Nonprofits Insurance Alliance

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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.

Accommodating Mental Health in the Workplace

The Americans with Disabilities Act (ADA), and many state laws, afford protections for employees with disabilities to promote equal employment opportunities, both in the application process and during employment. These protections include prohibiting discrimination and retaliation on the basis of disability, and require that employers provide reasonable accommodations to enable individuals with disabilities to perform essential job functions, providing equal benefits and privileges of employment. Conversations around accommodations typically focus on physical, apparent disabilities, but over time, the need to address mental health has expanded this focus.

Over the past 15 years, the disability discrimination filings with the Equal Employment Opportunity Commission (EEOC) involving mental health conditions have increased significantly. For example, in 2002 there were no complaints logged for post-traumatic stress disorder, but by the end of 2017, 1,177 complaints had been filed. Disability discrimination complaints involving anxiety increased from 649 in 2002, up to 2,196 in the last year alone. It is no wonder why so much attention is being placed on accommodating mental health in the workplace and in protecting applicants and employees from discrimination or retaliation as a result of mental health issues.

Mental health conditions under the law are treated no differently than physical health conditions. Employers therefore are required to engage in the interactive process to accommodate individuals with mental health disabilities just as they would expect to for someone with a physical disability. So, while oftentimes a disability is thought of as something that manifests through physical limitations and is easily identifiable, employers must also consider the unseen conditions that affect mental health in the workplace.

Some examples of mental health issues that employers may need to accommodate include anxiety disorders, panic disorders, bipolar disorder, depression, post-traumatic stress disorder (PTSD), schizophrenia and adjustment disorders. Mental health issues that do not require accommodations include those that manifest as illegal conduct (e.g. illegal drug use, certain sexual disorders and kleptomania).

Because mental illness affects everyone differently, even two individuals suffering from the same diagnosis, it is critical to engage with employees on an individualized basis. There is no one-size-fits-all approach, but rather, it is important to understand specific limitations. Accommodating a mental health condition will require creativity, in addition to regular monitoring to ensure the chosen accommodation is effective.

Common accommodations for mental health disabilities may include altering break schedules or schedules to accommodate therapy appointments, moving an employee to a quiet area, allowing headphones in the office, and/or modifying supervisory approaches (e.g., providing written feedback rather than verbal conversations). Employers are not required to lower production standards, reduce performance expectations, excuse conduct violations (job related and consistent with business necessity), remove essential functions, monitor medication, or employ an accommodation that would result in undue hardship to the organization. Employers need not accommodate the inability to get along with others, violent outbursts or behavioral problems.

Additionally, safety is of paramount concern and employers need not accommodate where there is a significant risk of substantial harm to the employee or others, and where the risk cannot be reduced or eliminated through reasonable accommodations.

When dealing with a mental health disability, employers may obtain reasonable documentation of the disability and need for accommodation, but may not request a diagnosis or more information than is necessary to determine there is a disability and need for accommodation. Employers providing mental health services to clients are cautioned against acting as mental health professionals for their employees.

Overall, employers should follow the same process for accommodating mental health disabilities as they do for physical disabilities. Additional resources are available through the EEOC at www.eeoc.gov.

When #MeToo Comes to the Nonprofit Workplace

It’s hard to ignore the plethora of revelations of sexual harassment incidents involving well-known public figures being revealed in the news recently.

It’s also difficult to ignore the grassroots social movement that resulted – the #MeToo campaign, originally started by consultant, blogger and advocate Tarana Burke over 10 years ago, and recently popularized with a tweet by actress Alyssa Milano that garnered more than 35,000 direct responses on its first day. From there, the hashtag quickly spread across multiple social media platforms and grew immensely in participation, with individuals all over the world chiming in to share their stories of harassment and assault, or simply posting #MeToo. To say the trend is viral is an understatement – people are speaking up, and they’re doing so publicly.

What you may not know is that the number of harassment complaints nonprofits have been receiving has increased as well. These complaints run the gamut from anonymous emails reporting decades old alleged transgressions to the reporting of current serious ongoing harassment of current employees by their supervisors. Sexual harassment is a serious issue and it is incumbent upon every nonprofit to do what it can to minimize the risk of these types of incidents from occurring.

At the Nonprofit Insurance Alliance Group, we have many free tools to assist our members in addressing these risks. The following resources are available to our nonprofit members when faced either with a current complaint of sexual harassment in the workplace, or to educate your workforce in mitigating the potential risk of sexual harassment becoming an issue.

  • Free recorded webinar on Preventing Sexual Harassment and Abuse Conduct in the Workplace, which can be accessed
  • Free recorded webinar on Conducting Internal Investigations, which can be accessed
  • Members with a current Directors and Officers policy (which includes Employment Practices Liability) can take advantage of free unlimited Employment Consultations. Labor & Employment Risk Managers (LERMS) can assist members in understanding best practices for establishing a harassment free workplace, including sample policies and recommended training; the processing of a complaint of harassment, including internal or external investigation and assessing risk; and possible steps to remedy the situation. Information on how to request a consultation can be found here.
  • Free Sexual Harassment Prevention Training for Supervisors, available for nonprofit members in Connecticut and California where such training is legally mandated. Additional information can be found here.
  • Training brochures for nonprofit staff working with youth, entitled “Supervision of Children and Teens Never Includes Sex,” which is available

In addition to these resources, you should confirm with your nonprofit’s insurance broker that you have sufficient Employment Practices Liability (EPLI) insurance coverage under a Directors & Officers (D&O) insurance policy, and/or Improper Sexual Conduct (ISC) coverage, if you are exposed to risk in this area.

Making these tools available should help create a healthy and respective environment at your nonprofit, minimize the likelihood of a #MeToo incident from occurring, and assist you in responding if such an incident does occur.

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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