Category Archives: Labor Law

What Do Employers Need to Know Following the Passage of California’s New Law on Independent Contractor Misclassification?

On September 18, 2019, Governor Gavin Newsom signed into law Assembly Bill 5, which clarifies when workers should be considered “employees” under the California Labor Code and the California Unemployment Insurance Code, thereby entitling them to the protections afforded by those laws. The bill codifies the standard set out in last year’s California Supreme Court decision, Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which narrowed the circumstances under which a worker can properly be classified as an independent contractor. Specifically, under the new law, in order for a worker to properly be classified an independent contractor, the employer has the burden of establishing the following three elements (commonly referred to as the “ABC” test):

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B) The person performs work that is outside the usual course of the hiring entity’s business;

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Most of the provisions of AB 5 become effective on January 1, 2020. Below are some answers to frequently asked questions to help employers navigate this significant development.

  1. Is the law under AB 5 any different than the Dynamex ruling? Under Dynamex, the “ABC” test was limited to the resolution of the employee or independent contractor question in claims arising under California’s Wage Orders—for example, claims for failure to pay minimum wage, overtime, or failure to provide adequate meal and rest periods. AB 5 codifies the decision in the Dynamex case and expands the application of the “ABC” test not only for purposes of the Wage Orders, but also the Labor Code and Unemployment Insurance Code as well.  This means that the “ABC” test will apply to more claims, including failure to reimburse necessary business expenses, failure to provide accurate and complete wage statements, claims for waiting time penalties under Labor Code section 203, potential recovery of Private Attorney General Act (PAGA) penalties, and failure to provide workers’ compensation insurance.AB 5 also empowers the California Attorney General and specified local prosecuting agencies to pursue injunctions against putative employers suspected of misclassifying their workers.
  2. Are there any exceptions to the application of the new standard in AB 5? AB 5 provides an exemption for a number of industries and occupations, subject to licensing and other requirements, including:
    • Insurance brokers
    • Physicians, surgeons, dentists, podiatrists, psychologists or veterinarians
    • Lawyers, architects, engineers, private investigators and accountants
    • Registered securities broker-dealer or investment adviser and their agents and representatives
    • Direct sales salespersons (if they meet certain factors)
    • Commercial fishermen working on an American vessel (until January 1, 2023)
    • Contracts for “professional services” such as marketing, human resources administration, travel agents, graphic designers, grant writers, fine artists (if they meet certain factors)
    • Photographers, photojournalists, freelance writers, editors, or newspaper cartoonists (if they meet certain factors)
    • Licensed estheticians, electrologists, manicurists (until January 1, 2022), barbers, or cosmetologists (if they meet certain factors)
    • Real estate agents
    • Licensed repossession agencies
    • Bona fide business-to-business contracting relationships (under certain conditions)
    • Construction subcontractors (for work performed after January 1, 2020, under certain conditions)
    • Construction trucking services (until January 1, 2022)
    • Tutors (if they meet certain factors)
    • Motor club services

    For these occupations, the determination of employee or independent contractor status will be governed by the more flexible, multi-factor test outlined in the California Supreme Court’s decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations.

  3. What effect does AB 5 have on an employer’s obligation to provide workers’ compensation insurance? The California Labor Code, at sections 3200 et. seq., requires employers to have workers’ compensation insurance covering their employees. AB 5 amends section 3351 of the Labor Code so that, for the purposes of determining the obligation to provide workers’ compensation coverage, the “ABC” test governs. Accordingly, workers who fall within the “ABC” test (and are not covered by an exception), should be covered by workers’ compensation insurance. Note that the narrowed definition of employee does not become effective until July 1, 2020 (with respect to the workers’ compensation provisions specifically).
  4. Will AB 5 affect an employer’s obligation to pay payroll taxes? The Unemployment Insurance Code imposes obligations on employers to pay certain amounts of Unemployment Insurance Tax and Employment Training Tax for its employees. Because AB 5 changes the definition of “employee” in the Unemployment Insurance Code, employers will have to pay these payroll taxes for workers who meet the definition of “employee” under the new test.
  5. Does AB 5 affect how much employers will have to withhold from employee’s paychecks? The Unemployment Insurance Code also imposes obligations on employers to withhold a portion of employees’ wages for State Disability Insurance and for California personal income tax. Accordingly, employers will have to make these withholdings for workers who meet the definition of “employee” under the new test.
  6. Does AB 5 affect an employer’s obligation to provide health insurance? Prior to AB 5, neither the California Labor Code nor the Unemployment Insurance Code imposed an obligation to provide health insurance to employees.  The amendments to these statutes pursuant to AB 5 do not add a requirement to provide health insurance to employees.  The federal Affordable Care Act sets up a scheme whereby “large” employers must either provide health insurance to a certain percentage of their employees, or pay specified penalties.  We have not yet seen any developments indicating whether the change in the definition of “employee” under California law will affect the determination of whether a worker is considered an “employee” under the federal ACA.  However, we are monitoring this issue closely.Note, however, that some jurisdictions in California, such as San Francisco, require certain employers to satisfy health care spending requirements for employees. The amount of required spending is based on the number of the employer’s employees, with small employers potentially exempt from the requirement. AB 5 could have an impact on how these requirements apply to employers.
  7. Can employers continue to pay workers who were formerly classified as independent contractors on a piece rate or project basis? AB 5 does not impact an employer’s ability to pay workers on a piece rate basis.   In order to properly do so, however, the employer must satisfy all requirements for paying employees by the piece or unit produced.   Namely, among other things, the employer must pay the employee not less than the applicable minimum wage for all hours worked in the payroll period, compensate employees for rest and recovery periods and for other nonproductive time separate from any piece-rate compensation, and ensure that piece-rate workers are paid overtime for hours worked in excess of eight in a day or forty in a week.
  8. What effect does AB 5 have on employers who hire temporary workers through a staffing agency? AB 5 does not have a direct effect on employers who hire temporary workers through a staffing agency, assuming the staffing agency categorizes those workers as employees of the staffing agency, and not independent contractors. If the staffing agency categorized those workers as independent contractors, and placed the workers at the contracting company’s site, arguably working subject to the control of the contracting company, there is a risk that the workers could make a claim of misclassification based on the “ABC” test against both the staffing agency and the contracting company. We recommend companies retaining temporary workers through a staffing agency confirm that the staffing agency classifies the workers placed as employees, unless they clearly meet the definition of an independent contractor.

The decision as to whether to reclassify workers, and the changes to payroll and other benefits that may come along with it, continues to be nuanced. If you have independent contractors within your workforce, contact your Dorsey employment attorney for guidance.

Litigation may be Key in Response to Rising Denials of Employment-Based Visas. What Strategies Should Employers Consider when Hiring or Retaining Noncitizen Professionals?

Many U.S. employers have recently experienced frustration over legal obstacles to keeping high quality foreign-national employees. These valuable employees have often been with the company since finishing a degree and sometimes even interning with the employer. Other employers experience delays in hiring foreign nationals needed for specialized positions despite the obvious qualifications of the candidate.

These employers’ frustrations reflect the current climate of immigration law and policy. The standards applied by the U.S. Citizenship and Immigration Service (USCIS) in adjudicating H‑1B temporary work visa petitions have been shifting, both formally and informally, to the detriment of businesses seeking to hire or retain noncitizen professionals in specialty occupations—as well as those they would seek to employ. This, along with other similar trends in how the executive branch enforces immigration laws, requires that employers and their legal advocates test new strategies on behalf of their clients. If USCIS denies your H-1B petition and your awesome employee may have to leave the country, what options do you have?

Immigration lawyers, who typically fight their battles within administrative agencies, are increasingly looking to federal courts for judicial review of agency actions. One recent case highlights that strategic litigation can have a powerful impact, and suggests that specialized litigators may be a vital addition to the legal toolbox for businesses that depend on international hiring. See RELX, Inc. (d/b/a LexisNexis USA) v. Baran, 2019 U.S. Dist. LEXIS 130286.

Subhasree Chatterjee earned her bachelor’s degree in computer science and engineering in her home country of India in 2011, and her master’s degree in business administration and analytics in the United States, from the University of Ohio, in 2016. She also has several years of professional experience in data analytics in both India and the United States.

Chatterjee began working as a data analyst for LexisNexis at its Raleigh, North Carolina Center for Excellence in 2017, at which time she was authorized to work in the United States because of the Optional Practical Training (OPT) associated with her F-1 student visa. But Chatterjee’s student visa and OPT was set to expire on August 3, 2019.

Lexis filed a petition for Chatterjee to remain in the United States through the H-1B nonimmigrant visa program so that she could continue in her role as data analyst supporting the company’s “flagship” product, LexisAdvance. The government denied the petition on the grounds that the data analyst position was not a “specialty occupation.”

By statute, a specialty occupation is “an occupation that requires theoretical and practical application of a body of highly specialized knowledge; and attainment of a bachelor’s or higher degree in the specific specialty (or its equivalent) as a minimum for entry into the occupation in the United States.” 8 U.S.C. § 1184(i)(1).   And by regulation, the position must meet at least one of four criteria to qualify as a specialty occupation: (1) a baccalaureate or higher degree is normally the minimum requirement for entry into the particular position; (2) the degree requirement is common to the industry in parallel positions among similar organizations or the position is so unique or complex that only an individual with a degree can perform it; (3) the employer normally requires a degree or its equivalent for the position; or (4) the nature of the specific duties are so specialized and complex that the knowledge required to perform the duties is usually associated with attainment of a baccalaureate degree or higher.  8 C.F.R. § 214.2(h)(4)(iii)(A).

In support of the H-1B petition, Lexis and Chatterjee submitted what the court would later call a “mountain of evidence” on three out of these four regulatory grounds, any one of which would have been sufficient to qualify the data analyst position as a specialty occupation. They responded to a request for redundant evidence and, following an initial denial, pursued administrative reconsideration. These efforts were unsuccessful.

To justify its denial, the government asserted, contrary to its regulations and past practices, that a specialty occupation is one requiring a degree from a particular academic discipline. In other words, for example, if the position could be filled by someone with a degree in computer science or engineering, then it could not be a specialty occupation.

Exactly one month before Chatterjee’s work authorization would expire, she and Lexis filed a lawsuit in federal district court in Washington D.C., serving USCIS, the Department of Homeland Security, and leaders of each, challenging the denial as a violation of the federal Administrative Procedure Act (APA) and seeking a preliminary injunction.

Given the extremely short timeline before Chatterjee’s status would expire, the court placed the case on an expedited schedule to resolve the matter on its merits, skipping over the motion for preliminary injunction. Plaintiffs moved for summary judgment. The government spontaneously reopened the H-1B petition and then moved to dismiss the lawsuit, arguing that the reopening deprived the court of jurisdiction because plaintiffs’ claims were no longer ripe.

On August 1-2 (the two days immediately preceding the expiration date of Chatterjee’s work authorization), the court held a hearing on both motions. The government’s motion was denied from the bench. In a subsequent memorandum, District Judge Emmet Sullivan concluded that the government’s “position [was] untenable,” that the “decision was not based on a consideration of the relevant factors and was a clear error of judgment,” and that “USCIS acted arbitrarily, capriciously, and abused its discretion.” RELX, Inc., 2019 U.S. Dist. LEXIS 130286, *28, 31 (quotations omitted).

At the same time, plaintiffs’ summary judgment motion for an order directing USCIS to grant Lexis’s petition and place Chatterjee on H-1B status was granted—and just in time. Chatterjee was able to keep her job and remain in the United States, and Lexis continued business as usual with its data analytics team at full strength.

In the current market, employers and their legal counsel need to use all avenues available under the law to help hire and retain top talent. Litigation is not only an option, but may be a necessary addition to the overall toolbox of talent management strategies, especially when it comes to international hiring.

Second Circuit Holds Pro-Union Sentiment Outweighs Impropriety of Profanity-Laden Rant Against Supervisor, His Mother, and “His Entire ****ing Family”

Use of profanity by employees, whether in the workplace, outside the workplace, or on social media, presents difficult legal issues for the employer, as highlighted by a recent Second Circuit Court of Appeals decision overturning the firing of an employee who engaged in a highly profane Facebook rant against a supervisor. Although an employer has a justifiable interest in keeping profanity out of the workplace, its interest does not overshadow an employee’s Section 7 protected rights to engage in concerted activity under the National Labor Relations Act (“NLRA”).

In yet another NLRA-social media decision (see here and here), the court considered whether the vulgar and offensive language – directed at a supervisor – in an employee’s statement advocating for unionization is protected activity under the NLRA. See NLRB v. Pier Sixty, 855 F.3d 115 (2d Cir. 2017).  The court held that language was protected and overturned the company’s termination of the employee in question.

Two days before a union election, an employee posted the following statement on Facebook:

Bob is such a NASTY MOTHER F***ER don’t know how to talk to people!!!!!! F*** his mother and his entire f***ing family!!!! What a LOSER!!!! Vote YES for the UNION!!!!!!!

The post was visible to the public for three days before the employee took it down. Company management saw the post before it was removed and terminated the employee. An unfair labor practice charge followed shortly afterward, alleging a violation of section 8(a)(1) of the NLRA.

Section 7 of the NLRA guarantees employees the right to “self-organization, to form, join, or assist labor organizations . . . and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  29 U.S.C. § 157 (emphasis added).  Section 8(a)(1), in turn, protects these rights by prohibiting employers from interfering with, restraining, or coercing employees in the exercise of these rights.  29 U.S.C. § 158(a)(1).  Ordinarily, an employer is prohibited from discharging employees for participating in union-election activity, and the employee’s Facebook post did explicitly call for a pro-union vote in the upcoming election.  But the protections of the NLRA are not absolute.  The National Labor Relations Board (“NLRB” or “Board”) has long held that an employee engaged in “ostensibly protected activity may act in such an abusive manner that he loses the protection” of the NLRA. See NLRB v. City Disposal Sys., Inc., 465 U.S. 822, 837 (1984).

Here, the NLRB had ruled in favor of the employee. The Second Circuit upheld the Board, agreeing that the statement came close to, but did not cross, the line.  The Board and the court applied a “totality-of-the-circumstances” test.  Although the court gave considerable deference to the Administrative Law Judge’s factual findings (which were upheld by the Board), employers can find some comfort in the court’s note that the post seems “to sit at the outer-bounds of protected, union-related comments.”

The court provided several reasons for its decision:

  • First, although the post can be characterized as “dominated by vulgar attacks” on the supervisor, the message addresses the workplace concern of how management treats employees, qualifying the post as “concerted activity for the purpose of collective bargaining.”
  • Second, profanity among employees had been consistently tolerated by the employer, so it could reasonably be inferred that the employee was not fired for mere profanity, but for the protected, union-related content of the comment.
  • Third, the employer had engaged in other unlawful, anti-union conduct as the election approached, including threatening pro-union employees with the loss of their jobs or benefits, and by implementing a “no talk” rule prohibiting discussion of union issues.
  • Fourth, the court gave some weight to the fact that this post was made on Facebook—“a key medium of communication among coworkers and a tool for organization in the modern era,” and that the employee apparently (although erroneously) believed the post would not be publicly available. The court found that the Facebook posting was different from an outburst in the presence of customers.

Accordingly, there are a few takeaways for employers to keep in mind.

  • Implement a Clear, Written Policy. To effectively discipline employees for using offensive or vulgar language at the workplace, employers should have a clear written policy against profanity that informs employees of the rules regarding the use of profane or vulgar language in their interactions with colleagues and customers. The policy should specify the consequences for violations.
  • Enforce the Policy Consistently and Uniformly. Employers should be consistent in enforcing any policy against profanity in the workplace. Past failures to enforce or to impose appropriate sanctions may tie the employer’s hands in future situations where a sanctionable activity may arguably be clothed with NLRA-protection. (Consistency would necessarily include, for example, applying the policy to profanity by supervisors and managers as well as by line employees. The employer’s tolerance of profanity by supervisors was cited by the court as proof of inconsistent enforcement.) Consistent and uniform enforcement of the policy is key.
  • Be Careful Not to Limit Protected Activities. The enforcement of a policy against profanity or other inappropriate conduct must be balanced against an employee’s right to engage in protected activities under the NRLA. The employer’s other anti-union conduct in the Pier Sixty case was a factor in the decision. The Pier Sixty court has made clear that not all offensive language loses NLRA-protection. This decision confirms courts’ willingness to broadly construe the coverage of the NLRA, especially when considering employee activities on social media. Employers should carefully consider the context of potential profanity policy violations before taking disciplinary actions.

When faced with the question of whether to fire an employee who uses vulgar and offensive language in a Facebook post directed at a supervisor and her family, you should first determine whether the subject matter of the Facebook comment touches on any workplace concerns. If not, there may not be NLRA- protected conduct. But if the subject matter—notwithstanding the vulgarity—is arguably related to working terms and conditions, you should take extra caution to make sure that any discipline will not run afoul of the NLRA. Consider the company’s practice with regard to policing profanity at work. If the company has tolerated profanity use among its employees in the past, you may not be in a good position to sanction an employee for a statement that, although offensive, may be protected under the NLRA.

Quirky Question #279: Concerted Activity in 140 Characters or Less

Question: I am a manager in a medium-sized retailer that has locations and employees in 16 states.  The company maintains a social media policy, which was recently updated.  Last week, I noticed that one of our employees posted some pretty nasty things about the company on Twitter.  She accused the company of not treating employees fairly because some had to work on days when others did not.  Perhaps worse, in response to customers who were praising the company’s products and services, she basically called the company cheap by saying it did not provide good pay or benefits.  I have not noticed any reaction from other employees to the tweets, but I am worried they will hurt employee morale and possibly drive away customers.  Is there anything I should consider before disciplining the employee who tweeted these things?

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Quirky Question #269: Like it or Not – Facebook Post Protected Under the NLRA

Question: I own a small manufacturing company that employs 25-35 employees, depending on our workload.  Over the years, a number of my customers and my employees have “friended” me on Facebook.  Last week, I saw that one of our employees had posted a comment that I don’t pay enough overtime and that I’m, “f—ing cheap,” because I don’t give enough paid vacation.  Almost worse, I saw that three other employees “liked” the post.  I work hard to treat my employees fairly, and to ensure that I staff adequately so that employees do not need to work overtime.  I’m afraid this post is going to hurt employee morale, and I’d like to fire the employee who posted and the ones who liked the post.  Is there anything I should consider?

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NLRB Published Report Concerning Employee Handbook Rules and Policies

On March 18, 2015, NLRB General Counsel Richard Griffin published a Report concerning recent case developments arising in the context of employee handbook rules and policies. The thirty-page Report concludes that many commonly-used policies, if not phrased carefully, may have a chilling effect on Section 7 rights to engage in concerted activity. The policies critiqued by  General Counsel Griffin include, among others, confidentiality policies, employee conduct policies, media policies, trademark and copyright use policies, and conflict of interest policies. The Report’s broad interpretation of potential “reasonable” understandings of handbook provisions concludes that policies such as “be respectful of others and the Company” violate the NLRA. Given the NLRB’s increased focus on handbook policies and this Report’s conclusions regarding a number of frequently utilized policies, employers – even those with employees not represented by labor unions – should carefully review their handbooks to avoid NLRB scrutiny.

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Quirky Question #245, Last chance agreements

Question:

We operate a manufacturing plant with a union workforce where new employees begin with a 90-day probationary period during which they are not yet members of the union. I recently hired a guy who refused to work overtime on several occasions, so I had him sign a “last chance” agreement in which he agreed that any further unexcused refusals would result in the termination of his employment. I also had him agree that he would not be able to grieve that termination because it would be based on his behavior that occurred during his non-union probationary period. As you could predict, last week after his probationary period ended and he joined the union, he refused to work overtime on Saturday. I plan to discharge him, but I’m worried that he’ll still grieve the discharge through the union and win his job back. What’s your advice? Answer→

Quirky Question #241, Working for Free In Montana At A Start-Up Business

Question:

I was laid off by my Montana employer and I have decided to help my brother with his start up business. I will be a 50% owner but we are not going to take a salary until revenue is substantial. An accountant friend tells me that my work for free for the start-up may disqualify me for the unemployment benefits I am currently receiving. This cannot be right. I have paid into the unemployment system for years and I am not receiving any wages. Answer→

Quirky Question #229, The Not-Clear-Cut Case for Canning a Cussing Worker

Question:

I’m the owner of a small record store. I have 13 sales clerks and 4 back room employees. Things aren’t great these days – but we get by. Fortunately, while people listen to music on their phones and the internet way more than they do CDs, we’ve refocused ourselves toward vintage record collectors and hardware sales.

I just fired a sales clerk last week for what I thought was pretty obviously unacceptable behavior. He started complaining to me the other day about the way I pay commissions. I pay my sales clerks $10 per hour plus a small commission on certain items in the store. For instance, if they move a record-player, or a set of headphones, or a tube amplifier, they get 2% of the sale in their next check. Because this guy worked on the day shifts, he felt like he did not have as good a shot at selling the big-ticket pieces of equipment, which are often sold in the evening. He pestered me for weeks to reduce the commissions on the hardware, and to give him a commission on the used records that he sells during the day in order to make it more “fair” for him. On Thursday we were working together for most of the day, and he would not stop bringing it up with me. I kept telling him that I preferred not to talk about things like that when customers were around, and that I would talk to him about it later. About ten minutes before his shift ended, he blew up, and in front of a half-dozen customers started shouting, “You f@&%ing jerk! You just want to keep all the big commissions for yourself! I should kick your a@@! Who f@&%ing puts up with this bull$#!t!” Then he threw a box of cds at me, which smashed into the front desk and scattered all over the place. The customers were freaked out. I was furious.

Obviously, I fired him on the spot. The next day, he sent me an email claiming he had been talking to some lawyers (aka doing Google searches), and that what I did was a violation of something called the NLRA. He claims that unless I write him a big check, he’s going to file a lawsuit with the National Labor Relations Board, and “knock your sorry a@$ out of business.”

What on earth is he talking about? There’s no union in my store – why is he talking about the “National Labor Relations Board?” Not to mention, the guy launched into a cuss-word laden tirade at me in front of a bunch of our customers. Surely I can fire him for that, can’t I? Answer→