Ohio Supreme Court Affirms BWC Decision that Workers Were Misclassified as Independent Contractors

 Earlier this week, a divided Ohio Supreme Court affirmed a decision of the Bureau of Workers’ Compensation and agreed that there was sufficient evidence to show that workers were employees and not independent contractors under the common law right to control test.  State ex rel. Ugicom Ents., Inc. v. Morrison, Slip Opinion No. 2022-Ohio-1689.   While some evidence supported the employer, there was sufficient evidence to show that the employer exercised too much control over the workers to consider them independent. 

According to the Court’s opinion, following a 2009 audit, the BWC found that the workers had been misclassified as independent contractors for the past five years and assessed the employer with $346,817 in unpaid premiums.  The employer appealed and was initially successful because the BWC had applied the 20-factor test instead of the common law test.  Upon remand and following an evidentiary hearing, the BWC again found that the workers had been misclassified. 

The employer was a Time-Warner Cable contractor.  Workers had to be approved by TWC and pass TWC’s drug and background checks.  The workers would be assigned jobs at a certain price by the employer, but were not required to accept them and could schedule them at any time (with the authorization of the property owner), although they were expected to respond within 2 hours.  The cables were supplied by TWC, but the workers otherwise used their own tools.  The workers drove their own vans (but with the employer’s logo and TWC identified on them) and wore TWC contractor badges.  The workers were required to sign one-year agreements which contained non-compete clauses (which did not apply post-employment) and could be terminated on 60-days' notice.   A quality inspector checked about 20% of the work.  There was some dispute about the amount of skill required, but it was once described as just digging and filling a trench for the cable and connecting it to the house.

There is no bright line test for the common law test, and a number of factors are considered. 

The factors which demonstrated employment status included:  The work was an integral part of the employer’s business.  The workers did not seem independent from the employer because they wore badges and vests and drove vans with the names of the employer and TWC.  This factor is one of the most important considerations in evaluating employment status.  The jobs were posted at set prices with a take-it-or-leave it approach and were not negotiated or bid on by the worker and this was found to exercise control over the workers.  The workers did not advertise or offer their services elsewhere and had long-term and ongoing  relationships with the employer.   The workers could not offer their services to the employer’s competitors because of non-compete clauses.  The work involved required minimal skill or training.

The factors which indicated independent contractor status included: They signed independent contractor agreements and received 1099 tax forms. They were able to accept or reject jobs based on their complexity and distance.  The workers supplied their own tools, ladders, vehicles, cell phones, etc. and the BWC was found to have erred in not crediting this factor.  The BWC was also found to have erred in construing control over the details and quality of work, which were factors that supported independent contractor status.  No one told the workers where or how to dig.  This was not just an indication of competence; “a lack of supervision is indicative of a lack of control.”  They could accept or reject any assignment and set their own hours of labor.  The quality standards were set by TWC, not the employer.  Nonetheless, “even if [the employer] had prescribed the standards, a contract provision stating that a job shall be performed subject to the “ ‘approval or satisfaction of the employer * * * is not an assumption by the employer of the right to control the person employed as to the details or method of doing the work, but is only a provision that the employer may see that the contract is carried out according to the plans.’ ” That TWC might fine the employer for substandard work was not indicative of whether the workers were employees of the employer.

The Court agreed that the BWC erred in construing piece rate offers by the employer to be indicative of an employment relationship because it mistakenly relied on a different test under the FLSA: “the bureau erred in concluding that the installers’ receipt of piece-rate compensation (essentially, payment per job rather than payment per hour) was evidence of an employment relationship.”  Nonetheless, the “take it or leave it” approach and lack of negotiation for making the offers was evidence of control by the employer.

The Court was also unmoved that the BWC disregarded and gave no weight to uncontroverted affidavits from a couple of workers confirming that they believed that they were independent contractors.   Similarly, the Court found no abuse of discretion that the BWC also refused to assign any weight to the independent contractor label used in the parties’ agreement. 

Although the bureau was perhaps too dismissive of the contract—by suggesting that such a contract may be a “red flag”—the bureau’s conclusion that it was not bound by the parties’ labels was nevertheless correct, because “a description by the parties of their future relationship is not necessarily determinative when viewed in light of their actual subsequent activities,”

Ultimately, the Court agreed that while there was evidence supporting contrary conclusions, it was bound by an abuse of discretion standard. “[W]e are not called upon to reweigh it here; rather, our function is to determine whether the bureau abused its discretion by entering an order that is not based on some evidence in the record.”  Albeit some of the factors weighed in the employer’s favor, there was enough evidence in the record to support the BWC decision.

The Court also affirmed the BWC decision that the quality control inspector was an employee and not an independent contractor.  Although he held himself out as an independent contractor and maintained his own workers’ compensation policy, the employer was his sole source of income, making him financially dependent on the employer.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Ohio Supreme Court Denies Relief In Two Employment Cases

This week, the Ohio Supreme Court issued two per curiam decisions.  In the first, the Court concluded that there was “some evidence” showing that OPERS did not abuse its discretion when it denied pension benefits to an independent contractor psychiatrist hired by the Lucasville prison despite the amount of control that the prison exercised. State ex rel. Sales v. Ohio Pub. Emps. Retirement Bd., Slip Opinion No. 2019-Ohio-1568.  In the second decision, the Court ruled that the Cuyahoga County Common Pleas Court lacked jurisdiction to restrain the City of Cleveland from changing the starting time of its union firefighters from 8:30 a.m. to 7:00 a.m. because such matters are within the exclusive jurisdiction of SERB.  State ex rel. Cleveland v. Russo, Slip Opinion No. 2019-Ohio-1595.


According to the Court’s opinion, the pro se psychiatrist signed a Personal Services Contract with the prison which identified him as an independent contractor, required him to work 16 hours/week for up to 8 hours/day and required him to submit an invoice in order to be paid.  He was issued 1099 tax forms and did not receive any fringe benefits, or unemployment or workers compensation coverage.   The agreement was renewed several times.  After he terminated the contract, he sought service credits from the Public Employee Retirement System.  OPERS denied his application and appeal, as did a Franklin County magistrate, but the Court of Appeals reversed based on the amount of control the prison exercised over him.   The prison provided him with an office while he was there, provided him with some training, issued him a badge, provided him with malpractice coverage, set his work schedule, and required him to clock in and out.  The court acknowledged that it was unlikely that any psychiatrist could be an independent contractor under such conditions.  The Court reversed because the appeal was subject to an abuse of discretion standard that must affirm OPERS if there is any evidence that could support its decision.  The OPERS regulations distinguishing between employees and contractors favored independent contractor status because he was not carried on payroll, submitted invoices, received no fringe benefits and was identified as an independent contractor, etc. This was “some evidence” supporting the OPERS decision to deny service credit.


According to the Court’s opinion, the firefighter union had filed an unfair labor practice charge over the City’s intention to change the shift starting time.  It then filed for a temporary restraining order, which was granted on the grounds that the change could affect child custody arrangements.  The City sought a mandamus, which was granted because SERB possesses exclusive jurisdiction over disputes covered by the collective bargaining agreement.  No independent statutory or common law right supported the union’s requested relief.


NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: Court Decides FAA Exemptions for Workers in Interstate Commerce, Not Arbitrator

This morning, the Supreme Court affirmed a Federal Arbitration Act decision and held that a court – not the arbitrator --  should decide whether a §1 exemption for “contracts of employment of . . . workers engaged in foreign or interstate commerce” applied to negate FAA enforcement of the arbitration clause in the plaintiff trucker’s independent contractor agreement.   New Prime, Inc. v. Oliveira, No. 17-340 (1-15-19).   Further, the Court held that the common meaning of “worker” and “contract of employment” at the time the FAA was enacted in 1925 would control its interpretation of those terms instead of the contemporary understanding of those terms in order to protect the reasonable reliance of the public.  In 1925, “employment” was broadly understood to encompass workers and independent contractors and not just employees. 

According to the Court’s opinion, the plaintiff was hired under an “operating agreement” to work as an independent contractor truck driver for the defendant interstate trucking firm.  The operating agreement contained an arbitration clause which provided that the arbitrator should decide questions of arbitrability. The plaintiff filed a class action claiming that he and his fellow drivers had been misclassified as independent contractors and were entitled to minimum and overtime wages.   The defendant company moved to compel arbitration.  The plaintiff argued that he and his fellow drivers were exempt from FAA enforcement under §1, but the company argued that this decision should be made by the arbitrator and, if not, “contracts of employment” referred to common law and statutory employees, not independent contractors like the plaintiff and his fellow drivers.

The Court observed that the FAA only compels arbitration of disputes when the FAA applies.  Among other things, the FAA requires an “agreement in writing” between the parties and applies to disputes which arise from a “written provision in any maritime transaction or a contract evidencing a transaction involving commerce.”  The FAA also specifically exempts certain agreements from enforcement.  Section 1 of the FAA defines the terms “maritime transactions” and commerce,” and then provides:

but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.

This exemption existed because:

Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers.  And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties’ private contracts might happen to contemplate.

Clearly, a court could not apply the FAA and compel arbitration before deciding for itself whether the FAA even applied:

The parties’ private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.

This is not a new concept. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 402 (1967).

The Court then rejected the defendant company’s argument that “contracts of employment” covered only agreements with common law and statutory employees and not to contacts of employment with workers (like the plaintiff) who might be independent contractors.   The parties agreed that the plaintiff was a worker engaged in interstate commerce and the plaintiff was willing to assume – only for this issue – that he was an independent contractor.   

In deciding whether “contracts of employment” included independent contractor agreements, the Court observed:

“[I]t’s a ‘fundamental canon of statutory construction’ that words generally should be ‘interpreted as taking their ordinary . . . meaning . . . at the time Congress enacted the statute.’” . . . After all, if judges could freely invest old statutory terms with new meanings, we would risk amending legislation outside the “single, finely wrought and exhaustively considered, procedure” the Constitution commands. INS v. Chadha, 462 U. S. 919, 951 (1983).  We would risk, too, upsetting reliance interests in the settled meaning of a statute. . . .

That, we think, holds the key to the case.  To many lawyerly ears today, the term “contracts of employment” might call to mind only agreements between employers and employees (or what the common law sometimes called masters and servants).  Suggestively, at least one recently published law dictionary defines the word “employment” to mean “the relationship between master and servant.” Black’s Law Dictionary 641 (10th ed. 2014).  But this modern intuition isn’t easily squared with evidence of the term’s meaning at the time of the Act’s adoption in 1925.  At that time, a “contract of employment” usually meant nothing more than an agreement to perform work.  As a result, most people then would have understood §1 to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.

The Court examined prior law dictionaries and found that “contracts of employment” was not even a term of art or defined term in 1925:

It turns out, too, that the dictionaries of the era consistently afforded the word “employment” a broad construction, broader than may be often found in dictionaries today.  Back then, dictionaries tended to treat “employment” more or less as a synonym for “work.”  Nor did they distinguish between different kinds of work or workers: All work was treated as employment, whether or not the common law criteria for a master-servant relationship happened to be satisfied.

 . . . This Court’s early 20th-century cases used the phrase “contract of employment” to describe work agreements involving independent contractors.  Many state court cases did the same.  So did a variety of federal statutes. . . . We see here no evidence that a “contract of employment” necessarily signaled a formal employer-employee or master-servant relationship.

Further, the §1 of the FAA itself refers to “contracts of employment” with “workers.”  Workers, then as now, refers to a broader class of individual which includes both employees and independent contractors.

The Court rejected the defendant company’s argument that “contracts of employment” must necessarily only cover employees because the words “employment” and “employee,” while derived from a common root did not develop simultaneously and have different understandings and legal meaning with “employment” traditionally having a broader meaning than employee.  While “contracts of employment” clearly included contracts with employees, they could also include contracts with workers or independent contractors who were not employees.

The  Court refused to enforce the purpose of the FAA over the statutory mandates or to utilize the Court’s inherent authority to compel alternative dispute resolution.

Justice Ginsburg agreed with the  Court’s decision and rationale, but not surprisingly, also asserted that Congress could design legislation that should change with the times: sometimes, “[w]ords in statutes can enlarge or contract their scope as other changes, in law or in the world, require their application to new instances or make old applications anachronistic.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Franklin County Appeals Court Finds Drivers to be Independent Contractors Under Unemployment Statute

Last week, the Franklin County Court of Appeals affirmed the trial court decision that a trucking company was not a statutory employer under Ohio’s unemployment statute with respect to the truckers who drove her long-haul trucks.  Evans v. Dir. Ohio Dept. Job & Family Servs., 2015-Ohio-3842.  While there were facts that supported arguments for and against employment under the 20 factors contained in Ohio Administrative Code §4141-3-05(B), the Court ultimately found that the trial court did not abuse its discretion in finding the truckers to be independent contractors.

According to the Court’s opinion, the trucking company leased its trucks to a freight broker, and also agreed to provide drivers.   However, the freight broker advertised, interviewed and hired the drivers, who then signed independent contractor agreements with the trucking company, were paid more than a third of her payment by the freight broker and were issued 1099 tax forms.  The drivers never met the trucking company owner and did not receive any training from the trucking company.  Although drivers could refuse routes and could choose their own route, they could not substitute another driver for themselves.  The drivers set their own hours and only got paid if the trucking company got paid.  They could work for multiple companies, but were not permitted to haul cargo for other companies in the trucking company’s trucks.

The Ohio Department of Job and Family Services directed the trucking company in 2008 to begin making contributions on behalf of the drivers.  On administrative appeal, the UCBR found that the trucking company’s right to control the drivers made her an employer even though she never exercised that right of control and, instead, delegated it to the freight broker.  On appeal, the common pleas court found the UCRB decision was unsupported by substantive, reliable and probative evidence.  He found the drivers to be independent contractors.  The Franklin County Court of Appeals concluded that there was no abuse of discretion in light of the ambiguity of some of the evidence.

Ohio employers must contribute to Ohio's unemployment compensation fund. R.C. 4141.23. The definition of "employer" includes individuals who "ha[ve] in employment at least one individual." R.C. 4141.01(A)(1)(a). "Employment" is:

[S]ervice performed by an individual for remuneration under any contract of hire, written or oral, express or implied * * *, unless it is shown to the satisfaction of the director that such individual has been and will continue to be free from direction or control over the performance of such service, both under a contract of service and in fact.

R.C. 4141.01(B)(1).  

 Consistent with the statutory definition of "employment," Ohio Adm.Code 4141-3-05(A) provides:

[A] worker is in employment when an "employer-employee" relationship exists between the worker and the person for whom the individual performs services and the director determines that:

(1) The person for whom services are performed has the right to direct or control the performance of such services; and

(2) Remuneration is received by the worker for services performed.

Ohio Adm.Code 4141-3-05(B) sets forth 20 factors "[a]s an aid to determining whether there is sufficient direction or control present" to establish employment.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

DOL Issues Administrative Interpretation that Most Workers are Employees, Not Independent Contractors

Yesterday, the Department of Labor issued an  Administrative Interpretation 2015-1  concerning the common misclassification of employees under the Fair Labor Standards Act as independent contractors.  While Administrative Interpretations do not have the weight of regulations, they are afforded some deference by courts.  More importantly, in this case, the Interpretation does not break much new ground in terms of how the Sixth Circuit has applied the economic realities test which controls whether a worker is an employee or independent contractor.   What is troubling, however, is that the DOL indicates that it will apply to the same test to determine whether an individual is a statutory employee or an owner, partner or LLC member (who are often paid, if at all, only out of the profits of a business even when they are not majority owners).  “In sum, most workers are employees under the FLSA’s broad definitions. The very broad definition of employment under the FLSA as “to suffer or permit to work” and the Act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.”

As faithful readers may recall, the FLSA employs the broadest possible test of who is covered under the Act. 

The FLSA’s definition of employ as “to suffer or permit to work” and the later-developed “economic realities” test provide a broader scope of employment than the common law control test. . . . . Instead, the FLSA defines “employ” broadly as including “to suffer or permit to work,” 29 U.S.C. 203(g), which clearly covers more workers as employees.”

A worker who is economically dependent on an employer is suffered or permitted to work by the employer. Thus, applying the economic realities test in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA. The application of the economic realities factors must be consistent with the broad “suffer or permit to work” standard of the FLSA.

As mentioned, the DOL has indicated an intent to also police how business owners, partners and limited liability company members compensate themselves:

While most misclassified employees are labeled “independent contractors,” the Department has seen an increasing number of instances where employees are labeled something else, such as “owners,” “partners,” or “members of a limited liability company.” In these instances, the determination of whether the workers are in fact FLSA covered employees is also made by applying an economic realities analysis.

That being said, the DOL recognizes that the economic realities test has been accepted by the courts and provides a number of examples of how it has been and, in its opinion, should be applied.   

In undertaking this analysis, . . . . no single factor is determinative.  . . .The factors should be considered in totality to determine whether a worker is economically dependent on the employer, and thus an employee. . . .The application of the economic realities factors is guided by the overarching principle that the FLSA should be liberally construed to provide broad coverage for workers, as evidenced by the Act’s defining “employ” as “to suffer or permit to work.”

The labels attached by the parties are deemed “irrelevant” by the DOL, as is the employee’s tax status:

 . . . the economic realities of the relationship, and not the label an employer gives it, are determinative. Thus, an agreement between an employer and a worker designating or labeling the worker as an independent contractor is not indicative of the economic realities of the working relationship and is not relevant to the analysis of the worker’s status. . . . Likewise, workers who are classified as independent contractors may receive a Form 1099-MISC from their employers. This form simply indicates that the employer engaged the worker as an independent contractor, not that the worker is actually an independent contractor under the FLSA.

The factors of the economic realities test typically include:

               (A) the extent to which the work performed is an integral part of the employer’s business;

               This factor examines whether the work performed is an integral part of the employer’s business? “If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer.”

Example: For a construction company that frames residential homes, carpenters are integral to the employer’s business because the company is in business to frame homes, and carpentry is an integral part of providing that service.

In contrast, the same construction company may contract with a software developer to create software that, among other things, assists the company in tracking its bids, scheduling projects and crews, and tracking material orders. The software developer is performing work that is not integral to the construction company’s business, which is indicative of an independent contractor.

               (B) the worker’s opportunity for profit or loss depending on his or her managerial skill;

               This factor examines whether the worker’s managerial skill affects his or her opportunity for profit or loss.  For instance, a “worker’s ability to work more hours and the amount of work available from the employer have nothing to do with the worker’s managerial skill and do little to separate employees from independent contractors—both of whom are likely to earn more if they work more and if there is more work available.”

Example: A worker provides cleaning services for corporate clients. The worker performs assignments only as determined by a cleaning company; he does not independently schedule assignments, solicit additional work from other clients, advertise his services, or endeavor to reduce costs. The worker regularly agrees to work additional hours at any time in order to earn more. In this scenario, the worker does not exercise managerial skill that affects his profit or loss. Rather, his earnings may fluctuate based on the work available and his willingness to work more. This lack of managerial skill is indicative of an employment relationship between the worker and the cleaning company.

In contrast, a worker provides cleaning services for corporate clients, produces advertising, negotiates contracts, decides which jobs to perform and when to perform them, decides to hire helpers to assist with the work, and recruits new clients. This worker exercises managerial skill that affects his opportunity for profit and loss, which is indicative of an independent contractor.

               (C) the extent of the relative investments of the employer and the worker;

               This factor examines how the worker’s relative investment compares to the employer’s investment.

Example: A worker providing cleaning services for a cleaning company is issued a Form 1099-MISC each year and signs a contract stating that she is an independent contractor. The company provides insurance, a vehicle to use, and all equipment and supplies for the worker. The company invests in advertising and finding clients. The worker occasionally brings her own preferred cleaning supplies to certain jobs. In this scenario, the relative investment of the worker as compared to the employer’s investment is indicative of an employment relationship between the worker and the cleaning company. The worker’s investment in cleaning supplies does little to further a business beyond that particular job.

A worker providing cleaning services receives referrals and sometimes works for a local cleaning company. The worker invests in a vehicle that is not suitable for personal use and uses it to travel to various worksites. The worker rents her own space to store the vehicle and materials. The worker also advertises and markets her services and hires a helper for larger jobs. She regularly (as opposed to on a job-by-job basis) purchases material and equipment to provide cleaning services and brings her own equipment (vacuum, mop, broom, etc.) and cleaning supplies to each worksite. Her level of investments is similar to the investments of the local cleaning company for whom she sometimes works. These types of investments may be indicative of an independent contractor.

 
               (D) whether the work performed requires special skills and initiative;

               This factor examines whether the work performed requires special skill and initiative. 

A worker’s business skills, judgment, and initiative, not his or her technical skills, will aid in determining whether the worker is economically independent. “[T]he fact that workers are skilled is not itself indicative of independent contractor status.”  . . . The technical skills of cable installers, carpenters, construction workers, and electricians, for example, even assuming that they are special, are not themselves indicative of any independence or business initiative.  . . . Only carpenters, construction workers, electricians, and other workers who operate as independent businesses, as opposed to being economically dependent on their employer, are independent contractors.

Example: A highly skilled carpenter provides carpentry services for a construction firm; however, such skills are not exercised in an independent manner. For example, the carpenter does not make any independent judgments at the job site beyond the work that he is doing for that job; he does not determine the sequence of work, order additional materials, or think about bidding the next job, but rather is told what work to perform where. In this scenario, the carpenter, although highly-skilled technically, is not demonstrating the skill and initiative of an independent contractor (such as managerial and business skills). He is simply providing his skilled labor.

In contrast, a highly skilled carpenter who provides a specialized service for a variety of area construction companies, for example, custom, handcrafted cabinets that are made-to-order, may be demonstrating the skill and initiative of an independent contractor if the carpenter markets his services, determines when to order materials and the quantity of materials to order, and determines which orders to fill.

               (E) the permanency of the relationship; and

Permanency or indefiniteness in the worker’s relationship with the employer suggests that the worker is an employee. . . . Most workers are engaged on a permanent or indefinite basis (for example, the typical at-will employee). Even if the working relationship lasts weeks or months instead of years, there is likely some permanence or indefiniteness to it as compared to an independent contractor, who typically works one project for an employer and does not necessarily work continuously or repeatedly for an employer.

Example: An editor has worked for an established publishing house for several years. Her edits are completed in accordance with the publishing house’s specifications, using its software. She only edits books provided by the publishing house. This scenario indicates a permanence to the relationship between the editor and the publishing house that is indicative of an employment relationship.

Another editor has worked intermittently with fifteen different publishing houses over the past several years. She markets her services to numerous publishing houses. She negotiates rates for each editing job and turns down work for any reason, including because she is too busy with other editing jobs. This lack of permanence with one publishing house is indicative of an independent contractor relationship.

               (F) the degree of control exercised or retained by the employer.

According to the DOL, the “worker must control meaningful aspects of the work performed such that it is possible to view the worker as a person conducting his or her own business.”  As an example, “an employer’s lack of control over workers is not particularly telling if the workers work from home or offsite.”

Example: A registered nurse who provides skilled nursing care in nursing homes is listed with Beta Nurse Registry in order to be matched with clients. The registry interviewed the nurse prior to her joining the registry, and also required the nurse to undergo a multi-day training presented by Beta. Beta sends the nurse a listing each week with potential clients and requires the nurse to fill out a form with Beta prior to contacting any clients. Beta also requires that the nurse adhere to a certain wage range and the nurse cannot provide care during any weekend hours. The nurse must inform Beta if she is hired by a client and must contact Beta if she will miss scheduled work with any client. In this scenario, the degree of control exercised by the registry is indicative of an employment relationship. 

Another registered nurse who provides skilled nursing care in nursing homes is listed with Jones Nurse Registry in order to be matched with clients. The registry sends the nurse a listing each week with potential clients. The nurse is free to call as many or as few potential clients as she wishes and to work for as many or as few as she wishes; the nurse also negotiates her own wage rate and schedule with the client. In this scenario, the degree of control exercised by the registry is not indicative of an employment relationship.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Affirms Decision Finding Migrant Farm Workers to Be Employees Under FLSA

Yesterday, the Sixth Circuit affirmed the decision in Perez v. Howes, 7 F. Supp. 3d 715 (W.D. Mich. 2014), aff’d No. 14-2026 (6^th Cir. 6-22-15).  The Court agreed that an examination of the six factors from the economic realities test showed that the migrant farm workers picking pickle cucumbers were employees under the FLSA instead of independent contractors as specified in their engagement contracts.  The Court also found that the defendant farm also violated the FLSA by failing to keep track of hours worked each day when the farm only kept track of hours worked by each worker each week.  Moreover, the Court also agreed that the defendant farm violated the Migrant and Seasonal Agricultural Worker Protection Act by supply sub-standard housing for its workers.

The Court essentially adopted the District Court’s opinion, which is summarized briefly here.

 " Whether an employment relationship exists under a given set of circumstances is not fixed by labels that parties may attach to their relationship nor by common law categories nor by classifications under other statutes."  . . . Rather, courts focus on the " economic reality" of the relationship between the parties to determine whether it is an employment relationship. Id. " [I]n distinguishing between employees and independent contractors, courts have focused on whether, as a mater of economic reality, the worker is economically dependent upon the alleged employer or is instead in business for himself."

Permanency and Duration of Relationship.  This factor was essentially neutral because the harvest only lasted 45 days.  Some of the workers had part-time and temporary jobs elsewhere, but most worked full-time picking cucumbers for the 45 days.   Almost 70% of the workers had worked on the farm during the prior year’s harvest as well.

Degree of Skill. This factor weighed in favor of employment.  While the workers would report problems with the plants to the farm owner (such as the plants require water or fertilizer or insecticide), they performed very little care for the plant (such as weeding, watering, trellising, etc.) and therefore, required very little experience or training.  The workers could be trained in one hour how to harvest pickles, but – like anything else -- would become more efficient with experience.

Worker’s Investment.  This factor likewise weighed in favor of employment.  The owner’s investment dwarfed that of the workers, who sometimes supplied their own rubber gloves and wheelbarrows.  The owner supplied collection boxes, forklifts, and hoes. The Court only considered the farm’s investment during the harvest, rather than all of its prior investments.

Opportunity for Profit.  This factor also weighed in favor of employment because the workers bore no risk of financial loss, other than making poor use of their time (which is not an issue the Court was willing to credit).

Workers were paid according to how many pickles they picked. They had no input into selecting a buyer or negotiating a price for the pickles. Under the system in place, workers could simply increase their wages by working longer, harder, and smarter--this does not constitute an opportunity for profit.

Defendant’s control.  This factor weighed slightly in favor of employment.  In some cases, workers are contractors when they enter into sharecropping relationships to control a piece of land, set their own schedules and direct the owner when to plant in order to accommodate the workers’ schedules.  In others, workers are employees when the owner supervised the harvest, hired, fired and assigned rows to workers.   In this case, the workers set their own schedules and picked their own harvesting plots.  The owner supervised the harvest, but not closely.  However, the owner retained control over the timing of the harvest and care of the plants.

Services as integral part of defendant’s business.  This weighed heavily in favor of employment because the defendant derived 84% of his income from pickle farming.  The Court refused to consider whether the workers were economically dependent on the defendant’s farm as part of this factor.

The factors weigh in favor of a finding that the workers were employees, and the record supports a finding that the workers were dependent on Defendant, rather than in business for themselves. This was not a sharecropper relationship as in Brandel, but rather an employment relationship in which the workers' wages were dependent upon their production. Such a payment structure, on its own, does not transform an employee into an independent contractor. The " economic reality" of the situation indicates an employer-employee relationship.

The DOL had not moved for summary judgment yet on payment of minimum wages. The farm had previously agreed to split the profit from the sale of the pickles.

The DOL also obtained summary judgment on the owner failing to keep a record of hours worked each day.  Instead, the owner had asked each worker how many hours he worked that week to determine their hourly earnings.  This constituted a violation of the FLSA.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Reverses Employer’s Summary Judgment in FLSA Overtime and Misclassification Case

Last week, a divided Sixth Circuit Court of Appeals reversed an employer’s summary judgment on a FLSA overtime compensation claim brought by satellite technician who had been classified as an independent contractor.  Keller v. Miri Microsystems LLC, No. 14-1430 (6^th Cir. 3-26-15).  After weighing a number of typical and a few new factors to determine the economic realities of the situation, the Court concluded that there was a factual dispute as to whether the plaintiff was an employee or independent contractor.    In addition, the Court found sufficient evidence to show that the plaintiff typically worked more than 60 hours each week – even without payroll records -- based on his testimony and the employer’s admission of how many jobs he generally completed each day and how long each job typically took.

According to the Court’s opinion, the employer provided consumer installation services for two satellite internet providers.  The plaintiff was hired as an independent contractor technician/installer by the employer and was paid by the job based on a percentage of what the employer was paid by its two customers.  He worked six days each week and had completed an installation certification course provided by the employer before he was hired.  He filed this lawsuit after he resigned and went to work directly for one of the customers.

In determining whether the plaintiff’s classification as an independent contractor was appropriate, the Court noted that “‘employees are those who as a matter of economic reality are dependent upon the business to which they render service.’”  Although no single factor is controlling, the Court identified the following eight factors and discussed six of them: 

·        The permanency of the relationship between the parties;

Generally, independent contractors have variable or impermanent working relationships with the principal company because they “often have fixed employment periods and transfer from place to place as particular work is offered to them, whereas ‘employees’ usually work for only one employer and such relationship is continuous and indefinite in duration. . . . . If a worker has multiple jobs for different companies, then that weighs in favor of finding that the worker is an independent contractor.

However, “even short, exclusive relationships between the worker and the company may be indicative of an employee-employer relationship.”  Moreover, it is irrelevant whether the parties have a written contract because the FLSA was meant to “defeat,” not implement, contracts.   Employees – like independent contractors – may work for multiple employers without losing the protection of the FLSA.  Unlike employees, contractors have more control over which days they work and how long they work each day. 

In this case, the Court found mixed indications about the working relationship.  Although the plaintiff worked exclusively for the employer for 20 months and claimed to have so many time-consuming assignments that he did not have time to work for anyone else, there was no exclusivity requirement and he could largely set his own schedule.  Accordingly, there were disputed issues of fact to be resolved by a jury.  

·        The degree of skill required for the rendering of the services;

The principle factor in this analysis is whether the worker’s “profits increased because of the ‘initiative, judgment[,] or foresight of the typical independent contractor,’ or whether his work ‘was more like piecework.’” The Court found “ample evidence” that the technicians were skilled and required specialized training and certification, including knowledge of electrical codes, how to operate power tools and computer software.  Nonetheless, he acquired his skills through the employer and those skills only increased his efficiency and did not affect the amount of his profits.  Accordingly, there were disputed issues of fact to be resolved by a jury, according to the majority.  

It is also important to ask how the worker acquired his skill. . . . If a worker learned his craft through formal education, an apprenticeship, or years of experience, then it is more likely that the worker’s compensation varies with his unique skill and talent. On the other hand, if the worker’s training period is short, or the company provides all workers with the skills necessary to perform the job, then that weighs in favor of finding that the worker is indistinguishable from an employee.

·        The worker’s investment in equipment or materials for the task;

“The capital investment factor is most significant if it reveals that the worker performs a specialized service that requires a tool or application which he has mastered or that the worker is simply using implements of the [company] to accomplish the task.”  Nonetheless, the Court adopted a new standard in this case: mandating a comparison of “the worker’s investment in the equipment to perform his job”  and particularly, “whether that capital investment is evidence of economic independence” with the employer’s “total investment, including office rental space, advertising, software, phone systems, or insurance.”  This is surprising because most small companies will never match the investment or overhead of a large corporate customer which retained them.  In conducting this new analysis, the Court disregarded worker purchases which are commonly purchased by employees, such as cars and laptops.   In examining the facts, the Court noted that while the worker invested in some equipment, the employer’s investment was greater. Accordingly, there were disputed issues of fact to be resolved by a jury.

 

·        The worker’s opportunity for profit or loss, depending upon his skill

The trial court found that the plaintiff had control over this economic success because he controlled the size of his region, how many jobs he took each day, and whether to hire assistants.  Surprisingly, the Court disagreed. Although it conceded that the plaintiff sometimes brought assistants which helped him to finish jobs quicker and might have helped him complete more jobs each day, it concluded that “hiring employees carries additional costs that would have affected [his] ability to earn a greater profit” and there was no evidence that even with assistants, “he could complete more than four installations each day.”   Nonetheless, the Court acknowledged that the plaintiff sometimes made extra income from outside, but related, activities. Accordingly, there were disputed issues of fact to be resolved by a jury.

 

·        The degree of the alleged employer’s right to control the manner in which the work is performed

While the Court acknowledged that the employer never controlled or monitored the manner in which the work was performed on a day-to-day basis, never provided step-by-step guides or uniforms or logos, and the worker could refuse and rearrange assignments, the Court found that other factors created a disputed issue of fact.  For instance, the Court considered how long it took the worker to drive to assignments and perform the work.  In addition, the employer required and provided certain certification courses.   The employer also required to be notified when each project began and ended, and to receive photos of the completed work and shared customer feedback with the worker. The employer also required the worker to guarantee the quality of work and repair any problems identified within 30 days without additional charge.   The employer also controlled how much the consumer paid.

·        Whether the service rendered is an integral part of the alleged employer’s business.

This factor undeniably weighed in favor of employment status since the installation and repair on satellite dishes is the employer’s primary business.

Although the Court initially identified the following two additional factors, it did not discuss them.

·        Whether the business had “authority to hire or fire the plaintiff,” and

·        Whether the defendant-company “maintains the plaintiff’s employment records.”  

Instead, it considered the following factors as weighing in favor of employee status even though none of it was required by the employer:

·        The plaintiff did not obtain an federal employer identification number;

·        He wore a logo hat of the employer’s primary customer (which he purchased from the employer) and identified himself as a representative of that company (instead of as an independent contractor); and

·        He had no business cards.

 As to whether the plaintiff could prove that he was entitled to unpaid overtime compensation if he had been an employee, the Court decided that his testimony alone could establish sufficient evidence.  There were obviously no payroll records in this case.   “In the absence of those employer records, however, a plaintiff’s testimony is enough to create a genuine issue of fact.”  Moreover, the employer’s records confirmed that the plaintiff worked six days each week as he claimed.   In addition, the employer confirmed that the plaintiff typically completed four installations each day and that each installation averaged about 2.5 hours each.  That would end up being approximately 60 hours per week, not including the travel time between each assignment and the time the plaintiff spent completing the employer’s forms.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Rejects Employment Claims Brought by Independent Contractor Surgeon

Last week, the Sixth Circuit affirmed the summary judgment dismissal of Title VII and §1981 claims brought by a surgeon after her surgical privileges were revoked by a hospital after she injured a patient.  Brintley v. St. Mary Mercy Hospital, No. No. 12-2616  (6^th Cir. 11-15-13).  After she had used a particular surgical technique which may caused significant complications for a young patient following a routine procedure, the Hospital’s Chief of Surgery for the defendant hospital requested that the plaintiff surgeon remove herself from the emergency call list and to cease using that surgical technique.  An investigation revealed that in the 13 months she had been on staff, six of her patients had suffered avoidable complications compared to one avoidable complication during the same period for the remaining nine surgeons combined.  The hospital’s executive committee recommended that the plaintiff undergo a proctorship where all of her surgeries would be supervised.  However, when the plaintiff objected to the proctors’ directions, and continued to perform the problematic surgical technique, the Executive Committee voted to suspend her medical privileges.   She brought suit for racial discrimination under Title VII and §1981. 

The Court found that she was not covered by Title as an independent contractor.  She paid her own taxes, licensing fees and malpractice insurance premiums and billed her own patients.  She held privileges at other medical facilities which were not supervised or controlled by the Hospital. She never filed tax returns claiming to be an employee of the hospital.

The Court likewise affirmed the dismissal of her §1981 claim on the grounds that the medical bylaws did not constitute a contract. Section 1981 “protects the equal right of all persons . . . to make and enforce contracts without respect to race.”  The Plaintiff claimed that the hospital violated this statute when it revoked her medical privileges.  The Plaintiff did not have an independent contractor agreement or other contract with the hospital. 

 

Brintley contends that St. Mary’s bylaws created such a contract. But she does not explain which of the bylaws’ provisions create a contract with her, much less how any provision does so. And the bylaws themselves appear primarily, if not exclusively, to describe St. Mary’s self governance and organization. Nothing in them speaks to or creates a contractual relationship with Brintley.

While the bylaws did not explicitly state that they were not a contract, the Court did not find this to be controlling.  The Court did not discuss any quid pro quo which flowed from the hospital to the plaintiff or visa versa.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Appeals Court: Employee Had Just Cause to Resign to Avoid Jeopardy to Security Clearance and Is Entitled to Unemployment Compensation; But Claimant Who Declined Employment Offer Was Not

The Franklin County Court of Appeals issued an interesting unemployment decision this week in which it reversed the UCBR and common pleas court in order to award unemployment compensation to the employee of a military contractor who resigned over a difference of opinion with her boss about reviewing the Wikileaks materials.  Turner v. Mission Essential Personnel LLC, 2012-Ohio-5470.   In that case, the employer had prevailed at every level before reaching the Court of Appeals and had not even entered an appearance or produced evidence at the evidentiary hearing.  The hearing offer described the issue as whether the claimant had just cause to resign her employment from a military contractor doing business in Iraq and Afghanistan based on her disagreement over being asked to access and review the classified materials leaked through Wikileaks for the names of company employees and contractors (in an effort to warn them of their disclosure).   She had contended that her manager’s direction violated directions from the DOD and Secretary Gates (that a single task force would conduct the review) and would have jeopardized the security clearance of herself and the company.  When he directed her subordinates to disregard her objection and demoted her, she resigned.   The company subsequently changed its policy to comply with her interpretation of DOD directives. The Court found the company’s subsequent actions were not relevant to whether she had just cause to resign.  However, upon closer review, it contended that she had just cause to resign in order to preserve her own security clearance because she had been asked to not only access the information, but to scrub (i.e., alter) it and this clearly violated DOD directives as testified by a retired government employee witness who had so advised the claimant at the time at issue.  “[T]he perceived threat to appellant's own security clearance alone would have given her just cause to leave her employment rather than lose this credential, which would have necessarily curtailed her ability to work in her field of experience and expertise.”

 The claimant’s assignment of error reads as follows:

The trial court erred in upholding the Ohio Unemployment Compensation Review Commission's finding that Appellant did not have just cause to quit her employment with Mission Essential Personnel LLP given the uncontroverted evidence that she was pressured to access classified military documents on WikiLeaks.org in contravention of the National Industrial Security Program Operating Manual procedures and a directive by Secretary of Defense Robert Gates, and in refusing to cooperate, was told that she was being demoted from her position as Corporate Director for MEP's National Industrial Security Program.

As explained by the Court, employees who resign have a higher burden of proving their entitlement to unemployment compensation of proving that they had just cause to resign:

In order to collect unemployment benefits, an employee who resigns from employment bears the burden of proving that he or she resigned for just cause. R.C. 4141.29(D)(2)(a);  . . . The term "just cause," in this context, is defined as " 'that which, to an ordinarily intelligent person, is a justifiable reason for doing or not doing a particular act.' "  . . . . A significant factor in assessing whether an employee resigned with just cause is the employee's fault in creating the situation that led to the resignation.  . . .  In cases in which an employee encounters circumstances that might force resignation, the employee must first notify the employer of problems prior to resigning or risk a finding of resignation without just cause. The purpose of such notice is to provide the employer an opportunity to resolve the conflict before the employee is forced to resign.  . . .  Notice to the employer, however, is not alone enough to establish just cause; the employer must have a realistic opportunity to correct the problem.

To support her burden of just cause to resign, the claimant produce evidence of the DOD directive on Wikileaks, a newspaper article about the response of various military organizations to the directive, an extensive collection of emails between the claimant and her manager about the dispute, and a company memorandum reflecting its change in policy to confirm with the claimant’s interpretation of the DOD directive.  “This last memorandum announces that the company may take disciplinary action up to and including termination of employment for unauthorized access because of the risk to future security clearance eligibility for the company and its employees.”
 

At the time, the claimant conferred with a government employee about the issue and had been advised that the actions would jeopardize her security clearance and that of her employer.  Apparently, her manager had directed her to not only access the information, but also to scrub (i.e., alter it).   (Emails were produced with this terminology by one of her subordinates about what he had been asked to do).  That government employee subsequently retired, but testified during the unemployment hearing on behalf of the claimant.

 

The Court refused to consider the employer’s subsequent actions in conforming to the claimant’s interpretation because that information was not available to her at the time she resigned.  Instead, the Court focused on the uncontroverted evidence produced by the claimant about what her manager was asking her and her employees to do and the government employee’s testimony about how it violated the DOD directive to the extent that both the claimant and the company could have lost their security clearances.

The determination of just cause necessarily turns upon particular circumstances of employment. Here, appellant worked for an employer undertaking sensitive national security work under particularly stringent government guidelines designed to preserve and protect important confidential information. When told to access the WikiLeaks.org site, appellant made her case that this violated various  security protocols through numerous emails both to her immediate superior and other individuals in her organization. Steadfast in her belief that not only her own security clearance but that of her employer would be compromised, she explained her position in repeated exchanges of correspondence with responsible individuals, giving her superiors every opportunity to re-examine the implications of their actions. She then consulted with Ms. Dugger, an informed person in a responsible position with a relevant government agency, and received confirmation of her belief that access to the WikiLeaks.org documents was a potential, if not certain, breach of those security protocols expressed in the NISPOM.

 . . . . Beyond the ethical questions raised by Mr. Peltier's demands, the perceived threat to appellant's own security clearance alone would have given her just cause to leave her employment rather than lose this credential, which would have necessarily curtailed her ability to work in her field of experience and expertise. In light of the uncontroverted evidence presented in the record of the course of events leading to her resignation and the government regulatory context in which it occurred, we find that the commission erred in denying appellant's unemployment benefits on the basis that she did not have just cause for resignation.

 

This was not on the only interesting unemployment case this month.  Last week, the Court of Appeals affirmed the determination that the claimant was not entitled to unemployment compensation because he was an independent contractor, not an employee. Henderson v. Ohio Dept. of Job & Family Servs., 2012-Ohio-5382.  The issue focused on whether the claimant’s general labor services for the employer constituted “employment” under the applicable provision of the Ohio Revised Code.

R.C. 4141.01(B)(1) defines "employment" as "service performed by an individual for remuneration under any contract of hire, written or oral, express or implied, * * * unless it is shown to the satisfaction of the director that such individual has been and will continue to be free from direction or control over the performance of such service, both under a contract of service and in fact."

 

As relevant here, R.C. 4141.01(B)(2)(k) includes as employment "[c]onstruction services performed by any individual under a construction contract * * * if the director determines that the employer for whom services are performed has the right to direct or control the performance of the services and that the individuals who perform the services receive remuneration for the services performed." R.C. 4141.01(B)(2)(k) lists 20 factors to be considered in assessing direction or control, and provides that the commission must presume that the employer has the right of direction and control if ten or more of the factors apply. Those 20 factors are: (1) the employer directs or controls the manner or method by which instructions are given to the individual performing services, (2) the employer requires particular training for the individual performing services, (3) services performed by the individual are integrated into the regular functioning of the employer, (4) the employer requires that services be provided by a particular individual, (5) the employer hires, supervises or pays the wages of the individual performing services, (6) a continuing relationship exists between the employer and the individual performing services which contemplates continuing or recurring work, even if not full-time work, (7) the employer requires the individual to perform services during established hours, (8) the employer requires that the individual performing services be devoted on a fulltime basis to the business of the employer, (9) the employer requires the individual to perform services on the employer's premises, (10) the employer requires the individual performing services to follow the order of work established by the employer, (11) the employer requires the individual performing services to make oral or written reports of progress, (12) the employer makes payment to the individual for services on a regular basis, such as hourly, weekly or monthly, (13) the employer pays expenses for the individual performing services, (14) the employer furnishes the tools and materials for use by the individual to perform services, (15) the individual performing services has not  invested in the facilities used to perform services, (16) the individual performing services does not realize a profit or suffer a loss as a result of the performance of the service, (17) the individual performing services is not performing services for more than two employers simultaneously, (18) the individual performing services does not make the services available to the general public, (19) the employer has a right to discharge the individual performing services, and (20) the individual performing services has the right to end the individual's relationship with the employer without incurring liability pursuant to an employment contract or agreement.

The evidence, however, established that he was paid – at his request -- on a 1099, not W-2 basis.   He supplied most of his own tools and was not provided with any training.  The parties disagreed about his ability to set his own work schedule.  He worked for a few other companies on weekends and supplied proof of workers compensation coverage and liability insurance.   The company claimed that he even turned down an offer of full employment with employee benefits.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.