A 2-1 California Court of Appeal held on October 17 that drivers for a food service provider did not have to arbitrate their state statutory claims brought under the California Labor Code despite a binding arbitration agreement covering the “application or interpretation” of the driver agreements. The drivers alleged that their employer, Mike Campbell & Associates, misclassified them as independent contractors, denying them wage law protections under the California Labor Code, and was thus liable for nonpayment of wages, illegal deductions, and recordkeeping violations. Rather than challenge the trial court’s ruling that they were bound by the arbitration clause, the drivers argued that their statutory claims did not arise out of the arbitration agreement and thus did not require an interpretation of the arbitration clause.
In an update to a recent article posted in July, the California Supreme Court agreed on October 10 to hear Patterson v. Domino’s Pizza, LLC, a sexual harassment case in which the court will decide whether a franchisor can be held liable for the acts of an employee of one of its franchisees. The…
In Patterson v. Domino’s Pizza, LLC, the California Court of Appeals overturned the lower court’s order granting summary judgment to a franchisor and held that the terms of the franchise agreement did not necessarily govern whether the franchisor could be held strictly liable for the actions of an employee of the franchisee.
On October 9, 2011, California Governor Jerry Brown signed SB 459, legislation that creates new and significant civil penalties for employers that misclassify employees as independent contractors. The newly enacted Section 226.8 of the California Labor Code authorizes civil penalties under two circumstances: (1) “Willful misclassification of an individual as an independent contractor;” and (2) “Charging an individual who has been willfully misclassified as an independent contractor a fee, or making any deductions from compensation, for any purpose . . . .” In either case, the “person or employer” responsible for the violation “shall be subject to a civil penalty of not less than five thousand dollars ($5,000) and not more than fifteen thousand dollars ($15,000) for each violation, in addition to any other penalties or fines permitted by law.” Moreover, if there is a determination that a person or employer has engaged in “a pattern or practice” of violations, “the person or employer shall be subject to a civil penalty of not less than ten thousand dollars ($10,000) and not more than twenty-five thousand dollars ($25,000) for each violation.”
The U.S. Court of Appeals for the Ninth Circuit recently held—consistent with other courts that have considered the issue—that “insurance agents are independent contractors and not employees for purposes of various federal employment statutes,” including ERISA, the ADEA, and Title VII. In Murray v. Principal Financial Group, Inc., case number 09-16664, the panel unanimously affirmed a district court order granting summary judgment in favor of a purported employer because it found that the plaintiff was an independent contractor, not an employee entitled to the protections of Title VII. The panel’s opinion clarifies the appropriate test for distinguishing between employees and independent contractors in the context of Title VII, and concludes that despite apparent precedent for multiple tests, there is, in fact, only one.
The Senate Committee on Health, Education, Labor, and Pensions has announced that it will conduct a hearing on Thursday, June 17, 2010 on the Employee Misclassification Prevention Act, which was introduced in both the Senate and House on April 22, 2010. The Act seeks to amend the Fair Labor Standards Act so that worker misclassification is a violation of federal law. The act also requires employers to maintain records reflecting hours worked and wages paid to independent contractors. See our previous post for a detailed discussion of the legislation.
Continue Reading Senate Labor Committee To Conduct Hearing On Independent Contractor Legislation
The proposed 2011 fiscal year federal budget signifies a renewed commitment to combating employee misclassification, as it contemplates funding an additional 4,700 investigations into worker misclassification issues. With penalties for worker misclassification being quite steep — including back taxes, interest, and even punitive fines — employers should audit their workforce to ensure that their independent contractors are properly classified.
Unfortunately, there is no bright line test to determine whether a particular worker has been properly classified as an independent contractor. In fact, the precise definition of an independent contractor not only varies between federal and state law, but can also vary from state to state and even statute to statute.
Continuing a trend in Congress to limit employers’ use of independent contractors, on April 22, 2010, Rep. Lynn Woolsey (CA) and Senator Sherrod Williams (OH) introduced the Employee Misclassification Prevention Act (H.R. 5107, S. 3254) (“EMPA”) in the House and Senate respectively. The EMPA would amend the Fair Labor Standards Act (“FLSA”) and render worker misclassifications a violation of federal law. Employers would be required to maintain records reflecting hours worked and wages paid for employees and non-employee workers. They also would be required to provide workers a “notice” that identifies: the worker’s classification, a yet to be created Department of Labor website (containing an on-line complaint link), contact information for the applicable Department of Labor office, and other additional information as prescribed by regulation. For workers classified as non-employees, the Notice would be required to state: “Your rights to wage, hour, and other labor protections depend upon your proper classification as an employee or non-employee. If you have any questions or concerns about how you have been classified or suspect that you may have been misclassified, contact the U.S. Department of Labor.”
Continue Reading Congress’s Latest Attempt To Curtail Use Of Independent Contractors
In its recently published Spring 2010 Regulatory Agenda, the Department of Labor (“DOL”) announced that it plans to propose a rule that would amend the current recordkeeping regulations under the Fair Labor Standards Act (“FLSA”). Under the proposed rule, any employers seeking to exclude workers from the FLSA’s coverage will be required to perform a classification analysis, disclose that analysis to the worker, and retain that analysis to provide to Wage and Hour Division (“WHD”) enforcement personnel upon request. The proposal will also address burdens of proof when employers fail to comply with records and notice requirements.
Continue Reading DOL Plans To Amend Regulatory FLSA Recordkeeping Requirements
President Obama’s proposed $3.8 trillion federal budget for 2011 includes $117 billion for the U.S. Department of Labor. The Department’s Wage and Hour Division, which will receive $244 million under the new budget (an increase of almost $20 million from last year), pledges to use the money to increase its number of investigators, to train investigators to detect misclassification of workers as independent contractors, and to focus on industries where misclassification is most prevalent.
Continue Reading Proposed Federal Budget Targets Misclassification of Contractors