Employers Reclassifying Workers to Save Money

July 16, 2015 -Courts and regulatory agencies are increasing the scrutiny coming at employers regarding the relationship with their workers: businesses and independent contractors, contractors and subcontractors, employers and employees. In response, many employers are utilizing different tactics to classify their workers; reclassifying workers to save money by taking them off formal payroll and lowering costs. 

For years, employers have shifted work off their actual employees and on to independent contractors. This relabeling of the workforce with slight alterations to their work conditions left many in court or owing settlements. As this misclassification of employees as independent contractors is receiving such intense focus across industries, many businesses are now turning to other types of employment relationships:

Setting up Workers as Franchisees

Setting up Workers as Owners of LLCs

Both of these methods help to shield the business from tax and labor statutes that are attached to the formal payroll for actual employees of the company.

These new tactics have state and federal agencies aggressively putting a stop to the setup: passing local legislation to address the issue, filing briefs in worker’s lawsuits, and closely keeping an eye on the increasing popularity of what regulatory agencies see as an equally questionable alternative to the independent contractor employment model that has experience such a crackdown.

As employers are finding it more difficult to save costs by avoiding an official payroll, workers are finding that they are required to assume more risk. They suddenly need to shoulder more of the burden for health care premiums, retirement income and even job security. This shift in responsibility from the employer to the worker seems to be spurring the major influx of misclassification suits and allegations.

Employers are seeking more creative ways to misclassify workers. If you feel that you are misclassified or you need to discuss the issue of misclassification with a southern California employment law expert, contact an employment law attorney at Blumenthal, Nordrehaug & Bhowmik.

Increasing the Threshold and Amending “Exempt Duty” Definitions

Possible changes brought about by the Obama administration have been heavily discussed recently. Experts are expecting a significant number of American workers to be eligible for overtime pay if the proposed changes are to take effect. Changes under discussion are: raising the threshold and amending how exempt duties are defined.

The Economic Policy Institute estimates that increasing the threshold to $42,000 would make 3.5 million more workers eligible for overtime pay and that increasing the threshold to $52,000 would mean 6.1 million workers would qualify for overtime pay. Advocates for a threshold increase like EPI and the National Employment Law Project, would very much like to see the threshold raised to a minimum of $51,168 (which would be $984/week). Doing so would provide overtime eligibility to 47% of workers. Compare that to 12% eligibility according to current employment law and 65% eligibility in 1975.

Advocates would also like to see the Department of Labor include more specifics regarding what makes a position exempt from overtime. As it stands, employment law defines eligibility for classification as an exempt administrative employee as having a primary duty requiring that the worker “exercise discretion and independent judgment with respect to matters of significance.” Advocates for employment law change suggest that this is completely meaningless since any job requires SOME independent judgment. Suggested changes include specifying that more than half of a worker’s time needs to be spent performing “exempt duties” to prevent employers from offering “hollow” promotions with managerial titles, little to no pay increases, and even less managerial power.

Employers are concerned because with more generous overtime pay protections, their payroll costs will increase. The end result from the company’s perspective would be paying time and a half (overtime pay) to more eligible workers or they could potentially decide that it’s more cost effective to hire additional workers to cover the additional work hours needed while preventing current employees from getting overtime hours. Representatives of the U.S. Chamber of Commerce argue against advocate suggestions stating that one income threshold for the entire country is too broad and won’t work. They suggest applying geographically specific thresholds instead.

With big changes to the income threshold as is being contemplated, employers would be required to reclassify millions of salaried workers to hourly. That could result in employees losing benefits. Morale could suffer in the workplace as well. For instance, salaried workers have more leeway regarding their hours. Previously exempt, salaried employees who are changed to hourly as a result of the proposed employment law changes may see their pay docked for midday appointments, or could be required to use a vacation day to cover the absences that used to be a slight adjustment to their schedule of salaried work. Such changes could also negatively affect workers who are accustomed to benefit from merit-based bonuses, salary level vacation day packages, etc.

For more information on what the proposed changes might look like in your workplace, check back soon for up to date employment law news updates at Blumenthal, Nordrehaug & Bhowmik. 

Misclassification of Insurance Claims Adjusters in California Results in Class Action Lawsuit Settlement

The misclassification of insurance claims adjusters led to a California class action lawsuit. The seven plaintiffs in the case prevailed after a long, embittered legal battle. The plaintiffs were former claims adjusters for Liberty Mutual Insurance Company who filed for the recovery of unpaid overtime as well as related penalties.

The description of the legal battle that ensued as “long” and “embittered” is unarguable. The litigation took thirteen years. Litigation was intense and many say, exhaustive, but a settlement was finally secured for the plaintiffs - Liberty Mutual agreed to a settlement amount of $65 million to compensate more than 1,600 claims adjusters (current and former) for unpaid overtime compensation. 

Timeline of Events: California Claims Adjusters Class Action Lawsuit

May 2004: Trial Court granted plaintiffs’ motion for class certification. Representation was appointed for the class.

Early 2005: Discovery completed and plaintiffs move for summary adjudication on defendants’ affirmative defense that plaintiffs and class members were exempt from overtime pay under California labor law. Defendants counter with a motion to decertify the class and two motions for summary judgment.

October 18, 2006: Trial court issued a decision granting in part the defendants’ motion to decertify and denying the plaintiffs’ motion for summary adjudication regarding the liability issue.

August 16, 2007: Court of Appeal issued its first decision that granted plaintiffs’ motion for summary adjudication and denying defendants’ motion to decertify class.

December 29, 2011: California Supreme Court granted defendants’ petition for review and found that the Court of Appeal applied the wrong legal standard and remanded the case to the Court of Appeal for additional proceedings.

July 23, 2012: After the case returned to the Court of Appeal where they again ruled in the plaintiffs’ favor. They found that defendants were liable for unpaid overtime and that the trial court erred in decertifying the class. Defendants sought review by the California Supreme Court, but they declined to hear the defendants’ petition. This left the plaintiffs’ victory intact.

September 2012: The case returned to trial court where the defendants’ counsel argued that the Court of Appeal’s decision was not binding on the trial court.

June 2013: Prior to resolution, parties agreed to resolve all claims in exchange for $65 million settlement from Liberty Mutual.

June 2014: Court granted final approval of the settlement with no objections from class members.

This outcome combined with the size of the recovery is especially notable in light of the fact that over the past 10 years, almost every other court hearing similar cases involving misclassification of insurance claims adjusters found in favor of the defendants.

For more information on California employment law or California class action lawsuits, contact Blumenthal, Nordrehaug & Bhowmik. 

Worker Misclassified as Independent Contractors Sues Google

Jacob McPherson, former Google Play unit site merchandiser out of New York, sued Google and the online staffing company Elance-oDesk. He alleges that he and others in similar positions were misclassified as independent contractors by the online search engine giant. He is demanding unpaid wages, including wages that should have been paid for overtime hours. He also seeks damages and attorneys’ fees.

The plaintiff, McPherson, worked for Google from January 2013 through December 2013 as contracted. McPherson claims that he (and many others) worked up to 45 hours/week, but that Google never provided them with payment for more than 30 hours/week. While at Google, McPherson worked through oDesk who released a statement regarding the lawsuit. In their statement about the overtime suit, oDesk stated that they were committed to operating in a “lawful and ethical manner.” They researched the claims and are confident that they have no merit.

McPherson was offered employment at $35/hour for a maximum of 15 hours per week (the maximum hours per week was later raised to 30 hours, according to the suit filed against Google). McPherson was required to register at oDesk in order to receive their employment offer and he would be considered a freelancer paid only through oDesk.

McPherson claims in the lawsuit that he performed work similar to that of (and alongside at the same offices as) W-2 employees. He was assigned to teams that included W-2 employees. He was required to be in attendance for mandatory meetings and training alongside W-2 employees. He was even issued a Google owned cell phone, tablet and laptop just like the W-2 employees of the massive online search engine giant. “Freelancers” were also required to use an email signature that designated them as representatives of Google and offering the office address, follow a Google-approved method for completing assigned tasks, adhere to dress codes and the Google blogging policies, etc.

This case could be a stepping-stone for others and could mean drastic changes for online staffing and freelance sites regarding the risk associated with managing independent contractors.

If you have questions regarding your employer/worker relationship and whether or not the classification of independent contractor is appropriate according to federal regulations, contact the southern California employment law experts at Blumenthal, Nordrehaug & Bhowmik. 

Recruiting Manager Files Overtime Suit Against Robert Half

On September 5, 2014, a California recruiting manager filed an overtime suit against Robert Half International Inc. The recruiting manager, Theresa Daniels, worked at Robert Half as a recruiting manager from January 2014 through June 2014. She filed suit in San Mateo County Superior Court in California.

The suit filed by Ms. Daniels made a number of claims, including:

• The company misclassified her and other, similar employees as exempt from overtime.
• She and other, similarly classified employees, did not have managerial duties that would classify them as exempt from California overtime laws.
• She and other, similarly classified employees, did not have managerial authority.
• She and other, similarly classified employees, had only a minimal role in supervising employees and not authority to make employment related decisions regarding other employees.
• All recruiting managers, Theresa Daniels included, were strictly monitored and tightly controlled by both the company policy and their direct supervisors.

The suit seeks class action status and back overtime pay for unpaid wages.

Robert Half indicated that there are meritorious defenses to the allegations being made by Ms. Daniels and they will be defending themselves against litigation.

If you or someone you know are misclassified as exempt – preventing you from receiving the overtime pay you are entitled to at work, please contact your southern California employment law experts right away: Blumenthal, Nordrehaug & Bhowmik.

FedEx Drivers Are Employees, Not Contractors According to the National Labor Relations Board (NLRB)

The recent National Labor Relations Board (NLRB) decision in the FedEx case concluded that drivers are employees, not contractors. Their agreement supports the decisions of many other jurisdictions to date.

The ruling was directly related to the FedEx drivers in the Connecticut terminal of a FedEx ground package Systems Inc. unit. The ruling by the National Labor Relations Board that the drivers are employees and not independent contractors was founded on a wide range of factors that all favored employee status.

A four-member panel ruled over one dissenting vote that FedEx Home Delivery was in violation of the National Labor Relations Act in its refusal to recognize a union and appropriately bargain when they sought to represent the drivers. A closer examination of the relationship between the drivers’ and FedEx made it clear to the board that the drivers fit the criteria of classification as employees.

Traditionally, courts and governing agencies have utilized the now familiar “multi-factor” common law test in order to differentiate between workers who should legally be designated as employees and those who should be designed at independent contractors. Over time a new trend has gradually emerged in which the focus has shifted to include and some might argue, focus on, one single factor: who has control over the individual’s work. It has become apparent that this focus does not always rely on the use of power over the individual’s work, but simply the existence of the possibility to exert power/control over the individual’s work even if it hasn’t been invoked.

If you are unsure of your appropriate classification on the job and fear that you may be being denied benefits through misclassification as an independent contractor, contact the experts in employment law at southern California’s Blumenthal, Nordrehaug & Bhowmik. 

California Labor Law: Governor Brown’s New Law

Governor Jerry Brown recently signed Assembly Bill 1897, creating new Labor Code section 2810.3. The new labor code section created by the Assembly Bill applies to almost all companies with 25+ employees that obtain or receive workers to complete work through the “usual course of business” from other businesses that provide workers (otherwise known as labor contractors). The new law makes such companies liable for three things:

• Payment to contractor’s employees
• Any contractor’s failure to secure appropriate workers’ compensation coverage as required
• Compliant actions regarding occupational health and safety requirements (OSHA) in place

Companies will now have a new statutory liability. The legal contraction of labor services in regards to the new Labor Code section isn’t related to the required finding of joint/co-employment or any type of control over working conditions, the method of payment, scheduling of work hours, or the overall work site environment. Under the new law, each company is liable even if they can exhibit proof that they were not aware of violations that existed or occurred.

The new labor code law applies to workers who are completing their job in the normal course of business on site. California employees who are exempt from overtime (i.e. executive, administrative and professional employees) are excluded from the new law’s reach. There are also a few exemptions from the definition of a “client employer” who is covered under the new law: companies with fewer than 25 workers, companies who use 5 or less labor contract workers at any given time, state organizations, homeowners and home-based businesses who receive labor contract services in their homes, and companies providing transportation services. Additional limited exemptions in relation to non-profit, community organizations, unions, apprenticeship programs, motor club services, cable operators, telephone corporations, etc.

The new law will be effective as of January 1, 2015. For additional information regarding exceptions and exclusions of the new labor law, contact your southern California employment law experts at Blumenthal, Nordrehaug & Bhowmik.