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ACI’s25th National Forum on Wage & Hour Claims and Class Actions

John HoBond Schoeneck & King

Cristina BanksBerkeley Research Group, LLC

Jeffrey F. WebbRopes & Gray LLP

Innovative Strategies for Defending Federal and State Claims Involving Independent Contractor Misclassification and Improper Labeling of

Exempt/Non-Exempt Employees, and Preparing for Imminent FLSA White-Collar Exemption Regulations

September 28-29, 2015

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Session overview

• Independent Contractor vs. Employee

• Improper labeling of Exempt / Non-Exempt

•Proposed U.S. DOL Overtime Regulations

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The Importance and Challenge of Independent Contractor Classification

• FLSA, IRS, ERISA, NLRB, Unemployment Insurance, Title VII, etc.

• Legal test varies• IRS 20 Factor Test

• Economic Reality

• ABC – Right to Control Test

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Government Initiatives

•United States Department of Labor• http://www.dol.gov/whd/workers/misclassification

• Administrator’s Interpreation No. 2015-1

• USDOL – IRS (Memorandum of Understanding)

• State Initiatives• Increasing Penalties for Misclassification and/or Presumption of

Employment Laws

• CA - Independent Contractor Law (Jan. 1, 2002)

• CA – Assembly Bill No. 1897, signed by Gov. September 28, 2014. Imposing liability on businesses that use staffing companies and other “labor contractors.”

• NY (Construction and Commercial Good Transportation Fair Play Acts)

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Civil Litigation

•Cheerleaders

• Exotic Dancers

•Cable Installers

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Uber & Lyft

•Northern District of CA – Two separate lawsuits, both Judges denied Uber & Lyft’s motion for summary judgment.

•Recent Florida filing

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Identifying Potential Misclassification • Control (Independence / Dependence)

• Fiscal justification

• Interchange of employees/independent contractors

• Transitioning between employee/independent contractor

• No corporate entity

• Long term relationship

• Limited (or no) client base

• Contractual clauses – no assignment, non-solicitation, confidentiality, etc.

• Expense reimbursement

• Written Independent Contractor Agreement

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Data Collection

• Time & Motion (Observational)

Studies

•Questionnaires

• Structured Interviews

•Audits

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Unpaid Interns

•USDOL Fact Sheet # 71

•Glatt v. Fox Searchlight• Primary Beneficiary

•Best Practices

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Improper Labeling of Exempt Employees

•Key Issues:

• What percentage of time does an employee spend

performing exempt work?

• What discretion and independent judgment is

exercised on the job?

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Improper Labeling of Exempt Employees: Data Collection

• Time & Motion (Observational)

Studies

•Questionnaires

• Structured Interviews

•Video Analysis

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Improper Labeling: Opinions

• What is the degree of variability in work performed by members of the class?

• What is the percentage of time spent performing exempt work per employee?

• What is the degree of variability in the percentage of time spent performing

exempt work across class members?

• What is the percentage of employees who exceed the threshold of 50% time

spent performing exempt work?

• How do employees exercise discretion and independent judgment on the job?

• What is the percentage of class members who exercise discretion and

independent judgment?

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Proposed FLSA Regulations

• Salary Threshhold• Presently $455 a week

• Proposal to set at 40th percentile of weekly earnings

• Projected to be $970 a week

• Full time annualized salary of $50,440

• Indexed and updated annually

• Possible inclusion of non-discretionary bonus, commissions

• “Highly Compensated” Exemption• Currently $100,000

• Proposal to set at 90th percentile

• Projected to be $122,148

• Indexed and updated annually

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Proposed FLSA Regulations

•Duties test• No proposed changes

• However, comments on duties test requested

•Comment period closed September 4

•Anticipated final rule: mid 2016

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Proposed FLSA Regulations

• Impact• 10-15 million workers will lose their exemption

• Hardest hit industries:

• Education

• Retail

• Health services

• Leisure/Hospitality

• Business and professional services

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Proposed FLSA Regulations

•Recommendations for employers• Assess which positions may be affected

• Consider need to budget for higher salaries or more overtime

•Cost control options• Limit hours to 40 per week

• Reduce hourly rate in light of overtime costs

• Adopt fluctuating workweek

• Consider Belo plan