Mike’s Analysis of Quirky Question # 169: Independent Contractor or Employee?
[Readers: Set forth below is the analysis of my Seattle partner, Mike Droke, of Quirky Question # 169, which focuses on the classification of workers as independent contractors vs. employees and the significant consequences associated with an erroneous classification. If you have any questions about Mike's analysis, do not hesitate to contact him at droke.michael@dorsey.com or 206.903.8709. Additional information regarding Mike is available at: http://www.dorsey.com/droke_michael/.
We hope you find this analysis helpful. Regards, Roy]
Quirky Question # 169: Our company is located in Washington. To limit costs, we turned to use independent contractors in order to avoid paying benefits, limit overhead, and increase flexibility. But when can someone we hired as an “independent contractor” and for whom we expressly retained no “right to control” nonetheless be deemed an employee, exposing the company to unplanned risks under Federal and some state laws?
Mike’s Analysis: In some circumstances there may be advantages for businesses to hire independent contractors rather than employees, including avoidance of taxes under the Federal Insurance Contributions Act (“FICA”) and Federal Unemployment Tax Act (“FUTA”), ADEA and ADA compliance, contributions to pension plans, unemployment insurance, health insurance, employee “headcount,” and workers’ compensation insurance. It may reduce expenses associated with employees by relieving the employer of the duty to comply with certain record keeping statutes. Read more
Leave, Leave and More Leave, Quirky Question # 147
Quirky Question # 147:
We have an employee who has been with us for the past 10 years. During the past five years of her employment, she has been absent the equivalent of five (5) years due to a variety of reasons. She has taken leave to address issues with her family (including dissolution of her marriage), depression, surgeries, stress and anxiety, and caring for her son. She has taken leave in lengthy contiguous periods, and intermittently. She has exhausted every form of allowable leave, using up all her vacation days, all of her sick days, and all of the leave available to her under the Family and Medical Leave Act. During this time, we have allowed her to take additional leave, contrary to our own leave policies.
Recently, this employee fainted while at work. When the paramedics arrived to take her to the hospital, she told them that she lupus. One of her co-workers was in the room when the employee disclosed this information, as was the employee’s manager. When the employee returned to work two days later, she allegedly told her manager that she had “lupus and fibromyalgia,” although her manager does not recall her saying any such thing.
Both before and after this fainting incident, we have given this employee multiple disciplinary notices for her excessive absenteeism. In the weeks following the fainting incident, the employee has continued to be excessively absent, and has not provided us with any evidence that her absences are related to lupus or another disability.
Yesterday, the employee met with her manager and presented a note from her physician. This note stated that the employee had been under his care since just before the fainting incident, for neck, arm and back pain, which he believed was related to an on-the-job injury two years prior. The physician also alluded to “a new diagnosis of a serious nature which may have been precipitated by the work related accident,” but provided no further information. The physician went on to state that the employee would need “time off for Dr. visits and blood draws periodically,” and that she would “require special consideration for unpredictable fatigue and joint pain.” The letter makes no mention of lupus or any other specific condition.
The employee’s manager wants to terminate her employment. What should we do?
Sexual Harassment, Quirky Question # 133
Quirky Question # 133:
Our company provides private correctional and detention management to government agencies around the globe. One of our employees, a detentions officer, reported to our Ethics Officer that a co-worker called her work phone and asked her to engage in sexual intercourse and to be his “booty call” or “one night stand.” She refused to file a formal written complaint. Our Ethics Officer spoke with the co-worker, who denied the allegations and stated instead that the complaining employee had sexually harassed him. Given the “he said, she said” nature of the complaints, the Ethics Officer told both employees to keep it professional at work.
A few weeks later, the employee again reported the same harassment to a supervisor. The supervisor said he would speak with the Ethics Officer, but nothing more was done regarding the employee’s complaint. It is undisputed, however, that the co-worker did not bother the employee again following the admonition from the Ethics Officer to both of them to keep it professional.
A few days after this second report of the same incidence, the complaining employee herself was suspended from employment as the subject of a federal investigation involving reports of misconduct including that she had engaged in sex with detainees and brought contraband into the facility. The supervisor to whom the employee had complained the second time conducted the investigation. The investigation concluded with a sustained finding that the complaining employee was observed by Officers and detainees blowing kisses, flirting and rubbing up against detainees. The employee was terminated.
The employee has sued us, claiming that we engaged in unlawful employment practices by failing to take appropriate prompt and remedial action in response to her complaint of harassment and that we retaliated against her for making the complaint by terminating her employment. Should we be concerned about losing this lawsuit?
Sarah’s Analysis:
[Readers: The following analysis was prepared by my colleague Sarah Evans in our Seattle office. If you have any questions or comments, please do not hesitate to contact Sarah. She can be reached at 206.903.2396, or at evans.sarah@dorsey.com. Additional information regarding Sarah is available at: http://www.dorsey.com/evans_sarah/. Regards, Roy]
As many of you who read this question undoubtedly recognized, the facts set forth in this question arise from the Western District of Washington December 10, 2009 decision in Ware v. GEO Group, Inc., 2009 WL 4844672. There, both Plaintiff and Defendant filed motions for summary judgment. As the decision illustrates, if this had been your company, you would have good reason to be concerned about the retaliation claim.
Under the much-discussed “cat’s paw theory,” an employer may be liable for illegal harassment or discrimination if a subordinate’s bias could influence the discharge decision. According to Wikipedia, the term “cat’s paw” derives from “‘The Monkey and the Cat,’ or ‘Le Singe et le Chat,’ a fable written by French poet Jean de La Fontaine, published in La Fontaine’s second compilation of Fables, book IX, No. 17, in 1679. In the story, a monkey convinces an unwitting cat to pull chestnuts from a hot fire. As the cat scoops the chestnuts from the fire one by one, burning his paw in the process, the monkey eagerly gobbles them up, leaving none for the cat. Today, the term “cat’s paw” refers to “one used by another to accomplish his purposes.”
Ware claimed that she was suspended and eventually terminated in retaliation for her complaint of sexual harassment. Ware argued that GEO had failed to articulate a proper, legitimate, reason for its decision to terminate her employment while GEO stated that Ware did not meet her burden to establish a prima facie case of retaliation and that it provided proper grounds for Ware’s termination. A prima facie case of retaliation under Title VII requires a plaintiff to demonstrate that: (1) she engaged in protected opposition to discrimination; (2) she suffered an adverse employment action; and (3) a causal link exists between the two. See Jordan v. Clark, 847 F.2d 1368 (9th Cir. 1988).
Washingtonlaw is substantially the same, requiring a plaintiff show: (1) she was engaged in a statutorily protected activity; (2) defendant discharged plaintiff or took some other adverse employment action against her; and (3) that retaliation was a substantial factor behind the adverse action. See Kahn v. Salerno, 90 Wa. App. 110, 129 (1988). The Court found that Ware was able to show that she: (1) engaged in statutory protected activity when she reported the inappropriate comments made by her co-worker asking her to engage in sexual intercourse and to be his “booty call” or “one night stand;” and (2) that she was discharged.
Two facts weighed against summary judgment in favor of GEO on the causation question relating to Ware’s retaliation claim. The first was a simple timing argument: Ware was suspended from employment only days after her complaint to her supervisor regarding the co-worker’s behavior. Second, and perhaps most important, was the fact that her supervisor conducted the investigation into the charges against Ware relating to the improper behavior as to detainees. This fact was extremely problematic for GEO, even though her supervisor did not initiate the charges against Ware, or make the final termination decision. Because he conducted the investigation with knowledge of Ware’s complaint against her co-worker, the cat’s paw theory applied to impute liability to the actual decision-makers. The Court stated: “The ‘cat’s paw theory’ states that, even if the final decision maker is not knowledgeable of the protected activity, a subordinate’s bias could, in one way or another, influence the ultimate decision to terminate the employee.” See Poland v. Chertoff, 494 F.3d 1174, 1182 (9th Cir. 2007) (“We hold that if a subordinate, in response to a plaintiff’s protected activity, sets in motion a proceeding by an independent decisionmaker that leads to an adverse employment action, the subordinate’s bias is imputed to the employer if the plaintiff can prove that the allegedly independent adverse employment decision was not actually independent because the biased subordinate influenced or was involved in the decision or decisionmaking process.”) The Court ordered that the causation issue proceed to trial.
Ware did not fare so well on her hostile work environment claim. Ware argued that GEO engaged in unlawful employment practices by failing to take “prompt and appropriate remedial action in response to her complaint of sexual harassment and hostile work environment.” To prevail on that claim, Ware was required to show a genuine issue of material fact as to whether a reasonable woman would find the workplace so objectively and subjectively hostile toward women as to create an abusive working environment. See McGinest v. GTE Serv. Corp., 360 F.3d 1103, 1112 (9th Cir. 2004). An employer is only liable for an employee’s abusive acts if, after the employer learns of the alleged conduct, it fails to take appropriate remedial measures. Ware alleged that GEO did not take appropriate remedial action because her co-worker was not adequately “disciplined” where the Ethics Officer only told both the employees to keep it professional at work.
While Ninth Circuit courts have recognized that a mere oral reprimand is rarely sufficient to deter future harassment, they have recognized that in some instances it is enough. See Intlekofer v. Turnage, 973 F.2d 773, 779-80 (9th Cir. 1992). In this case, the Ethics Officer’s memorandum noted that Ware did not believe it was necessary to file a formal complaint against her co-worker, and that the co-worker alleged that it was Ware who had sexually harassed him. The Court specifically noted, “Given Ware’s reluctance to file a formal complaint and the ‘he said, she said’ nature of the dispute, [the Ethics Officer's] decision to orally reprimand both [employees] was appropriate ‘discipline’ proportionate to the seriousness of the alleged offense.”
Perhaps even more important was the undisputed fact that all harassment stopped after the Ethics Officer reprimanded the employees. Given the effectiveness of the oral reprimand, the Plaintiff’s refusal to file a formal complaint, and the disputed nature of the incident, the Court held that the employer was not required to do more, and granted GEO’s summary judgment motion as to Plaintiff’s hostile work environment claim.
What lessons can an employer learn from this case? First, ensure that any individual who conducts an investigation of employee wrongdoing has no knowledge of any complaints by that employee. In some cases it may be wise to retain an outside, independent investigator to avoid any possibility of the “cat’s paw theory” creating potential employer liability. Second, in certain circumstances an oral reprimand may be sufficient as a matter of law to shield against liability for hostile work environment – assuming it is successful in ending the behavior and the complaining employee is not willing to formally complain about the harassment. In most cases, however, it is wise for the employer to do more than issue an oral reprimand. Finally, it almost always is important for an employer to ensure documentation of any actions taken.
Accommodating Religious Beliefs, Quirky Question # 120
Quirky Question # 120:
Our retail company has mandatory weekly sales meetings which occur across town from one of the store branches. Each week, our store branch manager and his four salespersons must come from across town to the sales meeting. Many of the salespersons are part-time employees and students, and consequently take public transportation to work. The employees who are working a shift during which the meeting occurs have two options for getting to the weekly sales meeting: (1) take public transportation; or (2) carpool with the store manager. Two of the salespersons are male, two are female.
In the past, the store branch manager has driven the salespersons to the weekly sales meeting. Recently, a new branch manager has been hired, and this arrangement is no longer working. The new branch manager refuses, for what appears to be bona fide religious reasons, to carpool alone with any female employee. The practical outcome of this situation is that when only one female employee needs a ride to the mandatory weekly sales meeting, she is usually left taking public transportation at the last minute because of the branch manager’s refusal to drive her to the meeting. Female employees have been late, and sometimes missed the meeting as a result. The female employees have complained to Human Resources. The branch manager has explained the religious belief to the company.
The company has informed the branch manager that it is his responsibility to ensure that his employees are at the weekly sales meeting, and that he will be penalized if they are not because of his refusal to carpool. The company’s human resources manager is troubled by this situation. What should we do?
[Readers: Quirky Question # 120 was submitted to my colleagues in our Seattle office. The analysis below was prepared by Sarah Evans. If you have any questions about Sarah's analysis, you can reach her at evans.sarah@dorsey.com, or at 206.903.2396. Additional information about Sarah is available at http://www.dorsey.com/evans_sarah/. Regards, Roy]
Sarah’s Analysis:
Your human resources manager is right to be troubled. In analyzing why, we must first discuss whether your company’s decision increases the likelihood that your branch manager would bring a religious discrimination claim and whether your company risks liability if he does. To establish a prima facie case of religious discrimination, an employee must demonstrate that: (1) he had a bona fide religious belief; (2) the practice of which conflicted with an employment duty; (3) he informed the employer of his belief and conflict; and (4) the employer threatened him or subjected him to discriminatory treatment because of his inability to fulfill job requirements. Opuku-Boateng v. State of California, 95 F.3d 1461 (9th Cir. 1996).
Here, we will assume that your branch manager meets the first element, and has a bona fide religious belief that prohibits him from being alone with any female. The second element is also met where the company has created an employment duty for the branch manager (i.e., transporting employees to the sales meeting) by penalizing him if his employees do not attend the sales meeting due to his failure to provide transportation. He has put the company on notice of his belief and the conflict, thus meeting the third element. Likewise, the fourth element is met where the employer has informed him that he will be penalized if an employee is not at the sales meeting because he refused to carpool with them.
Meeting the prima facie case alone is not enough to establish liability, however. Once the employee establishes his prima facie case, the burden shifts to the employer to demonstrate it satisfied its statutory obligation to engage in good-faith efforts to negotiate accommodation of employee’s religious beliefs. Id. at 1467. Only if an employer can show that no accommodation would be possible without undue hardship, is an employer excused from taking the necessary steps to accommodate an employee’s religious beliefs. Id. at 1467, citing Heller v. EBB Auto Co., 8 F.3d 1433, 1438 (9th Cir. 1993), EEOC v. Townley Eng’g & Mfg. Co., 859 F.2d 610, 615 (9th Cir. 1988).
It is not clear from the facts you described whether your company satisfied its statutory obligation to engage in a good-faith effort to negotiate an accommodation. It would appear, however, that your company essentially refused to provide any accommodation to your branch manager. In this scenario, your company can avoid liability only if it can show that no accommodation would be possible without an undue hardship. It would seem that your company could accommodate your branch manager’s request that he not be required to be alone with any female in his vehicle without experiencing an undue hardship. As you described, your employees have multiple options for getting to your sales meeting. For example, they could ride the bus. Alternatively, another employee might be able to provide the female employees a ride. Yet another option would be for your company to pay for cab fare, likely an insignificant expense for periodic meetings. In short, it does not seem likely that your company will be able to mount a very effective “undue hardship” hardship defense.
Separate issues are raised by the possibility that the branch manager might offer to provide rides only to male employees as an accommodation to his religious belief? Should the company accept this solution? As EEOC v. Townley Engineering and Manufacturing Company, 859 F.2d 610, 614-615 (1988), states: “The language in our cases merely emphasizes that the burden of attempting an accommodation rests with the employer rather than the employee. When an employer does not propose an accommodation, or when its proposed accommodation does not eliminate the employee’s religious conflict, the employer must accept the employee’s proposal or demonstrate that the proposal would cause the employer undue hardship. (Citing American Postal Workers Union v. Postmaster General, 781 F.2d 772, 776 (9th Cir.1986); Burns, 589 F.2d at 406.)
Note, however, that an employer does not have to accept an employee’s proposed accommodation if it violates the company’s policies. In Peterson v. Hewlett-Packard, decided by the Ninth Circuit Court of Appeals, 358 F.3d 599 (9th Cir. 2004), the Court stated that the company did not fail to accommodate an employee’s religious beliefs where it had four meetings with the employee to discuss his conduct, and the employee refused to consider any accommodations other than those that he himself offered – all of which violated the company’s harassment and diversity policies. The employee, a self-described “devout Christian,” disagreed with his employer’s diversity and nondiscrimination policy, posted Biblical scriptures opposing homosexuality, and in other ways did not cooperate with the company diversity policy. (For a more complete discussion of the Hewlett Packard case, see Quirky Question # 58, accessible by using the “View By Topic” bar to the upper left and scrolling down to the topic, “Reasonable Accommodations of Religious Beliefs.”)
The branch manager’s proposed accommodation may similarly violate your company’s antidiscrimination policy because it could be construed as a discriminatory practice to provide men rides with the branch manager to the weekly sales meeting while women are left taking public transportation. This is potentially discriminatory for two reasons. First, it gives the men access to the manager in the form of time and exclusivity. Second, it treats men preferentially in that they get to carpool and do not have to be dependent on mass transit to get to a mandatory meeting. Each of these arguments could give rise to a discrimination claim by female employees that they were treated differently solely because of their gender. In short, your company would not required to accept the branch manager’s proposed accommodation and there may be compelling reasons not to do so.
What might your company propose instead? Based upon this set of facts, you might consider prohibiting your branch manager from driving any employee, male or female, to the weekly sales meeting. Even though this solution may create some morale problems or minor inconveniences for the affected employees, these risks would not be sufficient to justify accepting your branch manager’s proposed accommodation. Caselaw in the Ninth Circuit is clear that:
“hypothetical morale problems are clearly insufficient to establish undue hardship. ‘Even proof that employees would grumble about a particular accommodation is not enough to establish undue hardship.’” Opuku-Boateng, 95 F.3d 1461, 1474 (9th Cir. 1996), citing Anderson v. General Dynamics Convair Aerospace Div., 589 F.2d 397, 402 (1978), cert. denied in International Ass’n of Machinists and Aerospace Workers AFL-CIO v. Anderson, 442 U.S. 921, 99 S.Ct. 2848, 61 L.Ed.2d 290 (1979); Burns v. Southern Pac. Transp. Co., 589 F.2d 403, 407 (9th Cir.1978), cert. denied, 439 U.S. 1072, 99 S.Ct. 843, 59 L.Ed.2d 38 (1979).
In sum, your branch manager seemingly has a bona fide religious belief that precludes him from transporting female employees to your sales meetings in his car. Moreover, it does not seem as though your company could advance a compelling undue hardship argument that would justify forcing your employee to choose between disregarding his religious beliefs or transporting your female employees. As discussed above, however, your company is not obligated to accept your employee’s proposed accommodation, especially where doing so could create other potential liabilities for your firm. Given this fact, it seems that the best solution would simply be to prohibit your manager from transporting any employees to the sales meetings. This solution would accommodate your manager’s religious beliefs while simultaneously ensuring that your company is not risking exposure for gender discrimination.
Background Checks for Contract Employees, Quirky Question # 98
Quirky Question # 98:
We hired another company (we’ll call it Company ABC) to provide our firm with contract employees. Company ABC performs background checks on its employee pool, utilizing publicly available sources of information.
We typically use a third-party vendor to perform background checks on the employees we hire, but we do not do so for the contract employees provided to us by Company ABC. A contract employee we hired through Company ABC recently stole our property. It turns out the employee had multiple arrests for similar crimes, which were not revealed by Company ABC’s background check. We are confident that this information would have been revealed had we used our normal third-party vendor.
We have decided that in the future, we would prefer to use our own third-party vendor to perform background checks on the contract employees provided to us by Company ABC. Is there any reason we cannot do so?
[Readers: Quirky Question # 98 was posed to my colleagues in our Seattle office. Sarah Jung Evans was kind enough to provide the analysis below. If you would like to follow up with Sarah, don't hesitate to contact her at 206.903.2396, or via email at evans.sarah@dorsey.com. More information on Sarah's background is available at: http://www.dorsey.com/evans_sarah/. Regards, Roy]
Sarah’s Analysis:
This scenario is more common than you might think, often arising when a company like yours uses an agency to find temporary or permanent employees and the subsequent hires prove problematic, or even worse, criminally dishonest. In this situation, your company (and other similarly situated employers) need to ensure that it does not experience this business loss again. The question is how this goal can be accomplished without terminating your firm’s relationship with the hiring agency, which you have described as “Company ABC.”
You have two options. First, you can ensure that the contract with Company ABC contains terms requiring it to utilize a reputable third-party vendor to conduct appropriate background checks. The likely reason Company ABC is not doing so already is to avoid the costs associated with complying with the notification and other requirements of the Fair Credit Reporting Act (FRCA), which are triggered when one does not perform the background check internally.
Second, and the preferred option in my view, is for your company to take the reins on obtaining the records and screen the recommended employees yourself. Especially when you are hiring employees (whether temporary or permanent) who will have job responsibilities that you consider sensitive, conducting an appropriate background check can be crucial. For example, if the employees were going to be given access to customers’ credit card information, you will want to have complete confidence in the personal integrity of the employees you retain. Similarly, if you were hiring an engineer whom you planned to assign to a highly confidential software or hardware project, the disclosure of which would have great value to your competition, your company will want to ensure you are retaining honest and loyal individuals.
If your firm elects to screen the recommended employees (or use your standard vendor to do so), you will need to ensure that Company ABC, which is providing you the potential candidates, furnishes those prospective employees with the proper notices and authorizations for your company, or your vendor, to conduct the background check you deem necessary. After proper notice and authorization is provided to the potential hires, your company would be free to conduct systematic checks.
The main drawback to this second approach is the cost your firm will incur. The main benefit is that you will exercise substantially greater control of the screening process.
A standard credit check, often an important part of evaluating a candidate’s fitness for a position, implicates significant legal requirements to which you need to be attuned.
First, the Washington Fair Credit Reporting Act (WFCRA) prohibits an employer from obtaining a consumer report bearing on an employee’s creditworthiness unless the information is substantially job-related, or required by law. RCW § 19.182.020. If such information is substantially job-related, an employer may obtain it only after the reasons for the use of such information are disclosed to the employee in writing. Id.
Second, the FCRA imposes certain requirements related to “consumer reports,” a term that includes credit reports. Before obtaining a credit report, an employer must: (a) inform an applicant or employee in a written disclosure statement that a report may be obtained for employment purposes; and (b) obtain the individual’s written authorization to obtain the report. 15 U.S.C. 11681b(b)(2). The employer also is obligated to certify to the consumer reporting agency that it has complied with all disclosure requirements. 15 U.S.C. § 1681d(a)(2). It is not entirely clear whether a vendor relationship would be considered to meet the “for employment purposes” prong of this requirement. However, to be safe, we recommend that your company comply with both the FCRA and WFRCA.
Third, the WFCRA imposes additional requirements. For current employees, the disclosure must notify the employee that the consumer report may be used for employment purposes. RCW § 19.182.020(2)(b). A statement to this effect contained in an employee manual will suffice. Id.
Fourth, both the FCRA and the WFCRA require certain disclosures before taking an adverse employment action, if such action is based in whole or in part on the information contained in the consumer report. The FCRA requires that after the report is completed, but before taking any adverse action, an employer must provide the individual with: (a) an unedited copy of the report; and (b) a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.” 15 U.S.C. § 1691d(a)(1).
After taking adverse action based, even partially, on information in the report, the employer must orally or in writing: (1) give notice of the adverse action to the person; (2) provide the name, address and telephone number of the consumer reporting agency making the report; (3) state that the consumer reporting agency did not take the adverse action and is unable to give specific reasons for the action; and (4) provide notice of the person’s right to obtain a free copy of the consumer report from the consumer reporting agency within sixty days and the right to dispute the accuracy of any information in the report. 15 U.S.C. § 1681m(a).
The WFCRA requires the employer to provide to the employee written notice of the adverse action, plus: (1) the name, address and telephone number of the consumer reporting agency; (2) a description of the consumer’s rights under the Washington Act; and (3) a reasonable opportunity to respond to any information in the report that is disputed by the employee. RCW § 19.182.020(2)(c); RCW 19.182.110(2).
With regard to a criminal background check, you should keep in mind that such checks can be found to violate Title VII due to the disparate impact they have on minorities. To minimize the risk of such a claim, you must be able to show a business necessity to justify the exclusion of an applicant on the basis of prior criminal convictions.
Generally, an employer cannot use a prior felony as an absolute bar to employment in all situations, and a blanket policy of excluding all applicants with conviction records is likely to constitute unlawful discrimination. Such pre-employment inquiries should be accompanied by a statement that convictions will not disqualify the applicant automatically, and that you will consider the particular circumstances of each case when deciding whether employment of that particular person for the particular job is manifestly inconsistent with the safe and efficient operations of the employer.
Despite the seemingly onerous requirements associated with both the FCRA and the WFCRA, by conducting careful background checks either directly or using your own vendor, your company will gain greater control over the hiring process for your independent contractors/temporary employees. This should enable your firm to avoid the repetition of the problems you recently experienced when relying on another company to evaluate the backgrounds of these individuals. Finally, as your company becomes more familiar with the FCRA and the WFCRA, and your company works with these statutory schemes more routinely, you likely will find that compliance with these statutes is less burdensome than you might anticipate.
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