Author Archives: David Schooler

California Labor Commissioner Holds That Uber Drivers Are Employees, Not Independent Contractors

A recent decision by the California Labor Commissioner’s Office has held that drivers for Uber, the popular online ride-hailing service, are employees of the company rather than independent contractors.

In Berwick  v. Uber Technologies, LLC, the office ordered Uber to pay Barbara Ann Berwick $4,152.20 in expenses and other costs for the roughly eight weeks she worked as an Uber driver in 2014. Case No. 11-46739 (Cal. Lab. Comm. June 3, 2015). Ms. Berwick filed a complaint with the Labor Commissioner alleging that Uber did not sufficiently pay her for her time. Determining whether she was an employee or independent contractor was critical to the hearing officer’s holding that the company had to pay her for certain expenses.

In California, as in Minnesota, courts use a multi-part analysis to determine whether someone is an employee or an independent contractor, considering factors such as whether the person performing services is engaged in an occupation or business distinct from that of the principal, whether the work is a part of the regular business of the principal or alleged employer, and the alleged employee’s investment in the equipment or materials required.

Uber argued that is drivers are independent contractors because they use their own vehicles, set their own working hours, and are never required to accept any particular assignment. Uber said it was “nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation.”

The hearing officer did not find that convincing. “The reality . . . is that Defendants are involved in every aspect of the operation,” she said. The officer noted, among other aspects of Uber’s business:

Defendants vet prospective drivers, who must provide to Defendants their personal banking and residence information, as well as their Social Security Number. Drivers cannot use Defendants’ application unless they pass Defendants’ background and DMV checks.

Defendants control the tools the drivers use; for example, drivers must register their cars with Defendants, and none of their cars can be more than ten years old. . . .  Defendants monitor the Transportation Drivers’ approval ratings and terminate their access to the application if the rating falls below a specific level . . . .

While Defendants permit their drivers to hire people, no one other than Defendants’ approved and registered drivers are allowed to use Defendants’ intellectual property. Drivers do not pay Defendants to use their intellectual property.

Uber has appealed the ruling.

Takeaway:  Companies who use independent contractors as part of the new “sharing economy” should keep track of this case and regularly evaluate whether their independent contractors are improperly classified.

Supreme Court Holds That Severance Payments Are Taxable Wages

In a recent case, the U.S. Supreme Court addressed the issue of whether severance payments made to employees who were involuntarily terminated as part of a Chapter 11 bankruptcy were taxable wages. U.S. v. Quality Stores, Inc.,No. 12-1408 (U.S. Mar. 25, 2014).

In the case, Quality Stores, Inc. paid severance payments to employees and initially withheld taxes required under the Federal Insurance Contributions Act (FICA). Later, believing that the payments should not have been taxed as wages under FICA, Quality Stores sought a refund from the Internal Revenue Service (IRS) on behalf of itself and about 1,850 former employees. After the IRS neither allowed nor denied the refund, Quality Stores initiated proceedings in the Bankruptcy Court, which granted summary judgment in Quality Stores’ favor on the issue. The district court and Sixth Circuit affirmed, concluding that the severance payments were not wages under FICA. However, the Supreme Court reversed, holding that the severance payments were wages subject to FICA tax because they were “remuneration made only to employees in consideration for employment.”

Takeaway: When paying severance to an employee, an employer should give careful consideration to whether the severance payments are taxable wages for purposes of FICA.

EEOC Challenging National Pharmacy Over Terms of Severance Agreements

On February 7, 2014, the EEOC filed suit in the United States District Court for the Northern District of Illinois in Chicago against the large prescription and healthcare related services provider, CVS, contending that its actions concerning severance benefits violate Title VII of the Civil Rights Act of 1964. Specifically, this law provides the EEOC with the ability to seek immediate redress to remedy any potential injury which would result from an employer attempting to prohibit communication to the agency to address discrimination.

The EEOC based this Complaint on the theory that CVS was conditioning the receipt of severance benefits on an agreement which it interpreted to “interfere with employees’ rights to file discrimination charges and/or communicate and cooperate with the EEOC,” including limitations on the departing parties ability to cooperate, non-disparagement clauses, and non-disclosure of confidential information. Additionally, the Separation Agreements included general releases of claims, covenants not to sue, and consequences for breach. In the Complaint, the EEOC stresses the policy consideration that any conduct taken by an employer to limit employees’ access to report violations is unlawful. The EEOC’s stated concern is to “preserve access to the legal system” and to ensure that employees remain “free from fear of adverse consequences” if they are to report potential unlawful action.

Takeaway: The timeline for resolution of the CVS lawsuit could be a few months or take several years. In the interim, employers should evaluate whether severance, benefits, or contractual agreements with their employees limit the rights to seek federal intervention for unlawful acts undertaken by the employer to avoid running afoul of the EEOC’s policy mandate outlined in the CVS lawsuit.

Webinar: Defending Director and Officer Non-Compete Disputes

On Tuesday, January 28, 2014, at 11 a.m. CST / Noon EST, David Schooler will co-present a webinar entitled “Defending D & O Non-Compete Disputes” through the Professional Liability Attorney Network (PLAN).  The webinar is free of charge, and anyone can register.  Requests for continuing legal education and continuing education accreditation credits are pending for live viewing of the webinar.

To register for the webinar, click here.

Potential Legislation Continues to Threaten Non-Competes in Minnesota

Last February, Representative Joe Atkins introduced a bill, HF 506, which, if passed, would prohibit noncompete agreements in Minnesota.  This bill was recently the subject of discussion at a Minnesota House Commerce  and Consumer Protection Finance and Policy committee hearing on August 29, 2013.  Currently, California and North Dakota are the only other two states that impose similar onerous restrictions on non-compete agreements for employees.

There is a significant body of non-compete case law established in Minnesota, including over 100 cases at the MN Supreme Court level.  Courts have narrowly defined what will be allowed in non-competes, and Minnesota judges will rewrite or “blue pencil” these agreements if they consider them too restrictive.

Under the current law in Minnesota, an employer cannot seek to enforce a non-compete that is more than necessary to serve the legitimate interests of the company.  Non-competes must legitimately protect either goodwill or confidential information.  As for the scope of non-competes, a reasonable time is typically one to two years.  Currently, many employers utilize no geographic restrictions because, in the high-tech fields, companies operate and compete worldwide.  Most non-competes are intended to protect the companies’ products or customers.

Companies that are headquartered in Minnesota are drafting non-competes to be governed by Minnesota law for all their employees worldwide.  Using Minnesota law gives companies the ability to have a uniform set of laws.  A change in the law would be a significant change to those industries that mentor and provide professional development through their investments in their employees.  States governed by statutes on this issue (California, Texas, Georgia) are arguably no better than states governed by case law like Minnesota, since it takes years to litigate what the Legislature meant by their statutes.  Minnesota case law is relatively clear on this issue – and if the Legislature adopts a statute instead, there could be years of uncertainty while it is being litigated.

Takeaway:  Employers that utilize non-compete agreements in Minnesota should continue to monitor this potential legislation.  Employers with strong opinions on this issue – either in support or against – should consider contacting their local representatives.

Ethical Issues for Defense Counsel in Employment Practices Liability Insurance (EPLI) Litigation

I recently wrote an article for the International Association of Defense Counsel committee newsletter on Ethical Issues for Defense Counsel in Employment Practices Liability Insurance Litigation.  The article addresses: (1) identifying the client; (2) determining who controls the selection of defense counsel; (3) analyzing whether a reservation of rights changes who controls the selection of counsel; (4) complying with litigation management guidelines; (5) determining who manages the litigation; and (6) analyzing who controls the decision to settle.  To read the full article, click here.

Is A Non-Compete Agreement Enforceable in Minnesota?

Your best sales representative tells you at 5:00 p.m. on a Friday that she is quitting immediately and going to work for your direct competitor.  “But you have a non-compete agreement,” you sputter.  “That won’t hold up,” she retorts.  “It’s been real, it’s been fun, but not real fun,” she exclaims, then walks out. 

Is the sales representative right about the non-compete agreement not holding up?  That depends on the facts.  But contrary to myth, Minnesota courts enforce non-compete agreements routinely.  They can and will hold up.  What should you do to protect your business?  Contact an attorney experienced in enforcing non-compete agreements in court. 

The attorney will ask you threshold questions to test the validity of the agreement.  Was the non-compete agreement made ancillary to the sales representative’s initial employment with your company or, if not, was independent consideration paid?  Is there a legitimate interest to protect through enforcement – for example, the former employee’s ability to deflect customer business to the competitor or to use or disclose of confidential information?  Are the temporal, geographic, or customer-based restrictions in the non-compete covenants reasonable?

If a good faith basis exists to seek judicial enforcement of the non-compete, and you choose to do so, you and your attorney have got a lot of work to do in a short amount of time.  The longer a party waits to seek enforcement, the less likely a court will enforce the agreement.  You will need the following:

  1. Complaint – A pleading that states the general factual allegations and lists the legal causes of action.
  2. Affidavit(s) – A formal, sworn witness statement, verifying facts based on personal knowledge.
  3. Motion for Temporary Restraining Order – A formal request for a temporary restraining order (or “TRO” for short).
  4. Notice of Hearing – A short document stating the date, time, and place of the hearing on the motion.
  5. Memorandum of Law – A brief applying applicable law to the facts.
  6. Proposed TRO – The factual findings and conclusions of law that you want the court to make.
  7. Attorney Affidavit – Your attorney’s affidavit addressing any necessary information, such as whether the opposing party was served or notified.
  8. Summons – A formal document to serve on the opposing party with a copy of Complaint.
  9. Court Forms
  10. Filing Fee Check
  11. Cover Letters

A TRO request may be necessary to protect your business from irreparable harm.  Reasonable non-compete agreements can be, and will be, enforced through this process.

*This post was originally written by Steve Wilson.

Electronic Privacy Concerns in Single-Plaintiff Employment Litigation and Employment Class Actions

I recently published an article entitled “Electronic Privacy Concerns in Single-Plaintiff Employment Litigation and Employment Class Actions” in the Summer 2011 issue of Federation of Defense and Corporate Counsel Quarterly.  The article addresses issues such as:

  • Whether employee emails are protected by the attorney-client privilege;
  • Compliance with state and federal laws regarding electronic communications; and
  • Recent case law regarding the unauthorized interception of emails.

The article is available online here.

Event: Employment Practices Liability Insurance (EPLI) Seminar

On October 19, 2011, Briggs and Morgan and Marsh will present an Employment Practices Liability Insurance (EPLI) Seminar at Briggs and Morgan’s Minneapolis office in the IDS Center.  Topics discussed at the seminar will include:

Emerging Trends in EPLI from the Perspective of the Underwriter and the BrokerLearn about timely EPLI trends, including how market trends affect pricing and coverage for social media and workplace bullying claims.

EPLI Claims Attorney Panel DiscussionEPLI claims attorneys will discuss and analyze the difficult issues EPLI policyholders experience when defending employment claims, such as panel counsel/outside corporate counsel challenges, and control and valuation of employment claims.

EPLI Litigation Strategies – Perspective from Plaintiff’s Counsel and Defense CounselVeteran plaintiff’s and defense employment attorneys will discuss the mistakes employers make that lead to claims, and share their strategies on how to best prosecute and defend these claims.

How to Avoid the EEOC Knocking on Your DoorLearn about EEOC trends and initiatives and how your company can stay in compliance.

Presenters at the seminar will include:

Registration and continental breakfast will begin at 8 a.m. on October 19, 2011.  The seminar will run from 8:30 a.m. to 12 p.m., and will include lunch.  For more information on how to register for this seminar, click here.