Does Misclassifying Employees As Independent Contractors Violate Labor Law?
Article By: David J. Pryzbylski
Whether it be the Internal Revenue Service (IRS), the Department of Labor (DOL), or state unemployment or workers’ compensation agencies, employee versus independent contractor status always is a hot issue. Missteps by employers in this area can result in back taxes, penalties, and more. The question has been looming, however, whether the National Labor Relations Board (NLRB) also would be throwing itself into the misclassification analysis fray with other agencies. Specifically, the board previously has signaled it may consider the misclassification of workers as independent contractors a violation of the National Labor Relations Act (NLRA) in some circumstances, such as in cases where an employer attempts to misclassify employees as contractors in an attempt to avoid union organizing (only employees can form unions under the NLRA; independent contractors cannot).
It appears we may have a definitive answer from the NLRB soon as to whether misclassification by itself can violate the labor law. On Feb. 15, 2018, the agency announced that it is inviting the public to file briefs with the agency in connection with a pending case articulating whether misclassification of workers should violate the NLRA in any context. This indicates we should have a ruling providing clarity in this area from the NLRB later this year. Until then, employers may not know where they stand with the board, but they do know they still have to account for the IRS, DOL, and state agencies on this front. Stay tuned to see if yet another layer of complication is added to this already complex issue.
Is a Discretionary Bonus Really Discretionary?
Canada January 15 2018
Many employers rely on the discretionary nature of their bonus plans to deny bonuses to employees they’ve dismissed. However, in an October 2017 decision inSinger v. Nordstrong Equipment Ltd., [2017] O.J. No. 5191, 2017 ONSC 5906, the Court held that stipulating that a bonus is discretionary in the policy doesn’t necessarily give the employer complete freedom to withhold the bonus. Rather, discretionary bonuses must be awarded through a “fair, identifiable process.”
The Court also reminded employers that policy amending documents are not always enforceable. In addition, the Court confirmed that a bonus entitlement claim can be decided on a summary judgment motion.
Key Takeaways
The Court held that, despite being discretionary, the decision to deny or grant a bonus upon employment termination should be made in a fair and reasonable manner. Accordingly, employers should ensure appropriate procedures are in place, and followed, for (i) reaching decisions to deny or grant a discretionary bonus, and (ii) documenting performance or other issues that may influence bonus eligibility.
Employers should be aware that fresh consideration is typically needed for substantive changes to the policy made over time. With that in mind, employers should take the following “housekeeping” steps aimed at preserving the enforceability of their policy:
- Identify the company’s current bonus policy.
- Consider whether the current policy is in fact valid and obtain legal advice where there is any uncertainty as to validity. E.g., Does the current policy effectively replace any previous policies? Was valid consideration given for prior amendments?
- Review the current policy to ensure it’s clearly drafted and unambiguous. E.g., Does it clearly state whether bonuses are discretionary or non-discretionary, how bonuses are calculated, or that performance issues will be taken into account?
Employers with unwritten bonus policies should turn their minds to putting these to writing to reduce uncertainty. Last but not least, employers should anticipate that employees will increasingly bring summary judgment motions to resolve bonus entitlement issues that are not agreed to at termination.
Background
Mr. Singer was dismissed from a senior management position with the defendant employer in 2016 after 11 years of service. He moved for summary judgment seeking damages for wrongful dismissal including his bonus payment entitlement. The employer argued that the bonus entitlement issue required a trial but reasonable notice could be determined on the motion. The Court disagreed and held that the summary judgment motion was an appropriate avenue to determine the bonus entitlement issue and reasonable notice.
Mr. Singer argued that he was entitled to a bonus of 5% of the company’s pre-tax profit as evidenced by his prior bonus payments since 2010. Mr. Singer also relied on a Corporate Policy document that stated that the bonus pool was 15% of the company’s pre-tax profit and was non-discretionary. The employer argued that Mr. Singer was merely eligible, not entitled, to a bonus payment. In support of its position, the employer relied on a more recent version of the Corporate Policy document and a company-wide email that sought to amend the policy by stating that bonuses were at the sole discretion of the employer. The Court found the following:
- the change to the Corporate Policy did not amount to an amendment because no consideration was given for the change;
- calculating the bonus pool based on profit was non-discretionary but the way in which bonuses are allocated to individuals was at the prerogative of the employer; and
- discretionary bonuses must be awarded through a “fair, identifiable process.”
The Court emphasized that, despite being discretionary, the decision to deny or grant a bonus upon termination of employment should be done in a fair and reasonable manner. Given that Mr. Singer’s termination letter did not reference his bonus eligibility for that year and there were no documented performance issues, the Court held that he was entitled to a bonus payment equal to the average amount he previously received in years with similar profit.
The Court also clarified that discretionary bonuses that are tied to performance are likely not payable through the notice period when a terminated employee is no longer providing service (though this will depend on the length of the notice period and how it correlates to the fiscal year). However, bonuses may be payable, at least in part, for the year in which the employee is terminated. The Court held that Mr. Singer was not entitled to a bonus payment for 2017 or 2018, during the reasonable notice period given that the bonus was tied to work performance.
Summary of NLRB Decisions for Week of February 5 – 9, 2018
The Summary of NLRB Decisions is provided for informational purposes only and is not intended to substitute for the opinions of the NLRB. Inquiries should be directed to the Office of the Executive Secretary at 202‑273‑1940.
Summarized Board Decisions
Campaign for the Restoration and Regulation of Hemp, THCF, and Presto Quality Care Corporation, as single and/or joint employers (19-CA-143377; 366 NLRB No. 15) Portland, OR, February 5, 2018.
The Board granted the General Counsel’s Motion for Default Judgment based on the Respondents’ failure to file an answer to the compliance specification. Accordingly, the Board ordered the Respondents to make the discriminatee whole by paying the backpay due as stated in the compliance specification, plus interest.
Charge filed by an individual. Chairman Kaplan and Members Pearce and Emanuel participated.
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Venetian Casino Resort, LLC (28-CA-016000; 366 NLRB No. 14) Las Vegas, NV, February 5, 2018.
Upon a second remand from the D.C. Circuit, the Board decided that further action in this case would not effectuate the purposes of the Act. The Board had found in its original decision that the Respondent unlawfully responded to a union demonstration on a public sidewalk by playing a trespass warning over a loudspeaker system, placing a union agent under citizen’s arrest, and urging police to cite and remove demonstrators for trespassing. In its first decision, the D.C. Circuit enforced the Board’s loudspeaker and citizen’s arrest findings, but remanded the finding on requesting police assistance for the Board to consider the applicability of the First Amendment’s right to petition the government. In its second decision, the D.C. Circuit, disagreeing with the Board’s finding that the First Amendment’s petition clause was inapplicable, concluded that the Board’s Order contravened the First Amendment’s right to petition unless the Respondent’s request was sham petitioning, and the Court remanded the case to consider if it was. After accepting the remand, the Board concluded it was best not to answer the question and further prolong the extraordinarily protracted litigation in this case. The Board relied on the case’s unusual circumstances, including over 18 years having passed since the union demonstration at issue and the Respondent’s fully implementing and complying with the remedies for the demonstration violations enforced by the D.C. Circuit.
Charge filed by Local Joint Executive Board of Las Vegas, Culinary Workers Union, Local 226 and Bartenders Union, Local 165, a/w Hotel Employees and Restaurant Employees International Union. Administrative Law Judge Gregory Z. Meyerson issued his decision on June 12, 2003. Chairman Kaplan and Members Pearce and McFerran participated.
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First Student, Inc., a Division of First Group America (07-CA-092212; 366 NLRB No. 13) Saginaw, MI, February 6, 2018.
The Board (Members Pearce and McFerran; Chairman Kaplan, dissenting in part), reversed the Administrative Law Judge and found that the Respondent was a “perfectly clear” successor under NLRB v. Burns Intl. Security Services, 406 U.S. 272 (1972) and Spruce Up Corp., 209 NLRB 194 (1974), and that it therefore violated Section 8(a)(5) and (1) by failing to provide the Union with notice and an opportunity to bargain before imposing initial terms and conditions of employment for the unit employees. Chairman Kaplan would have affirmed the judge’s finding that the Respondent was not a “perfectly clear” successor under the standards set forth in Burns and Spruce Up and, accordingly, did not violate the Act by unilaterally establishing initial employment terms. The Board unanimously found that the Respondent violated Section 8(a)(5) and (1) by delaying the commencement of bargaining, conditioning bargaining on the Union’s withdrawal of an unfair labor practice charge, and unilaterally implementing new attendance policies.
Charge filed by Local 9036, United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW) AFL–CIO. Administrative Law Judge Mark Carissimi issued his decision on December 13, 2013. Chairman Kaplan and Members Pearce and McFerran participated.
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Apex Linen Service, Inc. (28-CA-177062; 366 NLRB No. 12) Las Vegas, NV, February 6, 2018.
The Board adopted the Administrative Law Judge’s conclusion that the Respondent violated Section 8(a)(3) and (1) by warning, suspending, and discharging an employee for engaging in protected activity (wearing a Union button and marching and picketing at the Respondent’s clients’ properties). The Board rejected the Respondent’s claim that the employee was disciplined for damaging a customer’s linens during the cleaning process. A Board majority (Chairman Kaplan and Member Emanuel) found it unnecessary to pass on whether the Respondent violated Section 8(a)(4) and (1) by warning, suspending, and discharging the employee for filing a charge with the Board, as the additional violation would not materially affect the remedy, while Member Pearce would have found the violation because he felt the supporting evidence was clear.
Charge filed by Culinary Workers Union Local 226 a/w Unite Here International Union. Administrative Law Judge Gerald M. Etchingham issued his decision on August 1, 2017. Chairman Kaplan and Members Pearce and Emanuel participated.
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Ride Right, LLC (13-CA-171393; 366 NLRB No. 16) Batavia, IL, February 8, 2018.
On a stipulated record, the Board concluded that the Respondent violated Section 8(a)(5) and (1) by failing and refusing to bargain with the Union. The Board found that the Respondent’s bargaining obligation began in June 2015, when it took over paratransit services from another company, because at that time, the Respondent had hired a substantial and representative complement of employees, the majority of whom had been unit employees represented by the Union with the predecessor employer. The Board also found that the charge was not time-barred because the Respondent did not provide clear and unequivocal notice that it would not bargain with the Union until February 2016.
Charge filed by Teamsters Local Union No. 727. Chairman Kaplan and Members McFerran and Emanuel participated.
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Sagar, Inc. d/b/a La Mariposa Care and Rehabilitation Center (20-CA-203025; 366 NLRB No. 17) Fairfield, CA, February 8, 2018.
The Board granted the General Counsel’s Motion for Default Judgment based on the Respondent’s failure to file an answer to the complaint. The Board found that the Respondent violated Section 8(a)(5) and (1) by unreasonably delaying in furnishing the Union with requested information that is relevant and necessary for its role as the exclusive collective-bargaining representative of the unit employees.
Charge filed by Service Employees International Union, Local 2015. Chairman Kaplan and Members Pearce and McFerran participated.
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Unpublished Board Decisions in Representation and Unfair Labor Practice Cases
R Cases
Wismettac Asian Foods, Inc. (21-RC-204759) Santa Fe Springs, CA, February 6, 2018. The Board denied the Employer’s Request for Review of the Regional Director’s decision to reschedule the election for February 6, 2018. The Board also denied the Employer’s Request to Stay the election or postpone the election, or, alternatively, to impound the ballots. Petitioner – Food, Industrial & Beverage Warehouse, Drivers and Clerical Employees Union Local 630, International Brotherhood of Teamsters. Chairman Kaplan and Members Pearce and McFerran participated.
Mohawk Industries (10-RD-209088) Eden, NC, February 8, 2018. The Board denied the Employer’s Requests for Review of the Regional Director’s determinations to hold the decertification petition in abeyance as they raised no substantial issues warranting review. Petitioner – an individual. Union – Workers United/SEIU, Local 294-T a/w Workers United/SEIU. Chairman Kaplan and Members Pearce and McFerran participated.
C Cases
TeleTech Healthcare Solutions, Inc. (10-CA-200556 and 10-CA-200558) Hopkinsville, KY, February 5, 2018. The Board denied the Employer’s Petition to Revoke an investigative subpoena duces tecum, finding that the subpoena sought information relevant to the matters under investigation and described with sufficient particularity the evidence sought, and the Employer failed to establish any other legal basis for revoking the subpoena. The Board stated that the Employer was not required to produce materials already furnished, provided that it describes which documents it has already provided and provides all subpoenaed information. Charges filed by an individual. Chairman Kaplan and Members Pearce and McFerran participated.
Volvo Group North America, LLC (15-CA-179071, et al.) Byhalia, MS, February 6, 2018. The Board (Chairman Kaplan and Member Emanuel; Member Pearce, concurring in part and dissenting in part) denied the Respondent’s Motion to Dismiss the second consolidated complaint, in which the Respondent argued that the Board should defer to the arbitrator’s award. The Board found that the Respondent failed to establish that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. The Board stated that the denial is without prejudice to the Respondent’s right to renew its arguments to the Administrative Law Judge and to raise the deferral issue, including the proper standard for deferral, to the Board on exceptions, if appropriate. Member Pearce would have denied the motion categorically, finding that the arbitration award fails to meet the applicable requirements for deferring the Section 8(a)(3) allegations under Babcock & Wilcox, 361 NLRB 1127 (2014). In addition, Member Pearce found deferral inappropriate because the Section 8(a)(3) allegations are intertwined with nondeferrable independent Section 8(a)(1) and 8(a)(4) allegations. Charges filed by an individual. Chairman Kaplan and Members Pearce and Emanuel participated.
Service Employees International Union, United Healthcare Workers-West (Kaiser Foundation Hospitals) (32-CB-202546) Santa Clara, CA, February 7, 2018. The Board denied the Union’s Petition to Revoke investigative subpoenas duces tecum and ad testificandum, as the subpoenas sought information relevant to the matters under investigation and described with sufficient particularity the evidence sought, and the Union failed to establish any other legal basis for revoking the subpoenas. Charge filed by an individual. Chairman Kaplan and Members Pearce and Emanuel participated.
International Alliance of Theatrical Stage Employees and Moving Picture Technicians, Artists and Allied Crafts of the United States and Canada AFL-CIO, Local 99 (various employers) (27-CB-193546) Salt Lake City, UT, February 7, 2018. No exceptions having been filed to the December 26, 2017 decision of Administrative Law Judge John T. Giannopoulos finding that the Respondent had not engaged in certain unfair labor practices, the Board adopted the judge’s findings and conclusions, and dismissed the complaint. Charge filed by an individual.
Sectek, Inc. (05-CA-190674) Reston, VA, February 8, 2018. The Board denied an individual’s Petition to Revoke an investigative subpoena ad testificandum, as the subpoena sought information relevant to the matters under investigation and described with sufficient particularity the evidence sought, and the individual failed to establish any other legal basis for revoking the subpoena. The individual sought to revoke the subpoena in part because of his concern that giving testimony may conflict with his pastoral or clerical functions, but the Board found that the Region had made clear that it was not seeking testimony regarding any confidential communications the individual may have had in his capacity as a clergy-member. Charge filed by an individual. Chairman Kaplan and Members Pearce and Emanuel participated.
Winthrop Management, Northwell Health, Inc., and Donnelly Mechanical Corp., Individually, and as Joint Employers and Successors to Winthrop Management, Northwell Health, Inc., and Paris Maintenance & Management Co., Inc. (29-CA-188433) Great Neck, NY, February 8, 2018. The Board denied the Employers’ Petitions to Revoke an investigative subpoena duces tecum, as the subpoena sought information relevant to the matter under investigation and described with sufficient particularity the evidence sought, and the Employers failed to establish any other legal basis for revoking the subpoena. The Board noted that, while the Employers are not required to produce evidence requested in the subpoenas that does not exist or that the Employers do not possess, the Employers are required to conduct reasonable and diligent searches for all requested evidence. The Board stated that the Employer was not required to produce materials already furnished, provided that it describes which documents it has already provided and provides all subpoenaed information. Charge filed by International Union of Operating Engineers, Local 30. Chairman Kaplan and Members Pearce and Emanuel participated.
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Appellate Court Decisions
No Appellate Court Decisions involving Board Decisions to report.
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Administrative Law Judge Decisions
Ford Motor Company (07-CA-198075; JD-10-18) Allen Park, MI. Administrative Law Judge David I. Goldman issued his decision on February 8, 2018. Charge filed by Local 324, International Union of Operating Engineers (IUOE), AFL-CIO.
United States Postal Service (10-CA-173471, et al.; JD-09-18) Atlanta, GA. Administrative Law Judge Donna N. Dawson issued her decision on February 8, 2018. Charges filed by American Postal Workers Union-Atlanta Metro Area Local 32; American Postal Workers Union-Local 012; American Postal Workers Union Local 3434; National Association of Letter Carriers, Branch 73; and National Association of Letter Carriers, Branch 1537.
Seven Seas Union Square, LLC and Key Food Stores Co-Operative, Inc. (29-CA-164058, et al.; JD(NY)-04-18) Brooklyn, NY. Administrative Law Judge Benjamin W. Green issued his decision on February 9, 2018. Charges filed by United Food and Commercial Workers Union, Local 342, AFL-CIO.
International Longshore and Warehouse Union, Local 23 (19-CB-175084 and 19-CB-198689; JD(SF)-01-18) San Francisco, CA. Administrative Law Judge Eleanor Laws issued her decision on February 9, 2018. Charges filed by individuals.