Wednesday, March 13, 2019

The (Latest) Big Uber Settlement and Teaching Employee Status to Workers’ Compensation Students

As fate would have it, news of Uber’s recent 20 million dollar settlement with “misclassified” (mal-classified?) drivers has reached my “ears” just as my workers’ compensation class is embarking on the course’s “employment relationship” material. As I see it, the employee-status/definition landscape is beginning to stabilize in the sense that state employment blocks, or zones, are starting to emerge, which should assist in settlement of jurisdiction-specific employee misclassification suits. You’ve got the ABC test (though often not in workers’ compensation contexts) – primarily California, New Jersey, and Massachusetts. You’ve got the default Restatement 2d of Agency, Section 220(2) test, and you have the spreading Handy Inc. zones, mainly in the south and Midwest. Under federal employment law you have either an economic realities test or some expanded variant of a common law-like factor test.

California (always a barometer of future developments and reactions thereto) – will probably codify the ABC test in an array of employment law contexts post Dynamex. Whether that test will migrate to its workers’ compensation regime (still utilizing the Borello/Restatement 2d of Agency 220(2) 10-factor test with an emphasis on the right to control) remains to be seen. An interesting California bill, AB 71, offered by Republican Assemblywoman Melissa Melendez, would retain the 10-factor test, but, in a twist, create a presumption of employee status when the worker is performing work (or working for someone who is performing work) for which a contractor’s license is required under California law. This compromise approach, like the ABC test, would place the burden on the employer/carrier to prove that the individual is not an employee, but would retain the multiple factor scope of analysis beyond what is required under the ABC test (The worker is free from the control and direction of the hirer in relation to the performance of the work, both under the contract and in fact; the worker performs work that is outside the usual course of the hirer’s business; and the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hirer).

The default position, and probably still the dominant test in most of U.S. labor and employment law (and hence my default position as a teacher) is the Restatement 2d analysis itself. Most of my readers know the test well, so I will not discuss it in detail here. From a teaching perspective, one of the difficulties is to distinguish for students the “right” of an employer to control work from the actual exercise by the employer of that right. When a fact-finder marches through indicia of control, it is not always clear whether an ultimate determination is that the exercise of control has been proven or, rather, that sufficient exercise of control was evinced to show that the employer must have had the right to control. The current version of the Restatement of Agency (now 3rd) retains a 10-factor test for distinguishing between employees and independent contractors, at 7.07. I find the Restatement 3rd’s treatment of the distinction between the right to control and exercise of control no better than the Restatement 2d’s. (The 10-factor test is discussed in comment f).   

What I tell students is that there is always going to be dissatisfaction, on all sides, with a test (like the Restatement 2d of Agency test) that cannot produce predictable outcomes. But the very reason factor tests exist is that a clear rule either cannot, or for political reasons has not, been developed. I say “political” because these disputes often mask the uncomfortable truth that there was never overwhelming support for the policies embedded in the statutes under discussion. Although I do not agree with their position, I fully understand and acknowledge that significant interests in our society, though not popular majorities, opposed (and many have never ceased opposing) ideas like workers’ compensation, compulsory wage and hour laws, antidiscrimination laws, the right of employees to organize unions, and so forth, as impinging on fundamental liberty. Battles over employee-status reveal the never-completely-healed fault lines of the original struggles for these statutes and polices.

The way some federal statute drafters escaped from the wet blanket of employee definition was (predictably enough) to develop a statutory employee definition that was more likely to produce findings of employee status, for example the Fair Labor Standards Act’s “economic realities” test. The very first prong of that test will have the tendency to explode the putative existence of many independent contractor relationships: “the extent to which the worker's services are an integral part of the employer's business: ‘Does the worker play an integral role in the business by performing the primary type of work that the employer performs for his customers or clients?’” Think Uber could ever argue its’ drivers are independent contractors if the fact finder was focused on that prong? You will also note that regardless how aggressively a state attempts under its employment laws to facilitate the narrowing of employee definition, the IRS retains its 20-factor test (a net from which relatively few will wriggle free) and ERISA utilizes common law Darden factors to sweep up many employees states might seek to exclude as independent contractors.

The foregoing leads inexorably to the phenomenon of last year’s Handy, Inc. laws (discussed on this blog) many of which applied to workers’ compensation statutes. These laws make it much easier to classify someone as an independent contractor who would almost certainly be classified as an employee in, say, California or under federal law. I ask students to consider such laws as exemplars of frustration, but also as potential agents of deregulation. Injury costs never disappear, they shift (I’m willing to wait for the empirical data some claim to require in order to become assured of this somewhat “Pythagorean” axiom). If a Handy statute cuts off a workers’ compensation claimant’s recovery, the cost will shift somewhere. I also wonder about one of the problems that led to the creation of aggressive ERISA preemption in connection with discretionary employee benefits: races to the bottom can have the effect of creating significant national disuniformity for employers and insurance carriers calculating future labor costs. Unless one envisages a deregulated (dystopian?) Handy Inc. or opt-out future, the disuniformity should be taken seriously. Employers in Handy states remain fully bound to most of the “heaviest” employment law they will encounter, and their HR departments, one imagines, must be pretty confused. My law students certainly did not produce this confusion, but I suspect they may be among its beneficiaries.

Michael C. Duff

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