Friday, May 3, 2019

DOL’s FLSA “Gig” Economy Letter Ignores History and is Dwarfed by 9th Circuit’s Jan-Pro Case

I have been asked a couple of times this week to comment on the apparent narrowing of the FLSA employee standard in a recent Wage and Hour Opinion letter. In a nutshell, the letter tells me nothing I did not already know. “Virtual Marketplace Companies” badly want advance governmental imprimatur for the argument that, although they employ labor, they are not employers. The letter is not really worth analyzing because it is cautiously cabined and advisory: the facts underlying the analysis were spoon-fed to the Wage and Hour analysts in a manner most likely to lead to the foreordained conclusion that the workers in question are independent contractors. It is however telling that the anonymous solicitor of the opinion frames the questions in terms of all “virtual” companies connecting “service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services.” The bloom is off the rose with respect to the hegemonic designs of this deregulatory project. Silicon Valley Gig work is a quaint anachronism. And it should be remembered that is some states these marketplace contractor laws have been applied to workers' compensation.

Anyone wanting to read the actual employee-status intent of Congress in enacting the Fair Labor Standards Act (the statute at the center of the current Wage and Hour letter) would do much better reading David Weil’s Administrator’s interpretation (Weil was a former Democratic Wage and Hour administrator). While Weil’s analysis is also a political document, it contains a far more comprehensive account of the FLSA employee question, including this nugget from the Congressional history as quoted in footnote three of the Supreme Court’s opinion in U.S. v. Rosenwasser:

Sen. Rep. No. 884 (75th Cong., 1st Sess.) p. 6, states that the term “employee’ is defined to include all employees. * * *’ Senator Black said on the floor of the Senate that the term ‘employee’ had been given ‘the broadest definition that has ever been included in any one act.’ 81 Cong.Rec. 7657. (emphasis supplied)

Also from Rosenwasser,

The term ‘employee’ is defined in Section 3(e) to include ‘any individual employed by an employer,’ with certain exceptions not here pertinent being specified in Section 13, and the term ‘employ’ is defined in Section 3(g) to include ‘to suffer or permit to work.’ A broader or more comprehensive coverage of employees within the stated categories would be difficult to frame. (emphasis supplied)

All I can say is that I would feel pretty confident litigating an FLSA “virtual marketplace” employee case, even if Chevron deference were applied by the courts to the DOL interpretation. Unless the worker in question is in fact a computer (or perhaps a robot), I’d like my chances under current law.

Meanwhile, the 9th Circuit’s opinion in Vazquez et al. v Jan-Pro Franchising brought application of the ABC test to Jan-Pro franchisor-franchisee “arrangements” closer to a day of substantive reckoning. The Jan-Pro structure is an elaborate scheme which, at the end of the day, unsurprisingly classifies janitors as independent contractors who, accordingly, are denied statutory labor protection. After a tortuous procedural journey worthy of study in any first year civil procedure class (there was ancillary litigation in both Massachusetts and Georgia), the 9th Circuit concluded that none of the prior litigation was entitled to preclusive/res judicata effect (the specific litigation under review in the 9th Circuit involved California state-law plaintiffs and had been severed from earlier diversity of citizenship rounds of litigation). Accordingly, with the California-based litigation remaining “live,” the substance remaining was whether employee-status questions would be controlled by Dynamex (establishing the ABC employee standard for California wage orders), which had been decided well after the onset of the Jan-Pro litigation. The 9th Circuit answered in the affirmative. The Court first reminded readers that, “[t]he principle that statutes operate only prospectively, while judicial decisions operate retrospectively, is familiar to every law student.” The Court concluded on this point that “[g]iven the strong presumption of retroactivity, the emphasis in Dynamex on its holding as a clarification rather than as a departure from established law, and the lack of any indication that California courts are likely to hold that Dynamex applies only prospectively, we see no basis to do so either.”

The second major issue was whether applying Dynamex (the ABC employee status standard) retroactively would offend due process because, among other reasons, Jan-Pro had relied on the old standard. (An exception to the retroactively rule at times under California law). The Court found that a state court modifying common law was entitled to deference exceeding that afforded during rational basis review of a legislative enactment (that is a lot of deference). The 9th Circuit further concluded that the California Supreme Court’s reasoning was “neither arbitrary nor irrational,” a predicate finding required to establish a due process violation. The Circuit stated,

By applying Dynamex retroactively, we ensure that the California Supreme Court's concerns are respected. Besides ensuring that Plaintiffs can provide for themselves and their families, retroactivity protects the janitorial industry as a whole, putting Jan-Pro on equal footing with other industry participants who treated those providing services for them as employees for purposes of California's wage order laws prior to Dynamex. And retroactive application ensures that California will not be burdened with supporting Plaintiffs because of the “ill effects” that “result[] from substandard wages.”

Due process was not deemed offended, and the case was remanded for decision on the merits, but with a wrinkle only occasionally seen in federal circuit court cases: the Circuit offered “observations and guidance” to the district court on remand to the district court. The first interesting thing about the “guidance”—from this tort professor’s perspective—is the Court’s caution to separate carefully issues of “control” in the tort vicarious liability context from those in the employer-employee context. As I often tell my students, vicarious liability has historically possessed a “push” dynamic (push servant status away) while statutory coverage has possessed a “pull” dynamic (pull servant status in). For more, see here, and here. The second interesting thing about the “guidance” is that the Court signaled that Jan-Pro, under Prong B of the ABC test (concerning which the employer has the burden), has not under the existing record established that “it was not engaged in the same usual course of business as the putative employee.” I read the opinion as saying to the district court, develop the record more if you like, but you probably do not have to do so under Prong B. Granting MSJ in favor of plaintiffs is supportable right now.    

Given the extent of economic activity encompassed by the 9th Circuit opinion, and the non-binding nature of the DOL’s Wage and Hour Letter, it is not difficult for this writer to see that the former development has much greater impact on the so-called Gig economy than the latter. All Dynamex pipeline cases (cases currently in process that arose before Dynamex was decided) may have instantly experienced a large increase in value.

Michael C. Duff

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