Additional Insured

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
 

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.

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).