Legal Environment

Chapter 01 - The Regulation of Employment
Chapter 1 The Regulation of Employment
[Note to users: You can click on the case icon end of the IM chapter.] Chapter Objective
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The student is introduced to the regulatory environment of the employment relationship. The chapter examines hether regulation is actually necessary or !eneficial or if" perhaps" the relationship ould fare !etter ith less governmental intervention. The employment at ill doctrine" as ell as its exceptions and covenants not to compete" are discussed# and the impact of the $odel %niform Termination &ct is addressed. 'ince the regulations and case la discussed in this text rely on an individual(s classification as an employer or an employee" those definitions are delineated and explored. Learning Objectives )Click on the icon following the learning objective to be linked to the location in the outline where the chapter addresses that particular objective.* &t the conclusion of this chapter" the students should !e a!le to+ 1. ,escri!e the !alance !et een the freedom to contract and the current regulatory environment for employment. -. .dentify ho is su!/ect to hich employment la s and understand the implication of each of these la s on !oth the employer and employee. 0. ,elineate the ris1s to the employer of employee misclassification. 2. Explain the difference !et een and employee and an independent contractor and the tests that help us in that determination. 3. &rticulate the various ays in hich the concept 4employer5 is defined !y the various employment-related regulations. 6. ,escri!e the permissi!le parameters of noncompete agreements. Scenarios - Points for discussion Scenario One 'tudents should discuss hether or not 7an(s noncompete agreement is li1ely to !e found reasona!le !y a court" and ela!orate the aspects of the agreement that 7an might contest as unreasona!le )see section !elo " 4Covenants 7ot to Compete5*. ,oes 7an have a persuasive argument that the terms of her noncompete agreement are unreasona!le in scope or duration8 $ight she have grounds to claim that the agreement prohi!its her from ma1ing a living8
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:iven the diversity of state la s regulating noncompete agreements" discuss the range of legal restrictions that might apply to 7an(s particular agreement ith her employer. &s an employee ho or1s across several states" 7an(s defense may depend upon the presence - and specific language - of a forum selection clause in her noncompete agreement. Consider hat language ould !e more li1ely to provide 7an ith a strong defense against the !reach of contract claim. 7an might also argue that the company(s client list is availa!le through pu!lic means" and therefore" her access to this list should not !e prohi!ited. Scenario Two: 'erafine ould not have a cause of action that ould !e recogni<ed !y the EE=C. Revie the section 4The ,efinition of >Employer(5 ith students" and discuss the rationale that determines the status of a supervisor vis-?-vis anti-discrimination legislation. @ecause :ustave is 'erafine(s supervisor" not her employer" he cannot !e the target of an EE=C claim of sexual harassment. CCC" 'erafine(s employer" ould !e vulnera!le to an EE=C claim if the company lac1ed or failed to follo a system for employee redress of discrimination grievances. ;o ever" in this case" CCC appears to have a via!le anti-discrimination policy that it adhered to diligently# conseAuently" 'erafine ould !e unli1ely to in a decision in her favor. &s explained in the chapter" the court in Williams v. anning )1BB3* offered the follo ing rationale for its decision in a similar case+ 4'he has an employer ho as sensitive and responsive to her complaint. 'he can ta1e comfort in the 1no ledge that she continues to or1 for this company" hile her harasser does not--and that the companyCs prompt action is li1ely to discourage other ould-!e harassers. This is precisely the result Title D.. as meant to achieve.5 Scenario Three. This scenario offers an opportunity to revie the distinctions !et een an employee and an independent contractor discussed in the chapter )see 4The ,efinition of an Employee"5 particularly Exhi!its 1.0 - 1.3*. ,iscuss the .R' -0-factor analysis )Exhi!it 1.2*" as it applies to &riana(s position. .n light of the lo level of control that &riana had over her fees and her or1 process" and the limits upon her choice of clients" students should come to the conclusion that &driana is an employee )therefore" eligi!le to file an unemployment claim*" rather than an independent contractor. !eneral Lecture "ote for Employment La# Course .n order to teach this course" . have found that students must !e made to feel relatively comforta!le ith their peers. Eou ill !e as1ing your students to !e honest and to stay in their truth" even at times hen they feel that their opinion on one of these matters ill not !e popular or accepted !y the group. .n order to encourage an open atmosphere" it is therefore necessary for the class to feel comforta!le ith and a are of itself as a group. ;ere are t o exercises hich have proven to !e useful in reaching that goal in my classes+
1-9 -01- !y $c:ra -;ill Education. This is proprietary material solely for authori<ed instructor use. 7ot authori<ed for sale or distri!ution in any manner. This document may not !e copied" scanned" duplicated" for arded" distri!uted" or posted on a e!site" in hole or part.
Cultural Introductions ;ave students sit in groups of four or five. =nce they are in their groups ). usually call them families" so as to prevent a feeling of competition*" have students introduce themselves" as ell as provide a !it of cultural introduction ) here they or their parents are from" here they may have lived" or other 4cultural5 information" li1e they are from the su!ur!s" or they or1 for a certain industry" or they ent to a catholic school" etc.*. They should also discuss times hen they may have !een more a are of this cultural difference than others. This ill only !e shared ith the families. .n this ay" each student is made a are of the fact that she or he !elongs to a num!er of different cultures" their gender" race" and ethnicity" as ell as geography" age" type of education" etc. Fe generally use 4 hite males5 as the concept of ma/ority" though many of the 4 hite males5 in your class ill !elong to a variety of cultural groups. &llo them each to understand their o n uniAueness. Then as1 group mem!ers to introduce other mem!ers to the class. Four Facts .n group+ Gist four statements a!out yourself" three of hich should !e true" and one of hich should !e false. &lso list !elo those statements the names of the mem!ers of your family. )Hrofessor should do this too" up on the !oard" then disclose later to the hole class.* 7o " each individual should ta1e turns reading her or his statements to their family. &s each person reads their statement" the other people should /ot do n hich num!ered statement is false next to their name. Then" ta1e one person at a time" and all of the others should identify hich statement they !elieve is false and hy. &fter everyone has made their guess" the person ho shared the statements can reveal hich is actually false. Fere you surprised at some of the facts that people shared8 Fhich8 Fhy8 ;o good ere you" individually and as a group" at pic1ing the false statement8 Fhat does this tell us a!out ma1ing assumptions and /udgments a!out people8 Fere some of the statements given !y different people similar8 Fhy do you thin18
;o many did you get right8 Everyone stand up. .f you got at least one right" stay standing. T o right" stay standing. Three right8 Iour fight8 Iive right8 Etc. 'oon only one or t o may remain standing. Opening $iscussion Tip Fhat is employment la 8
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Fe are going to study ho the la affects managers" management in general. This is important for you to 1no as employees and as potential future employers. Now! "ou ma" not follow the law! but "ou should be aware of the ramifications of "our management emplo"ment decisions. Ior instance" as an employee" you may 1no that your employer has no right to do something" !ut you su!mit to it any ay !ecause you donCt ant to lose your /o! or have to go to court. &s an employer" you may 1no that your actions are not legal according to the letter of the la " !ut you eight the costs and !enefits and decide to do it any ay. 'imply" you must 1no the la in order to eight the costsJ There is no a 1no ledge gap among professionals since most managers and personnel practitioners have not had formal training in the application of ne employments la s to the or1place. .n addition" most la yers may understand the la as it is applied to a !usiness relationship" !ut not to employment relationships. %& %ntroduction to the Regulatory Environment
Learning Objective One+ #escribe the balance between the freedom to contract and the current regulator" environment for emplo"ment. Gecture 7ote+ Kust a tip to get your students to open their eyes a !it to the ne ideas that may !e presented in this course. &s1 your students to clasp their hands )you 1no " interloc1 the fingers*. Then as1 them to loo1 do n and see hich thum! is on top. Tell them to unloc1 them and to do it again. Goo1 do n. ;o many students clasped their hands differently8 Hro!a!ly none or very fe . 7o as1 them to try to clasp them ith the different thum! on top. .t feels different" doesnCt it8 ;o ever" there is no reason in the orld hy it should feel any differently" except that you are used to doing it one ay and not the other. Fhy do they thin1 they clasp the one ay in the first place8 4&re you the type of person ho goes right !ac1 to hat is comforta!le once you have changed for a moment" or are you the type of person ho stays ith a ne idea to see if you li1e it" ho it feels85 The purpose of this exercise is to sho students that they should !e open to ne ays of loo1ing at things" even if at first they feel a little uncomforta!le. &. .s regulation necessary8 The introduction sets up the main dialogue in employment regulation+ is regulation appropriate or should the government stay out of the !usiness /udgment of employers8 ;o far can the employer go in determining ho should or1 for it or not8 )'ee Exhi!it 1.1.* 1. The ans er to these Aueries offered !y Title D.. and other statutes is that the employer is free to ma1e any and all employment decisions" as long as they are not made on rongful grounds" as defined !y statutory la . The /ustification for these regulations is that they exist in those circumstances here there is some im!alance of po er !et een the employee and the employer.
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Gecture 7ote+ =ne example . use a great deal in my class is to inform students that" generally" an employer may choose not to hire anyone ho is !londe. ;air color is not a protected class and decisions on that !asis are legal" as long as they do not have an adverse impact. )Eou may ant to note that the opposite rule may have an adverse impact. .f one as to hire onl" !londes" this rule may have a disparate impact on @lac1s or &sians.* Gecture 7ote+ This might !e a good place to stop and discuss Exhi!it 1-1" $yths regarding regulation. ;o many students !elieve these 4myths85 Fhy8 ;ave they had any experience ith any of these issues8 .s there a difference in connection ith these myths !et een hat the la says and ho it is implemented in the or1 place8 Gecture 7ote+ &fter they have done the reading" . find it helpful to as1 several students to argue that regulation is a!solutely necessary in order to !ring a!out eAuality of opportunity" then pose them against several other students ho argue the other side. -. Regulation is not necessary+ The cost is greater than the !enefit. a. Hroponents of this vie !elieve that the mar1et rational" non-!iased !ehavior. ill or1 to encourage
!. .n a perfect mar1et" people ho ma1e employment decisions !ased on !ias ill not ma1e the most efficient decisions and ill therefore fall out of the competition. 0. Regulation is necessary+ a. ;o ever" opponents of this position contend that discrimination continues !ecause often employers are faced ith the choice of t o e$uall" Aualified applicants for a position. .n that case" the pre/udiced employer suffers no decrease in efficiency of her or his firm as a result of choosing the hite or male applicant over the minority or female applicant. !. .n addition" human !eings do not al ays act rationally or in hat society might deem to !e the !est interests of society" as a hole. c. Iinally" given the composition of the or1 force" if a !iased firm chooses only from the stoc1 of hite males" it still might have a pretty Aualified stoc1 from hich to choose# so it can remain a fully competitive. Therefore" economic forces do not afford a!solute protection against employment discrimination here the discrimination is !ased on race" gender" national origin" or other protected categories. %%& 'ho is Subject to Regulation( )'ee Exhi!it 1.-.*
Learning Objective Two: Identif" who is subject to which emplo"ment laws and understand the implication of each of these laws on both the emplo"er and emplo"ee.
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@asic Hrinciples of &gency Ga =rigins in &gency Ga . The la relating to the employment relationship is !ased on the traditional la called 4master and servant"5 hich evolved into the la of agency. .t may !e helpful to !riefly revie the fundamentals of the la of agency in order to gain a !etter perspective on the legal regulation of the employment relationship that follo s. .n an agency relationship" one person acts on !ehalf of another. The actor is called the agent and the party for hom the agent acts and from hom that agent derives authority to act is called the 4principal.5 a. The agent is !asically a su!stitute appointed !y the principal ith po er to do certain things. !. .n the employment context" an employee is the agent of the employer" the principal. .n an employmentLagency relationship" the employeeLagent is under specific duty to the principal to act as authori%ed. a. &ccordingly" if an agent goes !eyond her authority or places the property of the principal at ris1 ithout authority" the principal is no responsi!le to the third party for all loss or damage naturally resulting from the agent(s unauthori<ed acts ) hile the agent remains lia!le to the principal for the same amount*. &n agent has a duty to properly conduct herself hen representing the principle and is lia!le for in/uries resulting to the principal from her un arranted misconduct. Throughout the entire relationship" the principalLemployer has the o!ligation to ard the agent to exercise good faith in their relationship" and the principal has to use care to prevent the agent from coming to any harm in the during the agency relationship. a. This reAuirement translates into the employer(s responsi!ility to provide a safe and healthy or1ing environment for the or1ers. 6. .n addition to creating these implied duties for the employment relationship" the principalMagent characteri<ation is important to the or1ing relationship for other reasons" explained in the next section.
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'hy is it %mportant to $etermine 'hether ) 'or*er is an Employee(
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There is no constant definition of ho constitutes an employee. The ans er ill vary depending on the court" the issue and the statute to !e applied. The issue" ho ever" must !e determined !ecause of the follo ing concerns. Employee Hayroll ,eductions. 1. -. &n employer paying an employee is su!/ect to different payroll reAuirements than hen paying an independent contractor. &n employer ho maintains employees has responsi!ility to pay 'ocial 'ecurity )I.C&*" the I.C& excise tax" Railroad Retirement Tax &ct )RRT&* ithholding amounts" federal unemployment compensation )I%T&*" .R' federal income tax ithholdings" $edicare and state taxes. .n addition" it is the employer(s responsi!ility to ithhold a certain percentage of the employeeCs ages for Iederal income tax purposes. &n independent contractor has to pay all of these taxes on his or her o n. This is usually considered a !enefit for the employer !ecause it is a!le to avoid the !oo11eeping costs associated ith such ithholdings.
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Employee @enefits. 1. .n an effort to attract and retain superior personnel" employers offer employees a range of !enefits hich generally are not reAuired to !e offered" such as dental" medical" pension" and profit-sharing plans. .ndependent contractors have no access to these !enefits. Fe ill discuss the Iair Ga!or 'tandards &ct of 1B0N )IG'&* in detail in Chapter 16 !ut introduce it here merely to identify it as another vital reason to ensure correct classification of or1ers. a. The IG'& as enacted to esta!lish standards for minimum pay" employer record 1eeping" and child la!or. ages" overtime
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!. Fhere a or1er is considered an employee" the IG'& regulates the amount of money an employee must !e paid per hour and overtime compensation. 0. 2. ,. Employers may intentionally misclassify employees in order to avoid these and other costs and lia!ilities. & illful misclassification under IG'& may result in imprisonment and up to a O10"000 fine" imposed !y the ,epartment of Ga!or.
,iscrimination and &ffirmative &ction.
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Title D.. and other related anti-discrimination statutes only protect emplo"ees from discrimination !y employers# therefore" an independent contractor cannot hold an employer lia!le for discrimination on this !asis and employers are protected from some forms of discrimination and rongful discharge claims here the or1er is an independent contractor. a. ;o ever" as ill !e explored throughout this chapter" merely la!eling a or1er as an 4independent contractor5 does not protect against lia!ility under federal antidiscrimination statutes such as Title D...
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&dditionally" the 7ational Ga!or Relations &ct protects only employees and not independent contractors from unfair la!or practices. 7ote" ho ever" that independent contractors may !e considered to !e emplo"ers" so they may !e su!/ect to these regulations from the other side of the fence.
Cost Reductions. 1. -. &n o!/ective of some" if not most employers is to reduce cost and to increase profit. Employees are more expensive to employ due to the a!ove regulations hich reAuire greater expenditures on !ehalf of employees" as ell as the fact that others must !e hired to maintain records of the employees. a. .n addition" !y hiring independent contractors" the cost of overtime is eliminated )the federal age and hour la s do not apply to independent contractors* and the employer is a!le avoid any or1 related expenses such as tools" training or traveling. !. The employer is also guaranteed satisfactory performance of the /o! for hich the contractor as hired" as it is the contractor(s contractual o!ligation to adeAuately perform the contract ith the employer# hile the employee is generally a!le to Auit ithout incurring lia!ility. c. 'ome managers contend that independent contractors are more motivated and" as a result" have a higher level of performance as a conseAuence of their freedom to control their o n or1 and futures. d. Iinally" the employee may actually cause the employer to have greater lia!ility exposure.
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1* &n employer is 4vicariousl" liable5 if the employee causes harm to a third party hile the employee is in the course of employment. Fhile the employee may !e reAuired to reim!urse the employer if the employer has to pay for the damages" generally the third party goes after the employer !ecause the employee does not have the funds to pay the lia!ility. -* The employer could" of course" see1 repayment from the employee# !ut" more li1ely" it ill rite it off as an expense of doing !usiness. 0. Questions might arise in connection ith hether the or1er is actually an employee of the employer" and therefore hether the employer is lia!le" at all" a Auestion examined later in this chapter. 2. @y hiring independent contractors+ a. .ndependent contractors may still !e more expensive to hire and maintain than employees. !. This situation may exist here the employer finds that it is cheaper to have its employers perform certain types of or1 that are characteristically expensive to contract for. I. The Cost of $ista1es
Learning Objective Three: #elineate the risks to the emplo"er of emplo"ee misclassification. 1. .f a or1er is found to !e classified as an independent contractor" !ut later found to constitute an employee" the punishment !y the .R' is harsh. a. The employer is not only lia!le for the its share of I.C& and I%T&" !ut also su!/ect to an additional penalty eAual to -0R of the I.C& that should have !een ithheld. !. .n addition" the employer is lia!le for 1.3R of the employee. ages received !y the
c. These penalty charges apply if there have !een 10BB forms )records of payments to independent contractors* compiled for the or1er. .f" on the other hand" the forms have not !een completed" the penalties increase to 20R and 0R. d. Fhere the .R' determines that the or1er as deliberatel" classified as an independent contractor in order to avoid paying taxes" the fines and penalties can easily run into six figures for even the smallest !usiness.
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1* .n one case" the court ordered a cleaning services company to pay O2.3 million in !ac1 pay and damages for its failure to pay minimum ages and overtime pay to almost 200 house cleaners hen it violated the Iair Ga!or 'tandards &ct !y misclassifying its or1ers as independent contractors. e. .n late -00B" the .llinois ,epartment of Ga!or appointed a O0-N"300 penalty against a one Chicago-area housing contractor for failing records and the misclassification of 1N or1ers. 1* $ean hile other states such as .o a" $ichigan" 7e Eor1 and Fisconsin are searching for misclassifications through specially tas1forces and as1ing for ne legislation through designed tas1forces. -* The 7e Eor1 tas1force reported in -00B that it discovered 1-"000 cases of misclassification leading to approximately O6 million in penalties" employment taxes and or1ers compensation fines. -. The employer may also !e lia!le for violations of the 7ational Ga!or Relations &ct of 1B03 )7GR&*" IG'&" as mentioned a!ove" the 'ocial 'ecurity &ct of 1B03 and under state or1ers( compensation and unemployment compensation la s. a. The fines for each violation are su!stantial. Ior example" any person ho illfully violates the IG'& is su!/ect to a fine of O10"000 and six months( imprisonment. 0. The .R' estimates that it loses over O0.0 !illion a year in uncollected taxes that should have !een paid !y employers or the independent contractors hom they have hired. a. The .R' last estimated a misclassification of 0.2 million or1ers as independent contractors# in some fields" misclassification rates run as high as B- percent. !. The .R' ill generally attempt to 4match5 or1ers ho claim to !e independent contractors ith their companies. .f an independent contractor earned more than O10"000 from one source during a one-year period" the independent status of that individual is suspect. 2. Fhile e ill discuss !elo the process for correct or1er classification" the .R' provides a small 4safe har!or5 through the 1BPN Revenue &ct for employers ho have al ays and consistently defined a class of or1ers as independent contractor. a. &ccording to 'ection 300" a or1er ill !e considered an independent contractor provided that each of the follo ing four criteria is met.
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1* The !usiness must have never treated the or1er as an employee for the purposes of employment taxes for any period )i.e. the company has never ithheld income or I.C& tax from its payments" etc.*. -* &ll federal tax returns ith respect to this or1er ith the or1er !eing an independent contractor. ere filed consistent
0* The company has treated all those in positions su!stantially similar to that of this or1er as independent contractors. 2* The company has a reasona!le !asis for treating the or1er as an independent contractor. 'uch a reasona!le !asis may include a /udicial precedent or pu!lished .R' ruling" a past .R' audit of the company" or long standing industry practices. !. Fhere these conditions have !een satisfied" the employer is not lia!le for misclassification. Gecture 7ote+ &s ith the !eginning of my first class session" again . try to emphasi<e that e are all uniAue individuals. $y concern is that" even in a class such as this here these types of issues are 4on the ta!le"5 students" of course" retain their !iases from their culturali<ation process. .n an effort to !rea1 these molds" . play a game called ;uman @ingo. The purpose of this game is to ma1e students a are that people are not al ays ho you thin1 they are" and that the one person in the class ho appears to !e the most reserved may also !e the only person in the class ho has /umped out of an airplane" or ho spea1s several languages" and so on. Hrepare a grid on a regular sheet of paper ith t enty-five !oxes. Iill in t enty of the !oxes ith Aualities such as 4spea1s more than t o languages"5 4has s1ydived !efore"5 41no s a good /o1e and can tell you it"5 4can name at least three $ichael Kac1son songs"5 4gre up in the cityLsu!ur!s"5 etc. Copy these sheets so that everyone has the same one and hand them out. Tell students to rite a Auality that an individual may have in each of the empty sAuares. This can !e+ s1is do nhill" reads Heople" lives more than thirty miles from school" can name three $ichael Kac1son songs" etc. The tric1 to listing these is that the Auality must !e one that you expect less than half of the class to satisfy. The point of this exercise is to al1 around the room and find people ho satisfy that Auality. Eou may only as1" do you . . . " not hether they can sign any of the !oxes. .f they do" have them sign that sAuare on your sheet. Collect as many signatures as you can. &t the end of the time limit" the person ho has the most !ingo lines on their paper ins. Ties ill !e !ro1en !y the total num!er of sAuares signed. &nd those ties ill !e !ro1en !y all of you voting on ho of them listed the harder Aualities to find. [. usually as1 ho signed certain !oxes" and as1 the person person ho 1no s the songs to name them" etc.]
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ho 1no s the /o1e to tell it" the
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The $efinition of Employee :iven the variety of ays in hich to determine hether a or1er is an employee or not" the means !y hich the decision is reached usually depends on the factual circumstances and issue in the case. $ost statutes do not define the term" even though it is used extensively in the statute itself )assuming the term is clear*" hile others create ne ays to reach the decision.
Gecture 7ote+ .t may !e !eneficial to as1 the class hether they understand hy an employer might ant to classify someone as an employee. ).n one case cited in the text" &emmerman" an employer sought that classification !ecause the plaintiff ould then !e limited to collecting damages under or1ersC compensation act rather than under standard tort la .* Herhaps as1 the class to list those reasons hy someone might classify someone as an employee or not. @. 'everal tests have developed and are commonly used !y courts to classify employees and independent contractors. These tests included the common la test of agency" hich considers several factors !ut focuses on ho has the right to control the or1# the .nternal Revenue 'ervice ).R'* -0 factor analysis# and the economic reality analysis. 'everal courts also use a hy!rid approach" using one test !ut com!ining factors from other tests. 1. Fhile some courts continue to refer to all three tests as availa!le for consideration" and therefore e ill include a discussion of them here" there is a trend to ard recogni<ing a convergence. &s the court explains in Murra"! the three tests are 4functionally eAuivalent"5 ith the common la test controlling.
Murra" v. 'rincipal (inancial )roup! Inc.! et al. -. The common*law agenc" test is no considered to !e the leading test to determine status. %nder the common-la agency test" a persuasive indicator of independentcontractor status is the a!ility to control ho the or1 is performed.
Learning Objective Four+ +,plain the difference between and emplo"ee and an independent contractor and the tests that help us in that determination. a. This test originated in the 4master and servant5 Ga discussed at the !eginning of the chapter. %sing the language of those origins" since the master )employer* had control over the servant ) or1er*" the servant as considered similar to common-la property of the master and therefore originally governed !y property la " rather than contract la .
!. Though today" e have adopted contract or agency principles to negotiate this relationship" the element of control has persisted in our interpretation of the distinction !et een an employee and ho is an independent contractor. c. The right to control remains the predominant factor. 0. %nder the common la agency approach applied !y the courts" the employer need not actually control the or1" !ut must merely have the right or abilit" to control the or1 for a or1er to !e classified an employee. &lthough this is a strong indication that the or1er is an employee" other factors usually are considered. a. Ior example" sometimes the courts ill revie hether the or1er is paid in standard ages or through an expectation of profit !ased on the price the or1er 4charges5 for the /o!. 2. The common la test is specifically and consistently used to determine employee status in connection ith employment taxes )e.g." I%T& and I.C& taxes*" as ell as in federal income tax ithholding. a. .n the +strada case" the California Court of &ppeals evaluated hether Iederal Express ground pac1age drivers ere employees entitled to reim!ursement for or1-related expenses. The court applied the common la test and found that they ere" in fact" employees. !. =ne might !e a!le to !egin to understand the magnitude of a decision such as this one hen you learn that the fallout as an order !y the .nternal Revenue 'ervice that Iederal Express pay O01B million in !ac1 taxes !ased on the misclassification M and the +strada case only applied to or1ers over the course of one single "ear. c. 7ot all courts or circuits agree ith California on this issue. .n cases since" courts have also found in favor of IedEx" holding that the or1ers( a!ility to hire their o n employees" manage multiple routes" and to sell those routes ithout IedEx(s permission" Sas ell as the partiesC intent expressed in the contract" argues strongly in favor of independent contractor status.S Clearly" it is not a clear-cut ans er. 3. The .R' does have a secondary analysis" called the .R' -0-factor analysis# ho ever" even the .R' itself explains that 4this T enty Iactor Test is an analytical tool and not the legal test used for determining or1er status. The legal test is hether there is a right to direct and control the means and details of the or15 )emphasis in original*.5
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a. 7ot ithstanding its o n disclaimer" these -0 factors have !een continually articulated !y courts" regulatory agencies" commentators" and scholars as critical to the determination of the status of an individual or1er. 'uffice it to say that hen these factors are satisfied" courts are more li1ely to find 4employee5 status. !. .n addition" the .R' stated that the follo ing -0 factors are not inclusive !ut that 4every piece of information that helps determine the extent to hich the !usiness retains the right to control the or1er is important.5 )'ee Exhi!its 1.0 and 1.2.* 1* .nstructions+ & or1er ho is reAuired to comply ith other personsC instructions a!out hen" here and ho to perform the or1 is ordinarily considered to !e an employee. -* Training+ Training a or1er indicates that the employer exercises control over the means !y hich the result is accomplished. 0* .ntegration+ Fhen the success or continuation of a !usiness depends on the performance of certain services" the or1er performing those services is su!/ect to a certain amount of control !y the o ner of the !usiness. 2* 'ervices Rendered Hersonally+ .f the services must !e rendered personally" the employer controls !oth the means and results of the or1. 3* ;iring" 'upervising and Haying &ssistants+ Control is exercised if the employer hires" supervises and pays assistants. 6* Continuing Relationships+ The existence of a continuing relationship !et een the or1er and the employer indicates an employer-employee relationship. P* 'et ;ours of For1+ The esta!lishment of hours of indicates control. or1 !y the employer
N* Iull Time ReAuired+ .f the or1er must devote full time to the employers !usiness" the employer has control over the or1erCs time. &n independent contractor is free to or1 hen and for hom he chooses. B* ,oing For1 on the EmployerCs Hremises+ Control is indicated if the is performed on the employerCs premises. or1
10* =rder or 'eAuenced 'et+ Control is indicated if a or1er is not free to choose his o n pattern of or1" !ut must perform services in the seAuence set !y the employer.
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11* =ral or Fritten Reports+ Control is indicated if the regular oral or ritten reports to the employer.
or1er must su!mit
1-* Iurnishing Tools and $aterials+ .f the employer furnishes significant tools" materials and other eAuipment" an employer-employee relationship usually exists. 10* Hayment !y ;our" Fee1" or $onth+ Hayment !y the hour" ee1 or month points to an employer-employee relationship" provided that this method of payment is /ust not a convenient ay of paying a lump sum agreed on as a cost of a /o!. &n independent contractor usually is paid !y the /o! or on a straight commission. a* ;o ever" hourly pay may not !e evidence that a or1er is an employee if it is customary to pay an independent contractor !y the hour. 12* Hayment of @usiness andLor Traveling Expenses+ Hayment of the or1erCs !usiness andLor traveling expenses is indicative of an employer-employee relationship. a* This factor is less important !ecause companies do reim!urse independent contractors. 13* 'ignificant .nvestment+ & or1er is an independent contractor if he or she invests in facilities that are not typically maintained !y employees )such as the maintenance of an office rented at fair value from an unrelated party*. &n employee depends on the employer for such facilities. 16* Reali<ation of Hrofit or Goss+ & or1er ho can reali<e a profit or loss )in addition to the profit or loss ordinarily reali<ed !y employees* through management of resources is an independent contractor. The or1er ho cannot is generally an employee. 1P* For1ing for more than one firm at a time+ .f a or1er performs more than de minimis services for a num!er of unrelated persons at the same time" he or she is usually considered an independent contractor. 1N* $a1ing service availa!le to the general pu!lic+ & or1er is usually an independent contractor if services are made availa!le to the general pu!lic on a regular or consistent !asis. 1B* Right to ,ischarge+ The right of the employer to discharge a indicates that he or she is an employee. or1er
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-0* Right to terminate+ & or1er is an employee if the right to end the relationship ith the principal is availa!le at any time he or she ishes ithout incurring lia!ility. 6. %nder the Economic Realities Test" courts consider hether the or1er is economically dependent on the !usiness or" as a matter of economic fact" is in !usiness for him or herself. a. .n applying the economic realities test" courts loo1 to+ 1* the degree of control exerted !y the alleged employer over the or1er" the or1ers opportunity for profit or loss" -* the or1ers investment in the !usiness" 0* the permanence of the or1ing relationship" 2* the degree of s1ills reAuired !y the or1er" and 3* the extent the !usiness. or1er is an integral part of the alleged employer(s
!. Typically" all of these factors are considered as a hole ith none of the factors !eing determinative. )Cash payment is not reAuired in order to classify a or1er as an employee. @e sure to point out that the payment received must only amount to consideration and may !e clothes" food" and so on.* Gecture 7ote+ This ould !e a good time to revie exhi!it 1.0. & possi!le ans er to Auestion posed in the exhi!it follo s !elo + -he programmer is not an emplo"ee! but an independent contractor. -he ./*(actor I01 test supports this conclusion because this is a one*time project paid in one lump sum! there are no specific instructions or training for the project2s completion! she works primaril" from home and not at the compan"2s premises! and there is no re$uired reports or specific se$uence of completion e,pected of the programmer. 'lus! she is not being given an" benefits and must pa" her own ta,es. -here are some 3emplo"ee4 indicators! in that this seems to be a continuation of an emplo"ment relationship the programmer previousl" had with the compan" and the" furnished the e,pensive computer that she is using to complete the project. 5owever! there are more factors in favor of independent contractor. c. .n N&0 v. (riendl" Cab Co." the taxi company identified its or1ers as independent contractors in its auto leases ith its drivers. .n fact" the agreements specifically explained that no employeeMemployer relationship existed and" as a result" the ca! company as not responsi!le for standard employer responsi!ilities such as ithholding payroll taxes or providing or1ers( compensation insurance.
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1* The circuit court" ho ever" held that" not ithstanding the insistence of the employer that the drivers ere independent contractors" the economic realities of the relationship actually ould determine its ultimate legal definition. d. 'ee 'cenario 0.
N&0 v. (riendl" Cab Co. C. Contingent or Temporary For1ers a. !. & contingent or1er is one hose /o! is temporary" sporadic" or differs in any ay from the norm of full-time employment. Fhen utili<ing contingent and temporary or1ers" the advantages and disadvantages must !e considered. c. &lthough contingency or temporary or1ers provide a cost savings as a shortterm !enefit" depending on their classification" they could !e entitled to protection under the employment la s. d. &lso" the .R' is really loo1ing at the ay employers classify its employees. .t(s important to !e sure the classification given is the true classification. e. Koint Employers and 'taffing Iirms+ Title D.. prohi!its staffing firms from illegally discriminating against or1ers in assignments and opportunities for employment. f. 'taffing firms must !e considered to !e employers" as ell" such as hen they pay the or1er and provide training and or1ers( compensation coverage. g. .f a client of a staffing firm supervises" trains" and other ise directs the or1er ith hom it has a continuing relationship" then perhaps the client ill !ecome an employer of the or1er. 1* .n this ay" both the staffing firm and the client may share lia!ility as employers of the or1er# this is called 4/oint and several5 lia!ility and the or1er may collect compensatory damages from either one or !oth of the entities com!ined if a rong is proven.
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h. Fhether a contingent or1er ho is placed !y a staffing firm ith its client Aualifies an employee depends on a num!er of factors" including hether the staffing firm or the client retained the right to control hen" here" and ho the or1er performs the /o!" hether there is a continuing relationship ith the or1er" among other factors. 1* Fhat is uniAue a!out the or1er placed !y a staffing firm is the potential for /oint lia!ility !et een the staffing firm and the client. i. .n a case that sought to determine lia!ility for age and hour violations" the 'econd Circuit Court of &ppeals held that not all outsourcing relationships ould !e classified as 4/oint employers"5 and that all relevant factors should !e considered including )!ut not limited to*+ 67 whether the manufacturer8contractor emplo"er2s premises9 .7 whether the subcontractor brought his business from one employer to
another;
:7 whether the subcontractor performed a specific role that was integral to

the employers work;
;7 whether the responsibility under the contracts could pass from one
subcontractor to another without a lot of change;
<7 the degree to which the employer supervised the subcontractors work;
and
=7 whether the subcontractors worked e,clusivel" or predominantly for the

employer.
/.
Iurther" employers may !e held lia!le as 4third party interferers5 under Title D... 1. &n employer using a staffing firm cannot avoid lia!ility for discriminating against a temporary or1er merely !ecause it did not 4employ5 the or1er.
,.
,efining 4&pplicant5 1. The %niform :uidelines on Employee 'election Hrocedures includes the follo ing definition of applicant in the context of .nternet and related electronic data processing technologies. -. &n applicant exists hen three conditions have !een met+ a. The employer has acted to fill a particular position.
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!. The individual has follo ed the employer(s standard procedures for su!mitting applications. c. The individual has indicated an interest in the particular position. 0. Fhere the applicant is instead a traditional /o! see1er" the original definition still applies M an applicant is someone ho has 4indicated an interest in !eing considered5 for employment. a. The impact of this change is that an email inAuiry a!out a /o! does not Aualify the sender as an applicant" nor does the posting of a resume on a third party /o! !oard. +& The $efinition of ,Employer-
Learning Objective Five+ >rticulate the various wa"s in which the concept 3emplo"er4 is defined b" the various emplo"ment*related regulations. &. ,epending on the applica!le statute or provision" an emplo"er is simply one ho employs or uses others to do his or1" or to or1 on her !ehalf. 1. -. $ost statutes specifically include in this definition employment agencies" la!or organi<ations and /oint la!or-management committees. .ssues may arise here an entity claims to !e a private mem!ership clu! )exempt from Title D.. prohi!itions* or a multinational company that may or may not !e su!/ect to application of various %.'. la s. a. & determination also must !e made hether the employer receives federal funds or maintains federal contracts for coverage under the Reha!ilitation &ct of 1BP0" among others. 0. &nother Auestion is hether an individual" such as a supervisor" is also considered an SemployerS under employment-related statutes" and therefore can !e held personally lia!le for her or his actions. a. Though most statutes are silent on the issue" the ma/ority of courts have concluded that federal anti-discrimination statutes do not permit the imposition of this lia!ility. !. 'ee 'cenario -. 2. The most exacting issue is usually ho many employees an employer must have in order to !e su!/ect to a given statute. .t is crucial for employers to !e familiar ith those statutes to hich it is they are su!/ect and those from hich it is they are immune.
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a. 'ee Iigure 1-1 for an overvie employer. +%& &.
of the various statutory definitions of
The ,.reedom- to Contract in the Regulatory Employment Environment .n the age of increasingly complex regulations governing the or1place" the relationship !et een employer and employee essentially is still !ased on an agreement. 1. -. Terms and conditions of employment may !e su!/ect to regulation or open to contractual negotiation" and either expressed or implied. Though an employer is generally free to design contract terms of any 1ind" the terms and conditions set !y an employer cannot violate the letter or the spirit of the applica!le la s e have discussed or ill discuss in chapters to come. .n addition" courts and legislatures sometimes determine that certain types of agreements !et een employer and employee are unenforcea!le.
0. @.
Covenants 7ot to Compete )47oncompete &greements5*
Learning Objective Six+ #escribe the permissible parameters of noncompete agreements. 1. Fhile individuals in positions of trust and confidence already o e a duty of loyalty to their employers during employment" even ithout a noncompete agreement" a noncompete agreement usually includes+ a. prohi!itions against disclosure of trade secrets"
!. soliciting the employer(s employees or customers" c. or entering into competition ith the employer if the employee is terminated. -. &ll states allo employers some control over hat information a former or1er can use or disclose in a competing !usiness and hether a former or1er can encourage clients" customers" and former co- or1ers to leave the employer# ho ever" not all states allo employers to prevent former or1ers from competing ith them. a. 'tates vary idely" from explicitly permitting noncompete agreements" to permitting agreements under certain circumstances" to strictly prohi!iting agreements that limit for hom a former employee can or1 and here he or she can or1.
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1* 7ota!ly" hile California and 7orth ,a1ota severely restrict the use of noncompetes" in -010 :eorgia voters enacted a state constitutional amendment specifically expanding the enforcement of reasona!le noncompetes in order to ma1e that state more economically attractive to !usiness. !. .n some states" certain professions are exempted from these prohi!itions. 1* Ior example" in certain states" prior employers can enforce noncompetes against 4management personnel5 hile they may not enforce the agreements against other types of or1ers# some regions instead specifically exempt security guards and !roadcast employees. c. .n many states" an employer may restrict a past employee !ased on location" length of time and the type of or1 she or he may conduct" as long as the restrictions are reasona!le and necessary to protect a !usiness interest. d. @ecause of these state-!y-state differences" it is critical to have forum selection clauses in contracts hich stipulate the state la that ill apply to the contract in Auestion. 0. @ut ho do you 1no hat ill !e considered 4reasona!le5 restrictions on an employee(s a!ility to compete after the employment relationship has ended8 a. The common la generally prohi!its the restriction if it is more !road than necessary to protect the employer(s legitimate interests or if the employer(s need is out eighed !y the hardship to the employee and li1ely in/ury to the pu!lic. !. To determine reasona!leness" courts loo1 to the location and time limitations placed on the employee(s a!ility to compete. c. The definition of 4competition5 under the noncompete agreement is also relevant+ 1* Restrictions that are for an indefinite period of time" or that prohi!it the employee from or1ing 4any here in the %nited 'tates"5 ould li1ely !e considered unreasona!le. -* ;o ever" as an example" restricting an employee from engaging in direct competition ith the employer for one year from the end of their employment relationship ithin the same county may !e considered reasona!le.
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d. :enerally" in order to !e considered reasona!le" the restrictive covenant should not prevent the employee from earning a living of any sort under its terms. 2. .t is generally accepted that a valid restrictive covenant ill meet the follo ing Aualifications )see 'cenario 1.*+ a. .t protects a legitimate !usiness interest. !. .t is ancillary to a legitimate !usiness relationship. c. .t provides a !enefit to !oth the employee and employer. d. .t is reasona!le in scope and duration. e. .t is not contrary to the pu!lic interest. f. Reasona!leness is measured !y the realities of the industry and the nature of the employee(s occupation. 3. Covenants not to compete sometimes also include provisions ith regard to trade secrets or confidentiality ith regard to other elements of employer intellectual property. a. This property might also include" for instance" customer relations and good ill" speciali<ed training" or particular s1ills uniAue to the or1place. !. The agreement often depends on hat an employer considers to !e trade secrets versus information in the pu!lic domain or commonly 1no n in an industry. 1* Confidential customer lists or customer preferences are often the source of trou!le since they are usually maintained !y individual or1ers !ased on professional relationships# ho ever" most courts deem them property of the employer. -* Hricing" revenue" and other pro/ections and mar1eting strategies are also commonly considered to !e trade secrets. c. =n the other hand" processes that are 1no n !y many in a particular industry or other information that is other ise availa!le through external sources are not considered to !e company property. 1* 7ote that customer lists" if accessi!le through pu!lic means" ould therefore no longer fall under the ru!ric of trade secrets.
1--9 -01- !y $c:ra -;ill Education. This is proprietary material solely for authori<ed instructor use. 7ot authori<ed for sale or distri!ution in any manner. This document may not !e copied" scanned" duplicated" for arded" distri!uted" or posted on a e!site" in hole or part.
6.
Employers are protected against disclosure of trade secrets even here no noncompete applies under the theory of inevitable disclosure. a. & court may prohi!it a former employee from or1ing for an employer(s competitor if the employer can sho that there is imminent threat that a trade secret ill !e shared. !. The courts loo1 to+ 1* -* hether the employee(s 1no ledge is exceptionally speciali<ed and technical" hich ould give either !usiness )former or ne * a significant advantage in the mar1et" and
0* the employee could perform her or his or1 ithout it. c. .n a landmar1 cases in this area" Continental &viation tried to purchase a very particular type of fuel in/ector pump from &llis-Chalmers" one of only three companies that mar1eted the pump in the orld. Fhen they ere una!le to reach terms" Continental instead simply hired the original designer of the pump from &llis-Chalmers to design the pump for Continental. 1* .n finding inevita!le disclosure and imposing an in/unction that prohi!ited the engineer from or1ing at Continental" the court pointed out the >>virtual impossi!ility of $r. Folff [the engineer] performing all of his prospective duties for Continental to the !est of his a!ility" ithout in effect giving it the !enefit of &llis-Chalmers( confidential information. P. The %niform Trade 'ecrets &ct is a model act that strives to provide guidance to states developing statutes in this and other related areas. a. Iorty-four states and the ,istrict of Colum!ia have adopted its structure. !. The %T'& provides relief in the form of monetary damages" attorney(s fees" and in/unctive relief for misappropriation of trade secrets and does include a provision for inevita!le disclosure. N. =nce a non-compete agreement has !een found to !e valid" in order to !e enforcea!le" it must also !e supported !y consideration offered in a !argained-for exchange. a. .n other ords" the agreement !y the employee not to compete ith the employer is onl" enforcea!le if the employee also receives something in exchange for this agreement.
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!. =ften" non-competes are signed at the time an employee is first hired# so the offer of employment on its o n is considered sufficient consideration. c. ;o ever" if an employee is as1ed to sign a non-compete agreement after !eing hired" and is not offered any additional consideration" some states do not treat continued at- ill employment as sufficient.
Chapter/End 0uestions 1. Campion is a firm that provides psychological services to police departments. The City of $inneapolis terminated its contract ith Campion and entered into a ne contract ith ,etric1. Campion contends that it is !ecause it is affiliated ith the .llinois Iamily .nstitute" an organi<ation that happens to have conservative perspectives on issues such as marriage" a!ortion" homosexuality" and stem cell research. Campion filed a claim against the City of $inneapolis )a pu!lic entity* claiming that the termination violated its Iirst &mendment freedom of association. .s the firm(s contract protected under the Iirst &mendment8 Fhat ould the firm have to demonstrate in order to prove a prima facie case here8 [Campion! arrow ? >ssocs. of Illinois! Inc. v. Cit" of Minneapolis " 63- I. 'upp. -d BN6" -00B %.'. ,ist. GET.' P0BB0 ),. $inn. -00B*.] -he court found that that there was sufficient evidence for Campion2s (irst >mendment claim to move forward to a jur". >lso! however! the court determined that the Minneapolis 'olice #epartment2s @M'#2s7 3balance of interest4 claim had sufficient merit to progress to litigation. Campion had ample evidence! in the court2s view! to establish a prima facie case: *-he M'# conceded that Campion2s association with I(I was protected activit"! *-he M'#2s suspension of Campion2s services and choice of another compan" constituted 3adverse emplo"ment actions!4 and *-he court was persuaded that Campion2s affiliation with I(I was the motivating factor for these actions. 5owever! 3even if the plaintiff establishes a prima facie case and the defendant cannot demonstrate that the same adverse action would have been taken in the absence of the plaintiffAs protected activit"! the defendant government entit" ma" still avoid liabilit" if the infringement on the laintiff!s First "mendment rights is #reasonable$# given the balance of interests involved.4 -he 3balance of interests4 test! when a government entit" is involved! allows the government emplo"er to argue that its interest in effectivel" providing public services outweighs the emplo"ee2sinterests in protected (irst >mendment activit". In this case! the court denied summar" judgment to Campion! finding sufficient merit for litigation in the M'#2s balance*of*interest claim that the public controvers" caused b" Campion2s affiliation with anti*homose,ual group negativel" impacted the provision of police services.
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-. & staffing firm provides landscaping services for clients on an ongoing !asis. The staffing firm selects and pays the or1ers" provides health insurance and ithholds taxes. The firm provides the eAuipment and supplies necessary to do the or1. .t also supervises the or1ers on the clients( premises. Client & reserves the right to direct the staffing firm or1ers to perform particular tas1s at particular times or in a specified manner" although it does not generally exercise that authority. Client & evaluates the Auality of the or1ers( performance and regularly reports its findings to the firm. .t can reAuire the firm to remove the or1er from the /o! assignment it if is dissatisfied. Fho is the employer of the or1ersB 1tudent discussion. 0. &l!erto Camargo as 1illed hen his tractor rolled over as he as driving over a large mound of manure in a corral !elonging to T/aarda ,airy. Camargo as an employee of :olden Cal Truc1ing" and :olden Cal Truc1ing as an independent contractor T/aarda ,airy had hired to scrape the manure out of its corrals and to haul it a ay in exchange for the right to purchase the manure at a discount. Hlaintiffs" Camargo(s ife and five children" sued defendants T/aarda ,airy and Herry T/aarda on the theory" among others" that they ere negligent in hiring :olden Cal Truc1ing !ecause they failed to determine hether Camargo as Aualified to operate the tractor safely. .s T/aarda ,iary lia!le for Camargo(s death8 [Camargo v. -jaarda #iar"" -3 Cal.2th 1-03 )-001*.] -he Court held that an emplo"ee of an independent contractor is barred from bringing a negligent hiring action against the hirer of the contractor. -he Court2s reasoned that! as determined in prior cases! the hirer should not have to pa" for injuries caused b" the contractor2s negligent performance because the workers2 compensation s"stem alread" covers those injuries.
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2. Iarlo graduated from la school in 1BNN and as employed !y Fachovia @an1 of 7orth Carolina to represent it. .n 1BB0" Fachovia discussed the possi!ility of Iarlo or1ing as in-house counsel for Fachovia to handle recovery and !an1ruptcy cases. =n her employment application" Iarlo disclosed that she had !een convicted of t o counts of misdemeanor larceny in 1BN-. Those convictions made it unla ful for her to !ecome an employee of Fachovia ithout I,.C approval. Fachovia proceeded ith its or1ing relationship ith Iarlo " ho closed her private practice and moved on-site ith Fachovia. The parties executed a ritten contract under hich Iarlo ould provide legal services as an independent contractor. @oth parties intended that Iarlo ould not !e considered an employee unless the I,.C aiver as o!tained. 'uch a aiver as never sought for Iarlo . Iarlo as considered an independent contractor for tax purposes and as never paid a salary !y Fachovia !ut instead as paid for the !ills she su!mitted. 'he received no !enefits or compensation for !usiness travel. 'he used letterhead that designated her simply as an attorney-at-la and did not receive !usiness cards. ;o ever" she as provided ith on-site office space" support" staff" eAuipment" and the use of company vehicles. 'he as paid for continuing education. Fachovia exercised control over the hours in hich she had access to her office. &fter complaining a!out a sexually and racially hostile or1 environment" Iarlo as terminated. 'he filed several claims under Title D... Fas Fachovia Iarlo (s employer8 [ (arlow v. Wachovia ank of North Carolina" -3B I.0d 00B )2th Cir. -001*.] -he Court determined that (arlow was an independent contractor. -he Court placed greater weight on the following factors: 67 the financial relationship between the parties in which she was paid not a salar" but onl" in response to her bills! for services actuall" rendered9 .7 the financial relationship between the parties in which Wachovia did not withhold or pa" an" ta,es that are incident to an emplo"ment relationship9 :7 the financial relationship between the parties in which (arlow did not receive emplo"ee benefits such as medical and life insurance9 ;7 (arlowAs filing of income ta, returns under a self*emplo"ed status9 <7 the e,press intent of the parties as indicated in the contract (arlow signed labeling her as an independent contractor9 =7 that (arlow did not work e,clusivel" for Wachovia during her working relationship with it9 and @C7 that Wachovia e,ercised no control over the manner of her work. 3. Fo/e s1i as a heart surgeon ith staff privileges at Rapid City Regional ;ospital. ;e too1 a leave of a!sence !ased on his !ipolar disorder and" upon his return" as su!/ect to various restrictions in his or1 in order to ensure that he did not place patients at ris1. These restrictions included meeting regularly ith another physician to monitor his or1" participating in therapy sessions" ta1ing only prescri!ed medication" su!mitting to competency exams" su!mitting to random drug testing" ta1ing mandatory vacations" su!mitting to a revie of all of his cases for the past six months. &fter he had an 4acute episode5 of his disorder during surgery" the hospital terminated his privileges and he sued !ased on disa!ility discrimination under the &mericans ith ,isa!ilities &ct. The hospital claimed that he did not have a claim as he as not an employee. .s the hospital correct8 Fhat additional information might you ish to 1no to ans er this Auestion8 [Wojewski v. 0apid Cit" 0egional 5ospital Inc. et al.! 230 I.0d 00N )Nth Cir. -006*.]
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-he court found that the conditions imposed did not create an emplo"er*emplo"ee relationship. -he doctor 3performed highl" skilled surgical work! leased his own office space! scheduled his own operating room time! emplo"ed and paid his own staff! billed his patients directl"! did not receive an" 1ocial 1ecurit" or other benefits from Dthe hospitalE! and did not receive a form w*. or 6/FF from Dthe hospitalE.4 Instead! the court found that the conditions imposed were necessar" to ensure patient safet" and to avoid professional liabilit". Without being controlling of the wa" in which he performed his operations. 6. & group of individuals !egan or1 for $icrosoft as freelancers !et een 1BNP and 1BB0 and ere as1ed to sign agreements hich stated they ere independent contractors and ere responsi!le for all their o n !enefits. $any of them had served continuously for more than t o years" or1ing at the $icrosoft facility" engaging in the same functions as $icrosoft employees" sharing supervisors" and or1ing or1ed the same !asic shifts. ;o ever" aside from those agreements" the only other difference as that these or1ers received their pay through accounts paya!le rather than through the payroll department and they ere not !e eligi!le for !enefits. 7ot ithstanding the agreements" in 1BNB and 1BB0" the .R' reclassified the or1ers as employees. $icrosoft then offered the or1ers ne positions as either regular employees or as employees of a ne $icrosoft-o ned employment agency" !ut continued to pay the or1ers in the same manner. The or1ers then sought to claim !enefits" !ut ere denied $icrosoft claimed it only offered !enefits to an employee 4 ho is on the %nited 'tates payroll of the employer.5 'ince the or1ers ere paid through the accounts paya!le department and not through the payroll department" it claimed that the or1ers ere not 4on the payroll of the employer.5 ,oes $icrosoft in8 [ Gi%caino v. Microsoft Corporation" BP I.0d 11NP )Bth Cir. 1BB6*.] No! Microsoft does not win. -he Ninth Circuit concluded that 3Microsoft! which created a benefit to which the plaintiffs were entitled! could not defend itself b" arguing that the plaintiffs were unaware of the benefit! when its own false representations precluded them from gaining that knowledge.4 -he court was particularl" critical of Microsoft2s attempt to den" benefits on the basis of the manner of pa"ment: 3MicrosoftAs argument! drawing a distinction between common* law emplo"ees on the basis of the manner in which the" were paid! is subject to the same vice as its more general argument. Microsoft regarded the plaintiffs as independent contractors during the relevant period and learned of their common*law*emplo"ee status onl" after the I01 e,amination. -he" were paid through the accounts receivable department rather than the pa"roll department because of MicrosoftAs mistaken view as to their legal status. >ccordingl"! Microsoft cannot now contend that the fact that the" were paid through the accounts receivable department demonstrates that the compan" intended to den" them the benefits received b" all common*law emplo"ees regardless of their actual emplo"ment status.4
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P. Consultants for Gong Die 'ystems signed agreements stating they ere independent contractors" hich also contained non-competition provisions. ;o ever" after one exclusive" 0-month engagement for computer consulting" during hich Gong Die paid Gucero personally" !y the hour" :ino Gucero filed for unemployment !enefits claiming that he as an employee. Though Gucero had signed the agreement and as paid directly !y Gong Die " he provided the services to a third party ho oversa his or1" provided the tools he used" and esta!lished ) ith Gucero(s agreement* the schedule for the or1. The Colorado statute that governed this relationship reAuires that" for Gong Die to sho that Gucero as an independent contractor" Gong Die had to sho that he as+ )1* free from control and direction in the performance of the service" and )-* customarily engaged in an independent trade" occupation" profession" or !usiness related to the service performed for Gong Die . 'hould Gucero !e considered Gong Die (s employee8 [ &ong Giew 1"stems Corp v. &ucero" 7o.0PC&--N2 )-00N*.] -he court overturned the ruling of a hearing officer and administrative panel! each of which had determined that &ucero $ualified as an emplo"ee under Colorado law! and remanded the case to the panel for further investigation. -he court disputed &ong Giew2s claim that the consulting contract2s terms provided conclusive evidence of &ucero2s independent contractor status. -he signed agreement failed to meet two of the nine factors re$uired b" Colorado statute for independent trade contracts: *&ong Giew contracted to pa" &ucero b" the hour! rather than b" a 3fi,ed or contract rate94 and *&ong Giew paid &ucero personall"! rather than making 3checks pa"able to the trade or business name of the individual.4 @&ong Giew argued that such hourl"! personal pa" arrangements are 3common practice4 in the I- communit"! but as &ong Giew did not make this argument in the initial hearing phases of the case! it was not recogni%ed b" the court.7 5owever! the court found that the hearing and panel reports provided inade$uate evidence regarding the two ke" issues of 3independent trade4 and 3direction and control.4 -o determine 3independent trade4 status! the hearing officer should have considered additional factors be"ond &ucero2s lack of services for other companies during the short*term period of his contract with &ong Giew. #id &ucero business card! business listing! business address! or business telephone numberB #id he have 3his own e$uipment needed to perform the service!4 and8or determine 3the price of the service to be performed4B -he hearing officer erred in not presenting findings on these and other $uestions.
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(inall"! the court affirmed &ong Giew2s contention that &ucero2s services were not under their direction or control. -he third part"! not &ong Giew! provided tools to &ucero! oversaw his work! and negotiated hours or time frames with &ucero. -hough the evidence was deemed insufficient to determine the 3independent status4 $uestion! the court found that &ong Giew did not have the right to control &ucero2s work! and therefore! remanded the case back to the panel for further investigation. N. &rman as hired to drive an airport shuttle for a rental car company !ac1 and forth from the airport to the rental car company(s off-site par1ing lot. Fhen &rman as hired" he signed a ritten contract that stated specifically that he as an independent contractor. ;e as paid every t o ee1s" !ased on a rate per mile plus an hourly rate for aiting time. ;e drove the shuttle at times and to locations directed !y the rental car company and as on call t enty-four hours a day. .s &rman an employee or an independent contractor8 #espite the language of >rman2s contract! a court would likel" find that he is an emplo"ee of the rental car compan"! rather than an independent contractor. -he relevant factors suggesting emplo"ee status are the biweekl" pa" and hourl" rate arrangement! >rman2s lack of control over his time and work process! and the presumption that the tools of his service @the airport shuttle7 was provided b" the rental car agenc". >s in Huestion IC! a signed contract that states that the agent is an independent contractor will not be recogni%ed b" the court as decisive evidence of that status9 instead! the court will e,amine the specific contract provisions and the factual conditions in the particular case under review. B. Eugene $cCarthy !egan or1ing for 7i1e in 1BB0 and as promoted to a foot ear sales manager position in 1BBP. Iollo ing his promotion" $cCarthy signed a covenant not to compete that stated" 4during Employee(s employment !y 7i1e. . .and for one )1* year thereafter" Employee ill not directly or indirectly. . .!e employed !y" consult for" or !e connected in any manner ith" any !usiness engaged any here in the orld in the athletic foot ear" athletic apparel or sports eAuipment and accessories !usiness" or any other !usiness hich directly competes ith 7i1e or any of its su!sidiaries or affiliated corporations.5 .n 1BBB" $cCarthy as promoted again" to director of sales for the @rand Kordan division" !ut he as not reAuired to sign a ne noncompete agreement. .n the spring of -000" $cCarthy accepted a /o! at Ree!o1 as vice president of %.'. foot ear sales and merchandising" and he resigned from 7i1e. =nce $cCarthy !egan or1ing at Ree!o1" 7i1e filed a suit against him" claiming !reach of contract and that $cCarthy(s employment ith Ree!o1 violated the covenant not to compete. .s 7i1e(s noncompete agreement 4reasona!le58 Fhy or hy not8 [Nike v. McCarth"" 0PB I.0d 3P6 )Bth Cir. -002*.]
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-he Fth Circuit affirmed the district court2s ruling that Nike2s noncompete agreement with McCarth" was reasonable. McCarth" argued that! in violation of Jregon2s statutor" and common law re$uirements! 67 the noncompete agreement was signed after his promotion began9 .7 Nike did not have a 3legitimate interest4 to protect! a necessar" component of a Kreasonable2 noncompete agreement9 and :7 his interests were liable to greater harm if prevented from taking the job with 0eebok for a "ear! than Nike2s interests were liable to harm b" his holding the position with 0eebock. -he court found fault with each of McCarth"2s arguments. -he noncompete agreement! though signed shortl" after McCarth" began to perform the duties of his new positionLduties that provided access to confidential marketing and sales dateLwas reasonabl" timed with McCarth"2s advancement to the new position. -he court determined that Nike2s interest in enforcing the noncompete agreement was legitimate9 McCarth" had 3obtained knowledge of NikeAs product launch dates! product allocation strategies! new product development! product orders si, months in advance and strategic sales plans up to three "ears in the future.4 >s the court points out! 3DtEhis information was not general knowledge in the industr".4 Nike need not prove that McCarth" had or would definitel" share this information with 0eebok! but onl" that there was 3substantial risk4 that its emplo"ee would divert significant portions of its business! if working for a competitor. -he court deemed that this risk was in evidence. (inall"! the court was obligated to consider the harm that its decision would likel" cause to each part". " the terms of McCarth"2s noncompete agreement! Nike is obligated to pa" his salar" for during the "ear of noncompetition. 0eebok agreed to hold the position! and to cover McCarth"2s health care benefits! during the intervening "ear. -he potential harm to McCarth" of sitting out of the 3fast*moving industr"4 of athletic apparel and footwear for one "ear was judged to be less than the potential harm that 0eebok2s emplo"ment of McCarth" could cause to Nike2s business. -hough the court was not convinced b" McCarth"2s argument that 3ac$uisition of confidential information alone is insufficient to justif" enforcement of a noncompete agreement!4 the issue is interesting for student discussion. >re students persuaded b" McCarth"2s contention that the emplo"er 3must show actual use or potential disclosure of confidential information before a noncompete agreement can be enforced4B 10. Qua1er =ats ma1es :atorade and HepsiCo competes ith its &ll 'port !rand sports drin1. Qua1er =ats also ma1es 'napple fruit drin1s" hile in the 1BB0(s HepsiCo or1ed to compete in that mar1et through /oint ventures ith =cean 'pray Cran!erries the Gipton Company. Redmond held a position as a highly placed executive ith HepsiCo hen he accepted a position at Qua1er =ats. HepsiCo sought an in/unction !ased on inevita!le disclosure since Redmond had helped to develop HepsiCo(s mar1eting plans and strategies for the upcoming year" including a great deal of confidential pricing and competitive information regarding ho they ould ta1e over mar1et share from competitors such as Redmond(s ne employer. 'hould the court issue the in/unction8 .f so" ho long ould !e reasona!le8 ['epsiCo v. 0edmond" 32 I.0d 1-6- )Pth Cir. 1BB3*.]
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-he Cth Circuit affirmed the district court2s issuance of a si,*month injunction! which barred 0edmond from assuming emplo"ment at Huaker Jats until Ma"! 6FF<. 'ointing to Illinois statutor" and common law! the court stated that no evidence of actual or threatened disclosure of trade secrets was necessar". Instead! 3a plaintiff ma" prove a claim of trade secret misappropriation b" demonstrating that defendantAs new emplo"ment will inevitabl" lead him to rel" on the plaintiffAs trade secrets.4 -he inevitable disclosure argument asserted that 0edmond would inevitabl" rel" upon 'epsiCo2s trade secrets in the course of his new job! despite 0edmond2s and Huaker2s protests to the contrar". Huaker and 0edmond claimed no intention to reveal confidential information that 0edmond possessed b" virtue of his previous 'epsiCo emplo"ment. In fact! 0edmond has alread" signed an ethics agreement with Huaker! in which he committed himself to not to disclosing confidential information gleaned from his earlier emplo"ment. 5owever! the district court had found 0edmond2s veracit" somewhat $uestionableLhe admitted to l"ing to his 'epsiCo co*workers about his initial acceptance of Huaker2s offer! and gave ambiguous testimon" regarding his anticipated duties at HuakerLand the appellate court was not persuaded to overturn this finding. 0egarding the length of time! the appellate court upheld the injunction prohibiting 0edmond from 3assuming his responsibilities at Huaker through Ma"! 6FF<! and preventing him forever from disclosing 'CN> trade secrets and confidential information.4 1tudents might discuss whether the court has ade$uatel" balanced 'epsiCo2s business interests and 0edmond2s rights as an emplo"ee. -he court2s decision anticipates that! after si, months! 0edmond2s specific knowledge of strategic 'epsiCo business plans would be significantl" less useful to Huaker Jats. 0ecall that! on the one hand! 0edmond and Huaker Jats denied that 'epsiCo2s trade secrets would be inevitabl" disclosed! and on the other hand! 'epsiCo argued that 0edmond was priv" to its 3K1trategic 'lan!2 an annuall" revised document that contains 'CN>As plans to compete! its financial goals! and its strategies for manufacturing! production! marketing! packaging! and distribution for the coming three "ears.4 #oes the court2s injunction ade$uatel" balance these competing claimsB
%urra& v. 'rinci al Financial (rou $ Inc.$ "o& 12/13334 52th Cir& 6uly 789 7111: %ssue Fhether a financial agent pursuing a Title D.. sex discrimination claim as an employee or an independent contractor. Fhat factors should !e considered in ma1ing this distinction" and hich legal test !est captures these factors8
1-01
.acts Hlaintiff Hatricia $urray" is a Scareer agent"S selling defendant Hrincipal Iinancial :roup(s products" including a ide range of financial products and services" including annuities" disa!ility income" 201)1* plans" and insurance. $urray sued Hrincipal for sex discrimination in violation of Title D.. and the court had to determine hether $urray as an employee or an independent contractor ithin the meaning of that statute since she ould only !e entitled to the protections of Title D.. only if she is an employee. $ecision The Bth Circuit Court determined that $urray as not an employee# !ut" the case is important for its analysis of the type of test to !e applied. The appellate court affirmed the district court(s finding that there is no significant different !et een three tests esta!lished in previous /udicial decisions+ the 4common la agency5 test ) #arden7! the 4economic realities5 test )>dcock*" and the 4common la hy!rid5 test )&utcher*. The Scommon la agencyS test is characteri<ed as Sfocus[ing] on Uthe hiring partyCs right to control the manner and means !y hich the product is accomplished.S .n the same vein" the district court asserted that the Sprimary factorS of the 4economic realities test is Sthe extent of the employerCs right to control the means and manner of the or1erCs performance.5 The district court sa the 4common la hy!rid5 test as com!ining the enumerated factors of the previous t o tests. The 7inth Circuit found that #arden is the controlling case for the purposes of Title D.." and asserted that its 4common la agency5 test" ith its primary focus upon ho has control over the 4manner and the means5 of production" encompasses the others. Case 0uestions 1. ,o you agree ith the court that there is no 4functional difference5 !et een the three tests" the Scommon la agencyS test" the Seconomic realitiesS test" and the Scommon la hy!ridS test for hether someone is an employee or an independent contractor8 5ave students review the three test definitions @see 3#efinition of an +mplo"ee4 above7. -hough there are certainl" strong overlaps between the three tests! the case e,amples cited in the chapter suggest that the mode of application of the tests varies. Consider wh" the three tests have tended to find success in different issue areas. -. Even if it might not !e vital in this situation" could you imagine a circumstance here the distinction could !e great and a different decision ould result under one or several of these tests8 1tudent discussion. -he 3economic realities4 test! for e,ample! points courts toward anal"sis of the specific factual trends within an economic sector. Consider how new digital technologies have enabled greater provision of services from home! complicating prior distinctions regarding the proper workplace of an 3emplo"ee4 vs. an 3independent contractor.4 Might agents or principals heavil" engaged in I- work benefit from the use of this test! as distinct from the othersB
0. Fhat is the value in the court(s decision in reaching convergence among the three tests in Murra"8 1etting a standard for emplo"ers reduces the risk of misclassification! and directs emplo"ers and courts to the primar" issue of control as the governing principle for interpreting the factual conditions of the agent*principal relationship in a particular case. >s one commentator writes! 3the courtAs decision is important because it emphasi%es that the ke" issue is control and that the MminutiaeM of the relationship are not determinative4 @(ord ? 5arrison &&'! 3Ninth Circuit (inds Insurance >gent is Independent Contractor! Not +mplo"ee!4 www.martindale.com! accessed N86N86/7. Clic* here to return to location in chapter of above case reference&
)L*+ v. Friendl& Cab Co.9 31- I.0d 10B0 )Bth Cir. -00N*. %ssue Fhether taxi drivers ere employees or independent contractors for purposes of determining hether they are entitled to union representation under the 7GR&. .acts & num!er of taxi drivers under auto leases ith Iriendly Ca! Co. contend that they are entitled to union representation for collective !argaining purposes under the 7GR&. They claim this is true !ecause they are employees of Iriendly and not independent contractors" as the lease asserts. Iriendly o ns a num!er of ca!s and leases them to individual drivers on a ee1ly !asis. The lease reAuires the drivers to pay a fee !et een O200-630 for use of the ca! and this discretionary fee is determined !y Iriendly after ta1ing into account the ca! model and the driver(s driving record. Iriendly also leases a limited num!er of ca!s that have &irport permits" hich is in high demand !y the drivers. &lthough drivers designate hich entity they ant to or1 for" Iriendly retains the discretion to assign drivers to different taxica! entities" taxica! models" and the type of ca! )airport or street ca!s*. $ecision 7ot ithstanding the insistence of the employer that the drivers ere independent contractors" the economic realities of the relationship under the common la agency test ould determine its ultimate legal definition. ;ere" that test indicates that the taxi drivers are in fact employees entitled to union representation under the 7GR&. &lthough it does involve loo1ing at the totality of the circumstances" the essential ingredient of the agency test is the extent of control exercised !y the >employer.( .t rests primarily upon the amount of supervision that the employer has a right to exercise over the individual" particularly regarding the details of the or1. &dditional factors that are relevant to this determination include 4entrepreneurial aspects of the individual(s !usiness# ris1 of loss and opportunity for profit# and the individual(s proprietary interest in his !usiness.5
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;ere" there is su!stantial evidence that Iriendly exercises significant control over the means and manner of its drivers( performance" including the regulation of the details of ho drivers must drive their ca!s" reAuiring driver(s to carry advertisements ithout receiving revenue and other similar factors of control. The most significant factor of an employment relationship" ho ever" is Iriendly(s prohi!ition on its drivers( operating an independent !usiness and developing entrepreneurial opportunities ith customers. Case 0uestions 1. Though the court as Auite clear that simply identifying or1ers as employees is insufficient to Aualify them as employees" does the name !y hich an employer calls its or1ers matter at all8 .n other ords" does it matter at all hether the employer calls its or1ers independent contractors or employees" or is it completely irrelevant8 It is seemingl" irrelevant! given that most tests for determining emplo"ment versus independent contractor status! including the ./ (actor I01 test and the economic realities test do no include this as a factor in the decision. In this case and others @1ee +strada7 emplo"ers often refer to their emplo"ees as independent contractors in their contracts! but the court does not take that into account during its anal"sis of the case. 5owever! while the classification made in a document is not binding in an" wa" on the courts or the I01! it ma" serve as persuasive evidence about the parties2 intentions. -. =f the factors considered critical !y the court in reaching its conclusion" hich seem more critical to a determination of employment status8 .f you ere advising Iriendly Ca! Co. to modify its employment relationship in order to ensure a determination of independent contractor status rather than employee status" hich elements ould you advise changing8 -he most critical factors to the court are seemingl" the emplo"er2s control over the worker2s entrepreneurial opportunities and his abilit" to generate revenue for himself. 5ere! this is seen where the driver is not able to make decisions regarding advertisement on his vehicle! is not able to distribute business cards or solicit his own customers and cannot choose whether he receives the more lucrative >irport ta,i or street ta,i. I would advise allowing the drivers to solicit customers for themselves! sharing some of the revenue from the advertisements and perhaps limit the discretionar" ta,i appointment process b" allowing drivers to simpl" pa" more for the more lucrative >irport ta,is. 0. Fhat are the pu!lic policy reasons hy Iriendly should !e reAuired to consider these or1ers as employees rather than as independent contractors8 >sk the students who has more power in this emplo"er*worker relationship and how the specific label given to the drivers ma" assist themB 'erhaps the students ma" discuss the benefits of union representation and collective bargaining or the traditionall" powerless class of workers ta,i drivers tend to be in our societ". Clic, here to return to cha ter outline at location of above case reference.
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Chapter 01 - The Regulation of Employment

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Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

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Chapter 01 - The Regulation of Employment

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Chapter 01 - The Regulation of Employment

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Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

Chapter 01 - The Regulation of Employment

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