DOL Withdraws Independent Contractor and Joint Employer Guidance

DOL’s Withdrawal of Independent Contractor and Joint Employer Guidance Signals Shift Under Trump Administration (But Massachusetts Employers Should Not Rest Easy)

On June 7, 2017, the United States Department of Labor withdrew with immediate effect two interpretive guidances issued during the Obama Administration, one dealing with the definition of independent contractor under the Fair Labor Standards Act (“FLSA”) (Administrator’s Interpretation No. 2015-1), and the other dealing with what it means to be a joint employer under the FLSA and the Migrant and Seasonal Agricultural Workers Protection Act (Administrator’s Interpretation No. 2016-1).

Both guidances broadened the protections afforded workers under the FLSA. Interpretation No. 2015-1 reinforced the DOL’s reliance on the “economic realities” test to conclude that most workers should properly be classified as employees rather than independent contractors. Similarly, Interpretation 2016-1 provided that the concept of joint employment “should be defined expansively.”

In its press release announcing the withdrawal, the DOL cautioned that employers’ legal responsibilities under the FLSA have not changed, “as reflected in the Department’s long-standing regulations and case law.” It remains to be seen, though, whether the DOL will continue to focus its attention on these particular issues the way it did under the previous administration. Given the current administration’s eagerness to roll back policies implemented by its predecessor, continued attention seems unlikely.

However, at least with respect to independent contractors, Massachusetts employers should not rejoice just yet. The Massachusetts Independent Contractor Statute (G.L. c. 149, § 148B), first enacted in 1990, remains the law of the land for employers in the Commonwealth. Under this statute (last amended in 2004), a worker is presumed to be a W2 employee unless each prong of the following three-part test is satisfied:

Prong One:  Freedom From Control

The worker must be free from direction and control in connection with the performance of services, both under their contract and in fact. An actual independent contractor performs their services using their own approach, dictating when and how the work will be accomplished, and with minimal direction from the party receiving the services.

Prong Two:  Service Outside the Usual Course of the Employer’s Business

The service the worker performs must be outside the usual course of the employer’s business. For example, a “contract” attorney engaged by a law firm to perform document review is engaged in the usual course of the law firm’s business and, thus, would not satisfy this prong of the test. On the other hand, a plumber hired to repair a leaky faucet in the law firm’s office would satisfy this prong because the law firm is not engaged in the plumbing business.

Prong Three:  Independent Trade, Occupation, Profession, or Business

The worker must be customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service being performed. If the worker must depend on a single employer for the continuation of the service performed, they will be found to be an employee, not an independent contractor.

The second prong of the three-part test makes it all but impossible for a Massachusetts employer to lawfully engage an individual as a true independent contractor when the services being performed by the individual fall within the usual course of the employer’s business, even when the individual satisfies the first and third prongs of the test.

In many cases, employers engage independent contractors to augment their workforce to meet production or service demands without realizing they are running afoul of the Independent Contractor Statute. Other employers intentionally use independent contractors to get around payroll taxes, workers’ compensation, and other benefits obligations. Regardless of the reason or intent, an employer will be in violation of the Independent Contractor Statute whenever the would-be independent contractors are performing services that fall within the employer’s usual course of business.

An employer found in violation of the Independent Contractor Statute is subject to treble damages and reasonable attorneys’ fees resulting from the misclassification and violation of one or more of the following:

  • The Wage Act
  • The Minimum Wage Law
  • The Overtime Law
  • Laws requiring employers to keep accurate payroll records
  • Tax withholding laws and regulations
  • The Workers Compensation Act

(See Lauren Corbett’s June 28, 2017 post on the Supreme Judicial Court’s recent decision regarding prejudgment interest on damages awarded for Wage Act violations).

More information regarding the Independent Contractor Statute can be found in the Attorney General’s 2008/1 Advisory.

The bottom line with respect to independent contractors in Massachusetts is that, while the U.S. Department of Labor may no longer be as concerned about employers classifying workers as independent contractors rather than employees, the Massachusetts Attorney General’s Office and a host of plaintiff-side employment lawyers certainly are. Massachusetts employers concerned about how they are classifying their workers should consider conducting an audit to determine whether their workers are properly classified under Massachusetts law.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Massachusetts SJC Takes Interest in Wage Act Claims

On June 26, 2017, the Massachusetts Supreme Judicial Court issued its decision in the case of George, et. al. v. National Water Main Cleaning Company, which addressed the question of whether statutory prejudgment interest is available for claims brought under the Massachusetts Wage Act. The underlying case involved a class action brought by a group of employees against their employer for nonpayment of wages. The SJC, which heard the case as a certified question of law from the United States District Court for the District of Massachusetts, held that interest should be added to the amount of lost wages and other benefits awarded as damages, but not to the additional amount of the award arising from the trebling of damages under the statute.

In issuing its decision, the Court considered the legislative history of the Wage Act and its damages provisions. In particular, it noted that in 2008, the statutory interest language was amended to make treble damages mandatory as “liquidated damages.” The debate between the parties was whether the characterization of the damages as “liquidated” precluded the application of statutory prejudgment interest. The Court found that it did not, holding that to interpret “liquidated” in a way that would preclude prejudgment interest would be to impliedly repeal the interest statutes. Instead of taking such a drastic measure, the Court found that the two statutes could be read in harmony by applying prejudgment interest only to the portion of the award reflecting lost wages and benefits, not to the portion reflecting liquidated damages.

Although the Court’s holding means employers won’t be hit with interest on the treble damages portion of a Wage Act claim, Massachusetts employers should still take great care to comply with the requirements of the Wage Act in order to minimize potential liability.

– Lauren Corbett

blf-badge-2017Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

 

 

Not So Fast! Texas Court Orders Nationwide Halt to New Overtime Rule

In a month filled with unpredictability and unforeseen surprises, a federal judge in Texas has just issued another shocker that creates substantial uncertainty as to whether and when the United States Department of Labor’s (“DOL”) new Overtime Rule may go into effect.  On November 22, 2016, U.S. District Judge Amos Mazzant III issued a nationwide preliminary injunction temporarily blocking the new Rule from taking effect on December 1, 2016.  As highlighted in our September 22, 2016 post, a coalition of 21 states and a separate group of more than 50 chambers of commerce and other trade associations filed separate lawsuits in the Eastern District of Texas seeking to prevent the Obama administration from implementing the Overtime Rule.  Focusing on the anticipated economic harm to businesses of all sizes and states in their capacity as government employers, both lawsuits sought declarations that the DOL unlawfully exceeded its statutory authority in promulgating the new Rule, which, among other things, called for increasing the annual salary threshold for exempt employees from $23,660 to $47,476, thereby making an estimated additional 4.2 million U.S. workers eligible to receive overtime.  Both lawsuits sought injunctive relief to prevent the Rule from taking effect on December 1.

Defying the general consensus that the two lawsuits had little chance of succeeding, Judge Mazzant issued the injunction, finding in part that Congress never intended that the “white collar” exemptions set forth in the Fair Labor Standards Act included a minimum salary requirement, but instead depended on the duties performed by the particular employee. Judge Mazzant has now put the Overtime Rule on ice, prohibiting the DOL from “implementing and enforcing” it. A copy of the decision can be found here.

In response to the decision, the DOL issued the following statement:

We strongly disagree with the decision by the court, which has the effect of delaying a fair day’s pay for a long day’s work for millions of hardworking Americans. The department’s overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule. We are currently considering all of our legal options.

While the DOL says it is still considering all of its options, it almost certainly will appeal Judge Mazzant’s decision to the Fifth Circuit. However, an appellate decision may not be handed down before December 1st. This timing does little to provide answers to employers, who are now thrown into a zone of uncertainty. For those employers that have already restructured their compensation systems to comply with the new Rule––and communicated such changes to their employees––it may not be feasible or make business sense to press the “re-set” button and return to their previous systems. Employers that have not yet made changes may decide to maintain the status quo pending a final decision on this issue, which may mean waiting for the Supreme Court to make the ultimate decision. Of course, how this all plays out under the new Administration and the Republican-controlled Congress remains to be seen.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Two Lawsuits Challenge New DOL Overtime Rule

Four months after being formally announced on May 18, 2016, and a little more than two months before it is scheduled to become effective on December 1, 2016, the United States Department of Labor’s (“DOL”) new Overtime Rule has come under a two-pronged attack in federal lawsuits filed in the Eastern District of Texas. A coalition of 21 states and a separate group of more than 50 chambers of commerce and other trade associations filed separate lawsuits on September 20, 2016 seeking to prevent the Obama administration from implementing the Overtime Rule.

As previously noted on this site, the new Overtime Rule increases the annual salary threshold for exempt employees from $23,660 to $47,476. This means that employees who perform duties that otherwise make them exempt from overtime under the “white collar” exemptions set out in the Fair Labor Standards Act, but who earn less than $47,476 per year (or $913 per week), must be paid one-and-a-half times their regular hourly rate for all hours worked beyond 40 in a work week. The new Rule also increases the annual salary threshold for “highly compensated employees” from $100,000 to $134,004. Lastly, it calls for automatically increasing these salary thresholds every three years, beginning on January 1, 2020. The DOL has estimated that under the new Rule, an additional 4.2 million workers in the United States will be eligible to receive overtime – amounting to $1.2 billion in increased wages – in the first year.

Focusing on the anticipated economic harm to businesses of all sizes and to states in their capacity as government employers, both lawsuits seek declarations that the DOL unlawfully exceeded its statutory authority in promulgating the new Rule and injunctive relief to prevent the Rule from going into effect on December 1.

The Eastern District of Texas is known to have a “rocket docket,” processing cases at a rapid pace. However, employers should not sit on their hands in the hope that the judge (who is presiding over both cases), rules in the plaintiffs’ favor before December 1. Unless and until Congress or a court determines that the new Overtime Rule should not become effective in its current form, employers should continue to work toward complying with the new Rule by the December 1 deadline.

Please feel free to contact any of Beck Reed Riden LLP’s employment attorneys with questions regarding this issue.

Massachusetts Governor Signs New Pay Equity Bill Into Law

On August 1, 2016, Massachusetts Governor Charlie Baker signed into law a bill replacing the state’s existing Equal Pay Act (M.G.L. c. 149, § 105A), which was first enacted in 1945. The new Act clarifies the concept of “comparable work” and expressly prohibits employer conduct that – intentionally or unintentionally – has historically contributed to the wage gap between male and female employees.

The new Act prohibits all employers from discriminating “on the basis of gender in the payment of wages, including benefits or other compensation, or pay[ing] a person a salary or wage rate less than the rates paid to employees of a different gender for comparable work.” The new Act clarifies the concept of “comparable work” by defining it as “work that is substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions.” An employee’s job title or job description, by itself, will not determine comparability. Variations in compensation and benefits are not prohibited if based upon a bona fide seniority or merit system; a system under which earnings are measured by quantity or quality of production or sales; geographic location; education, training, or experience, provided such factors are reasonably related to the job and consistent with business necessity; or travel, if the travel is a regular and necessary condition of the particular job.

The new Act also expressly prohibits employers from engaging in the following:

  • Forbidding employees from inquiring about, discussing, or disclosing information about either their own compensation and benefits or those of other employees (already prohibited under the National Labor Relations Act);
  • Screening applicants based on their compensation and benefits or salary histories, including by requiring that an applicant’s prior compensation and benefits or salary history meet minimum or maximum criteria;
  • Requesting or requiring an applicant to disclose prior wages or salary history;
  • Seeking an applicant’s salary history from a current or former employer before making a job offer and without the applicant’s written authorization; and
  • Retaliating against an employee for opposing any act prohibited under the new law or participating in any action to enforce rights under the law.

The new Act also broadens the remedies available to aggrieved employees. It increases the statute of limitations from one year to three and creates a continuing violation provision under which a new limitations period will be triggered each time an employee is paid in violation of the law (similar to the federal Lilly Ledbetter Fair Pay Act of 2009). Employees may file an action directly in court, without having to first file with the Massachusetts Commission Against Discrimination or the Attorney General’s Office. Employers found to be in violation of the new law are automatically liable for double damages and reasonable attorneys’ fees. The Attorney General may also bring an action on behalf of one or more aggrieved employees.

Finally, the new Act creates an affirmative defense for an employer who, within three years of the commencement of an action, has completed a good faith self-evaluation of its pay practices and can demonstrate that reasonable progress has been made towards eliminating gender-based pay differentials in accordance with such evaluation. An employer may design its own self-evaluation as long as it is reasonable in detail and scope in light of the employer’s size. Employers may also utilize templates and forms to be issued by the Attorney General’s Office.

The new Act does not become effective until July 1, 2018. This gives employers plenty of time to review their current pay practices and make any changes necessary to comply with the new statutory requirements. Beck Reed Riden’s experienced employment lawyers are available to assist employers with this task.

DOL Issues Revised Overtime Regulations

The moment employers have anxiously anticipated for months is here. This morning (May 18, 2016), President Obama and United States Department of Labor (DOL) Secretary Tom Perez announced the publication of the DOL’s long-awaited revised federal overtime regulations. The DOL has highlighted the following key aspects of the revised regulations:

  1. The standard salary level for the Executive, Administrative, and Professional exemptions will increase from $23,660 to $47,476 per year. While this new level is lower than the originally anticipated $50,440, the increase nonetheless effectively doubles the previous salary threshold and will have a significant impact on employers’ exempt workforces. Indeed, the DOL estimates that the new salary level will make 4.2 million employees newly eligible for overtime pay.
  1. Employers will be able to satisfy up to 10% of the standard salary level through nondiscretionary bonuses and incentive payments including commissions, as long as such payments are made in accordance with the new regulations. Many employers have commissioned workforces and this provision could help them to cushion, albeit minimally, the impact of the increased salary level.
  1. The total annual compensation required for an employee to be considered exempt as a Highly Compensated Employee, will increase from $100,000 to $134,004.
  1. The revised regulations also contain a mechanism by which these salary and compensation levels will automatically update every three years beginning on January 1, 2020.
  1. Although many sources had anticipated that employers would be provided with only a 60 or 90-day compliance period, the effective date is not until December 1, 2016. This effective date provides employers with significantly more time than originally expected to bring their pay practices into compliance.

Given these changes, employers have approximately six months to analyze their exempt workforces and determine how best to comply with the new revisions. Initial guidance for employers from the DOL is available here. This will undoubtedly be a labor-intensive process that will require significant changes for many employers. We at BRR look forward to working with you on these issues in the coming months.

Thanks to my colleagues Nicole Daly and Shannon Lynch for putting this post together!

SJC Finds LLC Managers Individually Liable Under Massachusetts Wage Act

On June 13, 2013, the Massachusetts SJC issued its decision in Cook v. Patient EDU, LLC (SJC–11272), holding that a manager of a limited liability company (“LLC”) may be held individually liable under the Massachusetts Wage Act (G.L. c. 149, §§ 148, 150) the same way that the president, treasurer, or other officers with management responsibilities of a corporation may be held individually liable.

In Cook, the plaintiff sued his former employer – an LLC – and its two managers for unpaid wages under the Wage Act. The Act requires “[e]very person having employees in his service” to pay those employees their wages on either a weekly or bi-weekly basis, or on a less frequent basis in certain circumstances. Violation of the Act results in mandatory treble damages and the award of reasonable attorneys’ fees and costs to the successful plaintiff. The Act provides that the president and treasurer of a corporation, as well as “officers or agents having the management ” of the corporation, “shall be deemed to be the employers of the employees of the corporation within the meaning of this section.” G.L. c. 149, § 148. Similarly, the Act imposes individual liability on “‘[e]very public officer whose duty it is to pay money, approve, audit or verify pay rolls, or perform any other official act relative to payment of any public employees’ who fails to do so.” This means that individuals in those roles may be held personally liable for violations of the Act, including for treble damages, attorneys’ fees, and costs.

In moving to dismiss the plaintiff’s complaint against them, the two managers argued that because the Act does not specifically mention managers of LLCs, they could not be held individually liable for failing to pay the plaintiff his wages. The Court rejected the managers’ argument. It refused to read the language of the Act as “an effort to single out for individual liability only the officers or managers of the specific types of entities mentioned in the statute.” Instead, the Court wrote, “We discern from the inclusion [in the Act] of the provisions regarding corporate and public officer liability a clear legislative intent to ensure that individuals with the authority to shape the employment and financial policies of an entity to be liable for the obligations of that entity to its employees.” The Court concluded that the legislative purpose of the Act would not be served by holding officers and agents of a corporation liable for failure to pay wages but not managers of an LLC, who likewise control the policies and practices related to the timely payment of wages to employees. “To interpret G.L. c. 149, § 148, so as to distinguish between such actors would produce a result at odds with the intent of the statute.”

While not necessarily a shocking result, Cook clarifies an issue that has been the subject of opposing decisions in the superior court. With Cook, there is no longer any doubt that the Massachusetts Wage Act imposes individual liability on managers of an LLC and other limited liability entities. Individuals in these types of roles must recognize their exposure in the event the LLC itself is unable to pay a damages award. This is yet another reason why employers – and their most senior leaders – must insure that they are complying with the strict requirements of the Wage Act.