Employment Update: An “Uber” Problem – Independent Contracting and Moonlighting

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Employment Update: An “Uber” Problem – Independent Contracting and Moonlighting

From the desk of John M. KreutzerTechnology is not only changing how we work, but also where and when we work. This shift has highlighted changing attitudes on how workers view their relationship with their employers, and vice versa. The “on demand” economy appears to dovetail workers’ request for more flexible schedules with employers’ request for skilled labor when they need it most. Recent legal challenges, however, shine a light on potential conflicts between this new economy and the current legal framework.

1. Independent Contractor or Employee?

The “on demand” economy highlights an ongoing issue –what constitutes an independent contractor vs an employee.  Misclassifying workers can result in significant costs to a business, including government audits, class action lawsuits, back wage and overtime awards, fines and possible public relations nightmares. If workers are found to be employees, they may also be entitled to employee benefits (i.e. the new Portland Sick Leave Law), unemployment, workers compensation, and social security contributions.  Since the federal government and each state government use different tests to classify workers, it is important to know how employers in Oregon and Washington make employee vs. independent contractor determinations.

Oregon:

The Bureau of Labor and Industries (BOLI), like the U.S. Department of Labor, uses the “economic realities test” to determine whether there is an employment relationship for wage and hour issues. The “economic realities test” looks at:

  1. The degree of control exercised by the alleged employer;
  2. The extent of the relative investments of the worker and alleged employer;
  3. The degree to which the worker’s opportunity for profit and loss is determined by the alleged employer;
  4. The skill and initiative required in performing the job; and
  5. The permanency of the relationship.

However, BOLI utilizes a different test, the “right to control test,” to determine whether a given worker is an employee or an independent contractor for purposes of civil rights law. The “right to control test” looks at:

  1. Direct evidence of the right to, or the exercise of, control;
  2. The method of payment;
  3. The furnishing of equipment;
  4. The right to fire

Finally, other state agencies will make their own determination on whether a worker is an independent contractor or an employee.  For example, Department of Revenue, Employment Department, Construction Contractors Board and Landscape Construction Board all require that the person performing the work meet all the criteria set out in ORS 670.600 in order to be considered an independent contractor.

Washington:

In Washington State, the Department of Labor uses the “economic realities” test to determine a worker’s status. The Washington “economic realities” test has six factors:

  1. The degree of control exercised by the alleged employer;
  2. The extent of the relative investments of the worker and alleged employer;
  3. The degree to which the worker’s opportunity for profit and loss is determined by the alleged employer;
  4. The skill and initiative required in performing the job;
  5. The permanency of the relationship;
  6. Whether the service rendered is an integral part of the employer’s business.

Currently these are the laws in place determining classification.  However, class action lawsuits have recently been filed by employees of Uber, Lyft, Handy, Homejoy, Washio, Shype, Instacart, and others.  Workers argued that these companies controlled their work to such an extent that they are truly employees entitled to minimum wage, overtime, reimbursement and other employee benefits.  In late April, drivers and Uber reached a tentative $100 million settlement.  Uber side-stepped the independent contractor vs. employee issue, which would have set legal precedent because the majority of these “employees” only worked an average of 9 hours a week for Uber.  So, whether your company plans to evolve and become “on demand,” it looks as though it is only a matter of time before the traditional dichotomy of independent contractor and employee will be a thing of the past.

2. Moonlighting

The “on demand” economy also shines a light on moonlighting and the law surrounding employees working additional jobs.

Non-competes

Employees can be prohibited from working for a competitor or sharing your client lists/ proprietary information.  Employers are allowed to enforce a non-competition agreement, as long as it was entered into the before employing the individual.

Oregon

Oregon’s statute allows non-competition agreements as long as they are entered into with employees prior to employment or prior to a bona fide advancement.  Non-competition agreements are not enforceable unless the following criteria are met:

  • The employee must be an exempt employee;
  • At termination, the employee’s annual salary and commissions must exceed the median income for a family of four as determined by the U.S. Census Bureau;
  • The employer must have a “protectable” interest, i.e. trade secrets or competitively sensitive confidential business or professional information (product development plans, product launch plans, marketing strategy or sales plans);
  • The employer must provide a written notice to the employee – at least two weeks before employment begins – that a non-competition agreement will be required; and
  • The agreement cannot be in effective for longer than two years from the date of the employee’s termination.

Washington

Washington also allows for non-competition agreements as long as they come with employer consideration and are entered into with employees prior to employment or prior to a bona fide advancement.  Washington courts focus on the reasonableness of the following when evaluating whether a non-compete agreement is enforceable:

  • The duration of prohibition (the shorter the better);
  • The and geographic scope (the smaller the better);
  • The purpose of the prohibition;
    • Preventing competition – weak
    • Protecting legitimate business interest of the employer – stronger
  • The activities being prohibited; and
    • If it is the use of trade secrets or proprietary information, Washington law already provides protections against improper use of trade secrets – weak
    • Prohibition of the solicitation of clients, customers, co-workers, & vendors – stronger
  • The employees new job
    • Must be performing similar work for a competitor
    • Employee must have had access to proprietary information or client details

Poor Performance

Blanket policies barring all outside employment are not recommended and may be ineffective. The best practice for an employer whose employees moonlight is to address the attendance or productivity issues if and when they arise.

If you do decide to implement a policy that prohibits moonlighting, you should articulate your business reasons for the rule. These reasons might include concerns about scheduling conflicts, employee fatigue, conflicts of interest and divided loyalties, or the need for employees to be available for on-call work and overtime.

Protected Activity

There have been numerous litigated cases involving moonlighting policies and claims that employers use them as a pretext to discriminate against employees engaged in protected activity. Another area of litigation involves employees with medical conditions who take time off work under the Family and Medical Leave Act, and its state equivalents.  If you discover such an employee has taken a second job with another company during his or her medical leave, think twice before disciplining the employee, because in a number of cases, courts have found that despite being able to work in a second part-time or light duty job, the employee still had a qualifying serious health condition entitling him or her to 12 weeks of protected leave from the original job.

This is challenging area of the law, and an ever-changing one.  This update only highlights some of the law regarding worker classification and moonlighting.

Employment updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.

To email John Kreutzer, please click here.

To view Employment Update: Put ‘em Up – US DOL Mandatory Posters, please click here.

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