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Changes to Independent Contractor Classification in California

While businesses have traditionally subcontracted certain tasks to independent contractors, the on-demand or “gig” economy has seen this practice skyrocket with the business models used by Uber, Lyft, GrubHub, TaskRabbit and many other tech companies. To a limited extent, nonprofits also depend on independent contractors to perform functions where regular staff do not have the expertise, or for temporary or limited projects.

There is little risk when subcontracting is done through a business, such as hiring a temporary worker through a staffing agency where the worker is the employee of that agency. But when a nonprofit is hiring an individual worker to perform tasks that falls within the scope of the nonprofit’s mission, the classification of independent contractor just became much more risky due to the recent California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.

In its lengthy decision, the Supreme Court analyzed the basic public policy objective of the California Wage Orders, which were adopted to establish minimum wage, overtime, and meal and rest breaks for non-exempt employees. The court noted that these laws ensure responsible employers are not hurt by competitors realizing the potentially substantial economic benefits of substandard employment practices (such as non-compliance with minimum wage, overtime, meal and rest breaks, insurance benefits, etc.), that could result in a “race to the bottom.”

After analyzing the definition of “employee” under the Wage Orders, as well as the existing multi-pronged independent contractor test and legal tests used by other jurisdictions, the Court determined that a simplified “ABC” test should be used to evaluate whether a worker is classified as an independent contractor for purposes of California Wage Orders.

So how does this simplified test work? The ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors ONLY IF the hiring business demonstrates that the worker in question satisfies all three of the following conditions:

  • A. – That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • B. – That the worker performs work that is outside the usual course of the hiring entity’s business; and
  • C. – That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

So if the worker meets conditions A and C, but not B, because they are not working outside the usual course of the hiring employer’s business, then the worker must be classified as an employee.

The most difficult prongs of the test to meet for most workers will be prongs B and C, so nonprofits analyzing worker classification should likely start with their mission statement and purpose. If an employee is working to further that mission, then under condition B, that worker is likely an employee and no further analysis is necessary.

Going on to condition C, by way of example, while a plumber or an IT technician are not likely to fall within the mission of a social services nonprofit, whether they are in an independently established trade, occupation or business will need further examination. A licensed plumber in a separate business clearly is, but an IT technician may or may not be. Condition A, who directs and controls the worker in the performance of their work, will always require a case-by-case evaluation.

Finally, remember that this Supreme Court case involved the definition of “employee” for purposes of the California Wage Orders. Different employment laws have different definitions of “employee,” so it is possible that a worker may properly be classified as an employee with reference to one law but not another. Nevertheless, once a worker is classified as an employee for Wage Order purposes, they likely should be similarly classified for all other compliance purposes.

Nonprofits that have workers classified as independent contractors now or over the past three years (the applicable statute of limitations on wage claims) should re-evaluate that classification under this narrowed definition to assess whether there is potential liability for wages or penalties for the work performed.

Changes to CA Marijuana Laws Leave Employers Unaffected

In the 2016 election, California voters passed Proposition 64, which decriminalized the recreational use of marijuana and made California the 8th state where such use is legal. This change came after decades of recreational use being outlawed, and more than 20 years since the decriminalization of medical use with the enactment of the California Compassionate Use Act of 1996. Proposition 64 also created a wide variety of changes in the institutional and cultural treatment of marijuana in the state, including regulation of cultivation, sale, taxing and use, which went into effect on January 1, 2018.

As was encountered with the decriminalization of medical marijuana 22 years ago, changes to the law have created some uncertainty as to how the law affects employer’s ability to control the use of marijuana by employees under Drug-Free Workplace policies. The resolution of any uncertainty begins with the simple reality that, despite the new direction California and several other states have taken, the sale and use of marijuana remains federally illegal. The continued illegality of marijuana under federal law created the necessity for the California Supreme Court to clarify the effect of the medical marijuana law on an employers’ ability to regulate its use and impact in the workplace.

In the 2008 case Ross v. RagingWire Telecommunications, Inc., the Court upheld the termination of an employee who tested positive for marijuana despite their having a valid prescription. The Court noted that the Act only removes criminal penalties for authorized medical use and nothing more. Marijuana use remained illegal under federal law and thus, the use of medical marijuana was not considered the same thing as the use of other “legal” prescriptions. In the 2012 case James v. City of Costa Mesa, the court ruled similarly, finding that because federal law does not authorize marijuana use, users may not seek protection under the Americans with Disabilities Act (ADA) either.

The newer law relating to recreational use does not deviate significantly from these rulings. Proposition 64 specifically states that it does not amend, repeal, affect, restrict, or preempt “the rights and obligations of public and private employers to maintain a drug and alcohol free workplace or require an employer to permit or accommodate the use, consumption, possession, transfer, display, transportation, sale, or growth of marijuana in the workplace, or affect the ability of employers to have policies prohibiting the use of marijuana by employees and prospective employees, or prevent employers from complying with state or federal law.”

What does that mean for California employers and employees? Nothing in Proposition 64 limits the ability of an employer to enforce its marijuana-related policies, including testing current and prospective employees, and/or discipline (including termination) under those policies.

In the midst of the well-publicized changes to California law early this year, another potentially significant event occurred without significant coverage and whose impact has yet to be fully realized or understood. In 2013, then U.S. Deputy Attorney General James Cole sent a memo to federal prosecutors, advising that their efforts should not be devoted to the use or sale of marijuana in states where it had been legalized. It further advised that prosecutors should leave any enforcement efforts to state and local authorities.

On January 4, 2018, three days after the commercial sale of marijuana became legal in California, Attorney General Jeff Sessions rescinded this policy and directed federal prosecutors to enforce federal law regarding marijuana, and to “follow well-established principles when pursuing prosecutions related to marijuana activities”.

While the effect of the new federal enforcement direction remains to be seen, one thing remains clear— the right of employers to maintain and enforce their policies concerning marijuana use remains intact.

4 Ways to Show Your Nonprofit Employees That You Care This Holiday Season

We’ve all heard the narrative of the overworked nonprofit employee, who prioritizes their organization’s cause to the point of personal burnout. It’s true that burnout is common in the nonprofit sector, and during the holiday season it’s even more likely, with travel, familial responsibilities, last-minute gift shopping, and tight budgets on the minds of many.  Add in other stressors like an increased workload as a result of co-workers taking time off and children who are out of school, and you’ve likely got one exhausted employee.

Unfortunately, high levels of stress often lead to decreased productivity, absenteeism, and workplace accidents. So how does your nonprofit keep its employees engaged when they’ve got so much on their minds, and you’ve got a budget to adhere to? Rather than continuing on with business as usual, try celebrating the holidays by celebrating your employees! Below are four cost-effective ways to boost morale and show your employees that you care this holiday season.

1. Plan a Holiday Party

A holiday celebration gives employees something fun to look forward to, and it doesn’t need to be expensive! A holiday party can be anything from an all-staff dinner at a local restaurant to something as simple as a shortened workday followed by a potluck. There are also many alternatives to the traditional office party, including an ugly sweater day or even a white elephant game.

2. Show Flexibility with Scheduling

While it may not always be possible, showing your employees some flexibility during the chaotic holiday season can have a major effect on their stress levels. If staffing permits, choose a day to allow employees to leave a little early, or show greater flexibility with regard to time-off requests. Your employees will appreciate the consideration when it comes to their busy schedules, and the extra time can contribute to a better work-life balance.

3. Give Out Personalized Cards

Personalized thank you cards written out to each employee are a great way to show that you care without spending a lot. Just letting your employees know that you appreciate them each individually, enough to write and give them a card, speaks volumes.

4. Organize a Staff Volunteer Effort

Volunteering during the holidays is a great way to feel good and to make a difference in the community, bringing the focus of the holidays back to those that are less fortunate. Try organizing a volunteer effort separate from your nonprofit’s cause, such as a food or gift donation drive. You could also organize a half-day away from the office to spread holiday cheer at a local homeless shelter or hospital. Getting out of the office and doing something good as a group not only boosts morale, but it’s also great for team building!

While we like to think of this time of year as happy and joyous, it can often be stressful too. Showing understanding and taking steps to demonstrate that employees are both seen and appreciated goes a long way.

Does My Organization Really Need an Employee Handbook?

Despite the fact that there are no state or federal laws that require an employer to have and provide handbooks to their employees, it’s almost universally agreed that having and using a well-drafted, comprehensive, and easy to understand handbook serves a number of legal, practical, and risk preventative purposes, and nonprofits are no exception.

Ideally, handbooks not only provide clear and specific information on a large number of important topics to employees, about both their employment and their employer, but they also provide specific notices to the employee about their rights. These often include rights to any job-protected leave, communication of zero-tolerance policies, information on employee benefits, and much more. If applicable, the handbook is also used to establish and clarify the at-will nature of the employment relationship, performance and disciplinary expectations, and policies on vacation and holiday benefits.

However, even well-crafted handbooks can be victims of the passage of time, as well as changes that take place in the law and in the workplace. Regulatory and legislative action can change what an employer is required to do with regard to their employees — often without time to adequately prepare for that change. In their efforts to remain compliant with these changes, employers should be prepared to revise and update any applicable policies in their handbook to reflect new legal realities.

Similarly, if an employer has always had fewer than 50 employees and later increases their workforce to 51 employees, they would then become subject to a number of new laws. The best example would be the fact this employer, who once was not subject to the Family Medical Leave Act (FMLA) leave laws, would now be required to provide their employees FMLA.  In this case, the handbook that never needed an FMLA policy would have to be revised to ensure employees were aware of their newly acquired rights.

Thus, by their very nature, employee handbooks should never be considered “carved in stone.”  They should be reviewed on a regular basis, annually at a minimum. This review should be performed by experienced employment law counsel to ensure that any and all recent legal and workplace developments are taken into consideration in the review and revision process.

 

Overbroad Employee Confidentiality Agreements

Many employers require employees to sign a Confidentiality Agreement regarding certain data and information that the employee will have access to in the course and scope of their employment. There are certain types of employer data that must be maintained as confidential such as:

  • Client identification or personal health information under the federal Health Insurance Portability and Accountability Act (HIPAA);
  • Personally identifiable information (PII), such as donor names and credit card numbers or employee addresses and social security numbers under privacy and state confidentiality laws.

Additionally, general business information that an employer needs to keep confidential for business reasons to maintain a competitive advantage such as business plans, financial resources, funding sources or customer lists falls within the definition of trade secrets and can be maintained as confidential.  Protecting this data is simple, right? You just have employees sign a broad confidentiality agreement, and that’s that!

Like many areas of employment law, it’s not that simple. In a recent decision of the Second Circuit Court of Appeals, which covers New York, Connecticut and Vermont, the court held that a non-union nonprofit organization violated the National Labor Relations Act (NLRA) by promulgating an unlawful confidentiality agreement and terminating an employee for his refusal to sign the agreement.  The agreement required employees to maintain confidential information protected by HIPAA, but went beyond that and “strictly prohibited” employees from disclosing information with respect to all “non-public information intended for internal purposes,” including ”administrative information such as salaries and the contents of employment contracts.”  The policy also prohibited employees from being “interviewed by any media source, or answering any questions from any media source regarding their employment” or “other workings and conditions” of the employer without the employer’s consent.

When an underperforming and problematic employee was ultimately terminated for his refusal to sign the agreement, he filed an unfair labor practice charge with the National Labor Relations Board (NLRB). Citing the longstanding NLRB rule that discipline imposed pursuant to an unlawfully overbroad employer policy is unlawful, the NLRB, as affirmed by the court on appeal, determined that the termination was unlawful even though in this instance the employee was acting alone. All employees covered by the NLRA, regardless of whether they are unionized, have the right to engage in what is considered “protected concerted activity” under that NLRA, and discipline based on any policy that restricts concerted activity is unlawful.  While a confidentiality policy could prohibit HR or accounting staff from discussing the salaries of other employees, such a policy could not prohibit employees discussing their own compensation rate, or asking their coworkers to discuss this compensation.

Nonprofits should review any confidentiality policies or agreements to make sure that employees covered by the NLRA are not restricted in their ability to discuss or reveal information that involves the terms and conditions of their employment or their rights to engage in protected concerted activity, which would include discussions with co-workers or third parties such as the traditional or social media.

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