In the world of work, two debates rage on: Who is a co-employer, and who is an independent contractor?
Recent federal guidance and case law suggest that the answers to these questions may be everyone and no one, respectively.
Co-employment. Co-employment is defined as the relationship among two or more organizations that both qualify as “employers” under one or more legal standards for the same worker or group of workers. Co-employers often share some degree of liability and responsibility for shared employees.
There are two main tests used to determine co-employment. The first is the common-law Darden test, which examines a number of factors related to the relationship between two parties. The second is the economic realities test that arises out of the Fair Labor Standards Act. The US Department of Labor, the National Labor Relations Board and the Equal Employment Opportunity Commission have recently expressed views that support broader co-employment definitions, demonstrating they are more disposed toward finding an employment or co-employment relationship.
Many franchises are learning firsthand how these broader views can affect a business. Both McDonald’s and Domino’s are embroiled in lawsuits based on the premise that the franchisor is just as much an employer of franchisee employees as is the franchisee.
Meanwhile, Chicago’s MVP Staffing and some of its clients are facing a potential class-action lawsuit from workers alleging the clients asked for African American applicants not to be placed. MVP allegedly complied. The EEOC recently subpoenaed thousands of documents related to employment data and other information on MVP’s temporary workers.
Staffing companies should consider taking the following steps to reduce risk:
- Respond reasonably to risks regardless of employment status.
- Coordinate investigation/response with client companies — both entities have legal responsibilities.
- Do not comply with unlawful client requests — consult with counsel immediately.
- Discuss the structure of your workforce with your insurance company and ensure coverage.
Who is an IC? In a 2015 Government Accountability Office study, the GAO estimated that just more than 40% of workers now have “contingent” or “alternative work arrangements.” Often, these come in the form of independent contractors. A significant portion of net US job growth has been attributed to the rise of independent contractors in the workforce, but this positive change has also created problems for employers that are learning to adapt to the changing workforce culture.
The biggest problem faced by employers today is worker classification: Is a person an employee or an independent contractor? Fair Labor Standards Act class action lawsuits have been on the rise over the past two years regarding worker misclassification. Some states have provided guidance for employers. For example, the Arizona Legislature enacted a law in 2016 enabling employers to ask workers to sign a declaration stating that they are independent contractors. And New York City enacted a law providing freelance workers with the rights to a written contract, timely and full payment and to be free of retaliation.
Common ways to mitigate the risk of independent contractor misclassification:
- Self-audit to determine if workers are properly classified and whether your classification system is adequate.
- Review your benefit plans, especially the definition of eligibility and standard of review.
- Use independent contractor classification vendors.
- Eliminate indicia of control from contracts and policy (and actual control from practices).