It’s been an exciting few weeks for us employment law geeks. In particular, we’ve seen big developments in California, New York state, and Philadelphia. Even if you aren’t doing business in any of these locations, it would be a good idea to pay attention — things that go on in these large, influential jurisdictions often have a way of filtering through to other areas of the country.
So let’s take a closer look:
Independent Contractors in California
The California Supreme Court has made it more difficult (to put it mildly) for employers in that state to classify workers as independent contractors.
First, a bit of background: since 1989, thanks to the decision in a case known as Borello, employers have been able to use a standard called “totality of circumstances” when assessing whether a worker should be classified as an employee or could be considered an independent contractor (IC). This standard focuses on the degree of control the employer has over how the worker does their job.
In a recent class-action case, Dynamex Operations W. v. Superior L.A. County, a suit was filed on behalf of a group of delivery drivers claiming they’d been misclassified as ICs by Dynamex when they were really employees. It’s important to note that the drivers provided their own vehicles, paid their own vehicle expenses, set their own schedules, and were allowed to work for other delivery companies.
Sounds like a classic IC situation, right?
Well, the Calfornia Supreme Court didn’t see it that way. They ruled in favor of the drivers. According to the court, workers are presumed to be employees unless their employer can prove that all three of these factors are true:
- The worker is sufficiently free of control and direction from the company; AND
- The worker performs labor that is outside the usual scope of the company’s business; AND
- The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
So, for instance, if a software development company hires a freelance plumber to install a water line to the new sink in their upgraded break room, the plumber would almost certainly be classifiable as an IC.
In this case, since the company is a delivery company and the workers are delivery drivers, the company was tripped up by the second prong of the test. In addition, the court said it wasn’t enough that Dynamex allowed the drivers to work for other companies; they had to prove that their drivers actually did perform work for other organizations.
Why this matters: As the ruling currently stands, most “gig economy” companies — such as Uber, Lyft, GrubHub and others — will likely not be able to classify their workers in California as ICs. They, too will run afoul of the second prong of the three-part test.
It’s not hard to understand why the state would prefer more workers to be classified as employees. When workers are classified as ICs, employers are not required to withhold and remit income tax from the workers and the companies don’t pay into the unemployment insurance fund on workers’ behalf.
While this doesn’t immediately affect workers or companies in other jurisdictions, California is a big state with lots of workers. Companies may decide to make changes nationwide rather than running under one set of rules for California and another for everyone else. Also, many other states have the same concerns as the state of California about the effect on state budgets if too many workers in the state are classified as ICs versus employees. It would pay employers to keep an eye on this issue, as other jurisdictions might follow California’s lead and make it more difficult to classify workers as ICs.
This is just one more reason why it’s a good idea to always track worker time, even for ICs. If they get reclassified, you’ll need to be able to prove they’ve been paid at least minimum wage for all hours worked — and without records of when they worked, how will you be able to show this is true?
Anti-Harassment Law in New York
New York State Governor Andrew Cuomo signed into law budget legislation on April 12, 2018. What makes this budget legislation particularly interesting is that it included several anti-sex harassment measures. What does that have to do with the state budget, you ask? I can only answer with the famous saying, “Laws are like sausages. It’s better not to see them being made.” (Attributed to, variously, Mark Twain, Otto von Bismarck and John Godfrey Saxe, among others.)
These are the major provisions included in the law:
- Mandatory annual sexual harassment training and a written anti-harassment policy (takes effect October 9, 2018)
- Expansion of sexual harassment protections to non-employees, such as contractors, vendors and consultants (takes effect immediately)
- Prohibition of non-disclosre clauses in settlement agreements, unless the complaining party prefers non-disclosure (takes effect July 11, 2018)
- Prohibition of mandatory arbitration clauses that apply to sexual harassment claims, except where this is inconsistent with federal law (takes effect July 11, 2018)
- State contract bidders must certify they’re in compliance with the above requirements (takes effect January 1, 2019)
Why this matters: In light of the #MeToo movement and other initiatives, this is an issue that all employers in the USA should probably have on their radar. Whether it’s provisions slipped into a budget bill or a separate piece of legislation, it’s likey that your state or town may soon be considering (and possibly passing into law) anti-harassment legislation if they haven’t started already.
Philly’s Salary History Ban Ruled (Partially) Unconstitutional
In January 2017, Philadelphia enacted an ordinance barring employers in the city from inquiring of job applicants about their salary history, and prohibiting employers from using wage history “at any stage in the employment process” to determine the employee’s pay.
The Philadelphia Chamber of Commerce sued to blog the implementation of the ordinance. They said it violated the First Amendment’s free speech clause.
On April 30, federal judge Michell S. Goldberg issued his ruling.
Judge Goldberg agreed with the Chamber of Commerce that first provision of the ordinance, prohibiting asking about salary history, is a violation of the First Amendment. He ruled that such questions are “commercial speech.” Commercial speech is generally subject to less protection than “normal” speech. However, while he noted that a gender pay disparity does exist, and that the city “has a substantial interest in promoting wage equity and reducing discriminatory wage disparities,” he didn’t find sufficient proof that limiting the free speech rights of employers by prohibiting asking the question would fix the situation.
On the other hand, Judge Goldberg found that the second provision of the law did not involve “speech.” Instead, it addressed employers’ actions. And, as such, it was not unconstitutional, and he would allow it to take effect as scheduled.
(Note that it’s likely one — or both — parties will appeal this decision, so the final word may not yet have been spoken on the issue.)
Why this matters: First, the ruling as it stands puts Philadelphia employers in an awkward position. They can ask job applicants about their salary history. But if they decide to hire the applicant they can’t use that information in any way to set or influence the employee’s salary — and they have to be able to prove that they didn’t use it. (Very difficult to do once you’ve asked the question. If you didn’t intend to use the information, then why did you bother asking in the first place? As one expert put it, it’s nearly impossible to “unring that bell.”)
Which means that — while prospective employers may have the right to request salary history from job applicants — it’s probably safer for them not to ask.
Thing is, Philly isn’t the only place to enact prohibitions on compensation history inquiries. Similar bans are in place in California, Delaware, Massachusetts, New Your, Oregon, San Francisco, and New York City, and they’re being considered in other jurisdictions.
In a recent ruling by the 9th U.S. Circuit Court of Appeals, the court decided salary history is not a “legitimate, job-related factor” that can be used to justify paying one employee less than another. Legitimate job-related factors, according to the court, include such things as experience, education, ability, and prior job performance. This ruling applies to employers doing business in Alaska, Arizona, California, and Hawaii. The 10th Circuit and the 11th Circuit have ruled that salary history can be considered, but only in conjunction with other factors. It can’t be used as the only factor to justify paying one employee less. Together these two courts cover Alabama, Colorado, Florida, Georgia, Kansas, New Mexico, Oklahoma, Utah, and Wyoming. And the 7th Circuit, which covers Illinois, Indiana, and Wisconsin, decided that salary history can be considered as a “job-related factor other than sex” when deciding on employee compensation.
So right now we’ve got a mish-mash of laws and decisions and pending appeals, and whether you can use salary history as a factor in determining your salary offer to a new hire depends very much on where you’re located. Most of the experts I’ve read say the safest course of action is to simply not ask about compensation history. That way, there’s no question about whether you relied on it, or even used it a teensy-tiny bit. You’re usually on solid ground when you use factors like experience, skills, job performance, and educational background / certifications as the basis for employee compensation. Salary history? Maybe not so much.
It’s a fast-changing world out there. Have you run into any of these issues in your organization? How are you handling them?