What Are We Talking About?

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1 THE NEW WORKFORCE: The In-House Counsel's Guide to Understanding Legal Exposures and Managing Risk San Francisco Palo Alto May 2 May 4 What Are We Talking About? How can businesses address staffing challenges creatively and cost-effectively, while considering: Legal limits and boundaries The workers best interests Professional Corporation. All Rights Reserved. 1

2 Today s Topics Types of Arrangements Advantages, Risks and Red Flags Classification Standards The Gig Economy Joint Employment Special Issues and Hot Topics Interns Best Practices Contingent Work Arrangements Professional Corporation. All Rights Reserved. 2

3 Contingent Arrangements Project work Gig work Consulting Freelancing Contract staffing Payrolling Leasing Temporary staffing What does each arrangement look like? And to what roles is each amenable? Advantages, Risks, and Red Flags Professional Corporation. All Rights Reserved. 3

4 Advantages of Contingent Workers Overall flexibility, as a result of having the ability to expand and contract the workforce as needed Scheduling flexibility Accommodating short-term or one-time projects Ability to bring in short-term talent and expertise Avoiding layoffs Reduced benefits, wages, and payroll costs Better job security for core workforce Broad talent pool Risks of Using Contingent Workers Unintended coverage under local, state, and federal laws Worker classification uncertainties and disputes Wage and hour disputes and PAGA claims Employment tax issues Employee benefits eligibility disputes Vizcaino v. Microsoft Affordable Care Act coverage issues Workers compensation insurance coverage issues Joint employer liability Labor representation issues and duty to bargain Intellectual property concerns Professional Corporation. All Rights Reserved. 4

5 The Trend Uptick in employment disputes around contingent worker issues Greater employee awareness of employment laws, stemming from high-profile cases, large settlement amounts, the internet and social media Increased government investigation and enforcement, including the U.S. Department of Labor (DOL), California Division of Labor Standards Enforcement, California Employment Development Department, IRS, NLRB and more Increased state and local legislation Red Flags The individual files for unemployment or state disability benefits The individual files a workers compensation claim The individual claims they are owed for overtime, missed breaks, or final paycheck delays The individual claims failure to reimburse for business expenses The individual claims entitlement to employee benefits The IRS, EDD or other agency conducts a tax or workforce audit The employer is sued by a third party for the worker s misconduct Work for hire clauses in consultant agreements Long-term employment may convert the relationship Professional Corporation. All Rights Reserved. 5

6 Classification Standards IRS Classification Standards The IRS considers whether the person providing services is an employee or independent contractor, considering all evidence of the degree of control and independence. General rule: The employer has the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result. Traditionally, the IRS used a 20-factor test to determine the right to control. Now, the IRS uses a streamlined test focusing on: behavior control financial control relationship between the parties Professional Corporation. All Rights Reserved. 6

7 DOL Classification Guidance The DOL classification guidance (2015) asserts that most workers are employees under the Fair Labor Standards Act and the Family and Medical Leave Act Six-factor economic realities test to determine whether workers are economically dependent or are in business for themselves All factors must be analyzed and no single factor is determinative The goal is to make an ultimate determination of economic independence or dependence Labels are irrelevant to the analysis, so an independent contractor agreement or that a 1099-MISC was issued to the worker is not indicative of an independent contractor relationship DOL Six-Factor Test 1. Is the work an integral part of the employer s business? 2. Does the worker s managerial skill affect the worker s opportunity for profit or loss? 3. How does the worker s relative investment compare to the employer s investment? 4. Does the work performed require special skill and initiative? 5. Is the relationship between the worker and the employer permanent or indefinite? 6. What is the nature and degree of the employer s control? Professional Corporation. All Rights Reserved. 7

8 California Classification Standards Right to control test - California Employment Development Department: Most significant questions include: 1) do you instruct or supervise the person while he or she is working? 2) can the worker quit or be fired at any time? 3) is the work being performed integral to your regular business? YES to any one indicates employee status Multifactor test - S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341: Key factor is employer s right to control, but also requires evaluation of secondary factors, including examination of the nature of the work and overall arrangement between the parties. Used in workers comp, wage and hour, discrimination, harassment, and retaliation matters Misclassification Penalties Cal. Labor Code 226.8: Fines (from $5,000 to $25,000) for "willful" misclassification; cannot charge misclassified worker a fee or make deductions from compensation if would be prohibited for employees Cal. Labor Code 2753: Joint and several liability for any person who advises an employer to treat an individual as an independent contractor, but exempts anyone advising their employer and any attorney who gave advice in the capacity of legal counsel to the employer or misclassified individual Professional Corporation. All Rights Reserved. 8

9 Gig Workers The Gig Economy Gig economy - New economy - Sharing economy - On-demand economy Workers operate as mini-businesses, typically with the ability to choose when and how often they will work Ride sharing Accommodation sharing Delivery services Personal services And more Do the employment relationship rules need to be re-written? Professional Corporation. All Rights Reserved. 9

10 How Should Gig Workers Be Classified? Lyft has agreed to pay $27 million to drivers who alleged they were misclassified as independent contractors agreement does not shed light on proper classification (March 2017) Uber announced a $100 million settlement over driver misclassification, that made some changes to the relationship but would have continued to treat workers as independent contractors court rejected the settlement (August 2016) California DLSE ruled that an Uber driver was an employee, and awarded her over $4,000 in expense reimbursements (June 2015) But: Los Angeles Superior Court upheld arbitration award finding that Uber driver who had claimed employee status after being deactivated following sexual harassment allegations against him was an independent contractor (February 2017) Joint Employment Professional Corporation. All Rights Reserved. 10

11 NLRB and Joint Employment Browning-Ferris Industries of California, Inc. (2015) 362 NLRB No. 186: NLRB refined standard for determining joint-employer status, finding that two or more entities are joint employers of a single workforce if: they are both employers under common law; and they share or codetermine those matters governing the essential terms and conditions of employment In evaluating whether employer possesses sufficient control over employees to qualify as a joint employer, Board examines whether an employer has exercised control over terms and conditions of employment indirectly through an intermediary, or whether it has reserved the authority to do so Case is up on appeal in the D.C. Circuit DOL and Joint Employment DOL Administrator s Interpretation (January 21, 2016) regarding joint employment under the FLSA and MSPA: Horizontal joint employment Involves relationships between or among two or more employers that are sufficiently associated or related with respect to the employee such that they jointly employ the employee; DOL will apply current joint employment regulations Vertical joint employment Focuses on the employee's relationship with the employer and another intermediary entity; DOL will apply the economic realities test to evaluate the relationship among the entities Professional Corporation. All Rights Reserved. 11

12 Hot Topics EEOC & the 21 st Century Workplace EEOC Strategic Enforcement Plan (for ) addresses complex employment relationships and structures in the 21stcentury workplace clarifying application of workplace civil rights protections Temporary workers Staffing agencies Independent contractor relationships On-demand economy Professional Corporation. All Rights Reserved. 12

13 Predictive Scheduling Predictive scheduling laws New protections for part-time employees SF, San Jose, Seattle Pending in California: AB 5, The Opportunity to Work Act UNITE! Seattle -- passed ride-share worker unionization ordinance, effective September 2016 Formed the App-Based Drivers Association Legal challenges are pending U.S. Chamber of Commerce, independent drivers, Uber Machinists reached a deal to represent NYC Uber drivers in the Independent Drivers Guild -- a new arrangement that gives organized labor an opportunity to shape the new economy in a way that supports and values workers and their families California A.B failed to advance in Would establish right for eligible groups of independent contractors to organize and negotiate with hosting platforms Professional Corporation. All Rights Reserved. 13

14 Wage Protections New York City - Freelance Isn t Free Act Takes effect this month (May 2017) Requires written contact for services over $800 Makes certain pay practices illegal Prohibits retaliation for worker complaints California, AB 1099 pending Initially aimed at app-based companies but now also includes hotels, car washes, salons, and restaurants Would require employer who allows customers to pay for services by debit or credit card to also accept a debit or credit card for payment of gratuities Portable Benefits? Pending state legislation to address benefits for gig workers: Washington would require companies to contribute to a benefit system for independent contractors New York would require companies to contribute 2.5% of gig worker income to individual portable health savings accounts Professional Corporation. All Rights Reserved. 14

15 Interns and the Law Who s An Intern? When do unpaid internships violate wage and hour laws? Classification standards: Internship should resemble training given in vocational school or academic institution Unpaid internships must be educational and predominately for benefit of intern, not employer Intern must not displace regular paid worker, and work under close observation Employer must derive no immediate advantage from intern s activities; on occasion employer s operations may actually be impeded Intern not necessarily entitled to job at conclusion of internship Employer and intern understand that intern not entitled to wages Professional Corporation. All Rights Reserved. 15

16 Interns and FEHA The California Fair Employment and Housing Act protects unpaid interns for purposes of: Discrimination Harassment Religious accommodation All other FEHA protections apply if the intern is an employee Best Practices Professional Corporation. All Rights Reserved. 16

17 Best Practices Evaluate the company s needs Assess options for filling that need Do a risk assessment for each category of worker Ensure use of consistent terminology within the company as to worker categories Consider impact of different categories on company culture Consider written corporate policy on engagement of contingent workers (how the relationships will be managed, what roles they can play, etc.) Review benefits plan eligibility requirements and include exclusionary language regarding various categories of contingent workers Best Practices Independent Contractors Evaluate status of current contractor relationships to ensure proper classification -- consider a self-audit (attorney-client privileged) Reclassify as employees in close cases Require approval before an independent contractor is retained Avoid engaging contractors to perform functions integral to the business Train supervisors as to how to work within such relationships to preserve contractor status Avoid rehiring recently terminated employees as independent contractors Seek the assistance of counsel in connection with audits by EDD, DIR, IRS, Franchise Tax Board, or other agencies Professional Corporation. All Rights Reserved. 17

18 Best Practices Independent Contractors Allow contractors to take other jobs (and specify this in the agreement) Avoid having contractors work a regular or full-time schedule Require contractors to have a business license and use an EIN Pay by task or project, rather than hourly, and do not reimburse expenses Require contractors to carry appropriate insurance (general liability, workers compensation) Whenever possible, have contractors perform services off-site Use written -- and updated -- independent contractor agreements Issue/file IRS W-9, 1099 and 1096 forms Best Practices Joint Employment Determine whether cost effective to outsource in light of joint employer risk Ensure that company is not exercising direct and immediate control over terms and conditions of employment of workers employed by franchisees, subcontractors, or other business partners Implement procedures to ensure that the maximum amount of operational control is in the hands of the franchisee, subcontractor, or other business partners, and that the managers of both parties understand that Ensure that commercial agreements, leases, licenses, franchise agreements, etc. do not include language stating or suggesting that the employer retains ability to exercise control over another s business operations or employees Ensure that contracts and commercial agreements specify that franchisees, subcontractors, or other business partners are solely responsible for all employment-related decisions Include indemnification provisions in relevant agreements Professional Corporation. All Rights Reserved. 18

19 Professional Corporation. All Rights Reserved. 19