al. v. University Medical Center of Southern Nevada and was filed in federal court in the District of Nevada.

The workers were a class of respiratory therapists; there were 600 workers in the settlement.  Interestingly, the plaintiffs’ attorneys received more than $1.2 million in attorney fees.  The class members will receive, on average, approximately $3,500 each.  Settlement was appropriate, as pointed out in the parties’ joint motion for approval of the settlement.  The brief stated that “this case was particularly risky as it involved a large class that defendants allege plaintiffs would have trouble to sustain because of alleged distinctions between each individual plaintiff’s job function and departmental management structure.”

The USDOL had investigated the hospital and had concluded that the hospital automatically deducted one half-hour every day for lunch whether the workers in fact took the lunch.  Significantly, the employer was cognizant of its errant automatic deduction policy but nevertheless continued to enforce it.  The class was certified, notwithstanding that the employer argued that too much individual scrutiny was required to determine who was owed money.

The hospital defended by asserting that workers could override the automatic deductions by entering a cancellation code into the computer system that kept track of employee work hours. The hospital also defended by claiming that it did not know this was happening because employees never complained to HR or used the override system.

The Takeaway

The employer here was on the right track (so to speak) because it had an override policy in place but the employees either did not know about it or did not know how to utilize it.  That was the employer’s failing here.  It is permissible to use such an automatic deduction policy, but there must be put in place a fail-safe system, some kind of reporting mechanism that employees have full knowledge of and use to report a supposedly missed lunch.

That is the employer’s ultimate protection…

The issue of independent contractor is in the forefront of today’s legal scene, on numerous fronts.  There is also an issue with changing technology and its impact on these thorny issues. Now, the USDOL has issued an Opinion Letter addressing this issue as concerns the so-called gig economy.  The Opinion Letter focuses on individuals who work for a gig economy platform that links up service providers with clients; the Opinion Letter concludes that they are independent contractors.

The Opinion Letter used the six-factor test gauging the “economic realities” of whether workers were employees.  The Opinion Letter concludes that the workers were not employees because they were not economically dependent on the business, which was labeled as a “virtual marketplace company that operates in the so-called ‘on-demand’ or ‘sharing’ economy.”  The employer is in a class of smartphone/web-based businesses offering platforms that pair consumers with people who provide different kinds of services, such as Uber, the general labor app TaskRabbit and the cleaning app Handy.

The Opinion Letter staked out that an economic dependence on an employer is the “touchstone of employee versus independent contractor status.”  The Opinion Letter examined this putative dependence by looking at the “control” over the worker; how permanent was the relationship; the “investment in facilities, equipment or helpers”; the “skill, initiative, judgment or foresight” that is used for the performance of the services; the person’s “opportunities for profit or loss” and whether the services performed were integrated into the business.  The Opinion Letter concluded that analysis of the factors tilted against a finding of employee status.

The Opinion Letter concluded that the ostensible employer “does not appear to exert control” over the individuals but. Instead, gave them “significant flexibility.  Tellingly, that also involved the person’s ability to look for/find other opportunities.  The individuals also retained a “high degree of freedom” to go work for competitors.  They were also not integrated into the putative employer’s referral business.

The Takeaway

This is a major departure from the views that the Obama DOL espoused.  This letter, this approach, is definitely more business friendly than the guidance from the predecessor administration.  The Opinion Letter, which may be relied upon to give employers a good faith/safe harbor defense provides more flexibility for employers and gives guidance to businesses in structuring such arrangements to maintain the status of these individuals as “independent contractors.”

A good start….

When the Department of Labor, whether USDOL or a state agency, issues an Opinion Letter on a certain topic/issue or follows a consistent course of conduct vis-à-vis a particular employer, that employer is allowed to rely on that letter or administrative practice or enforcement policy.  The Opinion Letter or consistent practice then acts as a bar against a lawsuit or claims that the employer owes overtime or owes the employee(s) other monies.

The so-called “good faith defense” provides that an employer’s reliance upon an “interpretation”, “ruling”, “approval,” “administrative practice” or “enforcement guidance” by the DOL is a complete bar to a lawsuit.  Significantly, it does not matter whether the DOL’s interpretation is correct or whether a court subsequently rules that the agency was “wrong” or that the employer would, ostensibly, owe the claimed monies.

The employer must have good faith and cannot shut its eyes to potential problems or concerns in the advice it wishes to follow and claim as a defense.  The good faith test, coupled with a reasonable belief that what it is doing is correct, are the linchpins of any such defense.

The good faith defense is consistent with the premise that Courts must give deference to the DOL’s interpretation and enforcement of the laws under its purview.  More specifically, when interpreting a statute or regulation that an agency is charged with enforcing, a court will give substantial deference to the agency’s interpretation which will prevail provided it is not plainly unreasonable.

The Takeaway

If an employer has been investigated by a DOL (state or federal) and receives a favorable outcome (e.g. decision not to assess overtime or other violations), that is a precious chip that should be saved until it is time to cash it in.  That time would be when a lawsuit ensues, seeking the same monies (e.g. overtime) as the agency found were not due.

Trust me, it can work…

The USDOL has proposed a new cut-down (watered down?) test for determining when entities are a joint employer.  Such a finding leads to the aggregating of employee hours which are worked at both places as well as rendering the entities jointly liable for wage-hour (e.g. overtime) violations.

The focus of the new proposal is a four-factor test to determine whether two (or more) businesses qualify as a joint employer: The power to hire and fire, the ability to control work schedules; the determination of rates of pay; and, the maintenance of employment records (e.g. time sheets, payroll) are the crucial factors.  The test emanates from a three-decade old federal California decision where these factors (save for hiring and firing) were first enunciated.

One commentator, Ryan Glasgow, opines that “the new four-factor test contained in the proposed rule is intended to limit joint-employer status to those situations where the putative joint employer acts directly or indirectly in the interest of the employer in relation to the employee.”

Advocates on both sides attacked or vigorously supported the new proposal.  For example, a spokesman at the International Franchise Association stated that the DOL can now “undo one of the most harmful economic regulations from the past administration and replace it with a rule that creates certainty” for all franchise businesses.  An employee advocate lamented that the new rule would allow larger entities to escape liability merely by contracting out work to “smaller and poorly capitalized” businesses.

There is also the possibility, according to a plaintiff side attorney, that the new rule might cause businesses to contract with other entities and pressure those contractors not to comply with all labor laws, e.g. overtime.  This lawyer, Michael Rubin, stated that “the consequence if a company can’t be held liable for violations that occur, say, at a contractor’s workplace is that there’ll be more contracting out, more violations committed by undercapitalized contractors or franchisees because the company that pulls the economic strings recognizes that it can cut labor costs by not only contracting out the direct employment, but contracting out legal liability.

The Takeaway

Yes, there is a chance that some employers might contract out their obligations for FLSA compliance.  Frankly, I do not believe that is the big danger plaintiff side lawyers might be crying about.  I have found, over thirty years of practicing labor and employment law, that the vast majority of employers are good faith, well-intentioned entities who want to comply with the law but there is a lot of gray in the provisions of the FLSA, especially on the doctrine of what is/is not a joint employer.

Maybe this new proposal is a ray of sunlight into this dark cavern…

Even the most well-intentioned employer who wants to comply with the FLSA will have trouble, as there are many gray, nuanced provisions and regulations in this law, especially on overtime computation.  One of these is the requirement to include non-discretionary bonuses in the overtime calculation of non-exempt workers.  That may now be changing as the USDOL has issued a notice of proposed rulemaking, one proposal of which states that employers do not have to include these bonuses or other quasi-monetary benefits they receive from their employers.

The agency has stated that the new rules are intended curb the “fears” that prevent employers “from offering more perks to their employees as it may be unclear whether those perks must be included in the calculation of an employees’ regular rate of pay.”  The agency also wants to update these rules as the proposals would clarify the meaning of the term “regular rate” in the modern world of work.

First, there must be a notice of proposed rulemaking.  The comment period has opened and will close on May 28.  Now, the FLSA mandates that employers include, in employee regular rates for purposes of overtime computation, “all remuneration for employment paid to, or on behalf of, the employee.”  There are currently some exclusions but now there would be more.

The new rule would exclude from regular rate calculations any cash outs of unused PTO time.  The rule also would exclude the cash amounts given for perks such as onsite health treatment by chiropractors and massage therapists, employer-provided gym memberships, employee discounts on purchases of company products and amounts given for tuition reimbursement.  Most significantly, the rule provides for the exclusions of some sums given as “bonuses.”  The rule would take out of the includible amounts such sums paid for being the employee of the month honors or a sum given for “unique or extraordinary efforts.”

The Takeaway

The proposal probably can be fairly characterized as pro-employer.  Exclusion of these items in the regular rate will result in lower overtime calculations.  On the other hand, some of these items (e.g. gym memberships) were likely never intended by the drafters of the regulations to be included.

I think it’s progress…

I continue to blog about working time cases because these are the kind of lawsuits that can sneak up on an employer who does not realize that a certain pre-shift activity may in fact constitute working time under the Fair Labor Standards Act.  This is again illustrated by a trucking company case where the Company will pay $3.8 million dollars to settle a FLSA collective action alleging non-payment for orientation and training time.  The case is entitled Cormier et al. v. Western Express Inc. and was filed in federal court in the Middle District of Tennessee.

This was a major case, with more than four thousand drivers opting in to the case.  The plaintiffs have requested that the Court approve the settlement, filing an unopposed motion, which stated that the agreement was a “fair compromise of the claims asserted.”  Each opt-in will receive an average of $450.  The motion papers asserted that “the settlement was not the result of a backdoor agreement but instead the result of the parties and their counsel fully evaluating the risks of continued litigation and the benefits of settlement under the auspices of an experienced class action, employment law mediator.”

The lawyers will receive more than one million dollars in fees.  The seven named plaintiffs will also receive so-called incentive awards of up to $7,500 and those opt-ins who were deposed will also receive these incentive awards.

The drivers claimed that they were not paid, at least the minimum wage, for their time spent in orientation and the Company training program.  The Company also paid drivers based on miles driven, which, the drivers alleged, caused them not to receive the minimum wage when the compensation was averaged out over the week.  The Company denied liability and asserted the damages claimed were inflated when it agreed to settle the case.

The Takeaway

The key here is that wherever there is an element, any element, of employer compulsion, like mandated orientation or mandated training, the odds are very good that this will be found to be compensable work time.  I am sure this employer was not aware of that and this is the real problem facing employers, i.e. not knowing when certain activities are compensable.  Now, this employer has learned a lesson.

An expensive one…

What scares me the most about a USDOL audit or a FLSA lawsuit is the threat of liquidated damages. These damages, which double the wages due, are imposed almost routinely in court cases and are being imposed more and more by the administrative agency.  Well, sometimes the pendulum swings the other way, as illustrated by a recent case.  Although the Sixth Circuit affirmed the fact that the employer did not pay overtime properly, it denied the government’s request for liquidated damages.  The case is entitled Acosta v. Min & Kim, Inc. et al., and issued from the Court of Appeals for the Sixth Circuit.

The workers, sushi chefs and servers, did not receive overtime.  They worked 52 hours every week but received only a set lump sum of money, without regard to the number of hours worked and without any overtime.  With that said, the Court would not award liquidated damages, concluding that the employer acted in “good faith” and was not seeking to evade the law.

The lower court Judge had granted summary judgment for the agency on the overtime liability issue.  The Judge ordered the Company to pay more than $112,000 in back due wages.  The Company appealed but the appellate Court upheld the wage portion of the holding.  The Court found that it did not matter if employees were fairly or even generously paid, an employer was “not free to select which parts of the act with which to comply.”

The Takeaway

Maybe the Court did not award liquidated damages because the workers here were very well compensated, which demonstrated that the Company was not out to nickel and dime its employees.  A showing of good faith is necessary to even think about avoiding liquidated damages but, to me, it is hard to envision how a wholesale failure to pay overtime could be considered “good faith.”

But, with that said, don’t look a gift horse in the mouth…