Author: Administrator

U.S. Supreme Court Decision Offers Pathway for Developing Arbitration Provisions that Can Protect Companies Against Having to Litigate in Court any California Labor Code PAGA Claims

For companies doing business with independent contractors on a multistate basis that operate with arbitration provisions in their independent contractor agreements, California has presented a vexing challenge by its Labor Code Private Attorneys General Act of 2004 (“PAGA”), Cal. Lab. Code § 2698 et seq.

California’s PAGA empowers an employee (including an individual classified as an independent contractor but claims to be a misclassified employee) – who alleges that the employee’s employer violated specified California Labor Code provisions – to file a lawsuit against the employer and use the violation as a gateway to assert claims alleging a potentially limitless number of other Labor Code violations sustained by other employees of the employer.  California courts have interpreted PAGA claims as Labor Code claims that an employee brings on behalf of California’s Labor and Workforce Development Agency (“LWDA”) to recover civil penalties that are otherwise recoverable only by the state in a LWDA enforcement action.

An employee who institutes a PAGA lawsuit asserts two types of claims on behalf of the LWDA, namely, (i) claims alleging specified Labor Code violations sustained by the employee, and (ii) claims alleging specified Labor Code violations sustained by other employees. In a successful PAGA action, the LWDA is entitled to 75% of the award and the remaining 25% is distributed among the affected employees. 

What makes PAGA claims especially vexing for companies that operate with arbitration provisions is that California courts have held that an arbitration provision does not protect a company against having to litigate in court any PAGA claims. But this outcome was recently changed.

A June 15, 2020, decision by the U.S. Supreme Court in Viking River Cruises, Inc. v. Moriana, 2022 WL 2135491 (June 15, 2022), created a new opportunity for a company to protect itself against having to litigate in court any PAGA claims. The specific issue before the Court was whether the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., preempts a rule of California law that invalidates contractual waivers of the right to assert representative claims under PAGA.

Through a complex analysis of federal civil procedure, the FAA, and the PAGA statute, the U.S. Supreme Court in Viking River Cruises, Inc. held that a pre-dispute arbitration provision governing a PAGA claim that an individual asserts on the individual’s own behalf with respect to Labor Code violations sustained by that individual (and “individual PAGA claim”) is protected by the FAA and can be enforced. The Court also held that an “individual PAGA claim” can be split off from, and arbitrated separate and apart from, the representative PAGA claims the individual brings with respect to other employees. Finally, the Court held that once the “individual PAGA claim” is dismissed from litigation and resolved through arbitration, the individual loses the standing required to assert representative PAGA claims in court on behalf of other employees for Labor Code violations they sustained. This means that a carefully drafted arbitration provision can insulate a company against having to litigate in court any PAGA claims.

In light of the Viking River Cruises, Inc. decision, any company that operates with independent contractors in California and has arbitration provisions in its independent contractor agreements should consider consulting with a litigation attorney to ensure that its arbitration provisions are drafted in a manner that will allow it to avoid having to litigate in court any PAGA claims asserted against it.

Importantly, the U.S. Supreme Court acknowledges in its analysis that the California Legislature could amend the PAGA statute to change this outcome.

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If you have any questions or comments concerning the foregoing, please let me know, at rhollrah@hollrahllc.com or (202) 659-0878.

The foregoing is intended solely as general information and may not be considered tax or legal advice; nor can it be used or relied upon for the purpose of (i) avoiding penalties under any taxing statute or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should not take any action based upon any information contained herein without first consulting legal counsel familiar with your particular circumstances.

COVID-19 Emergency Temporary Standard Creates Potential Risk and Uncertainty for Employers that Perform Project-Based Work

Employee-based companies that perform project-based work could face significant costs and uncertainty in complying with the U.S. Department of Labor’s Occupational Safety and Health Administration (“DOL’s OSHA”) new Emergency Temporary Standard (“ETS”) to protect employees from the spread of the coronavirus on the job.

The ETS applies only to employees. But it creates an additional dimension of risk to companies that do business with large numbers of independent contractors, by exposing such companies to another set of potential penalties if the individuals whom it classifies as independent contractors are determined to have been misclassified for purposes of the ETS.

As applied to employee-based companies that perform project-based work, the ETS is unclear concerning the identification of “employees” who need to be counted for purposes of determining whether a company is a “covered employer” and who need to be included in a roster of “employees” that  a “covered employer” is required to maintain, which shows the vaccination status of all it “employees.”

The ETS was officially published on Friday, November 5, 2021. It became effective immediately upon its publication. Covered employers must comply with most requirements of the ETS within 30 days of publication (December 5, 2021) and with its testing requirements within 60 days of publication (January 4, 2022).

The following discusses certain aspects of the ETS. It is not intended to be comprehensive.

1.         General Overview of the ETS

The ETS requires a covered employer to develop, implement, and enforce either (i) a mandatory COVID-19 vaccination policy, or (ii) a policy requiring employees to choose to either (a) be vaccinated, or (b) undergo regular COVID-19 testing – every seven (7) days – and wear a face covering at work.

The ETS defines a covered employer as an employer with 100 or more employees at any time the ETS is in effect. 

For purposes of the ETS, an employee is considered fully vaccinated (i)  2 weeks after completing primary vaccination with a specified COVID-19 vaccine, or (ii) 2 weeks after receiving the second dose of any combination of two doses of specified COVID-19 vaccines. In either case, an employee is not considered to satisfy this condition until 2 weeks after receiving the complete dosage of an acceptable vaccine.

Importantly, the ETS requires a covered employer to provide its employees with:

  • up to four hours of paid time to get vaccinated (for each dose), and
  • up to two days of paid leave to recover from any side effects from each dose.

The ETS also requires a covered employer to:

  • determine the vaccination status of each employee,
  • obtain acceptable proof of vaccination status from vaccinated employees,
  • maintain records of each employee’s vaccination status, and
  • maintain a roster of each employee’s vaccination status.

A covered employer must require its employees to promptly notify the employer if they test positive for COVID-19 or receive a COVID-19 diagnosis. The employer must then remove the employee from the workplace, regardless of vaccination status, and not allow the employee to return to work until satisfying specified criteria.

Salient aspects of the ETS are discussed in greater detail below, based on the ETS and its accompanying Preamble.

2.         ETS Coverage Issues

As noted, the ETS only applies to a covered employer, defined as an employer with 100 or more employees at any time the ETS is in effect. Independent contractors do not count towards the total number of employees.

For purposes of determining whether an employer satisfies the 100-employee threshold, all temporary, part-time, and seasonal employees – directly employed by the employer – are counted. For these purposes, an employer must count the total number of workers it employs regardless of where they report for work on a particular day. Thus, for example, if a company has more than 100 employees spread out over multiple sites, that employer is covered under this ETS even if it does not have 100 or more employees present at any one worksite.

The determination of whether an employer satisfies the 100-employee threshold is initially made as of the effective date of the standard, i.e., November 5, 2021. If the employer has fewer than 100 employees on that date, the standard will not apply to that employer as of that date, but if the same employer subsequently satisfies the 100-employee threshold, the ETS would continue to apply to the employer for the remainder of the time the ETS is in effect, regardless of fluctuations in the size of the employer’s workforce.

Employees of a temporary staffing firm who provide services for an employer are counted by the staffing firm that directly employs them, but not by the employer for which they perform services.

In a traditional franchisor-franchisee relationship in which each franchise location is independently owned and operated, the franchisor and franchisees would be separate entities for coverage purposes. Thus, the franchisor would only count “corporate” employees, and each franchisee would only count employees of that individual franchise.

In other situations, two or more related entities may be regarded as a single employer for OSHA[1] purposes if they handle safety matters as one company, in which case the employees of all entities making up the integrated single employer must be counted.

The ETS requirements do not apply to employees of a covered employer who satisfy any of the following criteria:

  • who do not report to a workplace where other individuals such as coworkers or customers are present;
  • while working from home; or
  • who work exclusively outdoors.

These provisions are intended to exempt workplace settings where workers do not interact indoors with other individuals, and to exempt work performed in the employee’s home regardless of whether other individuals may be present in the home.

Practice Pointers:  An open issue of particular concern to a company that hires large numbers of employees and offers them project-based work is how to determine which individuals to count as an employee.  It is not unusual for some individuals to complete the employment process with such a company but not accept projects on a regular basis. Also, it is rare for a company to formally terminate such an employee.  So, for an individual to be counted as an employee, it is not clear whether the individual would need to have performed at least one project within the last month, within the last six months, within the last year, or within the last five years. Moreover, it is possible that a company would need to count as an employee any individual whom the company has employed and not formally terminated. The ETS provides no clear guidance on this issue. But the answer could have a profound impact on whether a company is compliant with the ETS for purposes of determining coverage and also for purposes of the recordkeeping requirements discussed below in Section 7.

3.         Required Paid Time Off for Obtaining the Vaccine or Recovering from Side Effects

The ETS requires a covered employer to provide its employees:

  • reasonable time, including up to four hours of paid time off, at the employee’s regular rate of pay, to receive each primary vaccination dose, and  
  • reasonable time and paid sick leave to recover from side effects experienced following each primary vaccination dose.  
    • The paid sick leave can be in the form of an employee’s accrued sick leave, if available.
    • If the employee does not have available sick leave, leave must be provided.
    • Employers may set a cap on the amount of paid sick leave available to employees to recover from any side effects. The Preamble accompanying the ETS states that up to two days of paid sick leave per primary vaccination dose for side effects would be sufficient.

The Preamble accompanying the ETS clarifies that reasonable time to receive each primary vaccination dose may include, but is not limited to, time spent during work hours related to the vaccination appointment(s), such as

  • registering, completing required paperwork,
  • all time spent at the vaccination site (e.g., receiving the vaccination dose, post-vaccination monitoring by the vaccine provider), and
  • time spent traveling to and from the location for vaccination (including travel to an off-site location (e.g., a pharmacy), or situations in which an employee working remotely (e.g., telework) or in an alternate location must travel to the workplace to receive the vaccine).

Employers are not, however, obligated to reimburse employees for transportation costs (e.g., gas money, train/bus fare, etc.) incurred to receive the vaccination.

If an employee chooses to receive a primary vaccination dose outside of work hours, an employer is not required to grant paid time to the employee for the time spent receiving the vaccine during non-work hours. However, even if an employee receives a primary vaccination dose outside of work hours, the employer must still afford the employee reasonable time and paid sick leave to recover from side effects that the employee experiences during scheduled work time.

Practice Pointers:  The foregoing indicates that an employer is obligated to provide paid time off in connection with an employee obtaining a vaccine dose in two circumstances: (i) if the employee obtains the dose during work hours,  and (ii) if the employee experiences side effects from a dose during scheduled work time. Thus, it appears thatan employer would have no such obligation if an employee obtains a vaccine dose outside of work hours and is not scheduled to work during the days subsequent to obtaining the dose when the employee experiences side effects from the dose.

4.         Mandated COVID-19 Vaccination Policy

The ETS provides an employer with two different options to satisfy the mandated COVID-19 vaccination policy requirement.

Option #1:

A covered employer can satisfy the COVID-19 vaccination policy requirement by establishing, implementing, and enforcing a written mandatory vaccination policy. Such a policy requires each employee to be fully vaccinated, except those who fall into one of three categories:

(1) those for whom a vaccine is medically contraindicated,

(2) those for whom medical necessity requires a delay in vaccination, or

(3) those who are legally entitled to a reasonable accommodation under federal civil rights laws because they have a disability or sincerely held religious beliefs, practices, or observances that conflict with the vaccination requirement.

The policy must also require all new employees to be vaccinated as soon as practicable.

Option #2

Alternatively, a covered employer can satisfy the COVID-19 vaccination policy requirement by establishing, implementing, and enforcing a written policy allowing any employee to choose either to:

(1) be fully vaccinated against COVID-19, or

(2) provide proof of regular testing for COVID-19 every 7 days and wear a face covering.[2]

The ETS imposes the following requirements with respect to an employee who is not fully vaccinated:

  • An employee who reports at least once every 7 days to a workplace where other individuals, such as coworkers or customers, are present:
    • must be tested for COVID-19 at least once every 7 days; and
    • must provide documentation of the most recent COVID-19 test result to the employer no later than the 7th day following the date on which the employee last provided a test result.
  • An employee who does not report during a period of 7 or more days to a workplace where other individuals, such as coworkers or customers, are present (e.g.  teleworking for two weeks prior to reporting to a workplace with others):
    • must be tested for COVID-19 within 7 days prior to returning to the workplace; and
    • must provide documentation of that test result to the employer upon return to the workplace.

If an employee does not provide documentation of a COVID-19 test result, the employer must keep that employee removed from the workplace until the employee provides a test result.

Practice Pointers: From a compliance perspective, Option #1 would be simpler to administer and would expose a company to less risk of being responsible to provide employees paid time off in connection with obtaining a COVID vaccine. But this option would deny the company access to individuals who are not fully vaccinated. Option #2 would provide a company with greater access to individuals who are not fully vaccinated but would expose the company to the risk of such individuals scheduling a vaccination dose during working hours, to qualify for paid time off for obtaining the vaccine dose, or on a day preceding a scheduled work time, to qualify for paid time off to recover from side effects experienced following the vaccination dose.

5.         Employer’s COVID-19 Vaccination Policy Must be Written

The ETS requires an employer to first determine its ETS policy and then create a written record of that policy. The employer must then ensure that it is following the policy and enforces the requirements of the policy with respect to its workforce, through training and the use of such mechanisms as work rules and the workplace disciplinary system, if necessary.

A written ETS policy should address all of the applicable requirements, including, among others:

  • requirements for COVID- 19 vaccination;
  • applicable exclusions from the written policy (e.g., medical contraindications, medical necessity requiring delay in vaccination, or reasonable accommodations for workers with disabilities or sincerely held religious beliefs);
  • information on determining an employee’s vaccination status and how this information will be collected;
  • paid time and sick leave for vaccination purposes;
  • notification of positive COVID-19 tests and removal of COVID-19 positive employees from the workplace;[3]
  • information on how the employer is making that information available to employees;  
  • how the policy will apply to new employees;
  • disciplinary action for employees who do not abide by the policy;
  • all relevant information regarding the policy’s effective date;
  • who the policy applies to;  
  • deadlines (e.g., for submitting vaccination information, for getting vaccinated); and
  • procedures for compliance and enforcement.

6.         Requirement to Notify Employees of COVID-19 Vaccination Policy

A covered employer is required to inform each employee, in a language and at a literacy level the employee understands, about:

(1) The requirements of the ETS as well as the employer’s policies and procedures established to implement the ETS;

(2) COVID-19 vaccine efficacy, safety, and the benefits of being vaccinated, by providing the document, “Key Things to Know About COVID-19 Vaccines,” available at https://www.cdc.gov/coronavirus/2019- ncov/vaccines/keythingstoknow.html;

(3) Specified regulatory prohibitions against the employer discharging, discriminating, or retaliating against an employee for reporting a work-related injury or illness, and against the employer discriminating or retaliating against an employee for exercising rights under, or as a result of actions that are required by, the ETS; and

(4) Specified statutory provisions which provide for criminal penalties associated with knowingly supplying false statements or documentation.

An employer can communicate this information to employees using any effective methods that are typically used in its workplace and may choose any method of informing employees so long as each employee receives the information in a language and at a literacy level they understand. For example, an employer may provide this information to employees through email communications, printed fact sheets, or during a discussion at a regularly scheduled team meeting.

7.         Recordkeeping Requirements

The ETS requires a covered employer to:

  • determine the vaccination status of each employee; 
  • maintain records of each employee’s vaccination status;
  • preserve acceptable proof of vaccination for each employee who is fully or partially vaccinated; and
  • maintain a roster of each employee’s vaccination status.
    • The roster must list all employees and indicate whether each employee is:
      • fully vaccinated,
      • partially (not fully) vaccinated,
      • not fully vaccinated because of a medical or religious accommodation, or
      • not fully vaccinated because they have not provided acceptable proof of their vaccination status. 

The employer’s maintenance of these records is subject to applicable legal requirements for confidentiality of medical information.  Required records of vaccination status can be maintained physically or electronically, but the employer must ensure it has access to the records at all times.

Practice Pointers: The requirement to maintain a roster listing all employees and their respective vaccination status presents a significant issue to a company that hires large numbers of employees and offers them project-based work. This issue, discussed above in Section 2 Practice Pointers, concerns how to determine which individuals qualify as “employees” and must be included on the roster. As noted, the ETS does not appear to answer this question.   But a covered employer’s failure to include all “employees” on its roster could cause the employer to be noncompliant with the ETS.

8.         Conflicts with State Laws

Several states have enacted laws that conflict with the ETS requirements by prohibiting an employer from imposing a COVID-19 vaccine mandate. In these states, a company that complies with the ETS would violate the state law, and a company that complies with the state law would violate the ETS.

The ETS and its accompanying Preamble explicitly state that the ETS preempts and invalidates any State or local requirements that ban or limit an employer’s authority to require vaccination, face covering, or testing. The Preamble states that the ETS is intended to preempt all State and local workplace requirements that “relate” to these issues, except pursuant to a State Plan that OSHA approves – even to the extent such laws regulate employers with fewer than 100 employees, notwithstanding that the ETS requirements only apply to employers with at least 100 employees.

Practice Pointers: Legal challenges to the ETS already have been filed and at least one federal court has temporarily barred DOL from enforcing it.  If the ETS ultimately is upheld by the courts, its effective date generally will be the stated effective date in the ETS. The same likely would be true of a state law. The uncertain legality of the ETS places covered employers in such states in a difficult dilemma. If such an employer believes the ETS will be upheld and complies with the ETS (in violation of state law), but the ETS is ultimately invalidated, the employer could be subject to penalties under applicable state law for imposing a COVID-19 vaccine mandate in violation of state law.  On the other hand, if such an employer believes the ETS will be invalidated and complies with the state law (in violation of the ETS), but the ETS is ultimately upheld, the employer could be subject to penalties under the ETS for noncompliance. 

9.         Beware Penalties

The Preamble accompanying the ETS makes clear that the specific measures the ETS requires covered employers to implement will make it easier for DOL’s OSHA to determine whether an employer has intentionally disregarded its obligations or exhibited a plain indifference to employee safety or health. In such instances, according to the Preamble accompanying the ETS, DOL’s OSHA can classify the citations as “willful,” allowing it to propose higher penalties, with increased deterrent effects.

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If you have any questions or comments concerning the foregoing, please let me know.

The foregoing is intended solely as general information and may not be considered tax or legal advice; nor can it be used or relied upon for the purpose of (i) avoiding penalties under any taxing statute or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. You should not take any action based upon any information contained herein without first consulting legal counsel familiar with your particular circumstances.

[1] OSHA refers to the Occupational Safety and Health Act of 1970, as amended.

[2] The ETS does not require a covered employer to pay for testing or face coverings. But it notes that an employer may be required to pay for such items to comply with other laws, regulations, or collectively negotiated agreements.

[3] Employees who are confirmed to have COVID-19 must be removed from the workplace to prevent transmission to other employees. An employer must require each employee to promptly notify the employer when the employee receives a positive COVID-19 test or is diagnosed with COVID-19 by a licensed healthcare provider. This notification must occur regardless of employee’s vaccination status. The employer should establish notification procedures and inform employees about these procedures, so that employees are aware of the appropriate method for providing this notification to their employer. ETS does not require an employer to provide paid time to any employee for removal as a result of a positive COVID-19 test or diagnosis of COVID-19. The ETS notes, however, that paid time may be required by other laws, regulations, or collective bargaining agreements or other collectively negotiated agreements.

Recent Developments Affecting Brokers/Referral Agencies that Contract with Independent Contractors to Provide Services to Third-Party Clients

Two recent developments would directly affect companies that contract with independent service contractors to provide services to third-party clients.

Two recent developments would directly affect companies that contract with independent service contractors to provide services to third-party clients. One involves recent legislation enacted in New Jersey that dramatically increases the financial consequences of worker misclassification, generally. The other is a court decision that provides helpful insight into how a broker/referral agency can bolster the defensibility of its independent-contractor relationships and thereby reduce the risk of worker misclassification. Each is discussed below.

  1. New Jersey Escalates the Financial Consequences of Misclassification

Three recently enacted bills in New Jersey escalate the remedies available to the government if it determines a company has misclassified an individual as an independent contractor. A company doing business with independent contractors in New Jersey should carefully review its independent-contractor relationships to ensure that the relationships are defensible under New Jersey’s “ABC” test.[1]

AB 5890 provides that if the New Jersey Commissioner of Labor and Workforce Development determines that an employer has violated any state wage, benefit and tax law, the Commissioner shall (i) notify the employer of the determination, and (ii) conduct an audit of the employer within 12 months of the determination.

The bill also authorizes the Commissioner to bring an enforcement action for a violation of any state wage, benefit and tax law – by either (i) bringing an administrative action, or (ii) filing a lawsuit in Superior Court. The Commissioner is empowered to bring a lawsuit in the form of a class action.  It can seek any fines, penalties or administrative assessments authorized by law. And, if a prevailing plaintiff, the Commissioner can recover all remedies available on behalf of the individuals deemed to have been misclassified and “shall” be awarded attorney’s fees and litigation and investigation costs. If appropriate, the Commissioner can ask a court to issue an injunction prohibiting a company from continuing to misclassify individuals as independent contractors for purposes of state laws. 

While the Commissioner already possessed the right to issue a “stop work” order against a company determined to have misclassified individuals as independent contractors, the bill clarifies that if a company requests a hearing on such an order, the request does not automatically stay the effect of the order. And if a stop-work order becomes final, the affected company would be required to pay any “employee” who loses work on account of the work stoppage 10 days of lost earnings.  An employer that violates a stop-work order can be assessed a civil penalty of $5,000 per day. A.B. 5890 was signed into law on July 8, 2021. It became effective immediately.

A.B. 5892 created a new type of violation resulting from worker misclassification. The new violation occurs when a person purposely or knowingly (i)  makes a false or misleading statement, representation, or submission, including failing to properly classify employees, in violation of state wage, benefit and tax laws for the purpose of evading the full payment of insurance benefits or premiums, or (ii) coerces, solicits, or encourages any individual to make a false or misleading statement, representation or submission concerning any fact that is material to a claim for insurance benefits, or the payment of insurance benefits or insurance premiums, for the purpose of wrongfully obtaining the benefits or of evading the full payment of the insurance benefits or insurance premiums (or employs, contracts, or otherwise conspires with a person to coerce, solicit, or encourage a person to do so).

The penalty for violating this provision “shall be” $5,000 for the first violation, $10,000 for the second violation and $15,000 for each subsequent violation.  A.B. 5892 was signed into law on July 8, 2021. It will become effective on the first day of the sixth month next following the date of enactment.

A.B. 5891 created a new Office of Strategic Enforcement and Compliance in New Jersey’s Department of Labor and Workforce Development (with a $1 million appropriation to fund the office). The new office is charged with overseeing and coordinating the strategic enforcement of state wage, benefit and tax laws. A.B. 5891 also was signed into law on July 8, 2021. It became effective immediately.

The foregoing new laws appear intended to send a clear message that New Jersey is a high-risk jurisdiction for doing business with independent contractors. 

  1. Court Decision Reveals How a Broker/Referral Service Can Avoid Being Deemed the ‘Employer’ of Contractors Who Perform Projects for Third-Party Clients

A court decision involving a company that contracts with independent service providers to perform projects for third-party clients offers helpful insight into how such a company can avoid being deemed the “employer” of the service providers. Practice Pointers are inserted, where appropriate, to emphasize practical implications of the court’s analysis.

The decision in Vendor Surveillance Corporation v. Henning, 62 Cal.App.5th 59 (2021), involves an appeal by a company (“Company”), from an unemployment insurance tax assessment by California’s Employment Development Department (“EDD”). The issue is whether certain “project specialists” contracted by Company between January 1, 2011 and December 31, 2013 (the audit years) were employees or independent contractors.  

The California appeals court held that the common-law test established by S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 769 P.2d 399 (1989), continues to govern unemployment insurance taxes assessed for work performed before January 1, 2020, rather than California’s recently enacted “ABC” test.[2]

Practice Pointers:

  • While this court decision applies to the pre-AB-5[3] era, it nonetheless remains relevant in California, as it offers helpful guidance on satisfying the “A” factor of California’s “ABC” test, which is the factor representing a common-law test. In addition, many of the statutory carve-outs from California’s “ABC” test created by the enactment of AB 2257[4] still require that a relationship satisfy the Borello test. 
  • The court decision also is relevant in other jurisdictions, and for purposes of certain federal laws, where an individual’s status, as an employee or independent contractor, is determined by a common-law test.

According to the court’s findings in Vendor Surveillance Corporation, Company maintains a database of “project specialists” who are qualified to perform “source inspections.” Company is a wholly owned subsidiary of a parent company (“Parent”). Parent provides management services, including source inspections, to aerospace and defense manufacturers. Aerospace manufacturers use component parts made by third-party suppliers that must be fabricated to exacting specifications. To identify potentially defective parts, the manufacturer inspects (or contracts with a vendor to inspect) the parts at the supplier’s facility. The industry calls this “source inspection.” 

When a Parent customer requests a source inspection, Parent negotiates the services to be performed and the corresponding fee. If the customer requires part-time, project-based, on-demand source inspections, Parent subcontracts with Company to provide a qualified “project specialists.” Company classifies project specialists as independent contractors. Parent also has a staffing subsidiary, (“Staffing Affiliate”).  If a Parent customer needs full time work (including but not limited to source inspection) in one location exceeding three months, Parent subcontracts with Staffing Affiliate to provide qualified personnel. Staffing Affiliate classifies its personnel as employees.

For a project subcontracted to Company, Company identifies qualified project specialists from its database and informs them about the project. A project specialist is free to decline work with impunity. Company submits the resumes of project specialists who express interest in a project to Parent, which forwards them to its customer to choose from.

Applying the common-law Borello test to determine the status of source inspectors under contract with Company, the court of appeal affirmed a superior court’s judgment that the source inspectors were employees of Company and not independent contractors.  The following outlines the court’s rationale for its decision.

a. Company had the right to control and exercised actual control

The court observed that under the Borello test the most important factor in distinguishing employees from independent contractors is the putative employer’s right to control the manner and means of accomplishing a desired result. The appeals court affirmed the trial court’s determination that Company had the requisite right of control for this factor to weigh in favor of employment.

The court rejected Company’s claim that it only connected project specialists with suppliers and primary contractors, based principally on findings that:

  • Company determined the manner and means of reporting source inspection results;
  • Company provided supervision and advice upon a project specialist’s request;
  • customers expected supervision by Company; and
  • Company’s agreement with source inspectors authorizes Company to terminate a project specialist without cause.

The court contrasted the foregoing findings with the facts in Varisco v. Gateway Science & Engineering, 83 Cal.Rptr.3d 393 (2008), which involved a company that provided quality assurance services that hired an inspector to check construction undertaken by a school district. The court determined the inspector to be an independent contractor. In that case:

  • the company paid the inspector by the hour and sent him to the job site, but that is all it did;
  • the company did not train the inspector;
  • if questions arose, the inspector addressed them to the school district, not to the company;
  • the inspector reported results to the school district on its forms, not the company’s; and
  • the inspector supplied his own tools and equipment.

The court in Vendor Surveillance Corporation reasoned that the project specialists under contract with Company differ from the Varisco inspector in the following significant respects:

  • Company provided a customer orientation to project specialists;
  • a Parent program leader instructed project specialists on how to use suppliers’ reporting systems;
  • using Parent educational materials, Company mandated that project specialists pass an ethics test based on Company’s code of ethics;
  • Company required that project specialists pass a safety test based on educational materials used by both Parent and Company;
  • Company arranged work-related travel for project specialists;
  • Company provided project specialists with Company branded business cards;
  • Company trained project specialists on certain international regulations;
  • customers expected Parent to supervise, oversee, and manage project specialists; and
  • Company provided software for project specialists to record time and upload the results of the source inspection. 

Company also could terminate a project specialist without cause by providing 30 day’s advance notice. Rejecting Company’s argument that this right does not evidence control because of the 30-day notice period, the court reasoned that, even with a 30-day notice period, a right to discharge without cause would reasonably be expected to compel a project specialist desiring future assignments to obey Company’s directives.

Practice Pointers:

  • Any training or orientation of an independent contractor should be provided by a third party, e.g., an industry association or a client, but not by the company that contracts with an independent contractor to perform a project.
  • The company that contracts with an independent contractor should not supervise or monitor the independent contractor’s work.
  • Contracts with clients should not contemplate any supervision or training of independent contractors.
  • The company that contracts with an independent contractor should not have the contractual right to terminate the independent contractor.
  • If the company that contracts with an independent contractor is owned by a parent company, the company should operate with complete autonomy relative to the parent company; the parent company should not have any direct interaction with the independent contractors, and the independent contractors should not be given any parent-company-developed training or testing materials or project-related information.
  • The company that contracts with an independent contractor should not provide an independent contractor with any logo-wear, badge, business cards, or similar item that identifies the company or that is in any way suggestive of the independent contractor working on behalf of or for the benefit of the company.

b. Project Specialists are not engaged in a distinct business

The appeals court affirmed the trial court’s conclusion that this factor slightly favors employment, reasoning that though some project specialists had created their own business entities, others did not, and even those who did worked predominantly for Company. The court reasoned that its determination is supported by the following findings:

  • one project specialist had a business entity but no website, no e-mail address, no business cards, and no employees except himself;
  • another project specialist had a business entity but no other employees, no clients besides Company, no website, no advertising, and no business cards; and
  • other project specialists had not created separate entities.

Practice Pointers:

  • An independent contractor’s creation of an entity can be of little value if the independent contractor does not also take other actions consistent with operating a separate business.
  • A best practice is for an independent contractor to complete a document in which the independent contractor makes affirmative representations to the contracting company concerning the specific actions the independent contractor has taken that are consistent with operating a separate and distinct business.

c. No evidence on whether the work is usually done in the locale without supervision

The court affirmed the trial court’s determination that EDD prevails on this issue because the evidence on this factor favored neither side – and Company bore the burden of proof. The trial court noted that neither side offered any expert testimony on whether, in the relevant locale, source inspection is typically done using the business model used by Company, or rather done by employees of prime contractors.

While Company argued that the only evidence offered on this point is that project specialists were not supervised while conducting inspections, the court explained that this argument misses the point, because the factor focuses on how the work is usually done in a given locale, not on how the work actually was done in this particular case.

Practice Pointers:

  • The court’s analysis of this factor emphasizes the importance of carefully reading and understanding the meaning of each factor of a test for independent contractor status.
  • The requisite expert testimony that was missing in this case could have been provided a trade association representative of other individual who is knowledgeable about the industry practice at issue.

d. Project specialists are highly skilled

The court affirmed the trial court’s determination that this factor weighs in favor of independent-contractor status, based on findings that many project specialists had years if not decades of experience.

e. Neither Company nor project specialists supplied the tools and instruments

The court rejected the trial court’s determination that this factor “slightly favored EDD,” based on findings that measuring instruments used in a source inspection are supplied by neither Company nor the project specialists, but instead by the supplier.

The appeals court reasoned that ownership of tools is probative because ownership implies a right to control their use. But since neither Company nor the project specialists own the instruments, nor as a practical matter could they, this factor does not apply.

Practice Pointers:

  • The court’s analysis of this factor is helpful, as it indicates that in an industry that does not require an independent contractor to provide very much in the way of tools or equipment, this factor would not necessarily weigh in favor of employment, so long as the company that engages an independent contractor can demonstrate that it does not provide any such items.

f. The work is continuous

The court affirmed the trial court’s determination that this factor supports employment, based on findings that many project specialists had ongoing long-term relationships with Company (some had worked exclusively for Company for 11, 18, 20, and 28 years) and several worked near full time 40-hour weeks. The appeals court determined that these findings outweighed countervailing findings that (i) the Agreement provides that continuity of relationship is not contemplated; (ii) project specialists could (and did) decline work without negative repercussions; and (iii) some project specialists choose to work only part time.

Practice Pointers:

  • Any independent contractor who works 40-hour weeks for one company for an extended period of time is inherently a high-risk independent contractor.
  • For project-based engagements, it is advisable for the agreement with an independent contractor to emphasize that each project constitutes a separate contractual relationship and that upon the independent contractor’s completion of a project, the independent contractor has no obligation to perform another offered project.

g. Project specialists are paid by the hour, not by the job

Based on findings that Company paid project specialists by the hour, which was determined to be the industry standard, the court affirmed the trial court’s determination that this factor favors an employee relationship.

While acknowledging Company’s counterargument that in the modern economy, there is no logical connection between hourly pay and distinctions between employee and independent contractor, the appeals court nonetheless reasoned that common experience teaches that a worker who receives hourly wages is likely (but not necessarily) an employee, and a worker who receives payment by the task is likely (but not necessarily) an independent contractor.

Practice Pointers:

  • For project-based engagements, it is advisable for independent contractors to be paid a fixed project fee and not an hourly rate.

h. Source inspection is a part of Company’s regular business

Rejecting Company’s assertion that its business is maintaining a database of highly skilled self-employed project specialists, and does not include the performance of source inspections, the appeals court affirmed the trial court’s determination that source inspections work is at the core of what the Parent group of companies provides to its aerospace customers. This was based principally on findings that Company’s only client is Parent and Parent’s clients are the aerospace and defense contractors who benefit from the labor provided by project specialists. The court reasoned that Company is not just a database manager; rather, it is part of a unitary business providing staffing solutions to its aerospace clients.

The appeals court reasoned that Company’s business is similar to the business examined in People v. Uber Technologies, 56 Cal.App.5th 266 (2020), which concluded that the drivers performed services in the regular course of Uber’s business. The court explained that the analysis in Uber supports its conclusion that this factor weighs in favor of employment, based on the following similarities:

  • Uber offers a mobile phone application that matches those in need of a ride to drivers available to give them rides using their own vehicles.
    • Similarly, Company offers a database to match those in need of a source inspection with a project specialist available to perform the work.
  • Uber drivers need not accept any minimum number of rides, are free to work for competitors and to decline work. Uber monitors its drivers and may use low ratings to deactivate them.
    • Similarly, project specialists are free to decline offered work, Company monitors a project specialist’s performance and, in response to customer complaints, can terminate a project specialist and remove the person from its database.
  • Uber asserted that it was not in the business of providing rides, but instead merely provides a platform to connect drivers and riders.
    • Company similarly claimed that it is not in the business of providing project specialists, but instead is merely a database to connect project specialists with customers. Also, Company earns all of its revenue from providing project specialists to Parent.

Practice Pointers:

  • The decision also reveals the risk that an affiliated group of companies can be viewed as one unified business, which would be problematic for purposes of this factor – and for the “B” factor of an “ABC” test.[5] To mitigate this risk:
    • the subsidiary companies should enter into contract with at least some clients directly, to demonstrate independence from the affiliated entities;
    • the subsidiary companies should maintain their own websites and market their services directly to end-user clients;
    • each subsidiary should operate with complete and absolute autonomy relative to the affiliates; and
    • the parent company’s website should not suggest that the subsidiary companies are part of the parent company’s business but instead should identify them, if at all, as affiliated but separate businesses.
  • The court’s analysis reveals the difficulty of a company successfully arguing that the services an independent contractor provides are outside the usual course of the company’s business if the company monitors the independent contractor’s performance and can terminate the contractor for not meeting performance metrics that the company, itself, establishes.

i. The parties believed they were creating an independent contractor relationship

While the court affirmed the trial court’s determination that this factor “easily favored” an independent-contractor relationship, the court accorded it diminished weight, reasoning that courts ignore the parties’ characterization if their actual conduct establishes a different relationship.

j. Company operates as a business, not an individual

The court recounted that Company acknowledged that it operates as a business and accordingly determined this factor to “lean” towards establishing an employer-employee relationship.

  1. Conclusion

The developments in New Jersey reflect a philosophical shift that has manifested itself throughout the country toward increased skepticism of independent-contractor relationships. Any company doing business with independent contractors should be mindful of this shift and ensure that its independent-contractor relationships are defensible. The decision in Vendor Surveillance Corporation offers helpful guidance for improving the defensibility of such relationships.

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If you have any questions or comments concerning the foregoing, please let me know.

The foregoing is intended solely as general information and may not be considered tax or legal advice; nor can it be used or relied upon for the purpose of (i) avoiding penalties under any taxing statute or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. You should not take any action based upon any information contained herein without first consulting legal counsel familiar with your particular circumstances.

[1] N.J. Stat. Ann. § 43:21-19 provides that services performed by an individual for remuneration shall be deemed to be employment for purposes of New Jersey unemployment unless and until it is shown to the satisfaction of the division that:

(A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and

(B) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

(C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.

The New Jersey Supreme Court held that the same test should be used to determine the nature of an employment relationship under both the New Jersey Wage Payment Law and the New Jersey Wage and Hour Law. Hargrove v. Sleepy’s, LLC, 220 N.J. 289, 106 A.3d 449 (2015). 

[2] California’s “ABC” test provides that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all three of the following conditions are satisfied:

(A) The person 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.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

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

[3] AB 5 refers to the first law California enacted to statutorily adopt an “ABC” test for determining worker status.

[4] AB 2257 refers to a law California enacted that in some respects supersedes AB 5 and created numerous carve-outs from the “ABC” test that AB-5 enacted.

[5] See above note 2.

California AB 5 Restricts an Individual’s Right to Work as an Independent Contractor

On September 18, 2019, California’s Governor Gavin Newsom signed into law Assembly Bill 5, which launched California into a grand experiment that restricts an individual’s right to work in that state as an independent contractor.

On September 18, 2019, California’s Governor Gavin Newsom signed into law Assembly Bill 5, which launched California into a grand experiment that restricts an individual’s right to work in that state as an independent contractor.

Click Here for a copy of our analysis of California AB 5.

If you have any questions or comments concerning our analysis, please contact us at (202) 659-0878.

Tax Reform Creates New Benefit for Self-Employed

The Tax Cuts and Jobs Act created a new tax deduction – of up to 20% – for pass-through entities, which include certain independent contractors. The provision, codified as new Internal Revenue Code section 199A, applies for tax years beginning after December 31, 2017, but before January 1, 2026.

The Tax Cuts and Jobs Act created a new tax deduction – of up to 20% – for pass-through entities, which include certain independent contractors. The provision, codified as new Internal Revenue Code section 199A, applies for tax years beginning after December 31, 2017, but before January 1, 2026.

CLICK HERE for an article we wrote for Tax Notes that analyzes the new Code section 199A deduction as it applies to independent contractors.

House Small Business Committee Hearing Considers Taxes and the Sharing Economy

At a recent hearing before the U.S. House of Representatives Committee on Small Business, certain Members and witnesses expressed concern that current tax laws are outdated and burdensome to companies in the “sharing economy.”

At a recent hearing before the U.S. House of Representatives Committee on Small Business, certain Members and witnesses expressed concern that current tax laws are outdated and burdensome to companies in the “sharing economy.” The hearing, titled, “The Sharing Economy: A Taxing Experience for New Entrepreneurs, Part I” was held on May 24, 2016.

Committee Chairman Steve Chabot (R-OH) observed that “sharing economy” companies are running into an outdated tax law that is working against this segment of the economy. Similarly, Committee Ranking Member Nydia Velazquez (D-NY) characterized the common law test, used to determine worker status, as difficult to administer in the context of the “sharing economy.”

Testifying before the Committee were representatives from TaskRabbit, ACT/The App Association, the Information Technology and Innovation Foundation, and a professor at American University.

The witnesses made similar assessments during their testimony, characterizing current tax laws as having been developed in a different time, being ill-suited to the modern on-demand economy and hindering economic growth.

One witness recommended increasing the consistency between state and federal laws that determine worker status, but also suggested establishing a new third worker classification to better reflect work relationships in the “sharing economy.”

Interestingly, a couple witnesses asserted that current laws make it difficult for “sharing economy” companies to interact with and train independent contractors, and thought the laws should be changed to permit this.

If you have any questions or comments regarding the foregoing, please let us know.

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The foregoing is intended solely as general information and may not be considered tax or legal advice; nor can it be used or relied upon for the purpose of (i) avoiding penalties under any taxing statute or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should not take any action based upon any information contained herein without first consulting legal counsel familiar with your particular circumstances.

North Carolina Governor Resurrects Failed Worker-Classification Enforcement Proposal

By Patrick A. Hollrah

State agencies in North Carolina will be permitted to share information and work collaboratively to bring enforcement actions against suspected worker misclassification – in spite of the defeat of proposed legislation, H.B. 482, which would have permitted these activities.

By Patrick A. Hollrah

State agencies in North Carolina will be permitted to share information and work collaboratively to bring enforcement actions against suspected worker misclassification – in spite of the defeat of proposed legislation, H.B. 482, which would have permitted these activities.

North Carolina Governor Pat McCrory (R) resurrected the information sharing elements of the failed bill by issuing Executive Order No. 83 (Dec. 18, 2015), the Employee and Employer Fairness Initiative.

By way of background, H.B. 482, which died in the state legislature in September 2015, would have established a division within the Department of Revenue to target worker misclassification, and created a new $1,000 penalty for each instance of willful worker misclassification. To target worker misclassification, the new division would have been empowered to investigate reports of worker misclassification; assist and coordinate with other state agencies to recover monies owed as a result of worker misclassification; assess administrative penalties; and share information concerning worker misclassification with the Department of Labor, Division of Employment Security, and Industrial Commission to facilitate investigations of potential violations of tax, wage and hour, unemployment security, and workers’ compensation law.

E.O. 83 establishes the Employee Classification Section (“Section”) within the Industrial Commission to address worker misclassification. The Section’s duties and responsibilities include receiving and referring complaints of worker misclassification to the appropriate agency liaison to be investigated; coordinating with state agencies, the Office of the Governor, and legislative staff to create comprehensive measures to combat worker misclassification practices; working with agency liaisons and the Department of Information Technology to develop methods to facilitate information sharing between state agencies to proactively identify possible instances of worker misclassification; and developing strategies to educate employers, employees, and the public about worker classification.

Additionally, the new Section will annually provide a report to the Governor containing proposed legislative changes to address worker misclassification and a summary of the Section’s activities, including the number of complaints of worker misclassification received; the number and amount of back taxes, wages, benefits, penalties or other monies assessed and collected; and the number of cases referred to each state agency.

On January 11, 2016, Gov. McCrory announced that he appointed Bradley Hicks to lead the Section. Mr. Hicks previously served as the deputy director of the Department of Administration’s Office for Historically Underutilized Businesses.

The practical effect of the new information sharing among state agencies that E.O. 83 will permit is that affected firms could bear additional costs associated with being the subject of multiple investigations. Additionally, the executive order increases the likelihood that a firm will receive conflicting determinations on whether the independent contractors with whom it does business are classified properly, in light of the different tests for determining worker status that commonly apply for purposes of different laws.

If you have any questions or comments concerning the foregoing, please let us know.

Court Decision Offers Guidance On Effective Date of FLSA Regulations

By Russell A. Hollrah

A recent decision provides support for the proposition that a home-care firm should not be liable for violations of the new U.S. Department of Labor (“DOL”) regulations governing domestic services prior to the appeals court decision upholding their validity.

By Russell A. Hollrah

A recent decision provides support for the proposition that a home-care firm should not be liable for violations of the new U.S. Department of Labor (“DOL”) regulations governing domestic services prior to the appeals court decision upholding their validity.

By way of background, the DOL initially provided that the regulations would become effective January 1, 2015. The industry instituted a legal challenge to the regulations, Home Care Association of America v. Weil, resulting in the U.S. District Court for the District of Columbia issuing decisions in December 2014 and January 2015 vacating substantial portions of the regulations, including the portion that would prohibit a third-party employer from availing itself of the FLSA’s companionship services exemption. Following an appeal by the DOL, the U.S. Court of Appeals for the District of Columbia reversed the District Court decisions and upheld the regulations. This decision became effective October 13, 2015. The industry is currently seeking U.S. Supreme Court review of the decision.

In Bangoy v. Total Homecare Solutions, LLC, (S.D. Ohio Dec. 21, 2015), home healthcare workers instituted a putative class-action lawsuit against the defendant company, alleging violations of the FLSA and the Ohio Minimum Fair Wage Standards Act for the time period commencing January 1, 2015, and ending in late August 2015, when the defendant commenced paying overtime wages to home healthcare workers. The lawsuit was filed on September 4, 2015.

The court dismissed with prejudice the plaintiffs’ Complaint, holding that the defendant could rely on the District Court decisions in not paying plaintiffs overtime for the time period at issue in the case. The court reasoned that when the district court vacated the regulations prior to their effective date, the regulations became in the court’s words “a nullity and unenforceable.” Thus, to permit plaintiffs to recover for a violation of the amended regulations – while the District Court decisions vacating them remained in effect – would give the regulations what the court characterized as an “impermissible retroactive effect.” Moreover, the court reasoned that the fact that DOL indicated it would not bring enforcement actions for violations of the new regulations occurring before the Court of Appeals reinstated them strongly suggests that the regulations should not be given retroactive effect in cases between private parties.

Of interest to firms that operate in the State of Ohio, the court also dismissed the claims under the Ohio Minimum Fair Wage Standards Act, on the grounds that this Ohio law is to be construed in accordance with the FLSA.

The facts of this case explicitly address only the time period January 1 through August 2015. The court’s analysis arguably provides support for a similar outcome for the time period September through October 12, 2015, but that is not certain at this time.

If you have any questions or comments concerning the foregoing, please let us know.

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The foregoing is intended solely as general information and may not be considered tax or legal advice; nor can it be used or relied upon for the purpose of (i) avoiding penalties under any taxing statute or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should not take any action based upon any information contained herein without first consulting legal counsel familiar with your particular circumstances.

States Take Aim at Worker Misclassification by Inviting Multiple Agencies to Investigate Potential Incidences

By Patrick A. Hollrah
Indiana, Oregon and Utah enacted laws this year that increase the likelihood that firms that do business with independent contractors – and are examined by one government agency – will be examined by other agencies as well.

By Patrick A. Hollrah

Indiana, Oregon and Utah enacted laws this year that increase the likelihood that firms that do business with independent contractors – and are examined by one government agency – will be examined by other agencies as well. These new laws permit state agencies to share information regarding an incidence, or suspected incidence, of worker misclassification with other government agencies that have an interest in such matters. Additionally, one new law criminalizes worker misclassification in specified cases.

The practical effect of these new information-sharing laws is that affected firms could bear additional costs associated with being the subject of multiple investigations. The new laws also increase the likelihood of a firm receiving conflicting determinations on whether the independent contractors with whom it does business are classified properly – due to the different tests for determining worker status that commonly apply for purposes of different laws.

I. Indiana

Indiana enacted two new laws. One requires the Department of Workforce Development (the “Department”) to share with other state agencies information concerning suspected worker misclassification in the construction industry. The other makes it a misdemeanor to misclassify an employee as an independent contractor in specified circumstances. Both laws became effective on July 1, 2015.

H.B. 1601 amended Indiana’s Labor law to require the Department to “share information concerning any suspected improper classification by a [construction] contractor of an individual as an independent contractor” with the Department of Labor and the Worker’s Compensation

Requiring the Department to share information concerning suspected worker misclassification with two other state agencies can result in a construction contractor that is selected for audit by one state agency finding itself concurrently defending against similar audits by two additional agencies.   One practical effect of this is to increase the cost and burden of defending against worker-classification audits.

Representative Ben Smaltz (R) introduced H.B. 1601 on January 20, 2015, and Governor Mike Pence (R) signed it into law on April 27, 2015.

Additionally, Indiana enacted H.B. 1019, which amends the state’s criminal statute by making it a misdemeanor for an employer to misclassify a worker as an independent contractor to avoid obtaining worker’s compensation coverage. This bill also permits a public agency that is in charge of a public works project to request the Department to investigate a contractor the public agency suspects has engaged in worker misclassification. The public agency would be required to provide the Department with any information or records it has concerning the suspected misclassification.

H.B. 1019 was introduced by Representative Jerry Torr (R) on January 6, 2015, and was signed into law by Governor Pence on May 6, 2015.

II. Oregon

Oregon recently enacted H.B. 3059, which permits its Bureau of Labor and Industries (“Bureau”) to share with the Interagency Compliance Network1 information regarding complaints concerning the employment of individuals who provide live entertainment performances. This new law also requires a live entertainment facility to display a poster containing, among other things, a summary of the rights of independent contractors and employees who perform live entertainment.

For these purposes, a “live entertainment facility” means a facility meeting specified criteria for which the number of live entertainment contractors exceeds the number of employees of the facility for at least two days during each week that the facility is open to the public.

The Bureau will be required to establish and maintain a toll-free telephone hotline to “receive inquiries and complaints related to employment in the performance of live entertainment.” And it will be permitted to share information regarding complaints it receives through such hotline with the Interagency Compliance Network.

The House Committee on Business and Labor introduced H.B. 3059 on February 20, 2015, and it was signed into law by Governor Kate Brown (D). It will be effective on January 1, 2016.

III. Utah

The state of Utah enacted a new law, H.B. 65, which became effective on May 12, 2015, that permits its Unemployment Insurance Division (“Division”) to disclose to the Wage and Hour Division (“WHD”) of the U.S. Department of Labor information regarding certain employers that have misclassified workers.

H.B. 65 permits the Division to disclose to the WHD:

  1. The name and identifying information of an employer found by the department to have misclassified one or more workers [for unemployment insurance purposes];
  2. The total number of misclassified workers for that employer; and
  3. The aggregate amount of misclassified wages for that employer.

An affected employer must be given the opportunity to cure a misclassification of one or more workers before its information is disclosed to the WHD.

Representative Rebecca Edwards (R) introduced H.B. 65 on January 26, 2015. On March 25, 2015, Governor Gary Herbert (R) signed it into law.

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If you have any questions or comments regarding the foregoing, please let us know.

1 The Interagency Compliance Network consists of the Department of Justice, Department of Revenue, Employment Department, Department of Consumer and Business Services, Bureau of Labor and Industries, and Construction Board of Contractors. Its purpose is to coordinate employee misclassification enforcement efforts and establish consistency in agency determinations relating to worker classification.