Tuesday, July 28, 2015

“Independent Contractors” May Not be Independent Enough

On July 15, 2015 the U.S. Department of Labor (DOL) issued Administrator’s Interpretation No. 2015-1 to address the “problematic trend” of employers wrongfully classifying workers as independent contractors instead of as employees. (In fact, the Interpretation finds that the bulk of workers currently classified as independent contractors actually should be employees.) Based on the Fair Labor Standards Act’s broad definition of “employ” as “to suffer or permit to work,” 29 U.S.C. 203(g), the Interpretation re-emphasizes that the appropriate test for determining worker classification is the “economic realities test,” and not the common law control test. While the common law control test is based on the employer’s control over the worker, the economic realities tests takes a broader approach by looking at six different factors:
(A) the extent to which the work performed is an integral part of the employer’s business;
(B) the worker’s opportunity for profit or loss depending on his or her managerial skill;
(C) the extent of the relative investments of the employer and the worker;
(D) whether the work performed requires special skills and initiative;
(E) the permanency of the relationship; and
(F) the degree of control exercised or retained by the employer.

The ultimate question, however, remains whether the worker is economically dependent on the employer. Accordingly, the DOL emphasizes the importance of considering the totality of the factors without applying undue weight to any single factor: “in undertaking this analysis, each factor is examined and analyzed in relation to one another, and no single factor is determinative. The ‘control’ factor, for example, should not be given undue weight.” Administrative Interpretation at 4. The result is a legal shift in who qualifies as an employee.

For example, the Interpretation examines a hypothetical construction company whose business is framing residential homes. By definition, carpenters are integral to such a business. The Interpretation’s implication is that carpenters working for this construction company should not be classified as independent contractors. In contrast, the same construction company may hire a software developer to create software that, among other things, assists the company in tracking its bids, scheduling projects and crews, and tracking material orders. However, the software developer is not performing work that is integral to the construction company’s business, and therefore may be an independent contractor. Administrative Interpretation at 7.

The Interpretation also examines a hypothetical cleaning service worker to illustrate the third factor, “relative investments of the employer and the worker.” Under this factor, a cleaning service worker who is annually issued a 1099-Misc form (for independent contractors), but who uses company-issued supplies, a company-issued car, and who serves clients solicited by company-paid advertising is an employee. However, the same cleaning service worker can become an independent contractor if he or she invests a commensurate amount into the company. For example, if the worker invests in a vehicle that is not suitable for personal use and uses it to travel to various worksites, or if the worker rents his or her own space to store the vehicle and materials, or if the worker also advertises and markets his or her services and hires a helper for larger jobs, then the worker could be properly classified as an independent contractor. This is because the worker’s investment in the job is similar or greater than the investment of the company.

While the DOL’s interpretation is not legally binding, it is important because courts give great deference to an agency’s interpretation of a statute which it enforces. The Administrative Interpretation broadcasts the DOL’s commitment to reversing the problematic trend of misclassifying employees, with likely far-reaching impact. The correct classification of workers has critical implications in terms of legal protections that workers receive, particularly for misclassified low-wage workers, and especially as more local and state legislatures advocate for substantial minimum wage increases. In addition, while misclassified workers raising concerns about FLSA compliance are protected from retaliation under FLSA’s anti-retaliation provision at 29 U.S.C. 215(a)(3), it is unclear under the DOL’s new guidance whether courts will allow the same protection for an worker who is eventually determined to have been properly classified as an independent contractor. On other issues, for example in whistleblower retaliation cases, courts have used the “reasonable belief” standard to assess the scope of protection, rather than focusing on any actual violations. See, e.g., Darveau v. Detecon, Inc., 515 F.3d 334 (4th Cir. 2008). Yet another ramification is the Interpretation’s potential impact on the rapidly developing “sharing economy.” For example, under the control test, Uber could comfortably classify its drivers as independent contractors – after all, one of the oft-touted benefits of becoming an Uber driver is the ability to control your own hours and use your own vehicle. But, under the economic realities standard, Uber drivers, in light of their integral contribution to the company’s business, appear to be more accurately classified as employees. And, this could open the doors to Uber drivers receiving more benefits, and to the government collecting more taxes.  

By Nina Ren

Wednesday, July 22, 2015


In mid-July, the EEOC issued a decision that sexual orientation discrimination in the workplace is illegal under federal law. The Commission held that “sexual orientation is inherently a ‘sex-based consideration,’ and an allegation of discrimination based on sexual orientation is necessarily an allegation of sex discrimination under Title VII.” Complainant v. Dep’t of Transportation, EEOC Appeal No. 0120133080, 2015 WL 4397641 (July 16, 2015). Title VII?! While undeniably significant, the decision also is in direct opposition to the EEOC’s previous unequivocal rulings that Title VII’s prohibition against sex-based discrimination did not include sexual orientation discrimination.

In Complainant v. Department of Transportation, the Complainant, an air traffic controller, alleged that he was not selected for a Front Line Manager position because he is gay. The Complainant alleged that his supervisor, who was involved in the selection process, made several negative comments about his sexual orientation. For example, when the Complainant mentioned to his supervisor that he and his partner had attended Mardi Gras in New Orleans, the supervisor responded, “We don’t need to hear about that gay stuff.” His supervisor also told the controller on a number of occasions that he was “a distraction in the radar room” when he would mention his partner. Id. at *2. After Complainant filed his EEO complaint against the Agency, the Agency ruled that he failed to state a claim for discrimination under Title VII. In so doing, the Agency was following decades of EEOC precedent.  See, e.g., Phillips v. Dep't of Navy, EEOC Appeal 03800105 at *3 n1 (January 14, 1981) (agency’s rejection of claim based on sexual orientation was “proper in that there was not and is not in the regulations provision for the acceptance of complaints of discrimination based on sexual orientation”).

Title VII, as it applies to federal employers, provides that, “all personnel actions affecting [federal] employees or applicants for employment…shall be made free from any discrimination based on…sex.” 42 U.S.C. § 2000e-16(a). This provision is analogous to Title VII’s prohibition of sex discrimination in the private sector: “It is unlawful for a covered employer to fail or refuse to hire or discharge any individual, or otherwise to discriminate with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s…sex.” 42 U.S.C. § 2000e-2(a)(1).

In deciding Complainant v. Department of Transportation, the EEOC relied in part on the Supreme Court’s ruling in 1989 that an employer may not rely upon sex-based considerations, “or take gender into account” in making an employment decision. Price Waterhouse v. Hopkins, 490 U.S. 228, 244 (1989). In Price Waterhouse, the Court considered allegations that a female senior manager was denied partnership in the firm because she was considered “macho” and “overcompensated for being a woman.” In a 6-3 decision, the Court held that Title VII barred not just discrimination because of biological sex, but also gender stereotyping: “in forbidding employers to discriminate against individuals because of their sex, Congress intended to strike at the entire spectrum of disparate treatment of men and women resulting from sex stereotypes.” Id. at 251.

Apparently rejecting the notion that sexual orientation discrimination is often the result of impermissible gender stereotyping, the EEOC continued to rule after Price Waterhouse that sexual orientation discrimination was not prohibited by Title VII. In Johnson v. U.S. Postal Service, EEOC Appeal No. 01911827 (Dec. 19, 1991), the Commission held that allegations of discrimination based on biological sex stated a cognizable claim under Title VII, but allegations of discrimination based on sexual preference did not. In Morrison v. Department of Navy, EEOC Appeal No. 01930778 (June 16, 1994), the Commission held that the complainant failed to state a claim for discrimination under Title VII, where his co-workers had made derogatory statements to him because they perceived him to be a homosexual. “[T]he Commission finds that Title VII’s prohibition of sexual harassment does not apply to cases which raise issues regarding an individual’s perceived sexual preference or orientation.” Id. at *3.

In 1998, the Supreme Court held in Oncale v. Sundowner Offshore Services, Inc., 527 U.S. 75, 82 (1998), that sex discrimination consisting of same-sex sexual harassment is actionable under Title VII.  Following the Supreme Court’s ruling in Oncale, the Commission held in Morris v.  U.S. Postal Service, EEOC Appeal No. 01974524 (Feb. 9, 2000), that the complainant stated a cognizable claim under Title VII for sex-based discrimination by a management official who is the same sex as complainant. The complainant (a woman) claimed that a management official (also a woman) discriminated against her on the basis of her sex after the complainant discontinued a sexual relationship with her. The Commission found that the Agency erroneously dismissed the claim, in that it had mischaracterized the complaint as concerning discrimination based on complainant’s sexual orientation or sexual preference.

Although Price Waterhouse rendered gender-stereotyping discrimination illegal in 1998, it was not until 2011 that the Commission began to recognize and hold that sexual orientation discrimination can constitute a claim of sex discrimination under Title VII where the discrimination was based on gender stereotypes: Veretto v. U.S. Postal Serv., EEOC Appeal No. 0120110873 (July 1, 2011); Castello v. U.S. Postal Serv., EEOC Request No. 0520110649 (Dec. 20, 2011); Baker v. Social Security Admin., EEOC Appeal No. 012011008 (Jan. 11, 2013); Dupras v. Dep’t of Commerce, EEOC Request No. 0520110648 (March 15, 2013); Culp v. Dep’t of Homeland Security, EEOC Appeal No. 0720130012 (May 7, 2013); Brooker v. U.S. Postal Serv., EEOC Request NO. 0520110680 (May 20, 2013); and Complainant v. Dep’t of Homeland Security, EEOC Appeal No. 0120110576 (Aug. 19, 2014).

In 2011, the Eleventh Circuit applied the “gender stereotyping” principle to claims of transgender discrimination. “A person is defined as transgender precisely because of the perception that his or her behavior transgresses gender stereotypes. ‘The very acts that define transgender people as transgender are those that contradict stereotypes of gender-appropriate appearance and behavior.’” Glenn v. Brumby, 663 F.3d 1312, 1316 (11th Cir. 2011) (citation omitted). The Eleventh Circuit held that, “discrimination against a transgender individual because of her gender-nonconformity is sex discrimination, whether it’s described as being on the basis of sex or gender.” Id. at 1317. Following suit, the Commission held in 2012 that discrimination against an individual because that person is transgender (also known as gender identity discrimination) is sex-based discrimination and therefore prohibited under Title VII. Macy v. Dep’t of Justice, EEOC Appeal No. 0120120821 (April 20, 2012).

In the recent decision of Complainant v. Department of Transportation, the Commission pronounced that “allegations of discrimination on the basis of sexual orientation necessarily state a claim of discrimination on the basis of sex.” The Commission articulated three circumstances in which a claim of discrimination on the basis of sexual orientation constitutes a claim of sex discrimination under Title VII: (1) Where the discrimination involved treatment that would not have occurred but for the individual’s sex; (2) Where the discrimination was based on the sex of the person(s) with whom the individual associates; and/or (3) Where the discrimination was premised on a fundamental sex stereotype, norm or expectation that individuals should be attracted only to those of the opposite sex.  Complainant v. Dep’t of Transportation, 2015 WL 4397641 at *10. Acknowledging its departure from its previous decisions holding that Title VII does not prohibit sexual orientation discrimination because sexual orientation discrimination is not discrimination based on sex, the Commission explained that its own “understanding of Title VII’s application to sexual orientation discrimination has developed over time.” Id. at n13 (citing Johnson v. U.S. Postal Serv., EEOC Appeal No. 01911827 (Dec. 19, 1991); Morrison v. Dep’t of Navy, EEOC Appeal No. 01930778 (June 16, 1994); and Morris v. U.S. Postal Serv., EEOC Appeal No. 01974524 (Feb. 9, 2000)).

In Complainant v. Department of Transportation, the Commission concluded that “courts have gone where the principles of Title VII have directed,” and “[o]ur task is the same.” Id. at *9-10. Recently, the Supreme Court held in Obergefell v. Hodges, 135 S. Ct. 2584 (2015), that same-sex couples could not be denied the fundamental right to marry under the Due Process and Equal Protection Clauses of the United States Constitution. The Commission cited Obergefell in its discussion of sexual orientation discrimination necessarily entailing treating an employee less favorably due to the employee’s sex. If the Supreme Court had decided that same-sex couples were not afforded the fundamental right to marry under the Due Process and Equal Protection Clauses, it does not seem likely that the Commission would have ruled that sexual orientation discrimination is sex-based discrimination under Title VII, at least not on the theory that it involves less favorable treatment.

While the Commission has taken over 40 years to conclude that Title VII’s prohibition against sex discrimination necessarily includes sexual orientation discrimination, has the Commission actually gone too far? EEOC decisions are issued only in cases filed by federal employees against federal agencies. Federal agencies are not entitled to challenge in court those EEOC decisions in which they are the losing party, and there is no comparable procedure applicable to private employers. While Congress granted federal employees the right to obtain de novo review in court of adverse EEOC decisions, the legal reasoning of those decisions is entitled to deference by the courts. One outstanding question is the reaction of the courts to the EEOC’s shift in its analysis if the Commission sues a private employer for discriminating against an employee on the basis of sexual orientation. A similar situation arose in Federal Communications Commission v. Fox Television Stations, Inc., 132 S.Ct. 2307 (2012), in which the Supreme Court held that the FCC went too far when it failed to give fair notice to Fox or ABC prior to the broadcasts in question that fleeting expletives and momentary nudity could be found actionably indecent.  In this instance, on the other hand, the EEOC’s decision in Complainant v. Department of Transportation clearly places private employers on notice of the analysis that will be applied, at least as of July 16, 2015.

Societal and historical notions of sex discrimination undoubtedly play a role in rulings by courts and the Commission involving sexual orientation discrimination, just as those notions play pivotal roles in decisions involving marriage equality. “The history of marriage is one of both continuity and change. That institution—even as confined to opposite-sex relations—has evolved over time.” Obergefell, 135 S.Ct. at 2595. In Complainant v. Department of Transportation, the Commission stated that “Congress may not have envisioned the application of Title VII to these situations.” Complainant v. Dep’t of Transportation, 2015 WL 4397641 at *9. But as a unanimous Court stated in Oncale, “‘statutory prohibitions often go beyond the principle evil [they were passed to combat] to cover reasonably comparable evils, and it is ultimately the provisions of our laws rather than the principal concerns of our legislators by which we are governed.’” Id. (quoting Oncale, 523 U.S. at 79). The evolution of justice for LGBT workers is intricately dependent on societal notions, and on the willingness of courts and the Commission to adapt to those evolving notions.

Written by Valerie Chastain

Wednesday, July 15, 2015

Does Glatt Change Unpaid Internships?

It has long been assumed that unpaid internships are an excellent way for people, particularly young people, to gain valuable experience and ultimately qualify for paid employment. The Labor Department, however, long ago provided a six-factor test to help determine whether “interns” were actually “employees” under the Fair Labor Standards Act and therefore were entitled to wages and overtime. And in recent years, the DOL has pursued for-profit companies that do not pay interns who should have been classified as employees for purposes of the FLSA. Recently, the Second Circuit set aside the DOL’S guidance used to make such determinations. The court declined to defer to the DOL and substituted seven, non-exhaustive factors to determine whether a for-profit’s interns are employees.  Glatt v. FoxSearchlight Pictures, Inc., No. 13-4478-CV, 2015 WL 4033018, at *6  (2nd Cir. July 2, 2015). Although the Second Circuit’s decision is not controlling elsewhere, its challenge to the Department of Labor’s guidance is likely to be influential, opening a discussion regarding the legal basis for determining when an intern, working for a for-profit company, should properly considered a paid employee.

The appellants in Glatt, Eric Glatt and Alexander Footman, had worked as unpaid interns, either in Fox Searchlight’s corporate office in New York or on the set of the Black Swan, at various times from 2009 through 2010. Contending that they were improperly classified and were employees under the FLSA and New York state wage laws, they filed suit in 2012. The District Court determined in 2013 that Glatt and Footman had been employees and granted their motion for partial summary judgment. In reaching this conclusion, the District Court relied upon DOL’s mandatory six factors for determining that an intern or trainee is or is not an employee. Glatt at *7.

 The Department of Labor relied on Walling v. Portland Terminal Co., 330 U.S. 148 (1947), a case brought by railroad brakeman trainees that determined they were not employees under the FLSA or entitled to minimum wages. DOL extrapolated from Walling the six criteria that would determine if an employment relationship exists in the case of intern trainees. If all six factors are present, an employment relationship does not exist. The six factors are:

 1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

 2. The internship experience is for the benefit of the intern;

 3. The intern does not displace regular employees, but works under close supervision of existing staff;

 4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

 5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

 6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship

U.S. Department of Labor, Wage and Hour Division, Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act (available at http://www.dol.gov/whd/regs/compliance/whdfs71.pdf , accessed 7/12/2015); see also Opinion Letter FLSA2004-5NA.

The Second Circuit in Glatt was troubled by the rigidity of the established test. Glatt, at *5. It rejected the mandatory six-rule test declaring that the Supreme Court in Walling had given no indication that the factors it considered for railroad brakeman trainees were appropriate for every trainee program or internship. Further, Glatt noted that it was typical for courts to provide a more flexible set of considerations, allowing the inquiry to be tailored to the specifics of the work in question. Id. at *6. The Second Circuit suggested, but did not require, that the following “considerations” be a part of the determination of whether a person is trainee or intern, or an employee, for purposes of the FLSA:

 1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.

 2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.

 3. The extent to which the internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit.

 4. The extent to which the internship accommodates the intern's academic commitments by corresponding to the academic calendar.

 5. The extent to which the internship's duration is limited to the period in which the internship provides the intern with beneficial learning.

 6. The extent to which the intern's work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

 7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Glatt, at *6 While these are not so very different from the DOL’S mandatory criteria, the emphasis is different. The proper question, the Second Circuit concluded, was “whether the intern or the employer is the primary beneficiary of the relationship.” Id. at *7.

The Second Circuit vacated the district court’s grant of partial summary judgment to Glatt and Footman and remanded the matter to the district court. It remains to be seen whether the application of the Second Circuit’s newly formulated standards, which resemble in the main the criteria articulated by DOL, will result in a  different outcome for Glatt and Footman.

The greatest change introduced by the Second Circuit is flexibility. The Second Circuit requires  that the specific facts of an intern’s work shape the inquiry and the conclusions, and that the court weigh and balance “all of the circumstances.” Id. at *7: “No one factor is dispositive and every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage.” Courts following the Second Circuit – and these may grow – will no longer be bound by the rigidity of the Department of Labor’s guidelines. It is a heady freedom that the Second Circuit has introduced, but it remains to be seen just how much the new flexibility will result in genuine benefits for interns.  

This blog was written by Mary Kuntz.

Wednesday, July 8, 2015

ALJs have new rules for whistleblower cases

On May 19, 2015, the Department of Labor’s Office of Administrative Law Judges (OALJ) issued its final regulations updating its rules for the first time since 1983. The new rules make a number of significant changes, but also fail to make certain changes that would truly modernize OALJ practice.
As these rules apply to hearings under 22 federal whistleblower laws, I review them here.
Most notably, the rules fail to provide for electronic filing. I was one of the commenters who had suggested that OALJ’s new rules should provide for electronic filing. The Office states that, “implementation of ECF is a resource constrained policy decision.” In other words, the Department of Labor has not paid for an electronic filing system yet, so OALJ does not have one and cannot make one with its existing resources. It remains hard to believe that the resources expended on handling paper files is really cheaper than implementing an electronic system. EEOC has a partially implemented “HE-CAPS” system through which counsel can file documents by email. MSPB and NLRB have their own electronic web-based filing systems. Federal courts have a well-developed Case Management/Electronic Case Filing system. Still, OALJ cannot use any of these, or develop its own. The proposed regulation at 29 CFR § 18.30(b)(4) accommodates “special circumstances” by allowing a judge to let “papers [] be filed, signed, or verified by electronic means.” Hopefully, ALJs will routinely allow email submissions to meet time limits, but it has not happened yet. They still want documents filed by hardcopy.
For electronically stored information (ESI), the new rules permit a requesting party to specify a format for producing the information. 29 CFR § 18.61(b)(iii). If no format is specified, then the producing party can provide them “in a reasonably usable form or forms[.]” 29 CFR § 18.61(b)(v)(B). However, “A party need not produce the same electronically stored information in more than one form.” 29 CFR § 18.61(b)(v)(C). The effect is to give requesters an incentive to specify the format they want, or risk having their opponent pick a less desirable format. The rules do not specifically require parties to meet and confer about mutually agreeable formats. We had specifically cited to OALJ the case of Anti-Monopoly, Inc. v. Hasbro, Inc., 1995 U.S. Dist. LEXIS 16355 (S.D.N.Y.), holding that “Production of materials in hard copy form does not preclude a party from receiving the same information in electronic form.” The OALJ does not address this case or explain why a party should be able to frustrate an opponent by producing information in a less searchable format.
We also asked OALJ to state that the rules should be applied to accomplish the remedial purposes of the laws OALJ enforces. Since we submitted our comments in 2013, the Supreme Court rooted its Lawson decision on the remedial purpose of SOX. Lawson v. FMR LLC, 134 S. Ct. 1158 (2014). The remedial purpose of the law was also the basis for upholding Obamacare subsidies this year. It is unfortunate that OALJ could not bring itself to say that the laws they enforce are remedial and their job is to accomplish the purposes of these laws.
We had asked OALJ to make explicit that summary decisions should be disfavored in whistleblower cases and cited a series of law review articles. One noted that, “[T]he increased inappropriate use of summary judgment” has “silently curtail[ed] workers’ civil rights claims[.]” Ann C. McGinley, Credulous Courts and the Tortured Trilogy: The Improper Use of Summary Judgment in Title VII and ADEA Cases, 34 B.C. L. Rev. 203, 205–06 (1993). OALJ responds that it “is neutral on the question of whether summary decision as a procedural mechanism is disproportionately adverse to the interests of whistleblower complainants.” It adds that the ARB has given more specific direction about summary judgment in whistleblower cases, including one of our cases, Evans v. E.P.A.
I had also suggested to OALJ that they adopt the Initial Discovery Protocols For Employment CasesAlleging Adverse Action currently being implemented in federal district courts around the country. See, generally, Pilot Project Regarding Initial Discovery Protocols For Employment Cases Alleging Adverse Action, Federal Judicial Center (November 2011)
OALJ responded that, “To the extent such initiatives may be beneficial in certain cases, the Department has concluded that the determination to adopt such procedures is best left to the discretion of individual judges and/or discovery plans developed by parties pursuant to paragraph (b)(3).”
OALJ also declined our strong suggestion that they define a day as a whole day. Weobjected to the proposed definition of “last day” at 29 CFR 18.32(a)(2). This proposed rule states, “Unless a different time is set by a statute, regulation, executive order, or judge’s order, the ‘last day’ ends at 4:30 p.m. local time where the event is to occur.” I pointed out how this rule would frustrate counsel who are used to getting briefs done before midnight deadlines. OALJ responds that since they are not generally authorizing electronic filing, filers need to send documents in time to arrive on the last day. This policy adds unnecessary expenses and risks to the cause of deciding cases on the merits.
OALJ did accept one of our comments: they have now deleted from 29 CFR § 18.24 any general deadline for filing amicus briefs. Judges may decide on the filing of amicus briefs on a case-by-case basis. This opens one door for public interest groups to urge consideration of the remedial purposes of the law.
Overall, this blog post gives whistleblower advocates a “heads up” about the new rules, and links to important sources of information about issues and substantive law that might be useful to consider in handling whistleblower cases at the OALJ.
By Richard Renner