Back in 2011, I discussed a titillating case of strip club dancers (or, a decision says, “performers”, “entertainers”, “dancers” or even “exotic dancers” — although not “strippers”) who were trying to claim wages for the time they worked at a popular strip club in Connecticut.

The story at the time was that they were compelled to arbitrate their claims. 

So private arbitration should mean end of the public story, right?

Well, as it turns out, no. And the analysis of the case has some very real practical implications for employers.

I’ve been going to back through some older posts to do some followups. And in doing so, I discovered that this case had a public ending — except for the fact no one reported on it.

It seems that the dancers won big in an arbitration proceeding and then asked the court to “confirm” the award — making the whole thing public.  (You can read the arbitrator’s award here.)

And as a result, we get a revealing look at the efforts one club made to try to avoid having strippers be deemed “employees” and how it ultimately failed.

The strip club  — sorry, “adult entertainment establishment” as it called itself — had the strippers sign leases “renting” out the poles and space of the strip club. In doing so, the Club argued that these dancers were no more than tenants, and therefore, not entitled to wages, benefits or any of the normal protections that come with being an employee.

Under the “lease”, according to the decision, the dancers agreed to perform “semi-nude (topless) and/or nude dance entertainment” at the Club.”

In doing this work, dancers agreed to “perform consistent with the industry standards of a professional exotic dancer.”

(Aside: Professional exotic dancers have INDUSTRY standards?)

The Lease also provided that there will be set fees (called “entertainment fees”) for certain performances, “such  as couch and table dances,” and that dancers “may not charge more than the set fees.”

Oh, and they wouldn’t be paid any wages.

And here’s where it gets REALLY interesting.

If they ever DID claim wages, the lease provided that they would forfeit all of the entertainment fees they previously earned. And, to top it all off, should the dancers claim to be employees, they will also be liable for any attorneys’  fees, costs, or other damages incurred by the Club as a result of that claim.

But the arbitrator was having none of it.

He detailed the requirements of the strippers saying that there were four principal ways a dancer can “perform” — all of which indicated that they were tied to the Club (and therefore employees).

  • A “stage set”, in which the only income is the tips the customers choose to give her.
  • A “private dance” or “booth dance”, in which the Club sets the “mandatory entertainment fees”.  (A booth dance here cost $25, of which the dancer keeps $20 and pays $5 to the Club.)  Tips encouraged.
  • A “VIP” area in which the fee for that performance is $100 for 15 minutes, $200 for 30 minutes and $300 for an hour and in which the entire fee goes to the Club.  Tips encouraged as well.
  • A “Champagne Room” performance, in which the customer is charged $110 for one half hour and in which the entire fee goes to the Club.  Customer is free to tip the dancer.

At the end of a shift, the dancer must pay “rent” to the Club of $20 and a tip to the DJ.

The arbitrator said that the dancers were employees and therefore entitled to the protections under state and federal law.  Minimum wage was owed, for example. Moreover, the “lease” violated state law because it called for a refund of wages under Conn. Gen. Stat. Sec. 31-73.  

The arbitrator noted that while employers and employees have “wide latitude” to enter into wage agreements, that latitude does not extend to permitting parties to override or ignore the requirements of Connecticut law.

The arbitrator took particular note of the paragraphs that required the dancers to return “all” entertainment fees if they challenged their employment status.  These provisions are “clearly designed to penalize the employee for exercising her right to insist upon proper classification.  The inherent purpose of the Lease is to violate the law.”

The decision goes on to analyze the proper penalties and set-offs in such a case.  Here, the arbitrator again was not sympathetic to the employer — and for good reason.  The employer failed to prove it acted “in good faith” — and therefore the dancers were entitled to liquidated (or double) damages.

How much? Nearly $130,000 in damages for two strippers — plus attorneys’ fees.

The case is a great example of what happens on the fringes of wage and hour law. The vast majority of employers in this state play by the rules and wouldn’t even dream of cooking up a “lease” for its employees to sign.

But the law exists to protect the dancers too and here, there’s little doubt that justice has been well-served by the award here.

justiceI’m back with news of a relatively big decision today from the Connecticut Supreme Court.

In the decision, the Court clarified an important question that the Connecticut Department of Labor had been pushing hard.  It will be welcome news for businesses in the state.

The issue was this: If an independent contractor (and his or her business) works ONLY with one company, can that person still be an independent contractor?

The Court said yes, that person CAN be. But it is important to note that it does not mean that the person will ALWAYS be an independent contractor. Instead, the court will continue to apply the ABC test — balancing several factors. (I’ve discussed the test in a prior post here.)

The case, Southwest Appraisal Group v. Administrator, Unemployment Compensation Act can be downloaded here.  Note that it will not be “officially released” until March 21, 2017.

The only issue in the case was whether the putative employee was “customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.”

How to make that determination? By looking at the “totality of the circumstances” which also include another series of tests.

Here, the court at least is helpful in setting up what those factors are.   According to the Court, “factors to consider in evaluating the totality of the circumstances under part
C include:

  1. the existence of state licensure or specialized skills;
  2. whether the putative employee holds himself or herself out as an independent business through the existence of business cards, printed invoices, or advertising;
  3. the existence of a place of business separate from that of the putative employer;
  4. the putative employee’s capital investment in the independent business, such as vehicles and equipment;
  5. whether the putative employee manages risk byandling his or her own liability insurance;
  6. whether services are performed under the individual’s own name as opposed to the putative employer;
  7. whether the putative employee employs or subcontracts others;
  8. whether the putative employee has a saleable business or going concern with the existence of an established clientele;
  9. whether the individual performs services for more than one entity;
  10. and whether the performance of services affects the goodwill of the putative employee rather than the employer.

The court does add some additional guidance here noting that, “We emphasize that particular caution is necessary in considering the relative size or success of the putative employee’s otherwise independent business in connection with the totality of the circumstances analysis under part C.”

This is a big decision for employers who also use independent contractors.  Businesses should again review their relationships with these independent contractors to try to satisfy as many of the factors outlined above.

IMG_7083My colleagues, Clarisse Thomas, Keegan Drenosky and I have been busy keeping track of the developments in New York which may impact Connecticut employers with cross-border business.  Here are two of the most recent developments.

Freelance Isn’t Free

The New York City Council has enacted and the Mayor has signed a new law applicable to employers who hire contractors for work in New York City.

The “Freelance Isn’t Free Act”, which goes into effect on May 15, 2017, will formalize the relationship between the freelance worker and the hiring party, and require the parties to sign a written agreement.  Freelancers are considered to be those individuals or one person corporations who offer their services to the public.

Under the new law, if the arrangement with the freelancer involves payment that is $800 or more in a 120 day period, there must be a written contract.

A sample contract is being posted on the City’s Office of Labor Standards’ website.

The contract must have 1) the name and mailing address of both parties; 2) an itemization of the services being provided; 3) the value of the services; 4) the rate and method of compensation; and 5) the date payment is to be made.  If no date of payment is specified then payment must be made no later than 30 days from the completion of the services.  After the price is agreed upon, the hiring party is prohibited from requiring as a condition of timely payment that the freelancer accept anything less than the contracted amount.  Each party must retain a copy of the contract.

The City has also established a complaint procedure to resolve disputes, while giving the freelancer the right to bring a lawsuit for damages, costs and attorneys’ fees.  There are statutory damages of $250 if the freelancer only prevails on a claim that no written contract was executed.  However, the freelancer can recover additional damages in certain circumstances equal to the value of the contract, plus the value of the services, attorneys’ fees and costs.

In addition, civil penalties of up to $25,000 can be imposed on any hiring party who is found to have engaged in a “pattern or practice” of violating the law.

Because this law applies equally to both indivual employers and companies, care must be taken by anyone hiring a freelancer to ensure that a contract is in place if the fees at issue are $800 or more.

Ensuring Pay Equity

On January 9, 2017, Gov. Cuomo signed Executive Order No. 162, which is an Order for “Ensuring Pay Equity by State Contractors.”  This is an effort to ensure that there is no pay discrimination based on gender, race and ethnicity.

The Order requires state contractors (and their subcontractors) to specifically set forth the job title and salary of all the employees who are working directly on a State contract or, if they cannot be separately identified, then all the contractor’s employees.  This information is in addition to existing equal opportunity information already required to be submitted.

All State contracts, agreements and procurements executed on or after June 1, 2017 will contain this requirement.

 

As Connecticut employers of a certain size know, Connecticut implemented Paid Sick Leave recently which affords employees up to five days off a year.   Now, federal contractors (including those in Connecticut) have another layer to deal with. As my colleague Ashley Marshall explains below, paid sick leave will now be a requirement later this year.  Thanks too to my partner Gary Starr who helped pull this together today on short notice.

marshall If we travel back in time to September 2015, President Obama signed Executive Order 13706 (EO) which established a mandate on federal contractors to give their employees up to 56 hours (7 days) of paid sick leave each year.

Today, the Secretary of Labor has issued regulations to implement President Obama’s Executive Order that established a mandate on federal contractors to give their employees up to 56 hours (7 days) of paid sick leave each year.  The regulation goes into effect on November 29, 2016.

Here are some of the highlights:

  1. The Final Rule covers new contracts and replacements for expiring contracts with the fdoctorederal government that result from solicitations on or after January 1, 2017.
  2. Employees will accrue 1 hour of paid sick leave for every 30 hours worked on or in connection with a covered federal contract.
  3. Paid sick leave is capped at 56 hours (7 days) in a year.
  4. Employees may use paid sick leave for their own illnesses or other health care needs, for the care of a loved one who is ill, for preventive health care for themselves or a loved one, for purposes resulting from being the victim of domestic violence, sexual assault, or stalking, or to assist a loved one who is such a victim.
  5. The Final Rule allows for coordination with existing paid time off policies and labor agreements
  6. Employers may require that employees using paid sick leave provide certification from a health care provider of the employee’s need for leave if they use 3 or more days of leave consecutively.

A few other tidbits:

  • Whether an employee has to work a certain number of hours  for coverage depends on whether they work “on” a covered contract or “in connection” with a covered contract.
  • Employees that work “on” a covered contract are those that are performing the specific services called for by the contract. They are covered, regardless of the number of hours worked in a year and regardless of whether they are full or part time.
  • Employees that work “in connection” with a covered contract are  those that perform work activities that are necessary to the performance of the contract, but are not directly engaged in the specific services called for in the contract.  An employee who spends less than 20% of his or her hours working “in connection” with a covered contract in a particular workweek is not covered.

As with many new benefits, employees may try to take advantage of the new regulation, particularly since no medical excuse needs to be provided until the employee is out of work 3 or more days.  Employers are going to need to be vigilant against abuse.

The Final Rule will be published in the Federal Register September 30, 2016, and will go into effect exactly 60 days after its publication. More information can be found on the U.S. Department of Labor’s website in its Fact Sheet and Overview.

My colleagues at Shipman & Goodwin have, for a lot longer than I have been doing this blog, have been producing the Employment Law Letter recapping some stories you might have missed over each quarter or so.

This week, a new newsletter was released and it touches on several topics of interest.

  • It recaps a Connecticut Supreme Court case that rejected an employee’s claim for lost wages as a result of the Kleen Energy explosion back in 2010.
  • It revisits the NLRB’s cases against a local ambulance company.
  • And it discusses some recent cases regarding FMLA and independent contractors.

If you’re looking for some reading to supplement the blog, I highly recommend the click.

 

Governor Malloy with current CTDOL Commissioner Sharon Palmer

You’ve no doubt heard lots about how the U.S. Department of Labor is cracking down on independent contractors.  I’ve recapped it before and my former colleague, Jonathan Orleans, has a new post regarding Uber & electricians.

But in my view, there is a larger, more important battle now being fought in Connecticut and you may not be aware of it.  I touched on it briefly in a post in July but it’s worth digging a little deeper.  Disappointingly, I have not seen anything written about this in the press (legal or mainstream).

A case recently transferred to the Connecticut Supreme Court docket threatens to cause lots of havoc to company usage of independent contractors in Connecticut. The Connecticut Department of Labor has taken an aggressive stance in the case which is leading to this big battle.

The case is Standard Oil of Connecticut v. Administrator, Unemployment Compensation Act and is awaiting oral argument.  You can download the state’s brief here and the employer’s brief here.  The employer’s reply brief is also here.

The employer (Standard Oil) argues in the case that it uses contractors (called “installers/technicians”) to install heating oil and alarm systems and repair and service heating systems at times of peak demand.  The state reclassified the installers/technicians as employees and assessed taxes and interest.  At issue is the application of the ABC Test which is used in Connecticut to determine if these people are employees or independent contractors.

As explained by the CTDOL:

The ABC Test applies three factors (A, B, and C) for determining a worker’s employment status. To be considered an “independent contractor,” an individual must meet all three of the following factors:
A. The individual must be free from direction and control (work independently) in connection with the performance of the service, both under his or her contract of hire and in fact;
B. The individual’s service must be performed either outside the usual course of business of the employer or outside all the employer’s places of business; and
C. The individual must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service performed

In the Standard Oil case, the employer is challenging the findings on various elements of this test. One of them – Part B , the “places of business” — is potentially far-reaching, according to the briefs filed in the case.  The issue is whether the customers’ homes are “places of business”; if they are, then the consultant cannot be said to be performing services “outside” the employer’s places of business.  The employer argued that viewing customers’ homes as places of business “does nothing to further the Act’s purpose and its practical implications are damning to Connecticut industry….”

Indeed, the employer argues that “it will be impossible for [the employer]-or any Connecticut business–to ever utilize the services of an independent contractor.”

Continue Reading The Real Battle over Independent Contractors and the ABC Test In Connecticut

Can an employee work for more than one employer at the same time? Under a theory of law called “joint employment”, the answer is yes.

But how do you make that determination?

Suppose a private bus company provides services all over Connecticut. It’s largest customer happens to be a very large private university in the state. The company provides both interstate and intrastate service for the university, as well as shuttle bus service for the campus.

Are the bus drivers employees of both the bus company and the university?  A recent case in the federal court in Connecticut set forth the various tests that the courts in Connecticut use to make that determination.

(Ultimately, the court denied the drivers’ claims that they were employees of the university.)

The court’s decision in Velez v. New Haven Bus Service can be downloaded here.

The Tests

Where a plaintiff claims multiple simultaneous employers, or “joint employers” under the FLSA, “the overarching concern is whether the alleged employer possessed the power to control the workers in question . . . with an eye to the economic reality presented by the facts of each case.”  In this so-called “economic reality” test, a court must first evaluate whether the alleged joint employer exercised formal control over a plaintiff’s employment.

The Second Circuit has recognized a four-factor joint-employer test to establish formal control, which asks whether an employer: (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.

Simple enough, right?

Well, not exactly.  In fact, the Second Circuit “did not hold . . . that those [four] factors are necessary to establish an employment relationship” as the court said in another case (Zheng v. Liberty Apparel Co.).  That decision applied a “functional control” test.

In doing so, a court may also consider the following factors:

(1) whether [the putative employer’s] premises and equipment were used for the plaintiffs’ work; (2) whether [the direct employer] had a business that could or did shift as a unit from one putative joint employer to another; (3) the extent to which plaintiffs performed a discrete line-job that was integral to [the putative employer’s] process of production; (4) whether responsibility under the contracts [between the direct and putative employers] could pass from one [entity] to another without material changes; (5) the degree to which the [putative employers or its] agents supervised plaintiffs’ work; and (6) whether plaintiffs worked exclusively or predominately for the [putative employer].

As the District Court recognized in the Velez case, the Second Circuit has not announced a definitive set of factors to establish functional control, recognizing that there will be “different sets of relevant factors based on the factual challenges posed by particular cases.”

How many of those factors will need to be met to satisfy a claim? That’s still unclear, but in the Velez case, two was not enough to establish joint employment.

The Takeaway?

Of course, longtime readers will know that this is not a new topic. 

Employers should always be vigilant in making it clear who is and is not an employee of theirs. If you contract out certain work (food service, for example), make sure that you are not crossing the lines that seem like you are more their employer than a customer. For example, if you set these contractors’ hours and discipline them and they only worked for you, that might be closer to the joint employment relationship than you may have intended.

Contracts may help, but as you can see from the above, the courts will look past the language and look to either the “economic realities” or the “functional control” to make that final determination.

It’s Baseball Season; a time for the Sox to come out and play.

Not the Red Sox — this is, after all, a legal blog (run by a Yankees fan, no less).  No, today, we’re talking about Sarbanes-Oxley (SOX) Whistleblower Protection.

Still with us. 

My colleague, Clarisse Thomas, has taken a look back at the U.S. Supreme Case of Lawson v. FMR LLC , which was decided last month.  Now that the dust and analysis have settled on the case, she gives us some practical and useful tips on what to take away from the case. 

A month ago, the Supreme Court significantly expanded — and dangerously I might add — the scope of Sarbanes-Oxley’s whistleblower protection provision. Now, not only does the provision protect employees of publicly traded companies, but it also protects employees of any private contractor or subcontractor who may work for those public companies. So, private employers, beware…

The case appears to be based more on public policy concerns than the actual text of the statute.

Let’s look first at the language of the law itself.  SOX’s whistleblower provision says:

§ 1514A. Civil action to protect against retaliation in fraud cases

(a) Whistleblower protection for employees of publicly traded companies. No [public] company . . . or any officer, employee, contractor, subcontractor, or agent of such company . . . may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee . . . .

Although the provision’s heading expressly indicates protection for employees of public companies, the Court held that the caption heading was just a “short-hand reference,” and therefore not intended to exclude employees who may work for private employers.

The problem in Lawson was that the public companies at issue were not public employers to which the statute’s protections would apply. They in fact were mutual funds, which, by their very nature, have no employees. Thus, given the statute’s limitations, the Court extended the statute’s reach to private contractors and subcontractors, and in doing so, dramatically increased the exposure of these private employers to potential liability.

The Court’s reasoning was simple: “It is common ground that Congress installed whistleblower protection in the Sarbanes-Oxley Act as one means to ward off another Enron debacle.” Herein lies the basis for the Court’s ruling. The term Enron was mentioned 34 times throughout the majority opinion.

Because the Court chose not to limit its holding in any way, the dissent opined that the decision would open the floodgates for whistleblowing lawsuits that are beyond the scope of SOX’s protections. The majority dismissed these concerns, by noting that such claims can be addressed later on.

Truth be told, a month after the case was decided, it remains unclear what the impact of this case will really be.  But because the case provides very little guidance as to the scope of claims that may be beyond SOX’s protections, and as to the types of private employers to which it applies, this decision will no doubt result in threatened and actual lawsuits in the years (if not months) to come.

What can private employers do to protect themselves? Much has been written (including a good summary in Employment Law 360) but the basic tips remain as follows:

  • As with a lot of these types of technical provisions, knowledge is key.
  • Familiarize yourself with SOX’s whistleblower protections and provide training to supervisory and managerial employees in furtherance of this goal.
  • Understand the full extent of the contractual relationship you may have with a public company, so that you can better assess whether Lawson may apply, given that relationship.
  • Consider preparing (or revising) policies that prohibit retaliation, to include the protected activities set forth in SOX’s whistleblower statute.
  • Finally, ensure that there are sufficient avenues in your workplace for employees to complain about possible SOX violations (being able to report an issue to just an immediate supervisor may not be enough), and ensure that sufficient procedures are in place to identify and prevent retaliatory conduct against employees who may report possible SOX violations.

The SOX are going to be playing ball for a long time to come.

So, your employees are all paid at least minimum wage and overtime. You’re good, right?

Not necessarily, as a recent column in the Connecticut Law Tribune points out.  You might need to pay a “prevailing” wage — if you have a contract with the State of Connecticut.

Indeed, as many companies who do business with Connecticut have learned, the contracts have a provision at the end that states that: “Employer understands that, as Contractor, it must comply with the Service Worker Statute, Sec. 31-57f of the Connecticut General Statutes as revised.”

Basically, it means that a “standard” wage or a “prevailing” wage must be paid to certain employees in certain industries.

As the article states:

The SCA applies to any employers in the management, building, property or equipment service, or food service industries that contract with the government in the state of Connecticut. The SCA was amended on July 1, 2013, to include security services. Health care services remain exempt. The SCA requires specific wages to be paid to employees based on their job classification. For example, as of July 1, 2013, a cashier who would typically earn minimum wage (i.e., $8.25 per hour in Connecticut) must be paid $10.14 per hour where the SCA applies. Compensating that cashier at a lower rate violates the law.

In addition, employers covered by the SCA must provide their employees with the appropriate prevailing rate of benefits based on the employee classification. Such benefits include: medical, surgical or hospital care benefits; disability or death benefits; benefits in the event of unemployment; pension benefits; vacation, holiday and personal leave; training benefits; and legal service benefits.

There is a way out. Employers can collectively bargain with employees regarding their wages and benefits (read: union). If that’s done, the prevailing wage obligations diminish.

The article is worth a read, even as just a refresher to what the prevailing wage rules really mean.

To work on State of Connecticut contracts with the Department of Transportation, various contractors have to set up an affirmative action plan.  If they do not have one on file with the DOT, the Department’s Division of Contract Compliance will send out the following letter.

So what to do if you don’t have a plan? Well, the DOT goes on to provide a sample Affirmative Action Plan (which has been in place since November 2008).

The DOT sample plan has more than just a specific policy regarding affirmative action;  it has sample policies relating to complaint procedures to sexual harassment prevention to maternity leave.

When the government prepares documents, the conventional wisdom is that employers should adopt them. After all, if the government has suggested them, they must be fine.

Here, however, employers may want to think twice and consider modifying them to add provisions that may suit their workplace.  For example, if your workplace is covered by the state and federal FMLA rules, you may need only to tweak the policy to make sure it is explicit that maternity leaves are covered as well.

The maternity leave policy, as proposed by the DOT, is awkwardly worded and written in a style that is far from the "plain-English" style hat is so routinely advocated for personnel policies nowadays.  For example, the policy actually quotes from a 1973 public act (and identifies it by statute) regarding pregnancy discrimination.    Perhaps the DOT can take a cue from one of my fellow "Legal Rebels", Ken Adams, and cut out some of the legal jargon in the next version of these documents.

The sexual harassment policy also appears a little bare bones as well. For employers, the easy solution may be to simply adopt the state’s proposed ones, but the best solution may be to craft a policy that fits your workplace better.