Tag: Fair Labor Standards Act

DOL Issues Telework Guidance to Employers

As the modern workforce evolves, more and more employees are enjoying the flexibility of working from home, teleworking, or working away from the employer’s premises. These arrangements allow for greater work-life balance, increased productivity, and cost savings. However, as these teleworking arrangements become more common, it is important for both employers and employees to understand the protections and rights available under the law.

On February 9, 2023, the U.S. Department of Labor (DOL) issued a Field Assistance Bulletin (Bulletin) addressing several questions related to compliance with the Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA) when a business employs teleworkers. While Field Assistance Bulletins do not have the effect of law, they are nonetheless important statements of DOL policy and statutory interpretation.

The Bulletin explains that under the FLSA, employees who telework are entitled to compensation for all hours worked, including short rest breaks. In qualifying circumstances, employees are also entitled to take breaks to express breast milk free from intrusion and shielded from view. The Bulletin provides that the protections under the FLSA apply equally to employees who telework as to employees working at an office, factory, construction site, retail outlet, or any other worksite location. This means that teleworking employees are entitled to the same compensation and protection as employees working at a traditional worksite.

Similarly, under the FMLA, all hours worked are counted for purposes of determining an employee’s eligibility for leave. The Bulletin provides that when an employee teleworks from home consistently or in combination with working at another or various worksites, all of those hours count towards determining eligibility for FMLA leave. However, the determination of the worksite for an employee who teleworks is fact-specific and will be based on factors such as where the employee reports to work or the location where the employee’s assignments are made.

In conclusion, teleworking arrangements provide numerous benefits to both employees and employers. However, it is important to remember that these arrangements do not exempt employees from the protections and rights afforded to them by the FLSA and FMLA. While the Bulletin doesn’t have the force of law, it’s an important indicator of DOL policy regarding FLSA and FMLA enforcement. Employers and employees must be mindful of the protections and rights the DOL describes are due to telework employees to ensure that teleworking arrangements are fair and equitable for all parties involved.

For questions or assistance, please contact your Fraser Trebilcock attorney.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

Aaron L. Davis is Firm Vice President and Treasurer, and Chair of Fraser Trebilcock’s labor law practice. You can reach him at adavis@fraserlawfirm.com or (517) 377-0822. 

Sixth Circuit Limits the Scope of Personal Jurisdiction in FLSA Litigation

On August 17, 2021, in Canaday vs. The Anthem Companies, Inc., the United States Court of Appeals for the Sixth Circuit became the first appellate court to hold that individuals with a connection to the forum state may only join a collective action under the Fair Labor Standards Act (FLSA). This ruling protects employers by limiting their liability and expense in litigating claims of nonresident opt-in employees who join an FLSA collective action. It also prevents an employee from engaging in forum shopping of federal courts for the most favorable outcomes.

What is the background of this case and the resulting analysis by the Sixth Circuit?

In this case, The Anthem Companies, with corporate offices in Indiana, employed nurses to review medical insurance claims to determine if claimant payments are authorized under a medical necessity. Nurses who were contracted from all across the country were paid a salary and classified as exempt. As a result, they weren’t entitled to overtime pay.

Laura Canaday, a nurse based in Tennessee, reviewed The Anthem Companies medical insurance claims. She argued that Anthem misclassified her as “exempt” and she was entitled to overtime pay under the FLSA. Canaday moved to certify a nationwide collective action claim of review nurses who worked in several different states. The Anthem Companies moved to dismiss the suit from all out-of-state nurses since they lacked personal jurisdiction. The District Court and the Sixth Circuit agreed.

In its reasoning, the SIxth Circuit relied on the Supreme Court decision in Bristol-Myers, 137 S.Ct. 1773 (2017). This case involved Bristol-Myers, a California-based company, and its manufacture of a blood thinner, Plavix. California residents and nonresidents alleged defects of Plavix and related injuries. The Court ruled that the nonresident plaintiffs did not claim a relationship with the forum state (California). These nonresident plaintiffs did not purchase Plavix in California or suffer any harm from the drug in the state. The Supreme Court ruled “that any similarity between the resident and nonresident plaintiffs’ claim offered an insufficient basis for exercising specific jurisdiction.”

The Sixth Circuit in Canaday relied on Bristol’s reasoning, stating: “Anthem did not employ the nonresident plaintiffs in Tennessee. Anthem did not pay the nonresidents in Tennessee. Nor did Anthem shortchange them overtime compensation in Tennessee. . . a court may not exercise specific personal jurisdiction over claims unrelated to the defendant’s conduct in the forum state.”

Canaday contended that she must only show that their claims arose out of Anthem’s contacts within the United States, not specifically Tennessee. The Sixth Circuit disagreed: “Many federal laws provide for nationwide service on defendants and personal jurisdiction over them in any federal district court in the country. . . The FLSA, however, does not offer nationwide service of process.”

The court disagreed with Canaday’s claim that as the named plaintiff she must comply with the Fourteenth Amendment, but the nonresident plaintiffs aren’t required to do the same.

“Whether a court has personal jurisdiction over a defendant depends on the defendant’s contacts with the state in which the plaintiff filed the lawsuit. Two types of personal jurisdiction exist for corporations. A court may assert ‘general’ … jurisdiction over a defendant in its home state, where the defendant is incorporated or headquartered. Or a court may exercise ‘specific’ … jurisdiction over a defendant if the plaintiff’s claims ‘arise out of or relate to’ the defendant’s forum state activities.”

The Anthem Companies, which is incorporated and headquartered in Indiana has no “at home” status in Tennessee.

How does this ruling impact employers?

The scope of litigation under FLSA—at least in states within the Sixth Circuit—is limited in terms of size and geography, and as a result employers will likely enjoy reduced expense and liabilities of “out of state” employees who lack personal jurisdiction where the company is headquartered. It prevents employees from forum shopping to provide the “ideal” federal court to hear their claims.

If you have any questions about this case, or questions about the FLSA more generally, please contact Aaron Davis or your Fraser Trebilcock attorney.

Aaron L. Davis is Shareholder and Chair of Fraser Trebilcock’s labor law practice. You can reach him at adavis@fraserlawfirm.com or (517) 377-0822. 

The “New” IRS Independent Contractor Test – The More Things Change the More They Stay the Same

OVERVIEW

Proper characterization of workers as independent contractors or employees is a question that crosses many areas of substantive state and federal law, prominently federal tax law.

IRS Publication 15-A, Employer’s Supplemental Tax Guide (2020) (Dec 23, 2019), https://www.irs.gov/pub/irs-pdf/p15a.pdf (“Pub. 15-A”) announces relevant new or changed standards to be used by the Internal Revenue Service in making these determinations for tax year 2020. Pub. 15-A announces a policy of the IRS to focus on three “areas” of criteria in applying the preexisting “control test.” Significantly, the fundamental “control test” and its prior explication set out by the Service in the so-called “20 Factor” test remain valid.

Pub. 15-A also announced a new reporting form for mandatory employer use in reporting of workers determined to be independent contractors.

For completeness, I note that Pub. 15-A also discusses the threshold determination of “Who Are Employees?” and outlines the four types of business relations between the employer and persons performing services, which are:

  • Independent contractor;
  • Common-law employee;
  • Statutory employee; or,
  • Statutory non-employee.

See, Pub. 15-A pages 5-7, including examples of each.

Additional resources and comments are included in the last section below.

1. CONTROL TEST, REDUX

It is of course an understatement to say that there are multiple tests and lists of criteria for characterization of a worker as an employee or independent contractor, developed under the Internal Revenue Code for revenue purposes, under other federal laws for other regulatory purposes, and under state law for purposes arising otherwise. (The scope of Michigan or other state law is beyond this Note).

The thrust of Pub. 15-A appears to bring some additional order or guidance to preexisting criteria, and not to change those criteria or tests.

Under Pub. 15-A, the overarching issue in determining whether a worker is an employee or independent contractor remains the level of authority the employer retains to direct and control the worker’s activities. “In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered.” Pub. 15-A p. 7 “Common-Law Rules” section. See generally, Pub. 15-A pp. 7-10.

The 20-Factor Test Remains Valid. The longstanding “20 factor” test to distinguish an independent contractor from an employee, set forth in Rev. Rul. 87-41, remains valid.

“Grouping” of Factors. Effective January 1, 2020, the IRS will “group” factors and focus on three areas of the control test:

  • Behavior Control;
  • Financial Control; and,
  • The type of relationship of the parties.

Pub. 15-A provides:

“Behavior Control. Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of:”

  • Exercise of direction over time and place and sequence or means of work;
  • Whose instrumentalities (tools or equipment) are used;
  • Engagement of other workers;
  • Whether specific duties are assigned to a specific worker;
  • Instructions that the business gives to the worker;
  • Training that the business gives to the worker.

“Financial control. Facts that show whether the business has a right to control the business aspects of the worker’s job include:”

  • Who pays unreimbursed business expenses;
  • The extent of the worker’s investment in facilities or tools used;
  • The extent to which the worker makes the services available to the relevant market;
  • How the business pays the worker (salary or wage vs. fee-based);
  • The extent to which the worker realizes profit or loss.

“Type of relationship. Facts that show the parties’ type of relationship include:”

  • Existence and terms of a written contract;
  • Provision of benefits to worker;
  • Permanency of relationship;
  • Whether the services involved are a regular business activity of the employer.

2. NEW REPORTING REQUIREMENT

The 1099-MISC form previously used for reporting of independent contractor compensation has been a confusing “collection bin” for various characterization and reporting issues beyond that status. For tax year 2020, Employers are required to use a new reporting form, 1099-NEC Nonemployee Compensation, replacing the prior 1099-MISC to report compensation payments to persons the employer elects to characterize as independent contractors. See, About Form 1099 NEC, Nonemployee Compensation, https://www.irs.gov/forms-pubs/about-form-1099-nec, and form 1099-NEC, available at https://www.irs.gov/pub/irs-pdf/f1099nec.pdf.

3. FURTHER CONSIDERATIONS

Workers Misclassified? What to Do? The IRS Voluntary Classification Settlement Program provides guidelines to be followed by employers wishing to reclassify workers for future tax periods. See, Pub. 15-A p. 7 and Voluntary Classification Settlement Program. https://www.irs.gov/businesses/small-businesses-self-employed/voluntary-classification-settlement-program.

Relief from Liability for Mischaracterization. Unchanged by Pub. 15-A, the IRS provides potential “safe harbor” relief from liability arising from mis-characterization and mis-reporting under Section 530 of the Revenue Act of 1978, P.L. 95-600. The reporting business must meet all of the following:

  • Reporting consistency;
  • Substantive (fact) consistency; and,
  • Reasonable basis for the characterization.

See, Publication 1976, Do You Qualify for Relief Under Section 530? At https://www.irs.gov/pub/irs-pdf/p1976.pdf.

Department of Labor Test For FLSA. The Fair Labor Standards Act (FLSA) overtime and minimum wage requirements do not apply to independent contractors. The DOL website comments that a worker may be properly characterized as an independent contractor under other statutory schemes, but not for FLSA enforcement purposes. See, Get the Facts on Misclassification Under the Fair Labor Standards Act, https://www.dol.gov/whd/workers/Misclassification/misclassification-facts.pdf. The DOL notes that proper classification depends on the totality of the circumstances of the activity or situation, not a specific rule or test. See, DOL Fact Sheet 13, Employment Relationship Under the Fair Labor Standards Act (July 2008), https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship.

If you have any questions on these changes, please contact Dave Houston at 517.377.0855 or dhouston@fraserlawfirm.com.

Fraser Trebilcock Shareholder Dave Houston has nearly 40 years of experience representing employers in planning, counseling, and litigating virtually all employment claims and disputes including labor relations (NLRB and MERC), wage and overtime, and employment discrimination, and negotiation of union contracts. He has authored numerous publications regarding employment issues. You can reach him at 517.377.0855 or dhouston@fraserlawfirm.com.

Is Your Business Ready for Upcoming Changes to Overtime Regulations?

The United States Department of Labor’s changes to the overtime regulations of the Fair Labor Standards Act (“FLSA”) take effect December 1, 2016. Is your business ready? Continue reading Is Your Business Ready for Upcoming Changes to Overtime Regulations?