Author Archives: Holland & Hart

June 21, 2012

New Case Clarifies Test for Contractor Status

Many organizations rely on independent contractors–sometimes referred to as consultants or just contractors–to perform a variety of services. But determining who is a contractor, as opposed to an employee, is not an easy task. A variety of state and federal rules apply, each with different factors and tests. If you misclassify an individual, the penalties can be severe. For example, in Colorado, a business may be fined up to $5,000 per misclassified employee for the first offense, and up to $25,000 per misclassification for subsequent violations if the violations were willful. Businesses may also be liable for back taxes, interest, failure to pay overtime, and a variety of other penalties for failure to provide benefits. Therefore, it's very important to ensure an independent contractor fits the tests for contractor status. A new Colorado case provides some important guidance on this subject.

In Softrock Geological Services, Inc. v. ICAO, the Colorado Court of Appeals had to decide whether an individual who provided services to Softrock as a contractor over a three-year period, without performing similar services for others during that period, was a contractor or employee. Under Colorado's unemployment statute, an individual is presumed to be an employee unless the organization demonstrates that the individual: (1) is "free from control and direction in the performance of the service" and (2) "is customarily engaged in an independent trade, occupation, professional, or business related to the service performed." The second part of the test is often difficult to prove. A number of Colorado cases have concluded that unless the contractual arrangement is relatively brief, an individual must perform services for more than one entity to be a contractor. Such a test, however, places a heavy, and often unfair, burden on businesses.

Businesses do not always track the outside activities of a consultant, and a consultant may choose to work for only one entity for a period of time. Recognizing this, the Court of Appeals in Softrock concluded that it is improper to classify an individual as an employee solely because that person did not perform similar services for others while performing services for the alleged employer. Instead, the failure to perform services for others is merely one factor to be considered. The other factors include: the existence of a quality standard; payment of a salary/hourly rate as opposed to a fixed or contract rate; ability to terminate the individual for limited reasons, such as failing to produce results or violating the contract; whether training is provided; whether tools and benefits are provided; whether the individual is subject to a set schedule or has authority to set his or her own schedule; payment to a business or tradename as opposed to an individual; and whether the individual and the business have combined operations or maintain separate and distinct operations. The court remanded the case to the Industrial Claims Appeals Office for reconsideration, though it is possible this case will be reviewed by the Colorado Supreme Court.

The court's guidance in Softrock is helpful because many times, individuals will meet the test for contractor status even though they choose to perform work for only one entity for an extended period. Still, as this case demonstrates, repeatedly retaining an invidual to perform services as a contractor over an extended period, without confirming that he or she is working for others, is risky. As a result, it is best to ensure that individuals are, in fact, working for others or making their services available to others while performing services for your business.

Here are some additional tips to keep in mind when retaining a contractor:

1. Don't classify someone as a contractor just because that person asks to be a contractor. The business bears the responsibility, and liability, for appropriately classifying its workers.

2. A signed contract is not enough. A court or auditor will look beyond the contract to determine whether the individual meets the appropriate tests for contractor status.

3. Do not pay an individual; instead, ensure you are paying a tradename or business entity. Payment to an individual is a red flag for auditors, even when the person is legitimately a contractor.

4. Avoid hiring former employees as contractors, unless you are certain they meet the test for contractor status. Again, this is a red flag for auditors, as employees are sometimes reclassified as contractors even though their actual duties have not changed.

5. Get a business card, print out a website, or maintain some other evidence that the individual has a business and makes his or her services available to others. This type of evidence can be very helpful in the event of an audit.

6. Get your attorney involved early to ensure the person meets the appropriate tests. Although a written agreement is not dispositive, it can help, and analyzing the issue before an audit is generally better than analyzing it for the first time during or after an audit has begun.

7. Do not treat the individual like an employee, i.e., do not have the person sign an employment contract, do not evaluate the individual with the same forms you use for employees, and if you give the person a business card, be sure it notes the individual is a contractor.

8. Do not retain someone as a contractor with the idea of hiring that person as an employee if he or she does well. Most likely, that person will not fit the tests for contractor status.

9. Do not assume that individuals performing short-term projects or part-time work are automatically contractors. Often times, they are part-time or short-term employees.

10. When in doubt, err on the side of employee status.

Contractor misclassification is a big issue in Colorado and many other states. Therefore, be cautious when retaining contractors, and be sure they meet the appropriate tests for contractor status.

June 7, 2012

Last-Chance Agreements — Employer beware!

The EEOC, in its recent press release (http://www.eeoc.gov/eeoc/newsroom/release/5-29-12.cfm) of May 29, 2012, announces a rare victory on summary judgment in what could be a bad trend for employers. In the underlying case of EEOC v. Cognis Corporation, a foreign multinational corporation, the federal judge ruled that the company retaliated against an employee for refusing to waive his rights to file a discrimination charge, both for past conduct and prospective conduct.

The employee, as a condition of continued employment, was asked to sign a last-chance agreement that prohibited him from filing a discrimination charge. According to the EEOC, Cognis conditioned the employment on the execution of the last chance agreement and when the employee refused to be bound by that agreement he was fired. As the Court noted in its opinion, it is not often that an employee is granted summary judgment on a Title VII retaliation claim.

The outcome here is problematic for two reasons. First, in most cases there is often a fact issue over the stated motivation for the adverse action taken by the employer because the motivation for the underlying decision is almost always in dispute; thus, there is a necessary question of fact that would defeat a summary judgment. Second, the Court’s willingness to discount the fact that had the employee not executed the last-chance agreement in the first instance he would have been terminated for a legitimate and non-discriminatory reason – poor performance – is worrisome. In rejecting Cognis’s argument on this point, the Court reasoned that even if it credited Cognis’s argument; it was the employee’s revocation of the last-chance agreement that constituted an adverse action, an act that might dissuade a reasonable worker from making or supporting a charge of discrimination. (See Opinion). This reasoning, of course, doesn’t adequately address the fact that the worker essentially was given consideration to remain employed under the last-change agreement.

What is clear from the Court holding in Cognis is the fact that the last-chance agreement is said to have threatened termination for undertaking future protected activity, which the Court says satisfies one element of the prima facie case of retaliation – a preemptive retaliatory act. Now, all that remains for the Court is a determination of damages. If the Cognis last-chance agreement had not included this prospective provision, I wonder how the case would have turned.

This holding is sure to motivate the EEOC to seek out similar cases of this kind. The EEOC concludes its release by indicating that “[f]iling EEOC charges is a fundamental right of American employees, and this agency always stands ready to protect that right.” EEOC’s Chicago District Director John Rowe further states, “This court’s opinion should cause employers to remember that seeking to dissuade employees from exercising that right is not only bad policy, it’s a violation of federal law which can give rise to very substantial liability.”

Despite the Court’s finding and the threats by the EEOC, this author maintains that narrowly crafted last-chance agreements are often useful to employers, both to ensure employees understand that future satisfactory performance is demanded and to give the employee fair opportunity to improve his/her conduct.

For more information contact Steven M. Gutierrez.

May 15, 2012

National Labor Relations Board Election Rule Invalidated

A federal judge has invalidated the "ambush election" rule by the National Labor Relations Board ("NLRB"). Brian Mumaugh and Brad Williams summarized the decision by Judge James E. Boasberg of the United States District Court for the District of Columbia and its impact on employers in a post, which is available on Holland & Hart's website by clicking here.

May 15, 2012

Court Invalidates NLRB’s “Ambush Election” Rule

A federal district court judge invalidated the National Labor Relations Board's (NLRB's) controversial "ambush election" rule yesterday, ruling that the Board had lacked a three-member quorum needed to pass the rule last December. The ruling followed a failed Congressional attempt to halt the rule, and came just two weeks after the rule became effective on April 30th. For more information, see the article written by my colleagues Brian Mumaugh and Brad Williams.

May 10, 2012

Good Documentation — a recipe for success

By Mark Wiletsky

As a follow-up to a recent post, here is an article with tips for documenting employee performance issues.

Before terminating an employee, even in an at-will state such as Colorado, employers are well-advised to have good documentation in hand. A solid “paper trail” documenting legitimate performance or behavioral issues is often your best weapon to prevent or quickly resolve opportunistic claims from poor performers and disgruntled employees. Although documenting problems is not required by law, jurors expect to such evidence when faced with a claim that the employee was terminated for an unlawful reason. There is no “one-size-fits-all” approach to documenting performance problems, but following a recipe will help to ensure that your documentation contains the key ingredients to ward off a claim.

1. Start with the facts. When documenting performance or behavior problems, avoid ambiguous or subjective phrases and terms, such as saying the employee has a “bad attitude” or has behaved “inappropriately.” Instead, be factual, specific, and give examples. For example, rather than saying an employee has “repeatedly been late to work,” you could write: “John’s shift begins at 8:00 a.m. However, on March 5, 21, and 28, 2012, John arrived at 8:10 a.m., 8:15 a.m. and 9:00 a.m., respectively. John did not call his supervisor in advance to notify him that he would be late those days. As a result of John’s tardiness, employees from the earlier shift had to stay late, causing the company to incur additional expenses, which it is trying to minimize.” Also, replace labels (such as “bad attitude”) with a description of the actual conduct that is at issue, e.g., John has been inattentive during staff meetings, he failed to work with his teammates to complete deliverables on the X project, etc. Lastly, avoid acronyms and highly technical jargon. Make sure that a layperson could read the document and understand the problem.

2. Add in the employee’s explanation. After identifying the problem, recite the employee’s explanation for the problem, or confirm the employee admitted to the behavior. For example: “When Michelle and I met with John on April 1 to discuss his tardiness, John admitted he had been late on the days noted above, but claimed that he had overslept or that road construction delayed him.” Then state that those excuses are not legitimate and reiterate the expectation that the employee will adhere to the rule at issue.

3. Throw in some history. If the employee has had other problems recently, reference those issues. Similarly, if you have had prior conversations with the employee about the conduct at issue, and that conduct is recurring, point out those past conversations: “This is not the first time John has had problems with tardiness. We spoke about this issue on February 5, 2012, because he had arrived late to work two times in a two-week period, and I warned him that he needed to be sure to arrive on time and notify his supervisor if he was going to be late.” But don’t go back too far into the past, and be sure that you are following any applicable collective bargaining agreement with respect to the time period during which past performance issues may be used against an employee.

4. Lay out expectations. Make sure the employee knows what you expect, and include a policy (or excerpt), if applicable. A common sentence included in disciplinary memoranda is: “We expect immediate and sustained improvement. If there are any further issues or problems, you will be subject to additional discipline, up to and including termination of employment.”

5. Finish off with a signature. Make sure the employee signs a document to confirm receipt. Employees or their attorneys may claim that an unsigned document was created after the fact, or that the issue was never discussed with the employee. If the employee refuses to sign the document, simply note the employee refused to sign, and consider sending a copy of the memo to the employee via e-mail with a note, such as: “John – here is a copy of the warning memo that we discussed a few minutes ago.”

Although there is no one “recipe” for successful documentation, following the steps outlined above should be a good start to ensure that you are appropriately documenting performance issues.

April 24, 2012

Good Documentation Dooms FMLA Claim

by Mark Wiletsky

A recent case issued by the Tenth Circuit (which covers Colorado) provides a good reminder about the importance of good documentation, and following your employment policies. In Peterson v. Exide Technologies, the Tenth Circuit affirmed summary judgment in favor of Exide Technologies, dismissing Peterson's Family and Medical Leave Act (FMLA) and wrongful discharge claims as a matter of law. Peterson was involved in a forklift accident, in which he was injured. After the accident, he was placed on FMLA leave for 10 days. After investigating the accident, the employer determined that Peterson had violated its safety policies. Therefore, Exide terminated Peterson four days after the accident, while Peterson was on FMLA leave.

Peterson then sued, claiming his discharge violated his rights under the FMLA, and gave rise to a common law claim for wrongful discharge in violation of public policy. The district court and the Tenth Circuit disagreed. Peterson had a history of documented safety violations, and he had no evidence that the stated reason for his discharge–yet another safety violation–was a mere cover-up (or pretext) for an unlawful motive. Importantly, the court rejected Peterson's argument that Exide had failed to follow its own progressive discipline policy. The court noted that Exide's progressive discipline policy was discretionary rather than mandatory, and it did not prevent Exide from considering past disciplinary actions, even if they were dated.

Peterson also claimed the incident giving rise to his termination was minor, and that he was not at fault for the accident. Again, however, the court rejected his arguments, reasoning that Exide could legitimately rely on the final accident given Peterson's record of unsafe work performance. Thus, even though Peterson was terminated while on FMLA leave, his claims were dismissed. There are several important lessons from this case, including:

1. Document performance and behavior issues as they occur.

2. Review your employment policies to ensure they do not create mandatory language with respect to progressive discipline, or any other language that might limit your right to terminate an employee.

3. It is possible to discharge employees while on FMLA leave, but be cautious when doing so. Such a decision has a heightened possibility of leading to litigation. Even if, as in this case, you can successfully defend the case, consider whether there is another approach that might allow you to avoid litigation altogether.

April 17, 2012

NLRB Notice-Posting Requirement Indefinitely Postponed

Brian M. Mumaugh and Bradford J. Williams have been following the recent developments regarding the rule by the National Labor Relations Board, which required most employers to post a statement of rights under the National Labor Relations Act. Today the D.C. Circuit granted an emergency motion for relief, which had the effect of enjoining enforcement of the rule. More information about the D.C. Circuit's ruling and its effect on employers is available by visiting the Colorado Employment Law Blog or clicking here.

April 16, 2012

Court Strikes Down NLRB Notice-Posting Requirement, Leaves Employers Hanging

By Brian M. Mumaugh and Bradford J. Williams

The U.S. District Court for the District of South Carolina just became the second federal district court to weigh in on the legality of a National Labor Relations Board (NLRB) rule requiring most private employers to post a notice informing employees of their rights under the National Labor Relations Act (NLRA). In his April 13, 2012, decision, Judge David C. Norton held that the notice-posting rule exceeded the NLRB’s authority in violation of administrative law. The decision leaves employers hanging regarding their obligations in advance of the April 30, 2012, notice-posting deadline.

In August 2011, the NLRB issued a final administrative rule requiring all private employers covered by the Act to post 11-by-17 inch posters “in conspicuous places” advising employees of their rights under the NLRA. These rights include the right to form, join, or assist unions; to negotiate with employers through unions; to bargain collectively through representatives of employees’ own choosing; and to strike and picket. The rule was stridently opposed by business groups which felt that it violated employers’ First Amendment rights, and mandated the posting of an excessively pro-union message. The final rule required employers who customarily communicate with employees regarding personnel matters using an intranet or internet site to post the notice prominently on that site.

To ensure compliance, the rule provided that failure to post the required notice would be deemed an unfair labor practice (ULP) under Section 8(a)(1) of the Act. The Board could automatically toll (or stay) the six-month statute of limitations for all ULP actions—not just those arising out of a failure to post—where employers failed to post the notice. In addition, the knowing and willful refusal to post the notice could be used “as evidence of unlawful motive” in ULP cases in which motivation was at issue.

In late 2011, the NLRB’s final administrative rule was challenged in lawsuits filed in the U.S. District Court for the District of Columbia, and the U.S. District Court for the District of South Carolina. Due in part to this pending litigation, the rule’s effective date was postponed to January 31, 2012, and then to April 30, 2012.

On March 2, 2012, Judge Amy Jackson of the U.S. District Court for the District of Columbia issued a ruling in the first of the two lawsuits, National Association of Manufacturers v. NLRB, No.11-1629 (ABJ) (D.D.C. Mar. 2, 2012). Judge Jackson broadly upheld the NLRB’s right to issue the notice-posting rule, but struck down automatic sanctions for failure to post the required notice. She held that failure to post might constitute an ULP, and might toll the statute of limitations, but found that the Board would have to make specific findings in each ULP case to impose such sanctions. Judge Jackson’s decision is currently on appeal to the U.S. Court of Appeals for the District of Columbia Circuit, and the appellate court has not yet ruled on a motion that would enjoin the rule’s enforcement pending the court’s decision.

Last Friday, Judge Norton stepped into this fray by issuing a diametrically opposed decision in the second of the two lawsuits, Chamber of Commerce v. NLRB, No. 11-cv-2516 (DCN) (D.S.C. Apr. 13, 2012). Judge Norton found that the Board had exceeded its authority under Section 6 of the Act by issuing the notice-posting rule. Noting that Section 6 gives the Board the power to make “such rules and regulations as may be necessary to carry out the provisions of the [NLRA],” the judge found that the notice-posting rule was not “necessary” to any of the Act’s provisions. On the contrary, the NLRA empowers the Board to prevent and resolve ULP charges and to conduct representative elections. Judge Norton noted that these duties are inherently “reactive,” and found that nothing in the Act requires employers to “proactively” post notices of employee rights. As Judge Norton concluded: “Neither Section 6 nor any other section of the NLRA even mentions the issue of notice posting.”

Judge Norton further rejected the argument that the Board had acted appropriately by filling a statutory “gap” in the NLRA. He observed that Congress had inserted at least eight explicit notice requirements into federal labor statutes since 1934, while the NLRA had “remained silent.” He concluded that Congress “clearly knows how to include a notice-posting requirement in a federal labor statute when it so desires,” but found that there is “not a single trace of statutory text that indicates Congress intended for the Board to proactively regulate employers in this manner.”

Interestingly, Judge Norton did not discredit the Board’s factual finding that there is an increased need for employees to learn of their NLRA rights, and he did not dispute Judge Jackson’s conclusion that the Board had articulated a rational connection between this finding, and the Board’s decision to promulgate the notice-posting rule. Nonetheless, he implicitly found that any such connection was irrelevant in light of the plain language and structure of the Act, which he said compelled his conclusion that the Board lacked the authority to promulgate the rule.

Judge Norton’s decision is extremely favorable for employers, but is it unfortunately only likely controlling in the District of South Carolina. Conversely, Judge Jackson’s decision is broadly disappointing for employers, but is only likely controlling in the District of Columbia. Courts in other jurisdictions—including in the Tenth Circuit—have yet to weigh in on the issue. If Judge Norton’s decision is eventually appealed (as is likely), and the U.S. Court of Appeals for the Fourth Circuit reaches a different decision than the U.S. Court of Appeals for the District of Columbia, the notice-posting issue could end up before the U.S. Supreme Court.

A spokesman for the NLRB announced last Friday that the Board was studying Judge Norton’s decision, and would be deciding on an appropriate course of action. As it has done before, the Board might postpone enforcement of the rule pending further court action. Alternatively, the Board might take the position that the rule is only unenforceable in the District of South Carolina, but is enforceable elsewhere. The U.S. District Court for the District of South Carolina, or the U.S. Court of Appeals for the District of Columbia Circuit (or even the U.S. Court of Appeals for the Fourth Circuit, if Judge Norton’s ruling is appealed), could separately enjoin enforcement of the rule given the current split in legal opinion.

In the wake of Judge Norton’s decision, employers are advised to monitor further developments in both the District of South Carolina case, and in the District of Columbia case. Employers may also want to monitor the NLRB’s website. As the April 30th notice-posting deadline approaches, employers may wish to consult with legal counsel about the potential costs of posting an arguably pro-union poster, and the likelihood that the notice-posting rule may eventually be invalidated in their jurisdiction.

For more information or advice on compliance, please contact Brian M. Mumaugh or Bradford J. Williams of Holland & Hart’s Labor & Employment Practice Group.

April 6, 2012

Defense of Discrimination Claims Will Continue to Rise

By Steven M. Gutierrez

via www.coloradoemploymentlawblog.com

Employers continue to face increases in the number of discrimination charges and lawsuits. The EEOC continues to make enforcement in this area a high agency priority. The costs to employers are significant, given the use of wide-ranging subpoenas and discovery requests by the EEOC. Steven Gutierrez discussed the important issue yesterday in a post that is available by visiting www.coloradoemploymentlawblog.com.