How AB5 has Changed the Employment Landscape
March 16, 2020 —
Jason Morris – Newmeyer DillionAs a result of California's Assembly Bill 5, effective January 1, 2020, the California Supreme Court's ABC test is now the standard for evaluating independent contractor classifications for purposes of the Industrial Welfare Commission Wage Orders, California Labor Code, and the California Unemployment Insurance Code. That dramatically ups the ante for companies that rely on independent contractors, particularly those that have not re-evaluated such classifications under the ABC test.
Misclassification cases can be devastating, especially for misclassified non-exempt employees, and can result in minimum wage violations, missed meal and rest periods, unpaid overtime, unreimbursed business expenses, record-keeping violations, steep penalties, attorneys' fees, and even criminal liability, among other consequences. Misclassifying workers creates enormous risks for companies and is fertile ground for class actions and representative actions under the Private Attorneys General Act (PAGA).
The Costs Of Misclassification Are Expensive, And Hope Is Not A Strategy
Many business owners I speak to understand AB5 has caused the ground to shift beneath their feet and recognize the resulting risks of misclassifying workers. Despite these risks, companies often balk at taking the necessary steps to evaluate their classifications and mitigate the risk of an adverse classification finding.
The most common reason I hear from resistant companies is the worker does not want to be reclassified as an employee and the company trusts the worker ("I've worked with her for years; she won't sue me because she wants to be a contractor"). I get it. Making the change from contractor to employee results in less flexibility and greater administrative burden for everyone involved. While I'm sympathetic, the government is not. Reluctance to change while acknowledging the associated risks amounts to a strategy based on hope. As we say in the Marine Corps, however, "hope is not a strategy."
Aside from the sometimes foolhardy belief that a misclassified worker can be trusted to not file suit after a business breakup (when the deposits stop and mortgage bill comes due, guess who's a prime target), companies often fail to recognize the numerous ways in which their classification decisions can be challenged even when they are in agreement with their (misclassified) contractors. Here are just three examples of how your classifications can be scrutinized despite the lack of a challenge by the worker:
- Auto Accidents: Whether delivering products, making sales calls, or traveling between job sites, independent contractors often perform work that requires driving. Of course, sometimes drivers are involved in automobile accidents. When accidents happen, insurance companies step in and look for sources of money to fund claims, attorneys' fees, costs, and settlements. One potential source is your insurance. "But the driver isn't my employee!," you say. You better buckle up because the other motorist's insurance carrier is about to challenge your classification in an attempt to access your insurance policies.
- EDD Audits: During the course of the last several years, the California Employment Development Department (EDD) has increased the number of verification (random) audits it performs in search of additional tax revenue. One reason government agencies prefer hiring entities classifying workers as employees rather than independent contractors is it's a more efficient tax collection method; employers collect employees' taxes on the government's behalf, which increases collection rates and reduces government collection costs. The consequences of misclassification include pricey fines, penalties, and interest.
- Unemployment Insurance, Workers' Compensation, and Disability Claims: In addition to verification audits, the EDD performs request (targeted) audits. Targeted audits may result when a contractor files an unemployment insurance, workers' compensation, or disability claim because independent contractors are ineligible for such benefits. Request audits, like verification audits, can result in costly fines, penalties, and interest if the EDD concludes you have misclassified your workers. Even so, that may not be the worst of it: the EDD often shares its findings with the Internal Revenue Service.
Your Action Plan
AB5 has changed the measuring stick, misclassification costs are high, and you do not have complete control of when the government or others can challenge your classifications. So what can you do? Here are several steps all prudent companies should take if they are using independent contractors:
- Conduct an audit of current classification practices;
- Review written independent contractor agreements;
- Implement written independent contractor agreements;
- Update workplace policies;
- Update organizational charts;
- Reclassify independent contractors as employees if necessary.
Jason Morris is a partner in the Newport Beach office of Newmeyer Dillion. Jason's practice concentrates on the areas of labor and employment and business litigation. He advises employers and business owners in employment litigation, as well as advice and counsel related to employment policies and investigations. You can reach him at jason.morris@ndlf.com.
About Newmeyer Dillion
For 35 years, Newmeyer Dillion has delivered creative and outstanding legal solutions and trial results that achieve client objectives in diverse industries. With over 70 attorneys working as a cohesive team to represent clients in all aspects of business, employment, real estate, environmental/land use, privacy & data security and insurance law, Newmeyer Dillion delivers holistic and integrated legal services tailored to propel each client's success and bottom line. Headquartered in Newport Beach, California, with offices in Walnut Creek, California and Las Vegas, Nevada, Newmeyer Dillion attorneys are recognized by The Best Lawyers in America©, and Super Lawyers as top tier and some of the best lawyers in California and Nevada, and have been given Martindale-Hubbell Peer Review's AV Preeminent® highest rating. For additional information, call 949.854.7000 or visit www.newmeyerdillion.com.
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Drug Company Provides Cure for Development Woes
November 18, 2011 —
CDJ STAFFVertex Pharmaceuticals is poised to become the holder of Boston’s biggest commercial lease, paying $72.5 million for 1.1 million square feet on Boston’s waterfront. Vertex’s new buildings are still under construction, but the plans have spurred other development in the Fan Pier area, according to the New York Times. The Times quotes Mary A. Burke, a senior economist at the Federal Reserve Bank of Boston that the Vertex project gives “a big push” to the “momentum for economic growth.”
The Fallon Company is building Vertex’s new laboratory and office space. They are separately planning to build a high-rise with 150 luxury condominium units. According to Joseph Fallon, the chief executive and president of the Fallon Company, there is already a waiting list of 50 buyers for the condominiums.
Across the street from the Vertex site, a group including Morgan Stanley and Boston Global Investors is planning a 23-block mixed use project that would include 1.2 million square feet of retail space. Additionally, the New England Development and the Hanover Group is building a 356-unit apartment building at the adjacent Pier 4.
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When is a Residential Subcontractor not Subject to the VCPA? Read to Find Out
December 01, 2017 —
Christopher G. Hill - Construction Law MusingsThe Virginia Consumer Protection Act (VCPA) can and often does apply to residential construction. The transaction between a residential contractor and an homeowner has been held to fall under the consumer transaction language of the VCPA and on occasion been used to avoid the issues with the economic loss doctrine in Virginia. However, there are limits to how far down the contractual chain the VCPA applies, particularly in the case where a supplier or subcontractor does not provide the services or materials for a personal, consumer purpose.
An example of this fact is found in the case of Johnston v. Stephan. In that case, a couple hired a general contractor to build a home and the general contractor hired Cole Roofing System, Inc. to provide the roof of the home. The first couple subsequently sold the home and the second homeowners sought further work on the roof from Cole Roofing. After Cole Roofing refused further work, the homeowners brought an action seeking to enforce a warranty and for a violation of the VCPA. For the warranty claim, the homeowners relied on the contract between them and the prior homeowners that referenced a 10 year warranty on the roof and the subcontract between the homebuilder and Cole Roofing. Cole Roofing sought dismissal of the VCPA and warranty claims by demurrer and further sought by demurrer to have the matter dismissed as being filed after the running of the statute of limitations.
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Christopher G. Hill, The Law Office of Christopher G. HillMr. Hill may be contacted at
chrisghill@constructionlawva.com
Surety's Settlement Without Principal's Consent Is Not Bad Faith
January 05, 2017 —
Tred R. Eyerly – Insurance Law HawaiiThe Sixth Circuit found that the surety did not act in bad faith when it settled the general contractor's claims against the State of Michigan over delays on a construction project. Great Am. Ins. Co. v. E.L. Bailey & Co., 2016 U.S. App. LEXIS 20018 (6th Cir. Nov. 7, 2016).
Bailey, the general contractor, entered into a surety agreement under which Great American would issue surety bonds on behalf of Bailey in the construction of a kitchen at a State prison. Bailey, the principal, paid Great American (GAIC), the surety, to provide bonds guaranteeing contract performance to the State, the obligee or owner. GAIC provided a performance bond, guaranteeing performance of the contract work, and a payment bond, guaranteeing payments to subcontractors and suppliers. Under the agreement, Bailey would indemnify GAIC for all payments or other expenses GAIC incurred due on either bond, and would pay upon demand collateral in an amount to be determined by GAIC. In the event of an alleged breach by Bailey, the agreement assigned to GAIC all Bailey's rights under its contract with the State and well as all its claims against any party.
Bailey never finalized completion, and GAIC reached agreement with the State for another contractor to complete the project.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Public Housing Takes Priority in Biden Spending Bill
November 15, 2021 —
Kriston Capps - BloombergThe White House narrowed its housing agenda with the latest compromise version of President Joe Biden’s social spending bill, lowering funding levels by half while also shifting the bill’s priorities.
Representative Maxine Waters and her allies had pushed for $327 billion for rental assistance, affordable housing and other progressive priorities in the reconciliation bill. The most recent White House framework for the Build Back Better Act shows that this figure has been cut in half: The new target is $150 billion, with funding for many of the same programs intact.
As a result, the balance of the housing investment has shifted from rental aid to public housing, according to the text of the bill. Funds to repair, replace or build public housing amount to $65 billion, down from a proposed $80 billion yet close to half the total housing package.
The White House describes the housing bill as “the single largest and most comprehensive investment in affordable housing in history.” A fact sheet states that it will build or preserve more than 1 million affordable apartments and homes. Biden’s bill also includes a soft repeal of the Faircloth Amendment, a provision that has banned any net new federal public housing units since 1999. Yet the latest version of the bill will not go as far to fulfill Biden’s promise to expand housing vouchers as a federal entitlement program.
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Kriston Capps, Bloomberg
OSHA: What to Expect in 2022
December 20, 2021 —
Stephen E. Irving - Construction ExecutiveCOVID-19 created great upheaval throughout the economy and the legal compliance world as well. The pandemic has been a great disruptor and has brought rules, regulations and related agency guidance that have served to overwhelm even the most conscientious and attentive employer. The welcomed arrival of COVID-19 vaccines, and now the perhaps less welcome OSHA vaccine mandate, simply add to an employer’s compliance burden.
While OSHA is busy attempting to implement its vaccine/testing mandate, it also has numerous other significant matters in the works of which employers in the construction industry should be aware. These include new rule drafting and several national and regional emphasis programs, which illustrate OSHA’s current priorities.
1. The Vaccine Mandate
Pursuant to a directive from President Biden, in October 2021, OSHA issued an emergency temporary standard implementing a mandate for all employers with more than 100 employees. This mandate requires that employees of such employers be vaccinated for COVID-19 or submit to regular testing. OSHA has also expressed interest in issuing a permanent standard and potentially expanding to include smaller employers.
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Stephen E. Irving, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Montana Federal District Court Finds for Insurer in Pollution Coverage Dispute
October 24, 2021 —
Melanie A. McDonald - Saxe Doernberger & VitaApplying Louisiana law, a recent federal court decision exemplifies why policyholders should thoroughly read claims-made policies to understand when notice is due to insurers and truthfully complete policy applications. In Admiral Insurance Company v. Dual Trucking, Inc.,1 the Court determined the insurer, Admiral Insurance Company (“AIC”), owed no duty to defend or indemnify Dual Trucking and Transport, LLC (“DTT”), Dual Trucking of Montana, LLC (“DTM”), and Dual Trucking, Inc. (“DTI”) (collectively, the “Dual Entities”) under two Environmental Impairment Liability Policies (“EIL Policies”) and four Contractor Pollution Liability Policies (“CPL Policies”). The Court justified its decision because the Dual Entities: 1) did not give notice during the 2012-2013 EIL Policy period; 2) had discovered or knew of, but did not disclose, potential pollution conditions before the inception of the 2013-2014 EIL Policy and before the expiration of the extended reporting period of the 2012-2013 EIL Policy; 3) failed to provide AIC with notice during the extended reporting period of the 2013-2014 EIL Policy of claims for which the Dual Entities were seeking coverage; and 4) materially misrepresented known facts on the CPL Policy applications.
I. Factual Background.
The Dual Entities were Louisiana-based companies that provided oilfield equipment rental services. In 2011, the Dual Entities leased land in Montana under three leases, collectively referred to as “the Bainville site.” Shortly afterward, the Dual Entities applied for, and AIC issued, an EIL Policy and two CPL Policies with a policy period of October 1, 2012, to October 1, 2013. AIC renewed all three policies for the October 1, 2013, to October 1, 2014, policy period.
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Melanie A. McDonald, Saxe Doernberger & VitaMs. McDonald may be contacted at
MMcDonald@sdvlaw.com
Hunton Andrews Kurth Promotes Insurance Recovery Lawyer Andrea (Andi) DeField to Partner
April 05, 2021 —
Lorelie S. Masters - Hunton Insurance Recovery BlogEffective April 1, 2021, Hunton Andrews Kurth LLP has promoted insurance recovery lawyer,
Andi DeField, and six other attorneys, to
partner. “Andi has been a superstar in our practice since the day she arrived,” said insurance recovery practice head,
Walter Andrews, adding that “Andi’s promotion reflects the incredible hard work she has contributed to the practice and outstanding results she has achieved for our clients over the years.” A native of Miami, Andi ascended through the ranks at Hunton in its Miami office, joining the firm as a contract lawyer before earning promotions to associate, counsel and, now, partner. But Andi’s rapid ascension did not come without much hard work. Since joining the firm, “Andi has, year after year, consistently knocked the cover off the ball in terms of her tireless work ethic, the superior results she has achieved and her extraordinary aptitude for marketing herself, our practice and the firms many other practices,” said insurance recovery partner,
Mike Levine. Levine added, “Andi is an amazing lawyer and a true champion for her clients. I’m proud to now call her my partner.”
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Lorelie S. Masters, Hunton Andrews KurthMs. Masters may be contacted at
lmasters@HuntonAK.com
