Tag: Labor Law

  • California is cracking down on the gig economy

    The state Assembly just passed a bill that could give Uber and Lyft drivers basic labor protections for the first time

    By Alexia Fernández  Campbellalexia@vox.com

    California just took a major step in rewriting the rules of the gig economy.

    The state Assembly passed a bill Wednesday that would make it harder for companies to label workers as independent contractors instead of employees, a common practice that has allowed businesses to skirt state and federal labor laws. The bill will now go to the state Senate.

    Hundreds of thousands of independent contractors in California, ranging from Uber and Amazon drivers to manicurists and exotic dancers, would likely become employees under the bill.

    That small status change is huge. These workers would suddenly get labor protections and benefits that all employees get, such as unemployment insurance, health care subsidies, paid parental leave, overtime pay, workers’ compensation, and a guaranteed $12 minimum hourly wage. It also means companies are fuming about the added cost.

    The California bill, known as AB5, expands a groundbreaking California Supreme Court decision last year known as Dynamex. The ruling and the bill instruct businesses to use the so-called “ABC test” to figure out whether a worker is an employee. To hire an independent contractor, businesses must prove that the worker (a) is free from the company’s control, (b) is doing work that isn’t central to the company’s business, and (c) has an independent business in that industry. If they don’t meet all three of those conditions, then they have to be classified as employees.

    That is a much clearer — and stricter — standard of proof than the vague guidelines under federal law. And it’s one of the biggest challenges yet to the profit model of Uber, Instacart, Postmates, and other tech companies that rely on a small army of independent contractors. Uber would likely have to reclassify tens of thousands of drivers in California as employees — something Uber drivers have been fighting for in court, unsuccessfully, for years.

    “Big businesses shouldn’t be able to pass their costs onto taxpayers while depriving workers of the labor law protections they are rightfully entitled to,” San Diego Assembly member Lorena González wrote on Twitter after members voted overwhelmingly in favor of the bill she helped write.

    California businesses have been panicking over the possibility of the bill passing. The state’s Chamber of Commerce and dozens of industry groups have been lobbying for exemptions, and a long list of professions were excluded from the bill: doctors, dentists, lawyers, architects, insurance agents, accountants, engineers, financial advisers, real estate agents, and hairstylists who rent booths at salons.

    Industry groups argue that these professionals are true independent contractors, with their own businesses and power to negotiate work contracts. Lawmakers agreed. After all, the purpose of the bill is to shrink income inequality by helping workers who employers are most likely to exploit. Uber drivers are the loudest in that group.

    Ride-sharing apps have done everything to keep drivers as contractors

    When Uber drivers went on strike across the world earlier this month, much of their frustration had to do with their lack of power as independent contractors.

    Uber’s profit model, like all others in the gig economy, depends on all the money saved from skirting US labor laws.

    By classifying drivers as independent contractors instead of employees, Uber doesn’t need to pay certain taxes, benefits, overtime, or minimum wages to tens of thousands of drivers. As self-employed contractors, drivers don’t have a legal right to form labor unions and negotiate contracts either.

    Uber drivers have spent more than six years fighting the company in court, saying they’ve been intentionally misclassified. They argue that drivers should be considered employees because the company has so much control over their workday, including strict rules on their vehicle conditions, what rides they can take, and which routes to take.

    Uber has fought back, maintaining that drivers are not employees because they set their own schedules and provide their own cars.

    So far, the issue has not been resolved, at least not at the national level.

    Last month, Uber settled the main court case with 13,600 Uber drivers, agreeing to pay them $20 million, but without changing their status as independent contractors. The other 350,000 drivers who were part of the initial class-action lawsuit had signed mandatory arbitration agreements, so a federal judge is requiring them to pursue their cases in a private forum, where they are less likely to win their case.

    But it would be hard for Uber to pass the ABC test if the California bill becomes law; driving people around in cars is a central part of the company’s business.

    Any challenge to the drivers’ status as contractors threatens Uber’s bottom line, which is another reason the bill is so significant

    Uber has been upfront with investors about the risk of a labor revolt. In a recent Securities and Exchange Commission filing, Uber acknowledged that giving drivers the same legal rights as employees would “fundamentally change” the company’s financial model:

    If, as a result of legislation or judicial decisions, we are required to classify Drivers as employees … we would incur significant additional expenses for compensating Drivers, potentially including expenses associated with the application of wage and hour laws (including minimum wage, overtime, and meal and rest period requirements), employee benefits, social security contributions, taxes, and penalties.

    So it’s unsurprising that Uber is not happy about a law that would force the company to hire drivers as employees.

    As employees, gig workers would have a safety net for the first time ever. The changes from the bill would also benefit the state of California, which estimates that it loses $7 billion in tax revenue each year from companies that misclassify employees.

    Misclassification happens more often than you think

    Even though it’s impossible to get precise data on how often employers misclassify their workers, there’s no doubt that it’s a big problem. The IRS, the Government Accountability Office, and the Inspector General for Tax Administration have repeatedly raised concerns about how often employers do this.

    The deputy inspector general for audit at the Treasury Department wrote in a 2009 memo to the agency’s head of enforcement:

    There are employers who deliberately misclassify workers to cut costs and to gain a greater competitive edge. These employers avoid paying their share of employment taxes as well as other expenses such as workers’ compensation, unemployment insurance, and other benefits. Misclassifying employees as independent contractors and not incurring the related costs can give these employers a competitive advantage over employers who treat their workers as employees.

    In September 2011, the IRS and DOL agreed to work together to share information to prevent misclassification and report on their progress each year.

    In 2017, a long-awaited report was published by the Government Accountability Office, analyzing government efforts to combat tax fraud. The report summarized findings from an IRS audit of 15.7 million tax returns from 2008 to 2010. It turns out that about 3 million of those returns involved misclassification, adding up to about $44.3 billion in unpaid federal taxes that were later adjusted.

    Since then, little progress has been made. In December, the Treasury Department said misclassification is still a “nationwide problem” and that the IRS and Labor Department are not doing enough to address it.

    California’s bill is the biggest effort yet to fix the problem.

    A court ruling changed everything

    A 10-year-old lawsuit in California paved the way for AB5. In April, the California Supreme Court ruled in favor of workers in the case, called Dynamex Operations West v Superior Court.

    Workers for a document delivery company called Dynamex Operations West were seeking employment status. The drivers for the delivery service first brought their case over a decade ago, arguing that they were required to wear the company’s uniform and display its logo, while providing their own vehicles and shouldering all the costs associated with the deliveries, and thus should be classified as employees, not independent contractors. (Amazon drivers recently sued the company for similar reasons).

    In May 2018, the state’s highest court agreed with Dynamex drivers. The ruling essentially created the ABC test as precedent, but it only relates to workers seeking minimum wages and overtime pay. The case didn’t address workers’ compensation benefits. It didn’t clarify which workers are entitled to rest and meal breaks, or who has a right to paid parental leave and other guaranteed benefits.

    Many states use some version of the ABC test, but usually just to determine whether someone is entitled to unemployment benefits. Only New Jersey, Vermont, and Massachusetts use the standard to enforce all state labor laws.

    Under federal law, there is no clear standard. The federal courts and the US Department of Labor decide who has been misclassified by weighing multiple factors, including how much control the company has over the worker and how central their work is to the company’s operations.

    If passed, California’s AB5 bill would reflect a major turning point in the post-recession economic expansion. California has the largest state economy in the country and is home to the Silicon Valley tech industry — which means its lawmakers have outsized influence in national politics. The bill could lead other states to take similar action.

    “Here we are in a great economy and yet most working people have no money saved,” Caitlin Vega, legislative director for the California Labor Federation, told me. “[Companies] are doing this because they can, they’ve gotten away with it.”

    Democrats have a veto-proof super majority in California’s Senate and General Assembly, so there’s a good chance that AB5 will become law, making it harder for those companies to get away with misclassifying their workforce.

    Correction: A previous version of this article stated the wrong date for the California Supreme Court’s ruling in Dynamex Operations West Inc. v. Superior Court. It was in May 2018.

    https://www.vox.com/policy-and-politics/2019/5/30/18642535/california-ab5-misclassify-employees-contractors

  • Terminating an Employee on FMLA Leave

    hreonline.com

    By Keisha-Ann G. Gray

    Question: My organization would like to terminate an employee who is currently on FMLA leave, for reasons unrelated to the leave. Can we properly lay off this employee?

    Wednesday, June 3, 2015

    Answer: Under the Family and Medical Leave Act (“FMLA”), which applies to employers with 50 or more employees within 75 miles, covered employees who are on qualified leave have a right to be restored to the same, or an equivalent, position upon their return. 29 U.S.C. § 2614(a)(1) (1993). Further, employers cannot use the taking of FMLA leave as a negative factor in employment actions such as hiring, firing and promotions. See Wage and Hour Division, FMLA Fact Sheet, United States Department of Labor. However, this does not mean that an employee on FMLA leave is immune from termination. To the contrary, “an employee has no greater right to reinstatement or to other benefits and conditions of employment than if the employee had been continuously employed during the FMLA leave period.” 29 C.F.R. § 825.216.

    Prior to terminating an employee on FMLA leave, an employer should consider carefully whether it would make the same termination decision even if the employee did not take leave. Indeed, if the termination is challenged, the burden will be on the employer to prove the leave was not a factor in the decision. Accordingly, it is critical to keep sufficient documentation that supports the business decisions behind the termination. Below we describe some of the applicable case law that provides employers with examples of situations that may provide legitimate, non-discriminatory reasons for terminating an employee on FMLA leave and underscores the importance of maintaining relevant documents.

    First, a corporate re-organization may qualify as a legitimate reason for terminating an employee on FMLA leave, provided that the re-organization is not merely a reaction to the employee taking the leave. See Yashenko v. Harrah’s NC Casino Co., LLC, 446 F.3d 541, 551 (4th Cir. 2006). Nonetheless, an employer still must be sure to document the specific business decisions and determinations behind a corporate re-organization in order to avoid potential FMLA violations if an employee on leave is terminated. For instance, in Brenlla v. LaSorsa Buick Pontiac Chevrolet, Inc., No. 00 CIV. 5207 (JCF), 2002 WL 1059117, at *2 (S.D.N.Y. May 28, 2002), an employer decided to consolidate two job functions, thus eliminating the position of an employee on qualified FMLA leave, three days after the employee formally requested to return to full-time work. The employer argued that the “re-organization” was motivated by legitimate business concerns. Id. at *5. However, the jury found, and the court upheld, there was no documentation or evidence showing any financial benefits from the consolidation or indicating how the employer chose which employee was best suited for the new consolidated position. Id. Instead, the temporal proximity to the employee’s request to be reinstated and the employer’s decision to consolidate the positions supported the conclusion that the restructuring would not have taken place had the employee not taken FMLA leave.

    Second, courts have held that an employee’s poor performance may qualify as a legitimate reason for terminating an employee on FMLA leave. See Mercer v. Arc of Prince Georges Cnty., Inc., 532 F. App’x 392 (4th Cir. 2013) (upholding employer’s decision to terminate an at-will employee for poor performance, despite the employee being on FMLA leave). Again, documentation, such as performance evaluations, likely will be instrumental to ensure that the termination is not viewed as retaliation for taking FMLA leave. See Richmond v. Oneok, Inc., 120 F.3d 205, 209 (10th Cir. 1997) (ruling that the employee was not terminated for taking FMLA leave, but instead was properly terminated based on 15 documented incidents of poor performance). A prudent employer should make sure that it has documentation indicating not only the reason for the termination, but also why the termination decision was not made prior to the employee’s request for (or taking of) FMLA leave. Even with sufficient documentation, some employers choose to wait until the employee returns to work before taking an adverse employment action to avoid the inference of retaliation. Simply waiting until an employee returns from work, however, will not insulate an employer from a retaliation claim. Even if performance issues are well-documented, an employer should evaluate the timing of a discharge of an employee who recently took FMLA leave to avoid even the appearance of a retaliatory motive. Of course, an employer might not become aware of performance issues or policy violations until the employee goes out on FMLA leave. In that situation, the employer likely will be within its right to terminate the employee immediately, even if the employer discovered the misconduct from the employee’s leave replacement. See Cracco v. Vitran Exp., Inc., 559 F.3d 625, 636 (7th Cir. 2009).

    Furthermore, a reduction in force is likely to be considered a legitimate reason for terminating an employee on FMLA leave. If a reduction in force results in the termination of an entire department or division, depending on the size of those groups, it will usually be sufficient to show that there was no discriminatory animus to eliminate an employee on FMLA leave. However, if a reduction in force is employee-based, instead of group-based, the employer will want to produce significant documentation indicating how and why each laid off employee was chosen. See Roll v. Bowling Green Metalforming, LLC, 457 F. App’x 458, 460 (6th Cir. 2012) (upholding the termination of an employee on FMLA leave because the employer produced significant documentation that the employee’s selection for inclusion in the reduction in force was based on objective criteria including skills, performance and work history).

    Overall, the main takeaway from the case law for employers is that it is not only important to have legitimate, nondiscriminatory business reasons for terminating an employee on FMLA leave, but employers should also make certain they have adequate documentation supporting the business decisions behind the termination.

    Patrick Lamparello is a senior counsel in Proskauer’s labor and employment department in New York. Proskauer Associate Ian Plummer assisted with this article.