If your organization uses independent contractors (“IC”), it’s time, once again, to assess whether they are properly classified due to the March 11, 2024 effective date for the Department of Labor’s (“DOL”) “Final Rule on Classifying Workers as Employees or Independent Contractors Under the Fair Labor Standards Act.”   

At a high level, the final rule represents an intentional shift by the DOL to a narrower interpretation of IC status under the “economic reality” test used by courts and government agencies to determine whether a worker is an employee or IC.  In effect, the new rule makes it harder for workers to qualify as ICs. 

The final rule applies the following six factors in making this analysis:  (1) opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the potential employer; (3) degree of permanence of the work relationship; (4) nature and degree of control; (5) extent to which the work performed is an integral part of the potential employer’s business; and (6) skill and initiative.  This test relies on the totality of the circumstances where no one factor is determinative.  The DOL’s summary of how it interprets each of these factors  can be found here:  DOL FAQs.

States have adopted their own version of this test in analyzing misclassification cases under state law.   

The consequences for misclassifying a worker as an IC can be high in terms of financial penalties and business disruption.  Now is the time to conduct a compliance audit.  Please let me know if I can assist.

In Nov. 2016, Arizona voters passed by proposition the “Fair Wages and Healthy Families Act” (the “Act”), which not only increased the state’s minimum wage (currently $14.35/hr.), but also created new requirements regarding paid sick time (“PST”) in Arizona. The Act became effective July 1, 2017.

In many respects, the PST portion of the Act is not a model of clarity.  In an effort to clarify some of the ambiguities, the AZ Industrial Commission has issued regulations and FAQs. See FAQs.  

Courts have also weighed in.  Recently, the AZ Court of Appeals issued a ruling, Papias v. Parker Fasteners (attached), that provides guidance that your organization would be well-advised to heed.  Specifically:  

• The employer in Papias offered more PST than the Act requires. The Court clarified that when an employer provides more sick time hours than required by the Act, it is still obligated to comply with the rights outlined in the Act on the use of sick time.  Takeaway:  Consider limiting PST to the legally required maximum; if you offer more, the Act’s requirements and rights apply to the additional sick time hours.  
• The amount of sick time available, taken year-to-date (“YTD”), and sick pay received must be recorded in, or an attachment to, the employee’s regular paycheck.  The Court clarified that an employee’s “regular paycheck” includes physical or electronic paychecks or paystubs and/or an online portal hosted by a payroll processing vendor that posts the required PST data.  Discrepancies between a vendor’s online portal and the employer’s records mean the employer did not meet its notification obligation. In this case, there were discrepancies due to confusion over whether the time was accrued or awarded as a lump sum and whether it was earned on an anniversary or calendar basis.  There was also a dispute whether the employee had access to the PST data on the vendor’s payroll portal.  Takeaway:  Make sure PST data published by the employer or its payroll vendor is regularly audited, and that the calculations are consistent with the employer’s PST policy; also, verify employees have access to the required PST data if posted on a payroll portal.
• If the employer does not specify in writing the “acceptable means” for an employee to report PST usage, then any informal means the employee uses to communicate an illness, including text messages, is sufficient.  Takeaway:  Your policy should specify to whom when, and the means by which employees should report PST usage.      

I’m happy to assist your organization draft and/or review your PST policy (or PTO policy that encompasses PST) for compliance with the Act.

The EEOC recently released a new “Know Your Rights” poster (dated October 20, 2022), which replaces the previous “EEO is the Law” poster. The new poster must be posted by all covered employers.  This EEOC Fact Sheet provides answers to frequently asked questions about the new “Know Your Rights” poster.

On February 10, 2022, Congress, on a bipartisan basis, passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (the “Act”).  The Act invalidates pre-dispute arbitration agreements between employers and employees relating to employee claims of sexual harassment and sexual assault.  President Biden is expected to sign the Act into law. The Act also invalidates pre-dispute agreements that waive an employee’s right to participate in a joint, class or collective action in court, arbitration or any other forum that relates to a sexual assault or sexual harassment dispute.  Moreover, if a dispute arises about whether a particular claim qualifies as a “sexual assault” or “sexual harassment” dispute, a court, not an arbitrator, must answer that question, even if the agreement specifies otherwise.

The Act permits an employee and employer to agree to arbitrate sexual harassment and sexual assault disputes provided such agreement arises after the dispute occurs and the employee’s consent is in writing.   

The Act applies retroactively, invalidating any existing agreement which forces parties to arbitrate sexual harassment and sexual assault disputes on an individual basis or as a class or collective action.

The Act does not prohibit employers from mandating arbitration or class/collective action waivers for other types of employment claims, including discrimination, retaliation, wage and hour, etc.

What To Do?

Employers with mandatory arbitration agreements in place have a choice with regard to existing employees who have signed such an agreement: (1) issue a new arbitration agreement that exempts sexual harassment and sexual assault claims from coverage; or (2) send a communication to those employees clarifying that the agreement no longer covers these types of claims.   For new employees, employers should revise its agreement to exempt sexual harassment/assault claims.

What Next?

The Act will inevitably present procedural and strategic challenges when an employee alleges multiple claims, some of which are still subject to arbitration.  Due to these challenges, the Act may disincentive employers from implementing mandatory arbitration agreements, despite the benefits such agreements may bring in terms of efficiency, cost and confidentiality.

On January 13, 2022, the Supreme Court, by a 6-3 vote, blocked the OSHA vaccine or testing mandate for private employers with 100 or more employees; however, the Court, by a 5-4 vote, allowed a vaccine mandate for certain health care workers to go into effect nationwide.  With regard to the private employer vaccine/testing mandate, the Court left open the possibility of a more limited workplace mandate that applies to “particularly crowded or cramped environments.” 

With this ruling, private employers previously subject to the OSHA ETS are not required to comply with the ETS.  These employers may, however, be subject to state vaccine/testing mandates.  Arizona has no such mandate.  Employers are free to voluntarily implement a vaccine/testing mandate, provided they offer employees the opportunity to apply for an exemption based on a sincerely held religious belief or medical condition.