CLOSE X
RSS Feed LinkedIn Instagram Twitter Facebook
Search:
FMG Law Blog Line

Archive for September, 2018

Independent Contractor Or Employee?

Posted on: September 20th, 2018

By: Marshall Coyle

The California Supreme Court has established an “ABC test” that could make it extremely difficult for the state’s truckers to use independent contractors. In Dynamex Operations West Inc. v. Charles Lee, (Case S222732, April 30, 2018) the Supreme Court endorsed what is called the three-pronged ABC test legal standard.

In Dynamex the lawsuit involved allegations by drivers that Dynamex, a nationwide package and document delivery company, had misclassified its delivery drivers as independent contractors rather than employees. The high state court affirmed the appeals court ruling that supported the workers, endorsing what is called the three-pronged ABC test legal standard.

To be classified as an independent contractor, the ABC test requires that: (A) the worker is free from the control and direction of the hiring entity in connection with the performance of the work; (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 performed.

The state Supreme Court said that in recent years federal and state regulatory agencies have declared that the misclassification of workers as independent contractors rather than employees is a serious problem that deprives federal and state governments billions of dollars in tax revenue and millions of workers of labor law protections.

“On the one hand, if a worker should properly be classified as an employee, the hiring business bears the responsibility of paying federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, providing worker’s compensation insurance, and, most relevant for the present case, complying with numerous state and federal statutes and regulations governing the wages, hours and working conditions of employees,” the court wrote in its opinion.

“On the other hand, if a worker should properly be classified as an independent contractor, the business does not bear any of those costs or responsibilities, the worker obtains none of the numerous labor law benefits and the public may be required under applicable laws to assume additional financial burdens with respect to such workers and their families.”

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

Are We Witnessing the End of Qualified Immunity?

Posted on: September 19th, 2018

By: Sun Choy

For many decades, qualified immunity has served as a powerful defense to end civil cases against public officials, including law enforcement officers for the alleged use of excessive force.  Given the many high-profile deaths involving the use of force by officers, progressives have again called for the end of qualified immunity.  Even some conservatives are now calling for an end to qualified immunity.  In a recent National Review article, the author lays out a conservative rationale to end qualified immunity, which is primarily based on the “plain meaning” of the statutory language of 42 U.S.C. § 1983.  With progressives and conservatives joining forces, is it only a matter of time before the Supreme Court ends qualified immunity?

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

The Side Work Struggle: Nonprofit Restaurant Group Challenges The 80/20 Tip Credit Rule In Texas Federal Court

Posted on: September 19th, 2018

By: John McAvoy

On July 6, 2018, a nonprofit restaurant advocacy group filed suit against the U.S. Department of Labor in Texas Federal Court challenging the rule that governs the compensation of tipped employees; specifically, the DOL’s “80/20 Tip Credit Rule” or “20% Rule” set forth in the 2012 revision to the DOL’s Field Operations Handbook. Restaurant Law Center v. U.S. Dept. of Labor, No. 18-cv-567 (W.D. Tex. July 6, 2018).

Under the Fair Labor Standards Act (the “FLSA”), employers may pay a “tipped employee”—i.e., “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips”—a cash wage of $2.13 per hour (or more) so long as the employer satisfies certain statutory criteria, including that the employee’s tips plus the cash wage equal the minimum wage. See 29 U.S.C. §§ 203(m), 203(t). That means tips are credited against – and satisfy a portion of – employers’ obligation to pay minimum wage. Congress has noted occupations in which workers qualify for this so-called tip credit: “waiters, bellhops, waitresses, countermen, busboys, service bartenders, etc.” S. Rep. No. 93-690, at 43 (Feb. 22, 1974).

The FLSA tip credit is not available to employers in all situations. Rather, the 80/20 Tip Credit Rule limits the use of a tip credit wage where workers spend more than 20% of their time performing secondary work not directly related to tip-generating activities. Such secondary work is universally known throughout the restaurant industry as “side work.”

Side work encompasses any and all secondary tasks restaurant employees must complete in addition to their primary responsibilities waiting tables, expediting food, bussing tables or tending bar. Side work generally includes things like rolling silverware, restocking glasses and various other items, cleaning and/or any other behind the scenes tasks necessary to ensure that restaurant operations run smoothly.

The 80/20 Tip Credit Rule provides that if a tipped employee spends more than 20% of his or her time during a workweek performing side work, i.e. duties that are not directly related to generating tips, the employer may not take a tip credit for the time spent performing those duties.

Tipped employees and employers throughout the industry share a deep-seated aversion to the 80/20 Tip Credit Rule for three (3) main reasons. First, the Rule is unclear as to what is, and what is not, an allegedly “tip generating” duty. Second, side work varies from restaurant to restaurant and shift to shift and is subject to unpredictable external conditions; most notably, the number of patrons that dine in the restaurant on any given day. For example, a bartender working the Saturday night shift in a chain restaurant may spend 95% of his or her shift serving customers, and a mere 5% on side work. However, that same bartender may open the restaurant the following day (Sunday morning) and spend 40% of his or her shift on side work from the night before, and only 60% serving customers. Third, tipped employees do not generally log their hours separately by task. As a result, tipped employees and their employers have struggled to apply the Rule. Tipped employees have to ask themselves whether they are working for less than minimum wage, and employers have to constantly wonder whether they are in compliance with the current state of the 80/20 Rule.

These issues, among others, have spawned several lawsuits challenging the 80/20 Tip Credit Rule. For example, the plaintiff in Restaurant Law Center contends, among other things, that the DOL “surreptitiously and improperly” created the 80/20 Tip Credit Rule, rather than abiding by the rulemaking process, thereby violating the Administrative Procedure Act.

Restaurant Law Center is worth mentioning because there is a split emerging among the circuit courts as to the 80/20 Tip Credit Rule’s validity. In 2011, the U.S. Court of Appeals for the Eighth Circuit upheld the validity of the Rule. However, in September 2017, a three-judge panel from the U.S. Court of Appeals for the Ninth Circuit concluded that the DOL effectively imposed new recordkeeping guidelines on employers to determine which tasks are tip generating and which are not.  In doing so, the Ninth Circuit held that the DOL had created a new regulation inconsistent with the “dual jobs” regulation. Shortly after the Ninth Circuit’s three-judge panel issued this opinion, the Ninth Circuit granted a rehearing before the full panel. Although the case was re-argued in March 2018, the full panel has yet to issue its opinion. If the Ninth Circuit upholds its prior decision, or the Fifth Circuit (where the July 6, 2018 lawsuit is pending) ultimately invalidates the 80/20 Tip Credit Rule on appeal, there will be a split among the federal appeals courts, opening the doors for the U.S. Supreme Court to decide the validity and enforceability of the 80/20 Tip Credit Rule.

Needless to say, the outcome of these cases will have serious implications to the restaurant industry in all jurisdictions throughout the country.

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

USCIS Reverses Course – STEM OPT Students May Now Work At 3rd Party Client Sites

Posted on: September 18th, 2018

By: Ken Levine

On August 17th U.S. Citizenship and Immigration Services (USCIS) posted an announcement on their website to publicize the agency’s decision to once again allow STEM OPT F-1 students to engage in training programs at a third-party client worksite.  This update supersedes the Agency’s policy change in April 2018 which disallowed STEM OPT students from being placed at 3rd party client sites.

This new guidance essentially restored an employer’s ability to place OPT students in a science, technology, mathematics or engineering (STEM) field at a 3rd party client site, so long as all applicable training obligations are met, and a bona fide employer/employee relationship is maintained for the full duration of the assignment.

This USCIS policy reversal was welcome news for the many U.S. employers who had historically trained their OPT personnel by placing them at 3rd party work sites.  However, it is extremely important that employers be vigilant in ensuring that the training is in full compliance with the I-983 training program. Companies that sponsor their OPT employees for an H-1B visa should expect that USCIS will closely scrutinize the OPT training program details.

For additional information related to this topic and for advice regarding how to navigate U.S. immigration laws you may contact Ken Levine of the law firm of Freeman, Mathis & Gary, LLP at (770-551-2700) or [email protected].

Is “But-For” Causation In California Legal Malpractice Cases In Jeopardy?

Posted on: September 18th, 2018

By: Gretchen Carner & Brett Safford

California attorneys sued for fraud and intentional torts, as opposed to negligent legal malpractice, may be subjected to a different causation standard after the California Court of Appeal’s recent opinion in Knutson v. Foster (2018) 25 Cal.App.5th 1075.  The opinion has caused somewhat of a stir.  “But-for” causation and the “case-within-the-case” analysis are concepts used in virtually every lawsuit by a former client against his or her attorney.  It is axiomatic that a plaintiff, to establish a claim against his or her former attorney, must show that but for the conduct of the attorney, plaintiff would have achieved a better result.

Knutson modifies the causation analysis for certain claims against attorneys. Knutson held that the “but-for” standard should not be used when an attorney is sued by his or her former client for fraud and/or intentional breach of fiduciary duty. The Knutson court premised its reversal of the trial court on a supposed distinction between the “but-for” and substantial factor causation tests. In addition, the Knutson court appears to have abandoned the well-established “case-within-the-case analysis.”

In Knutson, Plaintiff Dagny Knutson filed a lawsuit against her former attorney Richard Foster for fraudulent concealment and intentional breach of fiduciary duty.  Knutson’s claims against Foster arose from his handling of her claim for breach of oral contract against USA Swimming.

Knutson, an internationally ranked swimmer in high school, committed to Auburn University on a full athletic scholarship.  She selected Auburn because Paul Yetter, one of its swimming coaches, was considered an expert in the individual medley, Knutson’s specialty event.  However, in March 2010, the head coach of USA Swimming Mark Schubert told Knutson that Yetter was leaving Auburn and advised her to swim professionally instead of attending Auburn or another university.  Schubert then orally promised her that she would receive training at USA Swimming’s “Center for Excellence” in Fullerton, California as well as room, board, tuition, and a stipend.  The agreement was to last through 2016—after the Summer Olympics in Rio de Janeiro.  Notably, the oral agreement did not include “performance markers,” which Knutson would have to meet to retain her benefits.  Knutson accepted the offer and hired a sports agent.  However, only a few months after moving to Fullerton, USA Swimming terminated Schubert’s employment.

At the suggestion of her agent, Knutson hired attorney Foster after she stopped receiving money from USA Swimming.  Yet, Foster did not disclose to Knutson his close personal ties with high-level persons in the aquatics industry or that he had well-established relationships USA Swimming and other swimming organizations.  Foster also did not disclose that he represented Schubert in 2006, or that following Schubert’s termination from USA Swimming in 2010, he refused to represent Schubert in a wrongful termination action because “he did not want to have a negative relationship with USA Swimming in the future.”

Foster, on behalf of his client, Knutson, ultimately reached a settlement with USA Swimming.  The settlement agreement provided tuition from January to December 2012, but between 2013 and 2016, all payments were contingent upon “perform markers,” i.e., Knutson maintaining a top 25 ranking in the world or a top three ranking in the United States.

After learning of Foster’s conflicts of interest, Knutson sued Foster for fraudulent concealment and intentional breach of fiduciary duty.  The jury found in favor of Knutson on both causes of action, but the trial court granted Foster’s motion for new trial on the grounds that Knudson “failed to adduce evidence of causation and that the jury’s award of damages was excessive.” The trial court also denied Foster’s motion on two other grounds.  Both Knutson and Foster filed notices of appeal.

The Court of Appeal reversed, holding that the trial court erroneously applied the “but-for” test for causation instead of the “substantial factor” test.  The Court explained, “Here, the trial court recognized the different standards of causation between legal malpractice claims and fraud claims, but nevertheless erroneously applied the malpractice standard of causation to the fraudulent concealment claim.  Although the court referred to the substantial factor for causation, it used and applied the but for test.”  After identifying Foster’s alleged concealments and breaches of loyalty, the court then concluded that “[a] substantial factor in Knutson’s decision to enter into the settlement agreement was Foster’s fraudulent concealment of the foregoing facts” and breaches of his fiduciary “caused Knutson harm initially by failing to provide her with all the information needed to make an informed decision about entering into the settlement agreement with USA Swimming and failing to ensure that Knutson’s best interests were being protected by Foster during the negotiations.”

The Court’s analysis in Knutson is problematic because it blurs the relationship between the “but-for” test of causation applied in legal malpractice claims and the “substantial factor” test of causation applied in intentional tort claims.  The “but-for” test has long been the appropriate causation standard for legal malpractice claims.  As explained by the California Supreme Court in Viner v. Sweet (2003) 30 Cal.4th 1232, “In a litigation malpractice action, the plaintiff must establish that but for the alleged negligence of the defendant attorney, the plaintiff would have obtained a more favorable judgment or settlement in the action in which the malpractice allegedly occurred. The purpose of this requirement, which has been in use for more than 120 years, is to safeguard against speculative and conjectural claims.”  (Id. at p. 1241, emphasis added.)  “This method of presenting a legal malpractice lawsuit is commonly called a trial within a trial.” (Blanks v. Seyfarth Shaw LLP (2009) 171 Cal.App.4th 336, 357.)  The “substantial factor” test requires that the “the plaintiff to establish ‘a reasonable basis for the conclusion that it was more likely than not that the conduct of the defendant was a substantial factor in the result.’ ” (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 153, emphasis added.)

Knutson is a significant case because it not only contains a confusing analysis of the distinction between “but-for” causation and “substantial factor” causation, but it could also be read to dispose of the “case-within-the-case” analysis for claims against an attorney for fraud and/or intentional breach of fiduciary duty.  Review by the California Supreme Court is warranted to address the confusion Knutson creates.  Until then, it should be argued that Knutson is an outlier case which can be distinguished on its specific facts.  We will be keeping a close eye on this one.

If you have any questions or would like more information, please contact Gretchen Carner at [email protected] or Brett Safford at [email protected].