DOL Reminds Businesses: Make Sure Your Contractors And Employees Are Properly Classified!

The U.S. Department of Labor Wage and Hour Division recently released new guidance for businesses in an attempt to provide clarity and notice to organizations that may have individuals performing services for them who are improperly classified as independent contractors. The unsurprising summary? The DOL believes that the vast majority of such individuals performing services for employers are “employees” under the Fair Labor Standards Act (FLSA), and the DOL will pursue employers who it believes have misclassified “employees” by labeling them as “contractors.”

Per the guidance, the key question to ask when determining whether somebody is an employee under the FLSA is whether the individual is truly in business for himself/herself (a contractor) or if he/she is dependent upon the employer for work (an employee). Merely calling someone a “contractor,” having the individual sign an independent contractor agreement, and/or giving the individual a Form 1099 does not make the individual an independent contractor. In order to actually determine whether someone is an independent contractor or an employee under the FLSA, courts use a multi-factor “economic reality” test. While different courts have applied different permutations of these factors, courts generally ask:

  • Are the services being performed an integral part of the employer’s business? If you are operating a restaurant, your cooks and wait staff are going to be employees. The person who comes and fixes the oven a few times a year? That person probably may be properly classified as an independent contractor. DOL warns that those teleworking at home or utilizing a flexible work schedule can still be “integral” to the employer’s business and thus employees.
  • Does the individual’s managerial skill affect his/her opportunity for profit or loss? Can the individual lose money by performing services for you? If so, there is a good chance they are a contractor. Here courts will consider whether the individual can make decisions that impact how much profit or loss he/she realizes.
  • How does the individual’s relative investment compare to the employer’s investment? If the individual has not made any type of investment in the work (such as providing his/her own tools or workspace), then the individual is likely an employee. But just because individuals provide their own tools does not automatically make them an independent contractor.
  • Do the services performed require special skill or initiative? Does the individual demonstrate managerial and business skills indicative of an independent contractor? Does the individual market his/her own services, determine when to order materials, and determine when to fulfill orders or requests? If yes, the individual more likely could be properly classified as an independent contractor.
  • Is the relationship between the individual and the employer permanent or indefinite? Is the individual performing services on one small project or does the individual perform services continuously and repeatedly for the same employer? Does the relationship continue indefinitely until one party decides to end it? If yes, the individual is likely an employee. Part-time workers and temporary workers are still employees if hiring such individuals is an operational characteristic intrinsic to a particular industry.
  • What is the nature and degree of the employer’s control? Does the employer control the hours of work, manner of dress or how the individual performs a particular job or service?

In considering these questions, each factor is analyzed in relation to one another and no single factor is determinative. The factors should not be looked at as a “checklist” and are to be considered in their totality.

Properly classified independent contractors are typically not entitled to minimum wage, overtime, benefits, unemployment compensation, or workers’ compensation. We expect that the Plaintiff’s Bar will attempt to use the DOL memo as a basis to file more lawsuits on behalf of individuals allegedly improperly classified as “contractors” in an effort to recover unpaid wages and benefits. Keep in mind that the DOL believes that almost all those performing services for a business are employees rather than contractors, so in the event that the DOL comes knocking, you already know how they will view the relationship.

What can you do to ensure your independent contractors are truly “contractors” in the eyes of the law? We recommend that you audit your practices by considering the relationship you have with all contractors and reviewing the duties of those classified as such. Attorneys in the McNees Labor & Employment Group regularly conduct audits to make sure that such individuals are properly classified and that employers are complying with the requirements of the FLSA and applicable state wage and hour laws.

Feds Define Which “Closely Held Corporations” Are Eligible to Opt Out of Contraception Mandate Under ACA

One year ago, the U.S. Supreme Court ruled in the case of Burwell v. Hobby Lobby Stores, Inc. et al, that for-profit closely held corporations must be permitted to opt out of the Affordable Care Act’s contraception mandate on religious grounds. As discussed in our July 7, 2014 blog post, the Hobby Lobby ruling left many key questions unanswered. In final regulations published on July 14, 2015, the regulating agencies addressed many of those questions.

Which “closely held corporations” may opt out of the ACA’s contraception mandate? A closely held corporation which properly adopts a resolution under applicable state corporation laws establishing that it objects to covering some or all forms of contraception on account of the owner’s sincerely held religious beliefs may opt out of the contraception mandate. The new final regulations define “closely held corporation” to mean an entity that:

  1. Is not a nonprofit entity;
  2. Has no publicly traded ownership interests; and
  3. Has more than 50% of the value of its ownership interest owned directly or indirectly by 5 or fewer individuals.

Such corporations must also either “self-certify” their status in a form developed by the Department of Labor or via a notice to the Department of Health and Human Services.

Do any ownership attribution rules apply? Yes. Ownership interests owned by a corporation, partnership, estate or trust are considered owned proportionately by the entity’s shareholders, partners or beneficiaries. An individual is considered to own the ownership interests owned, directly or indirectly, by or for his or her family. Family includes only brothers and sisters (including half-brothers and half-sisters), a spouse, ancestors and lineal descendants. If a person holds an option to purchase ownership interests, he or she is considered to be the owner of those interests.

What if a corporation is not certain whether it qualifies?  In these instances, a corporation may send a letter describing its corporate structure to the Department of Health and Human Services (“HHS”) seeking a determination of eligibility.  Interestingly, the regulations state that if the corporation does not receive a response from HHS within 60 calendar days, it will be considered to be eligible for the opt-out for as long as the corporate structure is maintained.

How do closely held corporations opt out of the mandate? A corporation offering self-insured health coverage may provide either a copy of its self-certification to its plan’s third party administrators or a notice to HHS advising that it is an eligible closely held corporation and of its religious objection to coverage of some or all of the mandated contraceptive services. Corporations offering insured health benefits may provide their self-certification to their insurers or to HHS.

Does opting out prevent covered employees from obtaining contraception benefits? No. The regulations place the burden on insurance companies and third-party administrators to ensure that all covered employees have access to free contraceptive coverage, albeit not through the objecting corporation’s health plan. Third-party administrators (“TPAs”) that administer self-insured health plans for closely held corporations that opt out are expected to provide contraception benefits to plan participants without imposing any charge to the objecting corporation. TPAs may do this by reimbursing participants for contraceptive services directly or through an arrangement with another party. Similarly, insurers that provide group health insurance to closely held corporations that opt out bear the sole responsibility of providing contraception benefits to plan participants independent of the objecting corporation’s health plan. The regulations indicate that costs associated with providing this coverage may be reimbursed through an adjustment to the federally-facilitated Exchange user fee.

If you have any questions regarding the new regulations or any aspect of the ACA, please contact any member of our Labor and Employment Law Practice Group.

Amendments Clarify Employers’ Background Check Obligations Under Pennsylvania Law

On July 1, 2015, Governor Tom Wolf signed into law Act 15 (House Bill 1276), which amends Pennsylvania’s Child Protective Services Law (CPSL) to clarify the requirements of employers and volunteer-based organizations to provide for criminal background checks and child abuse clearances of their employees and volunteers who work directly with children.  Act 15 provides much-needed, and desired, clarification to a well-intentioned statute that had a very broad effect.

Prior to the passage of Act 15, the CPSL, among other things, required employees and volunteers who are responsible for a child’s welfare or “having direct contact with children” to complete three background checks:  (1) a state criminal history check; (2) a state child abuse clearance; and, (3) an FBI criminal background check.  For purposes of the CPSL, a “child” is an individual under age 18.  Individuals “having direct contact with children” were defined broadly and included those with “the care, supervision, guidance or control of children or routine interaction with children.”  The ambiguity of this definition, as well as other provisions of the statute, generated confusion for employers and volunteer-based organizations, which struggled to identify which employees and volunteers were be subject to the background check requirements.  There was also significant concern about the cost of complying with the requirements for employees and, especially, volunteers.

While the CPSL background check requirements were part of many measures passed in 2013 to help protect children and were well-intentioned, the ambiguity of the statute caused confusion and raised significant concerns for employers and volunteer-dependent organizations.  Recent amendments to the CPSL included numerous revisions that were designed to provide much-needed clarification and address many of the concerns raised by employers and volunteer-based organizations as well as entities that often, but not regularly, use volunteers in day-to-day operations such as school districts.  Most notably for employers, the amendments have clarified and narrowed the pool of employees and volunteers that will be considered to have “direct contact with children.”  As amended, the CPSL now clarifies that “routine interaction” with children is “regular and repeated contact that is integral to a person’s employment or volunteer responsibilities.”  The amendments also streamline definitions so the statute is written in furtherance of the intent of the bill.  Additionally, the amendments extended the obligation to renew the background checks from every three years to every five years.

Also significant is a welcome exemption for colleges and universities.  These institutions of higher education are now exempted from obtaining clearances for employees whose contact with children involves matriculated students who are enrolled with the institution or prospective students visiting the institution.  Additional exemptions include but are not limited to administrative employees who have no direct contact with children, minor employees between the ages of 14 through 17 with other qualifying conditions, as well as employees or volunteers with a J-1 visa and certain qualifying conditions.

In addition to narrowing the breadth of the background check requirements, Act 15 also includes provisions easing the financial burden related to these requirements.  Specifically, the amendments codified a waiver of certain background check fees announced by Governor Wolf in mid-June 2015.  Effective July 25, 2015, the fees for the state police criminal history and child abuse clearance checks will be waived for volunteers and reduced for all other applicants from $10 to $8 each.  Those needing background checks for employment-related reasons remain responsible for the cost. The fee waiver does not apply to the FBI background check, which is the most expensive of the three required checks.

While the requirement to complete these checks for new employees “having direct contact with children” has been in effect since January 1, 2015, the deadline for compliance with respect to new volunteer background checks is extended under these recent amendments to August 25, 2015.  Employees who were existing employees as of January 1, 2015, but who had not completed the required background checks within the past five years, must complete the checks by December 31, 2015.

Although Act 15 provides welcome clarification of who must comply with background check requirements, those employers, volunteer-based organizations,  and school districts affected by the law must take prompt and significant steps in order to meet their obligations under the law.  If you have questions about your obligations under the Child Protective Services Act and the effect of these recent amendments on your obligations, please contact any member of our Labor & Employment Practice Group or Kathleen Duffy Bruder in our Government Relations Group.

OSHA Announces Major Focus on Healthcare Industry

In late June, the Occupational Safety & Health Administration (OSHA) announced a major initiative that will intensify and expand the agency’s enforcement resources in the healthcare industry, with a focus on several common causes of workplace injuries in hospitals and nursing homes including workplace injuries related to patient or resident lifting, as well as workplace violence, bloodborne pathogens, tuberculosis, and slip and falls.  OSHA has cited to statistics in support of its new initiative. In Calendar Year 2013, the rate of workplace injury and illness in inpatient healthcare settings was nearly twice the rate for private industry workers, and approximately half of the reported injuries in healthcare were attributable to “overexertion-related incidents” which led to musculoskeletal disorders, or “MSDs,” from patient handling.

As part of its new focus, patient handling procedures previously issued by OSHA as guidance will now be enforced as if a regulation.  In addition, OSHA staff have been advised that all hospital and nursing home facility inspections (whether prompted by a complaint, referral, or severe injury report) are now to include review of potential hazards involving MSD-related to patient handling, bloodborne pathogens, workplace violence, tuberculosis, and slips, trips and falls.  These more focused, intensive reviews will include an initial determination regarding the extent of handling hazards and the manner in which they are (or are not) addressed.  It is expected that OSHA compliance officers will evaluate the healthcare employer’s safety program management, program implementation, and employee training. OSHA has provided specific guidance to compliance/investigating officers who will be conducting these evaluations.

Once the employer’s program has been evaluated, compliance officers will make a decision as to whether the ergonomic portion of the inspection will continue.  If there are issues that are not addressed or require further attention, the employer may receive an Ergonomic Hazard Alert Letter identifying deficiencies. OSHA will follow up with any employer receiving an Ergonomic Hazard Alert Letter to determine whether the deficiencies have been addressed and may conduct follow-up inspections as necessary.

The bottom line is that now, and for the foreseeable future, healthcare employers can expect to face more frequent, more focused, and more intensive safety compliance reviews and inspections as a result of this new OSHA initiative. The proactive employer will be in the best position to successfully navigate through an OSHA visit and reduce potential liabilities.  The unprepared healthcare employer will run the risk of significant and costly citations.

Contact any of the attorneys in Labor & Employment Practice Group if you have a question about this post or need assistance with OSHA compliance.

Substantial and Unilateral Changes Enough to Establish Good Cause To Quit

In another unemployment compensation case, the Commonwealth Court held that a substantial and unilateral change to a claimant’s pay and performance goals was enough to meet the burden of a necessitous and compelling cause to voluntarily quit employment.

Claimant was a vice president of sales for an insurance company for approximately 17 months. Shortly before the end of his employment, he was reassigned to a new supervisor. Claimant had experienced issues with his former supervisor, and filed a formal complaint with the human resources department subsequent to this new assignment. After an investigation, Claimant’s employer did not take any disciplinary action against his old supervisor and dismissed his complaints. Shortly thereafter, Claimant’s new supervisor changed the way Claimant’s bonuses would be calculated, resulting in a significant decrease in his annual pay, and further set forth what Claimant felt were “unachievable expectations.” Claimant met with both his former and current supervisors, but was told that there would be no changes to the new expectations. Claimant considered the changes to be retaliation for the complaint against his former supervisor, quit his job, and filed for unemployment compensation benefits.

In upholding the Unemployment Compensation Review Board’s decision and affirming Claimant’s eligibility to receive UC benefits, the Court opined that “necessitous and compelling cause” to quit one’s job may exist where a unilateral and unreasonable change has been made by an employer, and further, that a substantial reduction in pay may amount to such cause. The UCBR concluded, and the Court agreed, that the Claimant had established such cause for quitting his job, citing to the above events which all occurred within a four week period. The Court further agreed that it was not unreasonable for the Claimant to believe that these “unachievable expectations” were in retaliation for filing a formal complaint with his employer.

While the Court is careful to point out that “mere dissatisfaction with reasonable modifications” is not enough to establish a necessitous and compelling cause to quit one’s job, employers should be aware of making unilateral changes which may be viewed as unattainable or unachievable.