independant contractor

On December 4, 2018, New York City’s Taxi and Limousine Commission (“TLC”) voted to require ride-hailing companies operating in New York City to compensate its drivers who are treated as independent contractors, and not employees, on a per-minute and –mile payment formula, which will result in a $17.22 per hour wage floor.

This new rule is scheduled to take effect on December 31, 2018.

This new minimum wage for independent contractor drivers who operate vehicles on behalf of ride-hailing companies – including Uber, Lyft, Via, and Juno – will surpass the new $15 minimum wage for many New York City-based employees, which will also take effect on December 31, 2018.

This appears to be the first time a government entity has imposed wage rules on privately owned ride-hailing companies.

The main reason for this new requirement is that independent contractor drivers are often required to cover their own expenses that affects their hour wages.

Prior to this rule, ride-hailing app-based drivers were reportedly paid an average of $11.90 per hour (after deducting expenses), which resulted in drivers complaining of severe financial hardship. According to TLC Chair Meera Joshi, this rule would increase driver earnings by an average of $10,000 a year. Joshi also stated that traditional yellow taxicab drivers already earn on average at least $17.22 per hour pursuant to separate regulations.

The wage requirement is expected to have far-reaching repercussions, including:

  • Fare hikes by Uber that may result in customers using New York City yellow taxicabs and Boro Taxis, particularly given the rise of apps that allow riders to hail taxis from their phones, similar to Uber, Lyft, Via, and Juno.
  • Passage of similar minimum wage protections in other locales with a large population of ride-hailing drivers, such as San Francisco.
  • To avoid paying the higher wage prescribed by the rule, Uber, Lyft, Via, and Juno may consider reclassifying their for-hire vehicle drivers as employees, as the new minimum wage rule applies only to drivers who are independent contractors. However, it is anticipated that these companies will conclude that the others costs of employing drivers, such as providing employee benefits, would outweigh the costs of paying drivers the newly instituted minimum wage.

On May 3, New Jersey Governor Phil Murphy signed an executive order (“Order”) establishing a Task Force on Employee Misclassification (“Task Force”) to address concerns surrounding the misclassification of employees as independent contractors. The Order estimates that misclassification may deprive New Jersey of over $500 million yearly in tax revenue and deprive workers of employment-related benefits and protections to which they are entitled.

The Task Force’s mandate is to provide advice and recommendations to the Governor’s Office and Executive Branch Departments and agencies on both strategies and actions to fight misclassification, including:

  1. Examining and evaluating existing misclassification enforcement by executive departments and agencies;
  2. Developing best practices by departments and agencies to increase coordination of information and efficient enforcement;
  3. Developing recommendations to foster compliance with the law, including by educating employers, workers, and the public about misclassification; and
  4. Conducting a review of existing law and applicable procedures related to misclassification.

The Task Force will be comprised of at least 12 members, including three representatives from the Department of Labor and Workforce Development; three representatives from the Department of the Treasury; and one representative each from the Department of Law and Public Safety, the Department of Agriculture, the Department of Banking and Insurance, the Department of Human Services, the Department of Transportation, and the Economic Development Authority.

The Order calls for the Task Force to organize and meet as soon as possible to begin its work and is a likely harbinger of increased governmental audits and enforcement actions. Accordingly, the time is ripe for employers to review their policies and practices with respect to consultants and other independent contractors to ensure they meet New Jersey’s stringent ABC Test for classification of independent contractors, which we have previously discussed.

On April 30, 2018, the California Supreme Court issued its long-awaited opinion in Dynamex Operations West, Inc. v. Superior Court, clarifying the standard for determining whether workers in California should be classified as employees or as independent contractors for purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”). In so doing, the Court held that there is a presumption that individuals are employees, and that an entity classifying an individual as an independent contractor bears the burden of establishing that such a classification is proper under the “ABC test” used in some other jurisdictions.

Depending on the applicable statute or regulation, California has a number of different definitions for whether an individual is considered an entity’s employee. In Dynamex, the Court concluded that one of these definitions – “suffer or permit to work” – may be relied upon in evaluating whether a worker is an employee for purposes of the obligations imposed by the wage order. But the Court held that the Court of Appeal had gone too far in providing a literal interpretation of “suffer or permit to work” that would encompass virtually anyone who provided services.

The Court held that it is the burden of the hiring entity to establish that a worker is an independent contractor who was not intended to be included within the applicable wage order’s coverage.

To meet this burden, the hiring entity must establish each of the following three factors, commonly known as the “ABC test”:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

The Court concluded that the “suffer or permit to work definition is a term of art that cannot be interpreted literally in a manner that would encompass within the employee category the type of individual workers . . . who have traditionally been viewed as genuine independent contractors who are working only in their own independent business.”

Following Dynamex, entities doing business in California that treat some workers as independent contractors will want to review their relationship under the “ABC test” to determine whether any or all such workers should be reclassified.

Featured on Employment Law This Week:  A California federal judge has ruled that a former GrubHub delivery driver was an independent contractor, not an employee.

The judge found that the company did not have the required control over its drivers for the plaintiff to establish that he is an employee. This decision comes as companies like Uber and Lyft are also facing lawsuits that accuse them of misclassifying employees as independent contractors. Carlos Becerra, from Epstein Becker Green, has more.

Watch the segment below and read our recent post.

Recently, a number of proposed class and collective action lawsuits have been filed on behalf of so-called “gig economy” workers, alleging that such workers have been misclassified as independent contractors. How these workers are classified is critical not only for workers seeking wage, injury and discrimination protections only available to employees, but also to employers desiring to avoid legal risks and costs conferred by employee status.  While a number of cases have been tried regarding other types of independent contractor arrangements (e.g., taxi drivers, insurance agents, etc.), few, if any, of these types of cases have made it through a trial on the merits – until now.

In Lawson v. GrubHub, Inc., the plaintiff, Raef Lawson, a GrubHub restaurant delivery driver, alleged that GrubHub misclassified him as an independent contractor in violation of California’s minimum wage, overtime, and expense reimbursement laws.  In September and October 2017, Lawson tried his claims before a federal magistrate judge in San Francisco.  After considering the evidence and the relevant law, on February 8, 2018, the magistrate judge found that, while some factors weighed in favor of concluding that Lawson was an employee of GrubHub, the balance of factors weighed against an employment relationship, concluding that he was an independent contractor.

The court’s decision was guided by the California Supreme Court’s multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989), which focuses on “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”  There are also a number of secondary factors.

Among other things, the court found that Grubhub did not control how Lawson made deliveries or what his appearance was during deliveries. GrubHub also did not require Lawson to undergo any training or control when or where Lawson worked – that is, Lawson had complete control of his schedule and territory.  And, Grubhub did not control how or when Lawson delivered the restaurant orders he chose to accept.  Whereas GrubHub controlled some aspects of Lawson’s work, such as determining the rates he would be paid, the court gave those minimal weight.  On balance, the court concluded that “the right to control factor weighs strongly in favor of finding that Mr. Lawson was an independent contractor.”

The court also considered the secondary factors under the Borello test.  Some secondary factors weighed in favor of an employment relationship – for example, Lawson’s delivery work was part of GrubHub’s regular business, the type of work did not require a significant amount of skill, and Lawson was not engaged in a distinct delivery business such that GrubHub was just one of his clients.  Yet, weighing all of the factors above, the court found that “Grubhub’s lack of all necessary control over [] Lawson’s work, including how he performed deliveries and even whether or for how long,” was paramount.

Lawson is certainly a welcome decision for companies hiring independent contractors to perform a part of their regular business.  Nevertheless, the court’s emphasis on the particulars of GrubHub’s relationship with Lawson, issues regarding Lawson’s credibility and the possibility that the California Supreme Court may moot this decision in Dynamex Operations West Inc. v. Superior Court (considering whether to replace Borello with a test that would make it easier for workers to show they are employees rather than independent contractors), argued just two days before the Lawson decision, mean that such companies should continue closely examining the manner in which they classify their workers.  Moreover, although Lawson should provide some support to relationships governed by California law, its impact in other jurisdictions may be negligible.  For now, employers should continue to keep in mind that there is no one deciding factor to determine whether someone performing work for a company is an employee or an independent contractor.  A number of factors must be considered.

 By Michael Kun

              You run a supermarket.  You contract with a janitorial company to come in every night to clean the aisles after you close.

               You run an ad agency.  You retain a contractor to handle your mailroom.

               You run a law firm.  You bring in a company to update the books in your law library.

               You run a hotel.  You contract with a van service to shuttle your guests to and from the airport. 

               Whatever business you are in, you are bound to enter into contracts with vendors to provide a variety of services. 

               And, except where they subcontract that work out, each of those vendors uses its employees to fulfill its contract with you. 

               You may recognize the vendor’s employees from seeing them in your workplace.  You may even know a few by name and say hello to them, or ask them about their weekend. 

               You didn’t hire them, you don’t pay them, you don’t supervise them.  Yet, when they file suit against your vendor claiming they were not paid for all of the time they worked, or that they were not paid overtime, or they were not otherwise treated in compliance with the law, don’t be surprised to see that they (and their lawyers) sue your company, too, contending that you are their “joint employer.”  And that you are responsible for paying them the wages they claim they were not paid.  Penalties, too.  And don’t forget attorney’s fees.

               Yes, the person who you occasionally wave to in the hallway or exchange holiday greetings with is now claiming that you are his employer.

               The “joint employer” theory is by no means a new one.  It has been used by plaintiffs and their lawyers for years to bring more – often “deep pocket” — defendants into lawsuits and leverage larger settlements than they might otherwise be able to obtain from their actual employers. 

               The little company that employs them may not have much money.  But the companies it contracts with?  Your company?  That may be very different, and therein lies the appeal of suing you. 

               While the tests for whether a company is a “joint employer” vary in different jurisdictions and under different laws, they all essentially turn on one element – control.  Do you control the individual’s work or the manner in which it is performed –or are you merely (and appropriately) concerned with the end result? 

               Directing an individual which aisles to clean or how to do so is dangerous; reporting a concern to the vendor about the quality of the work performed is not.  The former goes to the manner in which the work is done; the latter, to the end result.

               In order to best position yourself to avoid or defend a claim that a vendor’s employees are also your employees, you should review your contracts and your relationships with your vendors.  And you should take steps to ensure that the relationships are focused on the end result alone.  Ideally, among other things, you would be able to do the following:

1)      Your contract with the vendor should provide very clearly that the persons the vendor hires are its employees, that it is obligated to pay them in compliance with the law and to otherwise comply with the law as it relates to them, and that you are interested in the end result alone.

2)      Don’t be involved in any way in the vendor’s hiring of its employees.  That’s their responsibility. 

3)      Don’t be involved in any way in the vendor’s paying of its employees.  That’s their responsibility. 

4)      Don’t be involved in any way in disciplining the vendor’s employees.  If there are concerns, report them to the vendor and let the vendor address them. 

5)      Don’t be involved in any way in the vendor’s termination of its employees. 

6)      Don’t supervise or direct the vendor’s employees.  That should come from the vendor. 

7)      Don’t give the vendor’s employees clothing or badges with your company’s name or logo on it.  And if the vendor gives its employees such items, tell it to stop. 

8)      Don’t give the vendor’s employees business cards with your company’s name or logo on them, or anything else that would identify thems as doing anything other than working for a vendor that provides services to you.

9)      Don’t give the vendor or its employees any tools with which to perform work.  No computers, no pencils, no pads, no mops, no brooms, no hammers or nails. 

10)   Don’t give the vendor’s employees offices or desks. 

11)   Don’t keep files on the vendor’s employees. No personnel files.  No logs of who worked when. 

12)   Don’t include the vendor’s employees in meetings with your employees.  Remember, they’re not your employees.  Don’t treat them like they are. 

13)   Don’t require your vendor to use specific employees. 

         This is not to suggest that you should stop saying hello to the vendor’s employees when you see them, or asking how their weekend was.  But if you want to talk about the quality of the services they are performing, talk with the vendor, not its employees. 

         Taking such steps may not prevent you from being sued under a “joint employer” theory, but it should enable you to make a strong argument that the theory does not apply to you.  And depending on the vendors you use and the number of persons they employ, that could be worth a small fortune.