Last week, in Dynamex Operations West, Inc. v. Superior Court, 2018 WL 1999120 (Apr. 30, 2018) (Dynamex), the California Supreme Court upended the prevailing understanding of the independent contractor-employee distinction under California law. In a ruling that is certain to have wide-ranging repercussions for companies that rely on independent contractors, the Court declined to apply the multi-factor common law test derived from its 1989 decision in S.G. Borello & Sons, Inc. v. Dep’t of Indus. Rel’ns, 48 Cal. 3d 341 (1989) (Borello) to the question of whether a worker is an “employee” subject to the minimum wage and overtime protections of the California Industrial Welfare Commission’s (“IWC”) wage orders. Instead, the Court adopted a simple, three-part test that likely will expand the wage orders’ reach.
In Razak v. Uber Technologies, Inc., a Pennsylvania federal judge ruled last week that drivers for UberBLACK, the company’s higher-end limousine service, are properly classified as independent contractors. In granting Uber’s motion for summary judgment, this court was the first federal court to determine whether drivers for UberBLACK are employees or independent contractors under the Fair Labor Standards Act (“FLSA”) and similar Pennsylvania state laws.
On June 7, 2017, U.S. Secretary of Labor Alexander Acosta announced that the U.S. Department of Labor (DOL) is withdrawing two major pieces of informal guidance issued during the Obama administration, pertaining to joint employment and independent contractors under the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201 et seq.
The two Administrator Interpretations Letters were issued by the former head of the DOL’s Wage and Hour Division, David Weil. The first guidance letter, Administrator’s Interpretation No. 2015-1, took an aggressive position regarding misclassification of employees as independent contractors. It stressed that the “economic realities” of worker-employer relationships were paramount—i.e., whether, as a matter of economic reality, a worker was dependent on the putative employer—and suggested that most workers should be classified as employees. Although it relied on case law, the Administrator Letter provided additional refinements and, significantly, de-emphasized consideration of “control”—a major element under most common law tests.
The EEOC has issued its new Strategic Enforcement Plan for the fiscal years 2017 to 2021, which outlines the areas in which the EEOC will focus its litigation and investigation resources in the next four years. The Plan is notable for its emphasis on the “gig” workforce – that is, the short-term, temporary, or freelance workers (often working for companies like Uber, Lyft, AirBnb, or Taskrabbit) who are typically classified as independent contractors rather than employees.
In the Plan, the EEOC identified the rise of the “gig” economy as an “emerging and developing issue” warranting increased focus, particularly with regard to “clarifying the employment relationship and the application of workplace civil rights protections in light of the increasing complexity of employment relationships and structures, including temporary workers, staffing agencies, independent contractor relationships, and the on-demand economy . . .”
Editor’s Note: The following post by Saba Shatara, Associate in the Los Angeles office, appears in the latest issue of the California HR Newsletter. To sign-up to receive the California HR Newsletter click here.
Passing AB 1897 Means Greater Liability for Employers Who Use Labor Contractors
The Issue: Today, many employers rely on labor contractors or temporary employment agencies to sustain their operations. Occasionally, however, labor contractors fail to comply with labor laws and regulations by failing to (1) pay wages; (2) report and/or pay all required contributions and personal income tax withholdings; and (3) secure workers compensation for subcontractors. In such cases, are employers liable to subcontractors for these types of violations of their labor contractors?
The Solution: Historically, for the most part, no. However, California Assembly Bill (“AB”) 1897, a proposed law currently before the Assembly, would impose joint liability on employers for the violations of their labor contractors.
Analysis: On April 24, 2014, AB 1897 was passed by the state Assembly’s Labor and Employment Committee and will soon be considered by the Assembly’s Committee on Appropriations. The bill would greatly expand an employer’s duties by requiring employers to share with their labor contractors all responsibility and liability for the following: the payment of wages, the failure to report and pay all required employer contributions, worker contributions, and personal income tax withholdings, and the failure to obtain valid workers’ compensation coverage. This could have a significant impact on employers who depend on labor contractors for any number of functions, e.g., to fill seasonal or short-term work schedules, cover for employee absences, avoid layoffs, and pre-screen employees.
While the law currently prohibits employers from entering into a contract for labor or services with a construction, farm labor, garment, janitorial, security guard, or warehouse contractor, if the employer knows or should know that the agreement does not include sufficient funds for the contractor to comply with laws or regulations governing the labor or services to be provided, AB 1897 would expand liability for the above mentioned violations to all industries and all individuals who contract for labor or services. This bill would impose seemingly strict liability on any individual or entity that obtains or uses subcontractors from a labor contractor to perform work “within the usual course of business of the individual or entity.” As such, if AB 1897 were to pass, it would particularly burden small businesses, those without dedicated human resource or legal departments, due to their heavy reliance on contract and temporary employees.
The silver lining is that AB 1897 would not prohibit employers from agreeing to any otherwise lawful remedies against labor contractors for indemnification from liability created by acts of the labor contractor. Employers cannot, however, shift to labor contractors any of their responsibilities under the California Occupational Safety and Health Act. Labor contractors will also have the same opportunity to contract with employers for indemnification. Furthermore, the bill will provide that any waiver of its provisions is contrary to public policy and unenforceable. If AB 1897 becomes law, employers should be especially cautious in selecting a labor contractor and determine what level of contractor evaluation may limit their risk for non-compliant contractors. Unwary employers face the danger of liability for a labor contractor’s failure to meet these requirements.