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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.

Background Checks and Ban the Box in California

Historically, it has not been uncommon for risk-adverse employers to adopt policies prohibiting the hiring of applicants with a criminal history. Given that one in seven Americans has some sort of criminal history, numerous states and local jurisdictions are passing legislation that makes it more likely employers will consider these applicants. Increased employment opportunities have been shown to reduce the likelihood of recurring offenses for workers with a criminal record, and help these individuals re-integrate into our communities.

Key to these legislative efforts are “Ban the Box” laws, which generally prohibit employers from inquiring about criminal history on the employment application. Nine states and more than 15 cities have adopted Ban the Box laws that apply to private sector employers, with many more jurisdictions applying these laws to government contractors.

California jumped on the ‘Ban the Box’ bandwagon with Assembly Bill 1008, effective January 1, 2018. Modeled after the City of Los Angeles’ Fair Chance Ordinance, this new California law prohibits employers with five or more employees from inquiring about criminal history until a conditional offer has been made. Ban the Box laws don’t prohibit employers from considering criminal history, but rather create a process establishing the timing of when the criminal history can be considered. There are limited exclusions under California’s Ban the Box law, including for positions where an existing law requires criminal background clearance.

Under the California Ban the Box law, an employer must make an individualized assessment of whether an applicant’s criminal history is acceptable or not. It also outlines a process by which the applicant can dispute the accuracy of the criminal history, and provide evidence of rehabilitation or mitigating circumstances for the employer to consider. Employers are required to provide notice of their decision, and grant an opportunity for the applicant to respond, before making the decision final.

While the Ban the Box law is a recent addition in some states, the requirement that employers conduct an individualized assessment of applicants with criminal histories is not. In 2012, the federal Equal Employment Opportunity Commission (EEOC) adopted Enforcement Guidance for employers considering denying employment based on criminal records. These guidelines were founded on studies which demonstrate that criminal record databases are inaccurate or incomplete, and that using criminal history as a basis to deny employment creates the potential for disparate impact of individuals based on factors such as race, which is unlawful under Title VII of the Civil Rights Act.

The EEOC guidance lays out a process for employers to conduct an individualized assessment of whether, based on the job, there is a business necessity to exclude an applicant with a particular criminal conviction, which includes a review of the nature and gravity of the offence, the time that has passed since the conviction or completion of the sentence, and the nature of the job sought.

Many states, including California, have similar regulations or guidance on this issue, including laws that limit an employer’s ability to use certain types of criminal records, such as arrest records, juvenile records, or certain low-level marijuana convictions. Additionally, the Fair Credit Report Act (FCRA) and similar state laws, require employers to obtain written permission to search the criminal records history of employees and applicants, and to follow additional notice procedures if a criminal record is being used to deny employment.

When it comes to criminal background checks and Ban the Box laws, the key take away for employers is to review all laws applicable to their workers’ in the jurisdiction in which they work, and to create checklists and standardized forms to ensure compliance.

Claims You Won’t Believe: Contraception as Contraband

Reproductive freedom and the right to privacy, for minors especially, can be murky territory, with laws differing from state-to-state. In fact, only 26 states and the District of Columbia currently allow minors aged 12 or older to receive contraceptive services without parental approval. But how do these rights work when there’s no parent or guardian involved? What if contraception is legally permissible for minors in a state, but another party steps in and assumes the role of the guardian in making these decisions regarding their right to reproductive health care? One Nonprofits Insurance Alliance Group member in California found out the hard way — read below for their experience.

The Claim

A California nonprofit group home for foster teens was sued by current and former residents asserting a violation of their right to privacy and a denial of their access to reproductive health care. The group home required the teens, as a matter of policy, to be abstinent in order to reside in the group home. While they had no formal policy prohibiting residents from obtaining birth control, the group home admitted taking condoms and other forms of birth control away from the teen residents and penalizing them under their privilege-earning system for possession of what they deemed contraband. The suit also alleged that access to reproductive health care appointments was restricted, and that the teens were not allowed to meet alone with their medical care provider, if requested. The teens were represented by two national, nonprofit public interest law firms that promote youth and reproductive health care rights. The lawsuit sought damages and injunctive relief, which is a court order prohibiting the group home from continuing its practices in this regard, and attorney’s fees under the Private Attorney General Act (PAGA). The suit received extensive publicity.

The lawsuit was based on a violation of the right to privacy guaranteed under Article I, Section 1 of the California Constitution, which applies to public, as well as private entities. It also alleged negligence of the nonprofit for failure to supervise, evaluate and train childcare staff to ensure that they understood the healthcare rights of foster youth as required under California regulations, which includes the right to confidentiality and access to reproductive health care. The suit also alleged failure to follow the Caregiver Resource Handbook issued by the county (which placed the teens in foster care) as it pertained to reproductive healthcare.

While the suit was founded primarily on California law, it did cite the federal case Arneth v. Gross, which determined that the right to access reproductive health care extends to minors in foster care. Under the more narrow federal right to privacy, the Arneth court found that “minors have a constitutional privacy right to practice artificial contraception absent compelling state considerations to the contrary, and this is not diminished because they are in foster care.”

Due to the risks of a large potential damage award, and negative publicity, this case was settled in mediation. While each of the five claimants received a modest settlement of $5,000, the plaintiffs sought an attorney’s fees award available under PAGA. When this issue was submitted to arbitration, the plaintiff’s attorneys were awarded a staggering $400,000.

Lessons Learned

Access to reproductive health care rights for those in residential care is highly regulated by local, state, and federal statutes, as well as the state and federal constitutions. As this claim demonstrates, impairment of those rights can be a huge risk to a nonprofit residential care provider. To avoid such a claim, nonprofits must understand the rules and laws of their jurisdiction concerning the right to reproductive health care for those in their custodial care, and adopt policies and train staff to ensure that those rights are respected and preserved.

 

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.

 

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