Employers Cannot Avoid Liability For Discrimination By Subcontracting Hiring Decisions -- Halpert v. Manhattan Apartments

In Halpert v. Manhattan Apartments, Inc. a job applicant sued after being told he was "too old" for a position.  The prospective employer initially won summary judgment on the ground that it was not liable as the hiring decision was made by an outside contractor who was not its employee.  

The Second Circuit reversed on the ground that the independent contractor status of the decision maker was irrelevant -- so long as he was acting as an authorized agent on behalf of the Company it is directly liable for his discriminatory decisions:

That prohibition [against age discrimination] applies regardless of whether an employer uses its employees to interview applicants for open positions, or whether it uses intermediaries, such as independent contractors, to fill that role. . . . [I]t makes no difference whether the person whose acts are complained of is an employee, an independent contractor, or for that matter a customer.  If a company gives an individual authority to interview job applicants and make hiring decisions on the company's behalf, then the company may be held liable if that individual improperly discriminates against applicants on the basis of age.

This result is logically sound since a corporation acts only through its agents and must therefore bear legal responsibility for the illegal personnel decisions of those agents.   The decision is a stark reminder, however, that employers cannot absolve themselves of liability merely by delegating personnel decisions to outsiders such as temp agencies, business consultants, or even unions. 

Court holds independent contractor status of cab drivers not suitable for class action.

USA Cab owns a fleet of about 45 taxis that it leases to drivers, and it operates a taxi dispatch service. At issue in the case was whether USA Cab’s classification of the drivers as independent contractors was proper. The Plaintiffs’ brought a putative class action alleging that due to the misclassification, USA Cab failed to provide workers’ compensation insurance, failed to pay minimum wages, improperly required drivers to pay security deposits and other fees, and denied them meal and rest breaks.

Under the terms of the agreement with the drivers, USA Cab provided the lessee-drivers with a taxi "painted with [its] insignia and equipped with meter, radio, and any other equipment as required by state law and local ordinances relating to taxicabs.” The company also paid for all licenses, taxes and fees assessed on the taxi, and to furnish liability insurance, oil, tires, and maintenance, except that required by the lessee's misuse or abuse of the taxi. The company also allowed the lessee to select from specified daily, weekly or monthly lease rates depending on his or her driving record.

USA Cab argued the purported class would be unmanageable, and common questions do not predominate over individual issues, given differences among the driver-lessees' situations.

The court noted, that while the merits of the case are not determined at the class certification stage, the facts and defenses pertinent to the merits of the case are taken into consideration to determine whether class certification is appropriate. With regards to the test of which workers can be classified as independent contractors, the court noted:

While the right to control work details is the most important factor, there are also " 'secondary' indicia of the nature of a service arrangement." [citation] The secondary factors are principally derived from the Restatement Second of Agency, and include "(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee." [citation] "Generally, the individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations." [citation]

The court provides an excellent overview of California law regarding which workers can be classified as independent contractors.  The opinion is well worth the read for anyone dealing with this issue in California. 

In this case, USA Cab submitted a number of declarations from primarily current drivers to oppose Plaintiffs’ motion for class certification. The court noted that the declarations tended to show that the case was not proper for class certification because the they tended to show that individualized issues predominated the case:

  • The declarations tended to show a lack of class-wide damage. For instance, most declarants said they incurred no work-related injuries, customarily took meal and rest breaks, and earned wages equaling or exceeding minimum wage.
  • The declarations established that the drivers were not required to use USA Cab's dispatch service. Some drivers used it for between 20 and 60 percent of their business, many used it infrequently, and some chose not to use it at all.
  • The declarations also showed that drivers paid for their own tools, such as map books, flashlights, tool kits, jumper cables, cell phones, computers, GPS navigational systems, and credit card machines.
  • Some of the drivers also established that they conducted their own marketing and advertising to gain new customers.
  • The drivers also declared that “with varying frequency they chose to set their own rates, such as flat rates for trips, or rates below the standard metered rate.”

Based on these facts, the trial court ruled, and the appellate court agreed, that this case was not suitable for class treatment. The opinion, Ali v. USA Cab Ltd., can be downloaded here (Word).

Is The NFL's Anti-Tampering Rule Legal Under California Law?

The San Francisco 49ers have recently filed a complaint with the NFL against the New York Jets for supposedly "tampering" with their unsigned draft pick, Michael Crabtree.  The Jets deny the accusation, of course, but what is "tampering" anyway?  Well, the best definition I have been able to find, is given by NFL spokesman Greg Aiello in the Minneapolis Star Tribune:

The term tampering as used within the National Football League, refers to any interference by a member club with the employer-employee relationship of another club or any attempt by a club to impermissibly induce a person to seek employment with that club or with the NFL.

That's not terribly enlightening.  But if this is a "free country" as the saying goes, where does the NFL get off telling a prospective employee and a prospective employer that they are not allowed to talk to one another?  To my mind, this seems positively anti-free market, anti-free speech, and downright un-American. 

Indeed, California Business and Professions Code section 16600 explicitly states that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."  Thus, at least to the extent California law governs the matter, it would seem that any agreement between NFL clubs not to speak with one another's unsigned draft picks about prospective employment is entirely illegal and unenforceable. 



HR professionals note to employment lawyers: stop working off of fear

The HR blog Fistfull of Talent raises a concern I think a lot of HR professionals feel. See article “Hey Employment Law ‘Experts’, You’re Killing My Profession.” Kris Dunn expresses the all too common sentiment that employment lawyers are not advising their clients – but are rather scaring them into inaction. Kris uses the example of advice some lawyers are providing about whether or not companies should use social networking sites and Google to conduct background checks on job applicants. Taking the conservative approach, many lawyers, as Kris notes, advise against using these new technologies out of concern that it could create potential discrimination claims. (On a side note – I warned awhile ago that companies should be using the Internet to conduct background checks.)

Kris’ analysis is right on for a number of reasons. First, lawyers are trained to point out the risks of any situation to properly advise their clients. Second, lawyers are notoriously behind the technology curve. Most do not know what “new” technologies are being used or how to use them, and this creates concern as anyone is scared about what they do not know about.

Employment lawyers need to take heed of this critique. HR professionals have jobs to perform and companies to run. They need legal advice that helps them perform their jobs better – not scare them into failing to change and keeping up with the times.

Employment lawyers need to recognize that change entails risk. However, companies always have to change, and lawyers need to help companies navigate this risk, not prevent them from doing anything new.

Note to HR professionals

As you know, the HR profession is changing a lot given today’s new technologies. New issues are creating a lot of uncertainty. Issues such as how to use social networking sites to conduct background checks, monitoring employee’s internet use, and determining "hours worked" when employees always have a smart device on them.

When looking for legal advice about these issues, you need to be certain that your lawyer is familiar and up-to-date with the technology available. Does the lawyer who you are seeking legal advice from have a Twitter, Facebook, or LinkedIn account? Do they use an iPhone or Blackberry? If the answer to these questions are ‘no’ – don't be surprised if their advice is to avoid these “new” technologies.

When Are Employers Liable for Their Workers' Traffic Accidents -- Jeewarat v. Warner Bros.

It is well settled that employers may be liable for the actions of their employees in the "course and scope" of their employment.  It is also well settled that employers are not liable for an employee during his commuting time -- otherwise known as the "coming and going rule." 

These two principles become blurred, however, when an employee is traveling to or from an off-site conference, job assignment, or some other so-called "special errand."  For example, in Jeerwat v. Warner Bros., the employee was driving back from a three-day business conference to his home, and was even following his normal commute path, when he struck several pedestrians.  The pedestrians sued the employer and the Court held that the lawsuit could proceed. 

We hold that an employee's attendance at an out-of-town business conference may be considered a special errand under the special errand doctrine. In addition, when an employee intends to drive home from the errand, the errand is not concluded simply because the employee drives his regular commute route, but rather, the errand is concluded when the employee returns home or deviates from the errand for personal reasons.

In other words, when Companies schedule retreats, conferences, and office parties they need to be aware that they may be liable for any accidents caused by their employees in getting to and from the meeting.    

Federal Judge Rejects $33 million SEC Settlement with Bank of America over Excessive Bonuses

Bank on August 6, we blogged that the SEC's just-announced deal with BofA to settle claims of concealing unpaid executive bonuses was pretty lame.  We pointed out two glaring problems with the settlement: i.e.,  that the $33 million settlement was "infinitesimal" next to the multi-billion dollar fraud being alleged and that "even more conceptually problematic" this amount was supposed to "be paid by the same shareholders who were the victims of the non-disclosure in the first place."  

Federal District Judge Jed Rakoff is apparently on the same page.  As reported in today's LA Times, he has rejected the proposed settlement on exactly these grounds. 

In his 12-page ruling, Rakoff criticized the $33-million payment, saying that if Bank of America intentionally deceived shareholders, "$33 million is a trivial penalty for a false statement that materially infected a multibillion-dollar merger."

He also questioned why Bank of America shareholders should foot the bill for misdeeds approved by executives. Regulators say shareholders weren't aware of the bonuses before voting to approve the deal to acquire Merrill late last year, according to regulators.

"The notion that Bank of America shareholders, having been lied to blatantly in connection with the multibillion-dollar purchase of a huge, nearly bankrupt company, need to lose another $33 million of their money . . . is absurd," Rakoff wrote.

Perhaps Judge Rakoff is a reader of this blog.  More likely, however, he just had the good common sense to reject a transparently absurd deal whose purpose was to achieve a politically expedient press release rather than any substantive recovery for fraud victims.

Is Cutting Employee Hours to Avoid Benefit Coverage Illegal Under ERISA?

Companies that offer health insurance or other employee benefits typically set some sort of minimum threshold for triggering coverage -- for example, being employed for more than 20 or 30 hours per week.  ERISA is very clear in allowing employers almost unlimited discretion to write their benefit plans in order to exclude part-time employees (or any other category of worker) in this fashion.

But ERISA is equally clear in precluding an employer from making employment decisions for the specific purpose of preventing an employee from obtaining or keeping coverage.  In particular,  ERISA Section 510 provides that

It shall be unlawful for any person to . . . discriminate against a participant or beneficiary . . . for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan . . .”

In these recessionary times, employers may keep their costs down by deliberately reducing employees from full-time to part-time status, or by refusing to give employees the additional hours necessary to trigger benefit coverage.  Employers should be aware, however, that to the extent work assignment decisions are motivated by benefit costs they may be illegal under ERISA section 510.   

HR professionals and companies turning to Twitter for hiring needs

The Wall St. Journal recently noted how mainstream Twitter is becoming in the workplace. The article notes that many employers are proactively using the service to recruit better qualified employees faster and cheaper. Companies such as Microsoft, Raytheon and MTV now list job openings on Twitter. As the article points out:

People who respond to job tweets typically have social-media skills, and some employers say they use the service to target them. In March, MediaSource Inc., a video-production and publicity firm in Columbus, Ohio, advertised a media-relations specialist job only on Twitter, LinkedIn and two niche job boards, says Lisa Arledge Powell, MediaSource's president.
"We needed someone that understood social media, so we thought, 'Why not go to where these people go?' " she says.

As a lawyer, it is sometimes hard to embrace new technologies given the uncertain “risks” that the technologies may create. However, just like running a business entails risk, use of new technology, like Twitter, is fine as long as the employer uses some common sense. Employers and employees alike, need to always remember not to be drawn into Twitter’s informal atmosphere – everything written on Twitter is public. As the article notes, employees should not begin a job request with the term “Dude” and employers should always approach Twitter in a professional tone.

As side note, you can follow me on twitter here @anthonyzaller.

Social Norms and Market Norms -- Using Behavioral Economics in the Workplace

Employers, managers, and employees can learn a lot about their workplaces from Dan's Ariely's fascinating new book Predictably Irrational: The Hidden Forces that Shape Our Decisions

One of the insights gleaned from the empirical psychological studies that he reviews is that we all maintain two separate and distinct moral systems -- i.e., the "social norms" which apply to inter-personal relationships and the "market norms" which apply to the self-interested quid pro quo of the marketplace.  As Ariely explains, much of the hard feelings between companies and their customers and employees can be traced to different expectations about which system is in play.

For example, the trend in the last few decades has been for Companies to characterize themselves as participants in a warm and fuzzy "relationship" using terms that invoke images of family, friendship, partnership, and team cohesion.  To the extent employees buy into this "social relationship" model the Company stands to reap major dividends in the form of loyalty, hard work and dedication which can be purchased without  monetary incentives. 

But the downside is that any failure by the Company to live up to its end of this perceived social contract will not be seen as a mere business decision but as a personal betrayal and disloyal "stab in the back."    

What's the upshot? If you're a company, my advice is to remember that you can't have it both ways.  You can't treat your customers [or employees] like family one moment and then treat them impersonally--or, even worse, as a nuisance or a competitor--a moment later when this becomes more convenient or profitable.  This is not how social relationships work.  If you want a social relationship, go for it, but remember that you have to maintain it under all circumstances.          

Ariely is definitely on to something.  And this disconnect between "social" and "business" norms may go a long way toward explaining why employment litigation often has more in common with divorce court than with a commercial breach of contract.  To  paraphrase the Bard: hell hath no fury like an employee scorned.


DFEH Review Shows That Disability Discrimination is Most Common Complaint

As part of a review commemorating its 50th Anniversary the California Department of Fair Employment and Housing has released an informative review of the DFEH's history and current activities

The Power Point presentation includes some interesting facts.  For example, disability discrimination is now far and away the most commonly alleged basis for administrative complaints.  Out of 18,785 charges filed in 2008, a full  36.4% (6,844) alleged discrimination on the basis of mental or physical disability.  By contrast, race (22.4%), age (19%), gender (12%), and sexual orientation (4.4%) weren't even close.

Also interesting are the settlement statistics showing that the administrative charges settled prior to the issuance of an accusation by the DFEH were settled for an average of $8,120.  Following an accusation the average was $39,196.  (These numbers obviously exclude the stronger cases in which plaintiffs are generally represented by counsel and seek an immediate right-to-sue in civil court).