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Posts Tagged ‘contractors’

California’s New Independent Contractor Test

Posted on: July 11th, 2018

By: Christine Lee

On April 30, 2018, the California Supreme Court issued a landmark decision in Dynamex Operations West, Inc. v. Superior Court, No. S222732, in which the Court adopted an extremely broad view of workers who will be deemed “employees” as opposed to “independent contractors” for purposes of claims alleging violations of California’s Wage Orders.  This decision will undoubtedly lead to increased litigation challenging classification of workers across the state as employers will now have a much higher burden to defeat such claims.

Under the new “ABC” test set forth in Dynamex, a worker will be presumed to be an employee unless the hiring entity proves all of the following:

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

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

(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work he or she performed for the principal.

An employer’s failure to establish any one of the three factors will result in a determination that the worker is an employee as a matter of law.  The Court’s ruling specifically applies to claims asserted under the IWC Wage Orders, which impose obligations related to minimum wages, overtime, and required meal and rest breaks. It is presently unclear how the case applies to claims arising under other statutes.

We encourage all companies doing business in California to immediately evaluate classification of outside contractors or vendors.  Under Dynamex, the vast majority of persons performing services for a company will be considered employees if they are performing work within the usual course of the company’s business, even if those individuals act autonomously and are free from control or direction of the hiring entity.

Therefore, we strongly encourage employers to consult with counsel to evaluate and consider reclassifying independent contractors or risk finding themselves on the losing end of an expensive and painful misclassification case.

If you have any questions or would like more information, please contact Christine Lee at [email protected].

NLRB Delivers One-Two Punch to Pair of Standards that Have Dogged Employers

Posted on: December 18th, 2017

By: Paul H. Derrick

In a stunning development, the National Labor Relations Board has overruled a pair of controversial standards that have caused headaches in the business community for years.

In the first case, the NLRB reversed an Obama-era decision that put employers potentially on the hook for labor law violations committed by their subcontractors and franchisees.  By a 3-2 vote, the Board erased its decision in a case known as Browning-Ferris Industries, which found a company to be a joint-employer with a subcontractor or franchisee if it had “indirect” control over the terms and conditions of the terms and conditions of the workers’ employment or had the “reserved authority to do so.”

Since that broad standard was adopted, the Board has used it to bring literally hundreds of cases against McDonald’s and other businesses for the alleged acts of their contractors and franchisees.  Going forward, however, the NLRB says that two or more entities will be deemed joint employers under the National Labor Relations Act only if there is proof that one entity actually exercised direct and immediate control over essential employment terms of another entity’s employees.  Proof of indirect control, contractually-reserved control that has never been exercised, or control that is limited and routine will no longer be sufficient to establish a joint-employer relationship.

In a second unexpected development, also by a narrow 3-2 margin, the NLRB overturned its 2004 decision in Lutheran Heritage Village-Livonia, under which many seemingly harmless workplace rules were deemed unlawful.  The Board had determined in that case that employer rules violate the NLRA if they “could be reasonably construed” by employees to prohibit the exercise of rights under the NLRA.

Going forward, the NLRB says that it will consider the nature and extent of a challenged rule’s potential impact on employee rights under the NLRA and the legitimate justifications associated with the rule.  The Board also announced three categories into which it will now classify rules to provide greater clarity and certainty to employees, employers, and unions.

The first category covers rules that are legal in all cases because they cannot be reasonably interpreted to interfere with workers’ rights or because any interference is outweighed by business interests; the second covers rules that are legal in some cases, depending on their application; and the third covers rules that are always unlawful because they interfere with workers’ rights and cannot be outweighed by business interests.  Notably, the Board also announced that it will no longer find a rule to be unlawful simply because it requires employees to foster “harmonious interactions and relationships” or to maintain basic standards of civility in the workplace.

Because of ongoing changes in the NLRB’s composition and the recent nomination of a new General Counsel, these latest decisions will certainly be the subject of challenge and much debate.  If you have any questions or would like more information, please contact Paul Derrick at [email protected].

Dangers of Hiring Independent Contractors

Posted on: July 22nd, 2013

By: Leanne Prybylski

Many contractors hire independent contractors, rather than employees, to avoid paying taxes and benefits.  Contractors should be aware, however, that the costs of misclassifying employees as an independent contractors could end up being more expensive than it would have been to pay the taxes and benefits for the employees in the first place.  For more information, see the recent article by Leanne Prybylski, “The Dangers of Hiring Independent Contractors.”

Contractors are Under Greater Scrutiny for Compliance with Davis Bacon Requirements

Posted on: July 9th, 2013

By: Kamy Molavi


Recently, we at FMG’s construction law group have seen several cases involving the Davis Bacon Act.  Davis Bacon is the federal law that requires all workers to be paid the “prevailing wages” on federal contracts.  The law also applies to a non-federal contract if the project is at least partially paid for from certain federal funds.

Our clients in the recent cases are either general contractors or subcontractors.  The Department of Labor claimed our clients’ first-tier or second tier subcontractors had failed to pay the prevailing wages, and sought to collect the shortfall from our clients even though the unpaid or underpaid workers were not employees of the clients.

This indirect liability is not new.  What seems to be new is the prevalence of DOL investigations in the past two years.  Some attribute the recent focus to the political climate, and others blame unions for instigating the investigations.  We do not know what is causing the recent investigative vigilance, but the trend is undeniable.

If the Davis Bacon Act applies, contractors and subcontractors cannot rely on certified payrolls from downstream employers.  They should take steps to understand the wage requirements of their projects, especially the classification of workers needed on the job, and the proper rate for each classification.  It is also prudent to make sure all employers on the project maintain good time records, and to the extent feasible, also to monitor payments to all workers.

OFCCP Issues New Guidance on Pay Investigations

Posted on: March 7th, 2013

By: Marty Heller

The Office of Federal Contract Compliance Programs (OFCCP) recently rescinded its previous guidance regarding compensation practices for federal contractors and subcontractors covered by Executive Order 11246. Effective February 28th, the OFCCP has put in place “Policy Directive 307, Procedures for Reviewing Contractor Compensation Systems and Practices,” which purportedly provides clarity on the OFCCP’s practices when investigating pay discrimination during an OFCCP audit. Executive Order 11246 is a non-discrimination order applicable to most federal contractors and subcontractors who have a federal contract of $50,000 or more. The Order provides, amongst other things, that employers’ payment practices may not discriminate against employees based upon their race, gender or ethnicity. Although this is only a small part of Executive Order 11246, pay discrimination investigations have been a priority recently leading the OFCCP to seek substantial back pay and damages from contractors.

The Directive provides that the OFCCP’s review of payment practices will not be subject to restraints, such as any particular discrimination test. Instead, the OFCCP will choose which analysis and data to use on a “case by case” basis. The OFCCP may rely upon the information provided in response to its initial scheduling letter (overall company compensation data organized by gender and race and Affirmative Action Plan job group), or it may request more specific information. The OFCCP also may review the additional data for other compensation discrimination including, discriminatory work assignments, training, preferred shifts, better sales territories, promotions, and other opportunities for advancement, such as a proverbial “glass ceiling.”

The OFCCP may choose to analyze the data using traditional statistical tests if that meets their goals for that investigation, or the OFCCP may choose to use any other type of analysis, such as an individual comparison or a group comparison. The directive also gives the OFCCP the ability to separately analyze the data provided to the OFCCP, including analyzing overall compensation data, job group and job title data, and even creating its own job groupings based upon what the OFCCP determines are a company’s pay practices. The guidance also clarifies that every investigation will review compensation data for systemic, group and individual discrimination in pay practices.

While the ultimate effect this directive will have on investigations remains to be seen, federal contractors and subcontractors can expect an increased emphasis on wage and compensation payment investigations. Given the wide variety of analyses the OFCCP may undertake and the grouping of data that may occur, there is little doubt that federal contractors face an increased likelihood of discrimination findings and assessment of back pay and other damages.

The Directive is an important reminder that employers need to review their compensation practices annually. Given the potential costs associated with a finding of discrimination, federal contractors should consider doing attorney-client protected statistical analysis, such as a regression analysis, to identify statistically significant weaknesses. Employers that can address problem areas before an OFCCP audit may be able to avoid costly findings of pay discrimination.