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The “Contingent Workforce” in 2015:
Understanding the Legal Exposures
Webinar, May 14, 2015
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Today’s Presenters
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Clint Robison
Los Angeles, CA
Tom Pitegoff
New York, NY Joe Paranac
Newark, NJ
Brian Muse
Williamsburg, VA
Lisa Savadjian
Newark, NJ
Dan Blake
Boston, MA Lauren Appel
Boston, MA Phil Bonoli
Los Angeles, CA
Mike Barnsback
Alexandria, VA
Michael Caldwell
New Haven, CT
Joint Employment in Franchising
Thomas M. Pitegoff
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NLRB developments
Who’s who
- David Weil: DOL Wage & Hour Administrator
- Richard Griffin: NLRB General Counsel
- SEIU seeks to revive union membership
Browning Ferris
- GC’s amicus brief urged new joint employer standard
Would upend law developed over 30 years
McDonald’s complaints
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Other developments
Challenges
- Awuah v. Coverall – 2010 MA minimum wage laws
Franchisees held to be employees
- Seattle minimum wage law
Confirming traditional employer analysis
- Patterson v. Domino’s – 8/2014 Sexual harassment
CA Supreme Ct
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Threat to franchising
Franchising creates opportunities
- Franchisees own their business
Joint employment kills incentives to
franchise
- both for franchisors and franchisees
- Inconsistent with franchise agreements
Franchising is important to the U.S.
economy
http://savelocalbusinesses.com
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What happens next?
More hearings
McDonald’s will fight with IFA’s help
SEIU will continue to push the envelope
Franchisors will take protective measures
Hopefully, the franchise sector will continue
to offer opportunities
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NLRB Considerations
Joseph P. Paranac
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Definition of Joint Employer
As defined by the NLRB, a joint employer
is comprised of two or more employers
who share or co-determine those matters
governing essential terms and conditions
of employment for bargaining unit
employees.
Those terms and conditions include hiring,
firing, discipline, supervision and direction.
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Bargaining in
Joint Employment Situations
In Oakwood Care Center, 343 NLRB 659
(2004), the NLRB held that: 1. A combined bargaining unit of jointly-employed and
solely-employed employees is not permissible under the
Act unless both employers consent.
2. Required consent must be “clear and unequivocal,” as
manifested by express agreement or by actually entering
into bargaining on a multi-employer basis.
3. This rule does not apply to units in which two or more
employers jointly employ every individual in a unit.
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ACA/Benefit Design and
Insurance Aspects
Brian G. Muse and Lisa L. Savadjian
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Affordable Care Act and
Contingent Employees
The ACA large employer shared responsibility mandate
requires employers with 50 (100 in 2015) or more full time
and full-time equivalent employees to offer qualifying
health coverage to at least 95% of their full-time
employees and their dependents.
Under the ACA employers must periodically determine:
(1) How many employees they have; and
(2) How many hours those employees routinely work.
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The ACA Uses the Common Law Control Test
The ACA’s regulations have adopted the common law “control test” to determine whether an individual is an employee. Treas. Reg. § 31.3401(c)– 1(b).
What factors determine an employer/employee relationship:
1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)?
3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
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Issues with Franchisor/Franchisee Relationship
Aggregation of “Affiliated Entities”:
The ACA aggregates corporations that are affiliated
(group) for many purposes, including determining
whether an employer qualifies as a “large employer.” - The common ownership rule says that if a group of companies has
the same or similar ownership, it will be treated as the same company
when assessing employee numbers. What does this mean for
franchises?
- A recent NLRB decision held that McDonalds can be considered
a “joint employer” along with its franchisees and can be judged jointly
accountable for workplace conditions.
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Avoiding the Employer-Employee Relationship
Who has liability?
- It should be clearly addressed in any contingent
workforce agreement
- Consider becoming a third party beneficiary on the
staffing company’s insurance policy
- Indemnification: Review and revise staffing
agreements to provide defense and indemnity where
possible.
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Avoiding (cont.)
Differentiate Workers- set up clear differences between
temporary and permanent staff
Employers should relinquish control to staffing agencies
and let the agency implement all employment actions
such as recruiting, training, job assignments, firing, raises
and payroll issues
Do your due-diligence on the staffing company before
contracting
- What happens when Staffing Company goes under?
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State Wage and Hour and Staffing
Agency Aspects
Daniel J. Blake, Lauren A. Appel, Philip J. Bonoli
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Understanding and Defending Wage
and Hour Claims
General Info/FLSA
Wage & Hour Employer Mistakes
Employees v. Independent Contractors
Claims and Penalties
Exempt Employees
Defenses to Wage & Hour Claims
Federal v. State Wage & Hour Issues
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Wage and Hour – Traps to Avoid
A Worker Is an Employee Unless:
The individual is free from control and direction in connection with the performance of the service; and
The service is performed outside the usual course of the business of the employer; and,
The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
Some states also use this test, such as Massachusetts. New Jersey has recently by case law (Sam Hargrove et al v. Sleepy’s LLC)
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Indemnification Issues
Staffing companies should avoid broad, boilerplate indemnification clauses covering risks beyond their control
A good agreement makes party causing harm responsible for compensating for harm
Tailor an indemnification agreement to services provided
Some EPLI policies contain FLSA exclusions - New Hampshire Ball Bearings, Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2014 WL 935120 (C.D.Cal.)
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Employment Law Aspects and Legal
Exposure and Indemnification Issues
Michael E. Barnsback, Michael G. Caldwell
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Federal Wage and Hour Aspects
Department of Labor (“DOL”) perspective:
- Contingent Workforce = Fissured Industries
- “In recent years, the employment relationship
between workers and businesses receiving the
benefit of their labor has fissured apart as
companies have contracted out or otherwise
shed activities to be performed by other
businesses.”
www.dol.gov/dol/budget/2016/PDF/CBJ-201
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Aspects (cont.)
DOL 2016 Budget request:
- Increase of $31 million for enforcement
- Add 300 FTE for enforcement
Key Enforcement Initiative
- Addressing the fissured workplace
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Aspects – Targeted Industries
Targeted “fissured” industries:
- Manufacturing
- Retail
- Health care and social assistance
- Leisure and hospitality
- Food services and drinking
- Accommodation
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Aspects – DOL View on Franchises
DOL view on franchises
- “Franchising provides a way for very large
national businesses to benefit from
investments in a brand (which convey larger
margins), and at the same time move the
problems arising from common wage policies
out to a network of independent
entrepreneurs.” Improving Workplace Conditions Through Strategic Enforcement: A
report to the Wage and Hour Division, David Weil, Boston University,
May 2010, p. 22.
www.dol.gov/whd/resources/strategicEnforcement.pdf
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Aspects – Joint Liability
Basis for Joint Liability: - if the facts establish that the employee is employed
jointly by two or more employers, i.e., that employment by one employer is not completely disassociated from employment by the other employer(s), all of the employee's work for all of the joint employers during the workweek is considered as one employment for purposes of the Act. In this event, all joint employers are responsible, both individually and jointly, for compliance with all of the applicable provisions of the act, including the overtime provisions, with respect to the entire employment for the particular workweek.
29 C.F.R. § 791.2
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Aspects – Joint Relationship…generally
A joint employment relationship generally will be considered to exist in situations such as: 1) Where there is an arrangement between the employers to
share the employee's services, as, for example, to interchange employees; or
2) Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or
3) Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.
29 C.F.R. § 791.2(b)
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Aspects – Classification Definitions
Employee v. Contractor
Broad definitions favor classification as employee - “Employer” includes any person acting directly or
indirectly in the interest of an employer in relation to an employee . . . (29 U.S.C. 203(d))
- . . . “employee” means any individual employed by an employer. (29 U.S.C. 203(e))
- “Employ” includes to suffer or permit to work. (29 U.S.C. 203(g)).
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Aspects – “Meaning” and Court
Considerations
These definitions broaden “the meaning of ‘employee’ to cover some [workers] who might not qualify as such under a strict application of traditional agency [or contract] law principles.”
In determining whether a worker is an employee covered by the FLSA, a court considers the “economic realities” of the relationship between the worker and the putative employer Schultz v. Capital Int'l Sec., Inc., 466 F.3d 298, 304 (4th Cir. 2006)
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Aspects – Economic Realities Test
Economic Realities Test: - (1) the degree of control that the putative employer has over
the manner in which the work is performed;
- (2) the worker's opportunities for profit or loss dependent on his managerial skill;
- (3) the worker's investment in equipment or material, or his employment of other workers;
- (4) the degree of skill required for the work;
- (5) the permanence of the working relationship; and
- (6) the degree to which the services rendered are an integral part of the putative employer's business.
United States v. Silk, 331 U.S. 704 (1947)
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Joint Employer Liability in Discrimination
Actions: Exposure and Indemnification
Entity may be exposed to liability though it doesn’t
consider itself the employer
Common settings:
1. Staffing agency - its client
2. Franchisor - franchisee
3. Parent – subsidiary
Variety of claims
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Theories of Joint Employer Liability
1. “Joint employer”
Usually applies to unrelated entities that jointly
handle employment relations
Test varies by circuit
2d Circuit test:
a) hiring and firing;
b) discipline;
c) records/payroll/insurance;
d) supervision;
e) collective bargaining process
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Theories (cont.)
2. “Single employer”
Usually applies to related entities, but courts confuse
it with JE theory
Test:
a) interrelation of operations,
b) centralized control of labor rel’ns,
c) common management,
d) common ownership/financial control
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Theories (cont.)
3. Common law of agency
Old test, still frequently applied to employer
liability
Reid factors
Main factor is control over the employee’s work
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4. Joint employer status under the FMLA
A federal regulation creates a special JE theory
for FMLA claims
“Entire relationship” test
JE will ordinarily be found in staffing contexts
Theories (cont.)
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Legal Exposure
Back Pay/Front Pay, including fringe
benefits & pre-judgment interest
Compensatory Damages
Punitive Damages
Injunctive & Affirmative Relief
Attorneys’ Fees
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How to Protect Your Organization
Contractual provisions
Indemnification
Defense
Hold Harmless
Simple statement that entity is not the
employer is unlikely to work
Clause dictates degree of liability of each
party and ability to shift the risk
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Lauren Appel
Michael Barnsback
Daniel Blake
Philip Bonoli
Michael Caldwell
Brian Muse
Joseph Paranac
Thomas Pitegoff
Clint Robison
Lisa Savadjian
Disclaimer
This slide show provides general information and is not legal advice and should not be used or taken as legal advice for specific situations. You should consult legal counsel before taking any action or making any decisions concerning the matters in this show. This communication does not create an attorney-client relationship between LeClairRyan, A Professional Corporation, and the recipient.
Copyright 2015, LeClairRyan, A Professional Corporation. All rights reserved.
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