Category: Latest News

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.

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.

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.

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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.