Recent developments spotlight the risk a business takes in classifying an individual as an independent contractor or an intern. For example, on June 16, 2015, in the case of Uber Technologies, Inc. v. Berwick, Uber appealed the California Labor Commissioner’s conclusion that Uber drivers were employees and not independent contractors. The Labor Commissioner, on June 3rd, had ruled that Uber drivers were employees, as Uber is “involved in every aspect of the operation,” including investigating driver backgrounds, setting fare prices, and determining a non-negotiable service fee to be paid to the drivers. Uber argued that “the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources.” If the Commissioner’s decision stands, Uber will owe all of its California drivers reimbursement for mileage and tolls, plus interest. For Berwick, the single driver in the Labor Commissioner’s decision, this amount was $4,152.
On June 12, 2015, FedEx agreed to a $228 million settlement for misclassifying drivers as independent contractors under California law. Drivers were required to sign “operating agreements” stating they were independent contractors, including language that “no officer or agent or employee of FedEx shall have the authority to direct the driver as to the manner or means employed.” This on its face is strong language for the argument that the driver was an independent contractor. However, the case revealed the details with which drivers must comply with FedEx policy, including grooming standards, the assignment of service areas and schedules, and the requirement of logos and colors on the FedEx trucks. According to the court, the operating agreement gave FedEx “a broad right to control the manner in which the drivers performed their work. The most important factor of the right to control test thus strongly favors employee status.”
This misclassification of employees is a primary focus area of the Department of Labor, Wage and Hour Division. While there are over a dozen factors that agencies and courts can look at in deciding whether a worker is a contractor or an employee, it all boils down to whether the business reserves the right to direct and control the individual in how she or he performs the job task. If the business reserves the ultimate right of control, then in all likelihood the individual should be considered an employee. Historically, a business’ limited right to control a contract worker has aligned with the contract worker’s exercising his freedoms as a freelancer to provide the same services to other businesses and individuals. In other words, a bona fide contract worker looks a lot like a business himself, deciding when he’ll do the work; what tools or materials he’ll use; and what work to accept, both who he will work for and how much work he will perform. However—and here’s where a lot of businesses (though not necessarily Uber or FedEx) get confused—the quantity and the frequency of the work aren’t controlling factors.
Technology has expanded businesses’ ability to parse out work to several strangers instead of one steady employee. This remotely-working, “sheddable” workforce will only continue to expand. Employers are attracted to the workforce because of its reduced overhead; and individuals—including Uber drivers—like the flexibility of deciding, minute-by-minute, whether they’re going to work or not work. If your organization will utilize the services of individuals working remotely or who are “sheddable,” be sure they are properly classed as independent contractors or employees. We will be happy to help you analyze your current classifications and also to advise you about improving business practices or documentation to solidify an independent contractor classification.
A number of college graduates seek unpaid internship positions as a first level of entry into their chosen field. However, this relationship has become highly scrutinized to determine whether the interns in fact are employees. For example, on May 28th, Viacom agreed to a $7.2 million settlement involving claims of 12,500 interns who are entitled to back pay—they were employees, not interns. Ojeda v. Viacom Inc. (S.D.N.Y.). The challenge for employers when utilizing interns is first, does the intern in fact perform the work that would otherwise be done by a regular employee? Second, is the intern part of a bona fide internship program at the employer or if the intern is a student, at the intern’s college or university? Other factors include: Does the internship have a fixed duration? When internships tend to be indefinite, the likelihood increases that the unpaid intern should be treated as a paid employee. Does the overall value of the intern relationship primarily benefit the intern or the employer? Some employers have chosen to discontinue internship programs out of compliance concerns, even if the intern is the child of an employee. If your organization has established or plans to establish an intern program, we can review the process to develop a bona fide internship program that will minimize the risk of a claim for past wages.