Continued Funding to Combat "Misclassification" in President's FY 2014 Budget

Tuesday, April 16, 2013 by Transportation Lawyer

President Obama released his FY 2014 budget (available here), which includes a request that Congress continue funding the federal government’s intensifying efforts to combat employee “misclassification” nationwide.  This program is described as follows (from p. 126):

 

When employees are misclassified as independent contractors, they are deprived of benefits and protections to which they are legally entitled, such as minimum wage, overtime, unemployment insurance, and anti-discrimination protections. Misclassification, together with the underreporting of cash income for those paid as independent contractors, also costs taxpayers money in lost funds for the Treasury and in Social Security, Medicare, the Unemployment Trust Fund, and State programs. The Budget includes approximately $14 million to combat misclassification, including $10 million for grants to States to identify misclassification and recover unpaid taxes and $4 million for personnel at WHD to investigate misclassification.

 

These funding levels are the same as seen in the President’s FY 2013 budget.  Of particular interest is the $10 million in state grants, which are doled out by the U.S. Department of Labor as an incentive for states to reclassify independent contractors as employees.  The Department of Labor’s FY 2014 budget (summary available here) goes into more detail regarding this program (from p. 25):

 

The FY 2014 UI State Administration request includes $10,000,000 for states to improve worker misclassification efforts. Modeled on a successful (SNAP) Supplemental Nutrition Assistance Program, this initiative will provide a “high performance bonus” to the States most successful at detecting and prosecuting employers that fail to pay their proper share of UI taxes due to worker misclassification and other illegal tax schemes that deny the Federal and State UI Trust Funds hundreds of millions of dollars annually. States will be able to use these incentive funds to upgrade their misclassification detection and enforcement programs. As part of this initiative, States would be required to capture and report outcomes and cost/benefit information to enable the evaluation of new strategies.

 

While it remains to be seen what Congress will ultimately enact, the President’s budget demonstrates that the executive branch of the federal government remains focused on combating “misclassification” – and in directly funding state agencies that do so as well.  Any company retaining the services of independent contractors (including owner-operators) should be sure to adopt and adhere to contractual and operating procedures which best protect independent-contractor status.

 

For additional information on the federal government’s attack on so-called “misclassification” or questions regarding the protection of independent-contractor status, contact Greg Feary, or Braden Core in the Firm’s Indianapolis office at (317) 637-1777
 

New California Employment Laws Taking Effect January 1, 2012

Wednesday, December 28, 2011 by Transportation Lawyer

A number of new California employment laws are set to take effect January 1, 2012. Many of these new laws will have a significant impact on businesses operating in California. The following is a summary of a few of the more notable laws taking effect in the New Year: 

 

Wage Theft Prevention Act

Effective January 1, 2012, California Labor Code 2810.5 will require that employers provide the following information, in writing, to new employees upon hire:

 

1.    The rate or rates of pay and the basis for pay, i.e., whether the employee will be paid by the hour, shift, day, week, salary, piece, commission, or otherwise. The rate information must also include overtime rates.

2.    Any allowances claimed as part of the minimum wage, including meal or lodging allowances.

3.    The regular payday designated by the employer.

4.    The name of the employer, including any "doing business as" names used by the employer.

5.    The physical address of the employer's main office or principal place of business. The mailing address must also be provided if it differs from the principal physical address.

6.    The telephone number of the employer.

7.    The name, address, and telephone number of the employer's workers' compensation insurance carrier.

8.    Any other information the Labor Commissioner deems material and necessary.

 

These requirements apply to all non-exempt, non-union employees, and the duty to disclose this information continues after hiring.  When any of the information listed in this statute changes, employers must notify employees in writing within seven calendar days of the change.  The California Labor Commissioner posted a template for the required notice on the California Department of Industrial Relations’ web site:  http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html
 

Retention of Payroll Records

California also changed the time frame that payroll records must be kept under Cal. Labor Code section 1174 from two to three years (we recommend four years because there is a four-year statute of limitations for many Labor Code violations).

 

Misclassification of Independent Contractors

California Senate Bill 459, signed into law by Governor Jerry Brown on October 9, 2011,

penalizes employers who willfully misclassify workers as independent contractors. The law defines “willful misclassification” as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” The law makes it illegal to charge a willfully misclassified worker a fee or to make pay deductions where such a fee or deduction would have violated the law if the worker had not been misclassified. 

 

Employers in violation of the law are subject to civil penalties between $5,000 and $15,000 for each violation, in addition to any other penalties or fines permitted by law. Violators may also be ordered to display (either on the employer’s website or, if there is none, at every location where a violation occurred) a notice for an entire year advising, among other things, that (1) the employer has committed a serious violation of the law by engaging in the willful misclassification of employees; (2) the employer has changed its business practices in order to avoid committing further violations; and (3) any employee who believes that he or she is being misclassified as an independent contractor may contact the California Labor and Workforce Development Agency (“LWDA”).

 

Under other similar California statutes that prohibit “knowing,” “intentional,” and “voluntary” violations, courts have found that actions taken on the basis of a good faith belief in their legality do not give rise to liability. It is unclear whether this “good faith” defense will apply under the new misclassification law. Regardless, employers must be cautious when classifying employees as independent contractors, and must be able to explain and demonstrate the validity of the classification. 

 

Restriction on Use of Credit Checks

Starting in 2012, California employers may not, subject to certain exceptions, use consumer credit reports to evaluate candidates for employment. The use of credit reports to screen candidates for the following types of positions is not prohibited:

  • Managerial positions covered by California’s executive exemption
  • Positions involving regular access to certain personal financial, proprietary, or trade secret information
  • Positions involving regular access to at least $10,000 of money belonging to the employer or its clients or customers
  • Positions in which the applicant would be a signatory on the employer’s financial accounts or would have authority to transfer money or enter into financial agreements for the employer
  • Positions for which credit information is required to be disclosed by law

Workers Compensation Notices

Among other amendments to California’s workers compensation laws, new legislation now requires that workers compensation notices posted by employers include the website address and contact information for employees to obtain further information about the workers compensation claims process.

 

These and several other new laws add additional layers of compliance for California employers already struggling to persevere in an extraordinarily difficult business climate. We recommend California employers take time to review their employment policies and practices to ensure compliance with California’s employment laws, both new and old. Questions should be directed to Jim Hanson, Chris McNatt, Bob Browning, and Adam Smedstad.


FMCSA Proposes US-Mexico Pilot Program

Wednesday, April 13, 2011 by Transportation Lawyer
The Federal Motor Carrier Safety Administration proposed its plan for a three-year pilot program in which Mexican and U.S. carriers can provides long-distance services between each country.

The pilot sets up a vetting and enforcement program to ensure the safety of Mexican trucks, with the goal of evaluating their safety performance, based on inspections at the roadside, ports of entry and weigh stations, and on traffic enforcement. Hazardous materials and passenger carriers will not be included in the program.

The program is the result of an agreement between President Obama and President Calderón of Mexico to resolve the long-standing dispute over cross-border trucking. FMCSA will publish the details of the program in the Federal Register on Thursday and will take comments for 30 days.

Once the program is in place, Mexico will suspend the tariffs it levied when the Congress killed the earlier version of the pilot.  In 2009 Mexico imposed import tariffs on about 89 U.S. agricultural and industrial products, and in 2010 it revised and expanded the list to 99 products.

In general, the program will set up a three-stage process for Mexican carriers that wish to participate. FMCSA said it does not know how many Mexican carriers will join. The last program attracted 775 applications, but only 29 of those carriers completed the paperwork and were vetted.


The Process

The process will start with the Mexican carrier filling out a 28-page application covering details of its operations, including affiliations, insurance, safety program and compliance with U.S. laws.
The application will be followed by a pre-authorization safety audit, in which FMCSA reviews the carrier's safety management system and inspects the specific trucks that will cross the border.

The safety management system would have to include such elements as a drug and alcohol testing program and a way to verify hours of service, insurance and driver qualifications, among numerous other requirements. Trucks that pass the inspection will get a CVSA decal.

If the carrier passes the audit, it would receive provisional operating authority and could commence cross-border operations. Provisional authority will last for 18 months. After that period, if the carrier has no pending enforcement or safety improvement actions and has cleared a compliance review, it is eligible for permanent authority in the pilot program.

Mexican carriers that have permanent authority in the pilot program would be eligible to convert that to standard permanent authority after the three-year pilot program is done.

For the first three months of the provisional authority stage, Mexican trucks and drivers will be inspected each time they enter the U.S. That period will be extended if the carrier does not get at least three inspections.

After three months and clearing the audit, the carrier will get the same inspection rate as the rest of the trucks now engaged in cross-border, commercial zone trucking. To be eligible for this status, the carrier must have an out-of-service rate at or below the U.S. average and its Safety Management System scores must be below the FMCSA threshold.

If instituted, the pilot program would run for three years from the first grant of provisional authority, unless FMCSA gathers enough data to make a decision about the program before that time. The agency said it could stop the program earlier if continuation is not consistent with the pilot's goals.

FMCSA will publish on its website and in the Federal Register comprehensive data on the Mexican carriers in the program, including their names, their audit performance, the trucks that have been cleared, the results of roadside inspections and the number of trips. The agency will track each carrier's data to gauge compliance.

The U.S. and Mexican departments of transportation will establish a monitoring group to supervise the administration of the program. In addition, FMCSA is establishing its own advisory committee, a subcommittee of the Motor Carrier Safety Advisory Committee, for suggestions. And the agency will make annual reports to Congress.


Ninth Clarifies Test Applied to Determine Independent Contractor Status

Friday, July 30, 2010 by Transportation Lawyer

This week, in Murray v. Principal Fin. Group, Inc., __ F.3d __, No. 09-16664, 2010 WL 2902512 (9th Cir. Jul. 27, 2010), the Ninth Circuit held that an insurance agent was an independent contractor and not an employee for purposes of Title VII.

 

In its opinion, the court specifically addressed Title VII, but generally referred to its analysis as a clarification of the appropriate test to apply in the federal statutory context, mentioning ERISA and the ADEA in addition to Title VII.  The court found the appropriate test to apply is the “common law agency approach.”  Id. at *2.  As such, when determining whether an individual is an independent contractor or employee in this context, the court found it must apply a twelve-factor test, placing emphasis on whether the hiring party has the right to control the manner and means by which the work is accomplished.  Id. (citing Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992).

 

 

FMCSA Will Eliminate Cargo Insurance Requirement For Most Common Carriers

Thursday, June 24, 2010 by Transportation Lawyer
The Federal Motor Carrier Safety Administration (“FMCSA”) announced on June 22nd that it is eliminating the requirement for most for-hire motor common carriers of property and freight forwarders to maintain cargo insurance in prescribed minimum amounts.  In addition these groups will no longer by required to file evidence of this insurance with FMCSA. These changes are to go into effect starting March 21, 2011.

Note that the new rule does not apply to household goods carriers and freight forwarders, however.
 The only shippers that FMCSA considered in need of the protection provided by the cargo insurance requirement are individuals who arrange to move their own household goods.  FMCSA concluded that such individuals are less knowledgeable about carrier liability requirements and need the protection afforded by the existing regulations.