All employers who retain workers to perform jobs for their business need to establish if those workers are employees or independent contractors. Such classification continues to be one for which employers are commonly found to be out of compliance.

This occurs as a result of three ways:

1. A random audit by the U.S. Dept of Labor
2. A random audit by your state’s Dept of Labor
3. A complaint by an individual that they are wrongly classified by an independent contractor, thereby triggering a government review

There are significant implications and negative consequences if an employer misclassifies a worker as an independent contractor—whether knowingly or not. Here are just two examples:

• Fines are subject to being doubled if non-compliance is determined to be willful or repeated
• A lawsuit by the family for life insurance payment in the event of the death of the worker

The issue of employers classifying workers as employees or independent contractors under the Fair Labor Standards Act (FLSA). was sought to be addressed in 2024 when the U.S. Department of Labor (USDOL) issued a new final rule.

• The federal law was designed to align the USDOL’s rules with then existing court decisions and laws.
• In doing so, it departs from the “ABC” test used by 27 states used to determine “employee” or “independent contractor” status.

The following summarizes the “ABC” test: If ALL 3 CONDITIONS ARE MET, only then can the individual be classified as an INDEPENDENT CONTRACTOR:

• Condition A — The individual must be free from the direction and control of the hiring entity. This includes the execution of the work and how the employee is supervised.
• Condition B — The person has to perform work that is considered to be outside the scope of the hiring entity’s business.
  • For example, an HVAC person who is hired by a bank to fix heating or air conditioning issues when they arise.
• Condition C — The worker must be engaged in an independently established occupation, business, or trade that is the same as the work they are performing for the company.

The 2024 federal law is different in that it contains a SIX-FACTOR TEST:

1. Opportunity for profit or loss depending on managerial skill
2. Investments by the worker and the 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 employer’s business.
6. Skill and initiative

NOTE: The foregoing factors are not exhaustive; courts look at the totality of the circumstances.

NOTE: Agreeing verbally or in writing to be classified as an independent contractor—including by signing an independent contractor agreement—does not make a worker an independent contractor under the FLSA.

Author: Salvatore LoDico, SPHR

  The HR Godfather ^TM 

  CEO, Trinity HR Consulting, Inc

The September 4, 2024 effective date of the Federal Trade Commission’s rule that would essentially INVALIDATE ALL PRE-EXISTING U.S. NON-COMPETE AGREEMENTS & BAN FUTURE ONES is rapidly approaching. It will take effect UNLESS one of the following occurs:

• A nationwide injunction of the rule being issued

      or

• The FTC voluntarily agreeing to delay the effective date while the legal process plays out
  • Several states (including PA, TX & FL) have challenged the FTC’s authority to issue this rule. 

SUGGESTED STEPS

Here are some suggested next steps U.S. businesses may want to consider taking between now & September 4^th:

1. Identify & assess what non-compete agreements the company currently has with its workers.
2. Review related documents, including:
   • Restrictive covenant agreements
   • Executive employment agreements
   • Offer letters
   • Separation agreements
   • Employee handbooks
   • HR policies
   • Equity-related agreements
3. Determine whether any workers subject to a non-compete agreement are or might be considered “senior executives” as defined by the FTC in its rule.
   • The rule makes an exception for senior executives with non-competes that were in place prior to September 4, 2024.
   • After that date there is NO EXCEPTION for existing or new senior executives.
   • NOTE: The FTC’s commentary cautions that “mere job title alone is insufficient”. The FTC takes the position that “senior executives are relatively few in number”.
4. Prepare a template notice regarding pre-existing non-compete agreements (except for those with senior executives) in which it clearly informs affected individuals that their non-compete is no longer in effect.
   • The FTC rule requires that, for all pre-existing non-compete agreements (except for pre-existing non-competes with senior executives) the employer must provide “clear and conspicuous notice to the worker,” BY THE RULE’S EFFECTIVE DATE.
     • Obviously, this is a potential predicament for employers in that if after September 4^th a court concludes that the rule is unconstitutional & should never have taken effect.
   • The FTC has created & made available a template in multiple languages.

Author: Salvatore LoDico, SPHR

  The HR Godfather ^TM 

  CEO, Trinity HR Consulting, Inc

President Joe Biden recently issued his proposed FY2025 budget. It includes large budget increases for government compliance agencies related to employment/employees. Some examples of compliance agencies are:

• Equal Employment Opportunity Commission (up by $488M)
• Department of Labor, which includes Wage & Hour Division, OSHA & Office of Federal Contract Compliance Programs among other agencies (up by $318M to $13.9B)
• National Labor Relations Board (up by $21M to $320M)

Significantly Increased Penalties for EEOC, DOL, EEOC & NLRB

In providing additional funding, the proposed budget calls for “significantly increasing” penalties for employer violations. They are intended to “create meaningful deterrence for employers from violating workers’ rights”.

The higher penalties impact a comprehensive range of employment matters, such as:

• Hiring, promotions & training, as well as any other term, condition or privilege of employment
• Pay, including equal pay & overtime pay
• Workplace health & safety
• Union organization to “bolster the NLRB’s Board’s “capacity to enforce workers’ right to organize and collectively bargain for better wages and working conditions”.

National Paid Family & Medical Leave Proposed

The budget proposes a national paid family and medical leave program providing up to 12 weeks of leave for workers to recover from an illness or care for a new child or sick family member, among other situations.

National Paid Sick Leave Proposed

President Biden also called on Congress to enable legislation providing employees with seven paid sick days annually. Currently, a bipartisan group of lawmakers from both the House and Senate is working on paid leave legislation.

Author: Salvatore LoDico

  The HR Godfather ^TM 

  CEO, Trinity HR Consulting, Inc