Employee or Independent Contractor?

It’s a new year, and both the Department of Labor (DOL) and the IRS are intent on catching employee misclassification, that is whether a given person is an independent contractor and thus exempt from overtime and other hourly wage rules, or an employee.  This is a landmine of an area – particularly since slightly different tests are used by the IRS, under federal anti-discrimination laws and by the EEOC, under the federal Fair Labor Standards Act, and under California state law. 

In light of this, employers need to be meticulous about keeping records when interacting with independent contractors – make sure to keep itemized receipts for all work and expense reimbursements, and have signed contracts clearly laying out the term and extent of the project for which the independent contractor has been retained.  While each different entity and jurisdiction looks for something different, in all cases it comes down to a factual analysis that often has to meet the “pornography” test – you’ll know employment when you see it.  However, the courts typically focus on the following areas:

·         What degree of control does the employer have over work, and who exercises that control?

·         What is each party's level of loss in the relationship?

·         Who has paid for materials, supplies, and/or equipment?

·         What type of skill is required for work?

·         Is there a degree of permanence?

·         Is the worker an integral part of the business?

California Labor Code §2750.5 states that proof of independent contractor status includes the following factors:

    1. That the individual has the right to control and discretion as to the manner of performance of the contract for services in that the result of the work and not the means by which it is accomplished is the primary factor bargained for.

    2. That the individual is customarily engaged in an independently established business.

    3. That the individual’s independent contractor’s status is bona fide and not a subterfuge to avoid employee status.  A bona fide independent contractor status is further evidenced by the presence of cumulative factors such as substantial investment other then personal services in the business, holding out to be in business for oneself, bargaining for a contract to complete a specific project for compensation by project rather than by time, control over the time and place the work is performed, supplying the tools or instrumentalities used in the work other then the tools and instrumentalities normally and customarily provided by the employees, hiring employees, performing work that is not ordinarily in the course of the principal’s work, performing work that requires a particular skill, holding a license pursuant to the Business and Professions Code, the intent of the parties that the work relationship is of an independent contractor status, or that the relationship is not severable or terminable at will by the principal but gives rise to an action of breach of contract.

The language in subsection (c) somewhat mirrors the EEOC’s nonexhaustive sixteen factors under Title VII and other federal antidiscrimination laws:

·         The employer controls when/where/how the worker performs the job;

·         The work does not require a high level of skill or expertise;

·         The employer furnishes the tools, materials, and equipment;

·         The work is performed on the employer's premises;

·         There is a continuing relationship between the worker and the employer;

·         The employer has the right to assign additional projects to the worker;

·         The employer sets the hours of work and the duration of the job;

·         The worker is paid by the hour, week, or month rather than the job;

·         The worker does not hire and pay assistants;

·         The work performed by the worker is part of employer's regular business;

·         The employer is in business;

·         The worker is not engaged in his/her own distinct occupation or business;

·         The employer provides benefits such as health insurance or WC;

·         The employer withholds payroll taxes;

·         The employer can discharge the worker;

·         The worker and the employer believe that they have an employer-employee relationship.

Both the FLSA and the IRS use slightly simpler tests.  Under the FLAS, an “economic realities” approach is used – does the individual seem to be financially tied to the putative employer?  Specific elements include:

·         The degree of control exercised by the alleged employer;

·         The extent of the relative investments of the putative employee and employer;

·         The degree to which the alleged employee's opportunity for profit or loss is determined by the employer;

·         The skill and initiative required in performing the job;

·         The permanency of the relationship;

·         The degree to which the service is an integral part of the employer's business.

The IRS uses an 11 factor test, looking at three specific elements of the employment relationship:

Behavioral Control

·         Instructions the business gives the worker;

·         Training the business gives the worker.

Financial Control

·         The extent to which the worker has unreimbursed business expenses;

·         The extent of the worker's investment;

·         The extent to which the worker makes services available to the relevant market

·         How the business pays the worker;

·         The extent to which the worker can realize a profit or loss.

Type of Relationship

·         Written contracts describing the relationship the parties intended to create;

·         Whether the business provides the worker with employee-type benefits;

·         The permanency of the relationship;

·         The extent to which services performed by the worker are a key aspect of the regular business of the company.

Employers should thus be extra mindful of these various tests when classifying an individual as an independent contractor especially since the DOL and IRS are on cracking down on employers who misclassify their workers.

JAllan

Copyright 2011: FSK Publishing all Rights Reserved DISCLAIMER: The information on this blog is for general information purposes only and should not be construed to be formal legal advice nor should it be construed to create a lawyer/client relationship between the authors of any information on the blog and any individual who chooses to view this blog. Anyone accessing this blog is encouraged to seek independent counsel for any desired legal advice.

Litigation Is Similar To Democracy

Litigation is similar to democracy as defined by Winston Churchill. To paraphrase, the great man famously said that democracy is the worst form of government devised by the mind of man … except whatever is second. Litigation is similar. It is terribly inefficient, costly, uncertain and frustrating but so far we have yet to find a more just way of resolving intractable disputes.  Sometimes an employer is given no choice but to litigate and ultimately try its case.

An example of this is found in the recent case of Urga v Redlands Community Hospital, which was tried to a jury in San Bernardino County Superior Court in July 2010. Urga and others in this class action contended that in 1999 Redlands Community Hospital adopted a new program in which its twelve hour shift employees would start receiving overtime for shifts lasting more than eight hours.  The new program was prompted by a change in the law on January 1, 2000 requiring overtime pay after eight hours.  Previously employees working overtime were paid straight time not time and a half.

In late 2004, three employees of the hospital filed a class action suit, alleging that the hospital had failed to pay overtime properly for the class certified period of 2000 to June 2007 and the three plaintiffs were certified by the court as representatives of all hospital employees similarly situated during that period. The plaintiffs argued that Redlands never paid the overtime properly and the defense argued Redlands had paid properly, but even if it had not the most it owed was $93,000.

In discovery and pleadings the class argued it was entitled to $23,000,000 and the class’s lawyer argued to the jury they should award $51,000,000.

The result?  The jury awarded $93,000.

San Bernardino is a conservative jurisdiction, that is, jury panels tend to be pro-business, anti-give away, and that was a part of the decision to take the case to trial. The trial judge, Janet M. Frangie, was appointed by California governor Gray Davis, a democratic, who is noted for consensus building and for scholarship. The ultimate decision was of course based on the plaintiffs’ pre-trial demand.  The hospital could not negotiate a reasonable settlement in the face of the millions of dollars demanded.

For employers, sometimes trial may be the only answer.

NBoxley

Governor Signs Two Employment Related Bills

As the Governor is preparing to make his exist, he has signed into law a couple of bills that employers need to be aware of:

The first provides exemptions from state meal period requirements for certain types of employees, thus allowing employers to avoid one of the more common wage and hour pitfalls. The jobs covered are construction workers, commercial drivers, security officers, gas and electrical corporation employees, and public utility employees. The exemption applies only if the given employees are covered by a collective bargaining agreement that otherwise provides for meal periods and provides for binding arbitration of disputes concerning the application of meal periods.  The rationale behind this is that certain jobs require constant working, or make it impractical to regularly schedule meal periods in compliance with California law.

Another law recently passed provides for mandatory paid time off for employees donating an organ or bone marrow.  This law only applies to employers with 15 or more employees.  Employees are entitled to up to 30 days paid time off per year for donating an organ, and up to 5 days paid time off per year for donating bone marrow.  The employer can require the use of up to two weeks of accrued sick or vacation leave for organ donation, or up to 5 days for bone marrow donation, before providing the paid time off.  However, the periods of paid time off do not run concurrently with FMLA or CFRA, and the employee can still apply for those leaves.

One final update on the Brinker case. This is the case, now pending before the California Supreme Court, which addresses whether under California law an employer has the duty to ensure that employees take their meal and rest breaks, or alternatively to only provide the employees with the opportunity to take their meal and rest breaks. It looks like the Supreme Court is going to wait until after the election and the seating of a new Chief Justice before scheduling oral arguments.  At this time we do not expect a ruling before the end of the first quarter of 2011. Plaintiff’s attorneys all believe that the Court will go with the “ensure” standard; defense attorneys all think the Court will go with the “provide” standard.  We will keep you posted.

JAllan

Are Volunteers “Employees” Under FEHA?

In a just released decision denying in part the defendant’s motion to dismiss, a Federal District Court Judge for the Eastern District of California applied elements of California workers’ compensation law to find that a volunteer intern in a program run by the Nevada County Sheriff’s Department is an employee, and can pursue a lawsuit under Fair Employment and Housing Act (FEHA) for alleged sexual harassment.  In  the ruling released on October 21^st in Neronde v. Nevada County (2:10-cv-0776-JFM), the judge agreed that normally volunteers are not considered employees, noting that “compensation of some sort is indispensable to an employment relationship under the FEHA and that persons who receive no direct or indirect financial benefit for their services are not ‘employees’ for FEHA purposes.”  For workers’ compensation purposes, this is codified in California Labor Code Sec. 3352, which excludes volunteers and others who do not receive payment for their work from workers’ compensation.  Despite this code section, in Barragan v. Workers' Compensation Appeals Bd., 195 Cal. App. 3d 637 (Cal. Ct. App. 1987), the court found that a student volunteer intern at a hospital was an employee for the purposes of workers’ compensation, because in return for his time and labor, the student received valuable training, as well as course credit.

In denying the defendant’s motion for dismissal the judge agreed with the plaintiff’s argument that “FEHA intends to protect a broad class of individuals under its sexual harassment laws. In line with this intent for greater inclusion, the court holds that the definitions of ‘employee’ and ‘volunteer’ under California's workers' compensation laws should be construed with the purpose of the FEHA. In doing so, the court finds that plaintiff received credits toward graduation and community college and she learned invaluable skills in exchange for her services. Pursuant toBarragan, the court finds that plaintiff was an employee at the time of the alleged incident.”

It is unknown at this time whether the defendant will appeal the denial of the motion to dismiss.  This ruling does not mean that the defendant violated FEHA, only that the case may proceed to trial on the merits.  In Neronde the plaintiff claimed numerous causes of action including sexual harassment.  However, the court dismissed her other claims with prejudice because she failed to timely file her complaint.  The FEHA claim survived, however, as it has a longer statute of limitations. 

What this means for employers, besides the general proposition that employers cannot tolerate sexual harassment against anyone in the workplace, including volunteers, is that they may be subject to liability under the FEHA for volunteers even though they are not “employees.” The question is, do employers have to offer volunteers other protections afforded by FEHA, such as a reasonable accommodation to a volunteer suffering from a disability, or face potential under FEHA?  It seems to me, based on this decision, that the world of potential employees may have been significantly expanded.

 JAllan

The “Three-Stage Burden-Shifting Test” For Discrimination

What is the “three-stage burden-shifting test” for discrimination cases, and does it eliminate an employers’ ability to obtain a summary judgment?

Summary Judgment

Sandell v. Taylor-Listug, Inc., the court discussed how the “3 stage burden-shifting test” for discrimination cases is applied when a trial court is deciding a motion for summary judgment.  Black’s Law Dictionary defines summary judgment as a judgment granted on a claim about which there is no genuine issue of material fact and upon which the movant is entitled to prevail as a matter of law.  In an employment law context, what this means is that a trial court decides that the plaintiff-employee is unable to produce sufficient evidence upon which a jury could find that he/she was discriminated against, or that the employer’s rebuttal evidence establishes a legitimate, non-discriminatory reason for the employer’s actions upon which a reasonable trier of fact would have to find in the employer’s favor.

However, the Sandell court stated that the traditional three-stage burden-shifting test, as defined in McDonnell Douglas Corp. v. Green (1973) 411 U.S. 792 , needed to be considered when applying the legal principles of a summary judgment motion.  The three-stage burden-shifting test was established because of the difficulty of proving discrimination claims since there rarely is direct evidence of intentional discrimination, and it is therefore typically proven circumstantially. 

Step-One

Step one of the test places the initial burden of establishing a prima facie case of discrimination on the plaintiff-employee. The purpose of requiring a prima facie case is to eliminate “patently meritless claims.” It is therefore a fairly light evidentiary burden, with only minimal evidence needed to infer discrimination.  In other words, the plaintiff-employee need only minimally establish the basic elements of his or her claim; specifically, present evidence that he or she is within a protected class, and provide some evidence that there was adverse action taken against the plaintiff-employee because he or she was within the protected class.

Step-Two

If the plaintiff-employee is able to establish the above, the case moves to step two, where the establishment of a prima facie case has raised a presumption of discrimination and the burden now shifts to the employer to rebut the presumption.  The rebuttal evidence must be sufficient to raise a genuine issue of fact from which a conclusion could be reached that the employer’s actions were for legitimate, non-discriminatory reasons.  In other words, the employer must show that the adverse action was taken for legitimate business reasons which had nothing to do with the plaintiff-employee being within the protected class.

Step-Three

If the employer is able to produce such rebuttal evidence, the case moves to step three, where the presumption of discrimination disappears and the burden shifts back to the plaintiff-employee.  The plaintiff-employee then has the opportunity to present evidence which attacks the employer’s proffered reasons as pretext, by demonstrating weaknesses, implausibilities,  inconsistencies or contradictions, in the proffered evidence, such that a reasonable fact finder could determine that the employer’s explanation was simply a cover-up of discriminatory intent.  Evidence of dishonest reasons for the adverse employment action, along with the elements of a prima facie case, may permit a finding of discrimination.  The plaintiff-employee may also offer other evidence of a discriminatory motive.  Ultimately, therefore, the burden lies with the plaintiff-employee.

However, the burden shifting test and the rules of a summary judgment are not consistent.  In fact, as the court notes, the three-part burden shifting test was established for use at the trial stage, not for a summary judgment.  Thus, keeping both of these legal principles in mind, the court found that in a discrimination claim, where a motion for summary judgment or other summary issue adjudication is made, the burden is going to ultimately rest with the moving party to negate their opponent’s right to prevail on the issues, unlike the three-step burden-shifting test. Therefore, if there is any evidence upon which a finding could be made, by a reasonable trier of fact, that the plaintiff-employee was discriminated against, then the motion for summary judgment should be denied. 

Based upon the Sandell case, it seems almost impossible for an employer to obtain a summary judgment in a discrimination case, unless the case is patently meritless on its face.  As the court noted, most discrimination cases are proven by circumstantial evidence. Since the credibility of the witnesses is often a factor, it is unlikely that there would be no triable  issues of material facts as a matter of law.  For example, if the plaintiff-employee establishes a prima facie case, and the employer can then shift the evidentiary burden back to the employee with evidence of non-discriminatory reasons, this in and of itself seems to raise a question of fact: whose version of the story is true?  Based upon the Sandell decision, employers should expect to face a trial with most discrimination lawsuits unless an early settlement can be achieved. Therefore, due to the huge legal costs associated with defending a discrimination lawsuit, especially if it involves more than one plaintiff, employers should be sure to implement and enforce anti-discrimination policies in the workplace.

DSkeren

Sexual Harassment: A Best Practices Primer For Employers

Sexual harassment is a form of sex discrimination. The Fair Employment and Housing Act (FEHA) defines sexual harassment as harassment based on sex or of a sexual nature; gender harassment; and harassment based on pregnancy, childbirth, or related medical conditions. The definition of sexual harassment includes many forms of offensive behavior, including harassment of a person of the same gender as the harasser.

The Equal Employment Opportunity Commission (EEOC) defines sexual harassment as “unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature” (CFR sec. 1604.11 (a)).

Such conduct constitutes sexual harassment when:

• Submission to such conduct is made either explicitly or implicitly a term or condition of an individual's employment;

• Submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting such individual;

• Such conduct has the purpose or effect of unreasonably interfering with an individual's work performance or creating an intimidating, hostile, or offensive working environment (CFR sec. 1604.11 (a)).

Examples of Sexual Harassment

1. Unwanted sexual advances;
2. Offering employment benefits in exchange for sexual favors;
3. Actual or threatened retaliation ;
4. Leering; making sexual gestures; or displaying sexually suggestive objects, pictures cartoons or posters;
5. Making or using derogatory comments, epithets, slurs, or jokes;
6. Sexual comments including graphic comments about an individual’s body; sexually degrading words used to describe an individual; or suggestive or obscene letters, notes, or invitations;
7. Physical touching or assault, as well as impeding or blocking movements;
8. Staring, even if not done in a sexually suggestive manner (Birschtein v. New United Motor Manufacturing, Inc., 92 Cal.App.4^th 994(2001);
9. Obscenities, particularly if accompanied by sexual jokes (DFEH v. Sigma Circuits, Inc., FEHC No. 88-14 (July 28, 1988);
10. Offensive emails or cell phone text messages;
11. Bullying, yelling at or otherwise intimidating employees that is gender based or creates a disproportionate impact on that gender.

Two Types of Sexual Harassment

• Quid Pro Quo (“this for that”)

This type of harassment occurs when a person with higher power in the workplace, such as a manager or supervisor, seeks sexual favors as a condition of employment, including adverse employment actions such as demotion, loss of benefits or termination.

• Hostile Environment

A hostile work environment occurs when someone in the workplace creates an objectively offensive and/or abusive environment that is subjectively perceived by the victim as abusive, which interferes with the victim’s ability to perform his or her job.  However, the harassing conduct must be sufficiently pervasive and severe to rise to the level of a hostile work environment. The harasser’s conduct will be evaluated from the objective of a “reasonable” person. The Ninth Circuit U.S. Circuit Court of  Appeal has held that that offensive conduct does not need to be sexual in nature to create a hostile work environment, if the conduct such as shouting, using obscenities, and/or invading an individual’s personal space is directed at one particular group in the workplace. (Christopher v. National Education Assoc. 422 F.3d 840 (9^th Cir. 2005).

Employer Liability

In general, employers are liable for harassment that occurs on the premises or that is associated with an employment relationship.

• Harassment by Supervisors

Under California law, employers may be strictly liable for a supervisor or manager’s sexual harassment of a subordinate. This means an employer may be liable even though the employer was not aware of the fact that the harassment was occurring.

• Harassment between Co-Workers

An employer is liable for harassment between coworkers if the employer knew about the harassing conduct and failed to take immediate action to correct the problem.

• Harassment by NonEmployees

An employer may be liable for sexual harassment committed by nonemployees in the workplace if the employer (or the employer’s agents) knew or should have know of the harassing conduct and failed to take action to correct the problem (Gov. Code 12940 (j)(1)).

Supervisor Liability and Employee Liability

The FEHA provides that supervisors may be personally liable for sexually harassing an employee; under these circumstances, the supervisor’s personal assets may be at risk. Further, the employer does not have to reimburse an employee who must pay out of pocket to resolove a sexual harassment claim (Farmers Ins. Group v. County of Santa Clara, 11 Cal. 4^th 992 (1995). Employees can also be personally liable for sexual harassment, and their assets are also at risk for such harassment should a lawsuit be filed.

An Employer’s Obligations

1. Take all reasonable steps to prevent discrimination and harassment in the workplace;
2. If harassment occurs, take immediate and effective steps to correct the problem; to the extent possible treat the matter confidentially (for example conduct interviews in a private area);
3. Develop and implement a detailed sexual harassment policy that includes a procedure for filing complaints of harassment;
4. Post the Department of Fair Employment and Housing (DFEH) employment poster in the workplace;
5. Distribute an information sheet on sexual harassment to all employees;
6. Employers who do business in California and employ 50 or more part-time or full-time employees must provide 2 hours of sexual harassment training every two years to all supervisors and to all new supervisors within 6 months of hire.

Filing a Complaint

An employee must file a complaint with the DFEH within one year of the alleged violation, or with the EEOC within 180 days, unless a charge is first filed with the DFEH, then within 300 days of the alleged violation or within 30 days of receipt of notice from the DFEH that their proceedings are terminated.

Conclusion

In their ongoing effort to prevent sexual harassment in the workplace, employers should therefore immediately and effectively address any complaint of harassment; develop a detailed sexual harassment policy; post and distribute any required information on sexual harassment in the workplace and, if applicable, train all supervisors within the required time frames.

BOBrien

Supreme Court Rules On Text Messaging Case

On June 17, 2010, the U.S. Supreme Court unanimously issued a decision in a much anticipated case, City of Ontario v. Quon, No. 08-1332, 560 U.S. (2010), holding that the employer’s review of an employee's text messages on an employer-issued pager was a reasonable search pursuant to the Fourth Amendment. Justice Kennedy authored the opinion. In dicta, the Court emphasized the importance of employer policies on this issue, stating that "employer policies concerning communications will of course shape the reasonable expectations of their employees, especially to the extent that such policies are clearly communicated" (Quon, No. 08-1332, slip op. 11). In light of the Court's reasoning on this important issue, employers should implement written workplace policies that specifically refer to all forms of employer issued electronic devices (i.e. computers, cell phones, pagers, etc.), and that clearly and unequivocally advise employees that they should have no expectation of privacy in these devices.

However, two aspects of the decision may limit broader application of the case. One, the case involved a government entity, and two, the Court narrowed its decision by specifically limiting it to the facts of this particular case. On this point, the Court noted that, "[p]rudence counsels caution before the facts in the instant case are used to establish far-reaching premises that define the existence, and extent, of privacy expectations enjoyed by employees when using employer-provided communication devices. . . [a] broad holding concerning employees' privacy expectations vis-à-vis employer-provided technological equipment might have implications for future cases that cannot be predicted" (Quon, No. 08-1332, slip op. 10). The Court thus took a narrow approach to its decision by assuming that Quon had a reasonable expectation of privacy in his text messages, and then finding that the city's search was reasonable under the circumstances. The Court emphasized that it "must proceed with care when considering the whole concept of privacy expectations in communications made on electronic equipment owned by a government employer. The judiciary risks error by elaborating too fully on the Fourth Amendment implications of emerging technology before its role in society has become clear" (Id. at 10).

Therefore, the question is what guidance, if any, does this case provide for employers when implementing workplace policies regarding employer issued communications devices? Certainly the case emphasizes the importance of clearly written workplace policies that address privacy expectations in employer issued electronic devices. I was particularly intrigued by the Court’s comment that "[c]ell phone and text message communications are so pervasive that some persons may consider them to be essential means or necessary instruments for self-expression, even self identification. That might strengthen the case for an expectation of privacy." However, alternatively, the Court noted that, "the ubiquity of those devices has made them generally affordable, so one could counter that employees who need cell phones or similar devices for personal matters can purchase and pay for their own."

Justice Scalia, in his concurring opinion, observed that, “Applying the Fourth Amendment to new technologies may sometimes be difficult, but when it is necessary to decide a case we have no choice. The Court's implication . . . that where electronic privacy is concerned we should decide less than we otherwise would (that is, less than the principle of law necessary to resolve the case and guide private action)--or that we should hedge our bets by concocting case-specific standards or issuing opaque opinions--is in my view indefensible. The-times-they-are-a-changin' is a feeble excuse for disregard of duty" (Id. at 2) (Scalia, J. concurring). So, where does this leave employers?

BOBrien