2d Circuit Court Issues Blueprint for Avoiding Misclassification; Business Owners Classifying Workers as Independent Contractors

The United States Court of Appeals for the 2d Circuit recently issued a decision that could potentially save certain business owners both money and stress. The 2d Circuit, which encompasses the states of New York, Connecticut, and Vermont, in a recently decided case (Saleem v. Corporate Transportation Group, Ltd.) provided guidelines for employers as to whether their workers are employees or independent contracts. The issue of classification of workers as an employee or independent contractor is significant. For example, an independent contractor is exempt from minimum wage and overtime requirements. Further, such a classification can have significant tax consequences for a business. The above-referenced case clarifies longstanding issues regarding classification workers as employees or independent contractors. The hope is that the by issuing said guidelines, the Court will help employers avoid troublesome allegations of misclassification.

The case involved a driver service and its workers. Corporate Transportation Group and its affiliate companies (CTG) run a black-car service in the New York City area. The Company requires its drivers to sign a contract that acknowledged they were “not an employee or agent” of the company “but merely a subscriber to the services offered” by CTG. The drivers filed a class action lawsuit against CTG seeking unpaid overtime pay pursuant to the federal Fair Labor Standards Act (FLSA) and New York state wage and hour law.

In its decision, the Court established a three pronged analysis for determining whether a worker is an independent contractor or an employee. The Court initially noted that any independent contractor misclassification dispute arising under the FLSA must be examined under an “economic realities” test. The Court then listed the following three factors to be crucial to its decision:

  1. The Drivers Had Entrepreneurial Opportunities Not Available to Employees;
  2. The Drivers Made A Heavy Investment In Their Business and;
  3. The Drivers Maintained A High Level Of Flexibility.

The Court cautioned however, that its ruling was based on the fact-specific “totality of the circumstances” comprising the relationship between CTG and the drivers in this specific case. “In a different case, and with a different record, an entity that exercised similar control over clients, fees, and rules enforcement in ways analogous to CTG might well constitute an employer within the meaning of the FLSA.”

As a result it is clear that each case is to be determined on a case by case basis. Further, there is a lot of gray area as to how each of the above-referenced guidelines may be applied to difference business. Each case can turn on several variables. It is always best to consult an experienced employment attorney. If you have questions regarding employee or independent contractor classificication status, or are facing potential misclassification issues, call Gilbert Law Group today at 631.630.0100.

Uber Misclassification? Employee or Independent Contractor?

In July 2015, the Department of Labor issued guidelines regarding the “misclassification” of workers. It argued that any worker who is “economically dependent” on the employer should be considered an employee. A worker who is involved in a business independently however, on behalf of himself or herself should be regarded as an independent contractor. Multiple factors are considered in determining whether a worker is an employee or an independent contractor. This test is sometimes referred to as the “economic realities test.”

The classification of a worker as either an employee or independent contractor is significant for a company and its workers. The rationale behind such classification is that employees should be better protected and entitled to benefits as they are financially and professionally dependent on their employer. Independent contractors, however, are seen as having their own business and thus cannot claim several benefits from the business for which they are providing services including, but not limited to, minimum wage, overtime compensation, family and medical leave, unemployment insurance, and protections ensuring a safe workplace. As such, whether a business classifies its staff as employees or independent contractors will inevitably have major implications as it relates to overhead, payroll, profit margins, and taxes.

This classification again became newsworthy for Uber drivers when Uber, an on-demand car service, was confronted with the issue of whether its drivers should be considered independent contractors or employees. It is Uber’s longstanding practice of classifying its drivers as independent contractors rather than employees. Now the California Labor Commissioner, presented with this specific question, has opposed, in its interpretation of law, Uber’s basic and longstanding practice.

On September 16, 2014, an Uber driver named Barbara Ann Berwick filed a wage complaint with the California Labor Commissioner. Berwick sought, among other things, reimbursement for business expenses, such as gas and bridge tolls. Uber argued that since Berwick was not an employee, she could not be compensated for such expenses. In June 2015, the California Labor Commissioner argued in favor of the driver. It disagreed with Uber and awarded Berwick over $4,000 in business expenses and interest. In arriving at its decision, the Labor Commissioner applied the “economic realities” test adopted by the California Supreme Court in S. G. Borello& Sons, Inc. v. Department of Industrial Relations. Variations of this “economic realities” test are applied throughout the country, including New York. Based on this multifactor test, the Labor Commissioner held that Berwick was in fact an employee. Uber lost the case but has appealed the Commissioner’s decision.

            If you have questions regarding the classification of employees, independent contractors, and the implications of either classification, or need advice regarding labor and employment law, please call Gilbert Law Group at 631.630.0100.

Contributed by Sakine Oezcan

New Developments of the Minimum Wage in New York State

Since 2009, the federal minimum wage has been at $7.25 per hour. Recently however, New York State has made significant changes regarding the minimum wage, increasing it from $8.75 to $9 per hour. Further, under the new law, the minimum wage at fast-food chains with at least 30 locations nationwide, will continue climb in incremental steps. Its initial increase occurred on December 31, 2015. It is also required that employers  post a Minimum Wage Information poster at their workplaces.

Moreover, the State has established a separate pay rate for fast-food workers in large chains. In response, restaurant owners have challenged the Department of Labor’s wage order, arguing it to be ‘arbitrary, capricious and contrary to law. At the time of this publication, the issue is pending before the court.

Bigger increases will be granted to tipped workers in New York. The hourly minimum wage will rise from $4.90, $5 or $5.65 to $7.50 an hour for tipped workers, such as waiters, depending on the type of establishment. State employees not working in New York city are seeing an increase to $9.75 while the minimum wage for workers in New York City is now $10.50. At fast-food chains with 30 or more restaurants nationally, workers’ wages will increase from $8.75 to $9.75. The chart below depicts the current minimum wage for the city, New York State as well as future scheduled increases.

DATE NEW STATE WAGE NEW YORK CITY WAGE
Today $9.75 $10.50
January 1, 2017 $10.75 $12
January 1, 2018 $11.75 $13.50
January 1, 2019 $12.75 $15
January 1, 2020 $13.75 $15
January 1, 2021 $15 $15

Employers and business owners should fully understand these new laws and regulations, particularly whether they are in compliance. Failure to do so could lead to significant liability. Should you have questions or concerns regarding these developments to the minimum wage, or related matters, please call Gilbert Law Group at 631.630.0100.

Contributed by Sakine Oezcan, Esq.

Department of Labor Issues New Worker Misclassification Guidelines: Whether a Worker is an Employee or Independent Contractor?

The Department of Labor (DOL) has issued new guidelines, Administrator’s Interpretation 2015-1 detailing its interpretation of the “economic realities” test as it relates to the misclassification of workers. The guidance expands on the six factors in the test, emphasizing that the main issue is whether the worker is “economically dependent on the employer or truly in business for him or herself.” The vague definition of “employ” found in the Fair Labor Standards Act (FLSA) combined with the totality of the circumstances considered in the test means that most workers are considered employees, the DOL commented. The expansive reading of what constitutes an employee will likely generate an increase not only in DOL oversight but worker lawsuits as well. The DOL has been cracking down on worker misclassification by issuing severe penalties on employer’s who label a worker as an independent contractor rather than an employee for the consequential tax benefits. So how does one determine whether a worker is an employee or independent contractor?

“In sum, most workers are employees under the FLSA’s broad definitions,” the DOL said. “The very broad definition of employment under the FLSA as ‘to suffer or permit to work’ and the Act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor. The factors should not be analyzed mechanically or in a vacuum, and no single factor, including control, should be over-emphasized. Instead, each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus its employee). The factors should be used as guides to answer that ultimate question of economic dependence.”

The six factor test is complex, and many times whether a worker is an employee or an independent contractor can turn on several variables. For help navigating through issues related to worker misclassification and whether a worker is an employee or independent contractor, call Gilbert Law Group today at (631)630-0100.

SYSTEMATIC WAGE THEFT BY BRONX PAPA JOHN’S FRANCHISEE LEADS TO JAIL TIME, AG SCHNEIDERMAN’S FIRST CRIMINAL WAGE AND HOUR CASE

Employees who earn hourly wages are entitled to minimum wage and time-and-a-half for overtime, among other guarantees. When employers skirt this rule by misclassifying workers as independent contractors (whether intentionally or negligently), most penalties are limited to the civil realm. In other words, the employers will have to pay the difference to all affected workers, a fine to the U.S. Department of Labor, and other expenses arising out of the episode. For the first time, the Office of the New York State Attorney General recently secured criminal charges in a wage theft case, over and beyond these civil penalties.

 Abdul Jamil Khokhar owns nine Pizza Papa John’s franchises in Bronx, NY, under his company BMY Foods, Inc. Mr. Khokhar had been under investigation since 2013 for failing to pay and report overtime premiums. While his workers appear to have been lawfully paid for regular hours, Khokhar’s criminal scheme involved making overtime payments in cash, under fictitious names corresponding to the workers on the payroll, and at the regular hourly rate. Furthermore, Khokhar’s filed tax returns did not include any references to the pseudonymous workers, meaning that Khokhar represented that his workers worked up to, but not past, the overtime threshold—which Attorney General Eric T. Schneiderman disproved.

 On July 15, 2015, Khokhar pled guilty to his scheme. He will be sentenced on September 21. As a result, Khokhar will spend sixty days in jail, pay $230,000 in back pay to his employees, pay the same amount in additional liquidated damages, pay another $50,000 in other civil penalties, and BMY Foods, Inc. will have to designate an internal compliance officer and submit to independent audits.

 Wage theft is a crime that can result in substantial liability to the employer. Meanwhile, hourly employees are entitled to minimum wage and overtime premiums. The requirements placed on employers by the Wage Theft Prevention Act go much further however, than merely ensuring an employee is paid minimum wage and time and a half for overtime. If you need help in pursuing or defending a wage theft claim, do not hesitate in calling the Gilbert Law Group, (631)630-0100.

Contributed by Michael B. Engle

Department of Labor Proposes to Double Income Level for Salaried Employees to be Exempt From Overtime and Minimum Wage

On July 6, 2015, the U.S. Department of Labor announced its proposal to double the income level required for an employee to be exempt from overtime and minimum wage requirements. It is important to note that this is merely a proposal, and not an official rule. But it demonstrates how serious the DOL is as it relates to updating the exemptions. Also it should put employer’s on notice to pay attention as these changes could significantly impact business of all shapes and sizes.

Under the new proposal, the minimum weekly salary for exempt employees, presently $455 per week or $23,660 per year (http://www.dol.gov/whd/overtime/fs17a_overview.pdf), would increase to the 40th percentile of weekly earnings for full-time salaried workers in the United States, estimated to be $970 per week or $50,440 per year in 2016. Further, the minimum annual salary required for the Highly Compensated Employee exemption, presently $100,000 per year (http://www.dol.gov/whd/overtime/fs17h_highly_comp.pdf), would increase to the 90th percentile of weekly earnings for full-time salaried workers in the United States, which is currently $122,148; and these compensation requirements would automatically increase annually in the future based on a yet to be determined formula. The DOL also announced that it is considering, revising the job duties required for exempt employees, and whether non-discretionary bonus or incentive pay should be considered toward the minimum salary requirement for Highly Compensated Employees.

If you have any questions or concerns regarding how these changes can impact your business, call Gilbert Law Group today, (631)630-0100.

Changes to FLSA Executive Overtime Exemption Could Mean Significant Raises

Many executive and professional employees who have been exempt from federal minimum wage and overtime regulations may soon qualify to be compensated for overtime. Indeed, the low salary requirement for the executive overtime exemption may soon be a thing of the past. In late November, the Department of Labor released its Fall 2014 Agency Rule List. President Obama has made clear his intention to modernize and streamline FLSA regulations for executive, administrative, and professional employees. The FLSA provides for overtime exemptions (and minimum wage exemptions, in some cases) for employees who are employed in a bona fide executive, administrative or professional capacity, or in the capacity of an outside salesperson. Soon, if employers wish to avoid paying overtime to their executive, administrative, or professional employees, they may have to increase their salaries significantly.minimum wage and overtime

The updated regulations will increase the $455 minimum weekly salary threshold for exempt executive workers. At $455/week, workers earning just $24,000 annually currently meet the minimum salary requirement. The White House has said that just 12% of salaried workers now fall below this threshold, compared to 65% in 1975 when the regulations set a $250/week minimum.  New York already requires employers to pay higher minimums to meet the exemption ($600 in New York, increasing to $675/week by 2016). It has been reported that the Obama administration is planning on setting the minimum salary for the overtime exemption at $42,000 per year (just over $800/week).

A substantial increase even to the anticipated $42,000 would have the most impact on production, service and retail industries that have substantial numbers of low paid supervisors.

To learn more about what this means for your business or compensation package call Gilbert Law Group today: (631)630-0100.

Gilbert Law Group – 425 Broadhollow Road, Suite 405, Melville, New York 11747

Waiting to Work or Waiting to Leave: Paid Time?

The decades-long battle for pay during down time or time employees prepare to work, wait to work, or wait to leave work continues. Whether working to wait before leaving for the day or waiting to work before clocking in are instances of paid time is the issue. U.S. Supreme Court justices expressed doubts recently during arguments over whether federal law requires that workers be paid for the time they take to go through security checkpoints to prevent employee theft at Amazon. Previously, the Supreme Court held that employees must be paid for the time they take to put on protective gear, but not for the waiting time associated with taking it off. Also, the Court has ruled that butchers must be paid for the time it takes to sharpen their knives as it is an essential duty to working at a meatpacking plant.

This most recent dispute involves two former employees at a Nevada warehouse who claim that their employer, Integrity Staffing Solutions, Inc., required them to wait up to 25 minutes in security lines at the end of every shift. Integrity provides workers who fill customer orders for Amazon at warehouses. The intermediate appeals court had ruled that the work was payable as the anti-theft screenings were necessary to the workers’ primary work at the warehouse, and it was done for the employer’s benefit. However, certain Supreme Court justices disagreed with the workers’ attorney who argued that the work was compensable under the Fair Labor Standards Act (FLSA), as walking through security was a principal activity of the employees’ job duties.

Chief Justice Roberts responded, “But no one’s principal activity is going through security screenings.It may be part of that… but that doesn’t make it a principal activity.” Justice Scalia opined that the security check “is not indispensable to [the warehouse work].” In reply, the workers’ attorney argued that the screening was a “discrete act” that only occurred after the workers had clocked out and handed in their tools. He stated, “It’s work because you are told to do it.”

The Obama administration is siding with the employer. The Justice Department attorney argued that the security screenings were not “integral and indispensable to the workers’ jobs.”

It will be interesting to see how the Supreme Court decides this hot-button workplace wage issue. Stay tuned.

Should you have wage and hour questions or issues, please contact the Gilbert Law Group: 631.630.0100.