Author: TSA Press

Last week, I wrote a column stating that increased use of gig economy jobs will further blur the line between who is an employee and who is an independent contractor.

The blur has created some unexpected results. For example, you might be surprised to learn that professional athletes are employees of either their team or their league (MLB, NFL, NBA, etc.). You would think that with their endorsement contracts, and possible side ventures, they would want to be independent contractors and take advantage of the more generous tax write-offs. On the other hand, if they were to get injured during a game, they would prefer that their employer foot the medical bills and qualify for disability benefits.

Today, I want to look at why it is hard to draw the line between who is an employee and an independent contractor.

Different Rules For Determining Employee/Independent Contractor Status

One reason for the confusion is because different agencies use different tests, mainly because they have different goals. For example, the U.S. Department of Labor, which enforces the Fair Labor Standards Act, wants to ensure that workers have access to minimum wage, overtime compensation, family and medical leave, unemployment insurance, and safe workplaces. So to determine employee status, the Department of Labor uses the “economic reality” test. This test looks at whether the worker follows the usual path of an employee and is economically dependent on the business which he or she serves. If the worker is economically dependent on the business, the worker should be classified as an employee.

The IRS on the other hand, wants employers to pay federal payroll and unemployment taxes for every employee they hire. They use the common law rules to determine employee status. Generally, this test looks at three key factors: 1) Whether the company controls or has the right to control how the workers perform their duties; 2) Whether the company controls how the employee is paid, whether expenses are reimbursed, or whether the employer provides the necessary tools for the job; and 3) Whether there are written contracts or employee type benefits (i.e., pension plan, insurance, vacation pay, etc.) and whether the work performed is a key aspect of the business. In addition, the IRS has additional categories for specific professions such as statutory employees and statutory nonemployees.

Finally, state labor and tax agencies have their own tests to determine employee status such as California’s recently adopted ABC test.

Most employers generally want to classify workers as independent contractors to cut costs. But to do so, they will have to comply with all kinds of federal and state laws.

Employment Classification Audits Are Usually Decided Arbitrarily

Thankfully, the factors used to determine employee/independent contractor status under both federal tests are mostly similar. But when making the determination, agency rules and court rulings generally state that the examiner must look at all of the facts and circumstances of each case. Depending on the situation, one factor may be more relevant than another, or all factors should be weighed equally.

So if a business is selected for an employee classification audit, the auditor makes their own decision using the factors as a guide rather than a rule. If the auditor decides unfavorably on a case, it will proceed to appeal or litigation where a new examiner, an appeals officer, or a judge will make a final decision. Even then, cases can be decided inconsistently and generally there are few published court or agency decisions to provide guidance, especially where a worker is found to be an independent contractor.

This means that it will be difficult to advise clients on close cases and counsel cannot guarantee that the people they hire will pass an employee classification audit. Even if the workers meet a majority of the factors that shows that they are independent contractors, an auditor may decide otherwise based on his or her interpretation of the rules and application of the factors. This can mean that it can take months or even years before a case is concluded.

Politics And Innovation Can Change The Game

As I mentioned in my previous column, I use a local transportation service if I need to get somewhere and I am too lazy to drive. The owner networked and advertised for customers. Or he may just drive around an airport or a bar in order to pick up a customer who needed a ride home. In this case, most would agree that he is an independent contractor since he sets his schedule and finds his own customers. But services like Uber provide the customers to the driver so long as he turned on the app and reported for duty. Would that automatically make him an employee? He might be an employee under the ABC test, but not under the common law test, according to an opinion from the general counsel of the National Labor Relations Board.

When California was in the process of passing AB 5, the legislation that would codify the ABC rule to determine employee/independent contractor status, there were massive lobbying efforts on both sides. Business groups advocated maintaining independent contractor status, particularly for certain professions. Employment advocate groups asked for employee protections and benefits to cover a larger class of workers as they have less money to pay for rent, food and health care.

Even though the ABC test is California law, it is expected to be heavily litigated as it can cripple small businesses that are used to hiring contract workers for piecemeal work.

In addition, Uber, Lyft, and Doordash have announced that they will launch a voter initiative to exempt their industries from AB 5. They are likely to argue that the bill will increase costs to consumers thus creating an “access to transportation” problem in the state. If the initiative passes, it might lead the way to laws allowing self-driven cars controlled by artificial intelligence.

As new technology changes how people work, traditional job classifications may change, especially if there is enough political will.

Determining the line that separates an employee from an independent contractor is difficult due to different rules being enforced differently. This creates inconsistencies and uncertainty. This can be particularly harmful for small businesses that want to run simple operations and allow their workers to be flexible with their time. While new laws like AB 5 may provide simpler solutions, the devil is in the details. And the details will be fleshed out in litigation as businesses and their lawyers come to terms with how the ABC test will apply to their workers.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

If you’ve been paying attention to Biglaw trends, this is not a surprise. The growing trend of nonequity or income partners has long been seen as a kind of legal career limbo that lets firms tick off diversity boxes while not truly diversifying the top levels of the partnership. And now we’ve got some hard numbers that correspond to the trend many have seen.

American Lawyer has looked at five years worth of data at 148 firms that have this increasingly popular two-tiered structure. And that found that minority lawyers are being “promoted” to the nonequity ranks at triple the rate of white lawyers. Yikes.

That’s right, between 2014 and 2018, minority nonequity partners grew 34 percent compared with 10 percent growth for white nonequity partners. If you were a minority attorney you were also more likely to become a nonequity partner — 54 percent of minority partners were denied equity status. While white attorneys fared differently — they were more likely to become equity partners with 58 percent of them moving to the equity ranks.

While it is true the nonequity ranks at firms are growing in general — what better way to boost those profits per equity partner numbers, after all? The data shows a disturbing trend of minority lawyers being disproportionally impacted by the profit-driving trend. And, to be clear, it matters who is getting the nod to join the highest levels of law firms:

“Equity partners are the ones that have the power at a law firm. Who’s being hired, who’s getting choice work. They’re the ones that control the politics of the firm,” said Michelle Fang, chief legal officer at alternative rental car company Turo, who wrote an open letter in January signed by more than 200 general counsel demanding increased diversity in the legal profession.

As you might imagine, some firms were better than others when it comes to making minorities equity partner. American Lawyer specifically called out a handful of Am Law 100 firms for their “notable discrepancies in their minority and white nonequity partner representation,” which are: Proskauer Rose; Latham & Watkins; McDermott Will & Emery; Crowell & Moring; Pillsbury Winthrop Shaw; Quinn Emanuel Urquhart & Sullivan; and Duane Morris.

Duane Morris’s diversity and inclusion officer, Joe West, blamed the firm’s lateral strategy as part of their issue:

“We’ve grown organically by following the business and by adding groups in subject matter and geographic areas that make sense for our strategy,” he said. “You have much less control, and that act alone could skew the numbers.”

Crowell & Moring’s management committee chair Philip Inglima pointed to larger systemic changes that need to happen to more meaningfully diversity leadership at the firm:

Both Duane Morris and Crowell & Moring say they are making systemic changes to try to get more minority lawyers on the equity track—overhauling their assignment systems to reduce bias and working with outside organizations such as Diversity Lab, for example.

“That kind of change is needed to overcome the effects of multiple generations of lawyers at firms like ours which had few diverse partners,” he said.

It’s certainly true that Biglaw has a long way to go.

Kathryn Rubino is a Senior Editor at Above the Law, and host of The Jabot podcast. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).

I have been writing this column for over a year now, and haven’t even mentioned Phil Vassar. Even worse, in three years of teaching a law school class, I haven’t unapologetically pushed Phil Vassar’s music on my students. It’s an obvious dereliction of my character traits, and I think we could all use the distraction right now of a minor, lighthearted abuse of power, in the face of all the big, dark ones sucking the air out of the room lately.

Now, about 95 percent of you are saying right now, “Who the f*ck is Phil Vassar?” Well, much like Edgar Allan Poe, or Henry David Thoreau, Phil Vassar is a literary genius underappreciated in his own time.

I was raised in a small town. I’m not ashamed of it. Sure, I got a lot of grief for, like, reading, and spending surplus time thinking. But one of the distinct advantages of growing up in flyover America was that the music in vogue there from the mid-90s to roughly 9/11 was PHENOMENAL. You might scoff at that, but all the best stuff started in obscure, backwater, low-income places. See, e.g., barbeque.

As I grew up, things changed, as they do, and many years later, I wound up as a lawyer in a (locally) prestigious firm. My good buddy at the firm, who later went on to become a commercial real estate lawyer in Biglaw, scoffed at my deeply ingrained preference for county music, saying, “Have you ever actually listened to the lyrics? It sucks; it’s just simplistic, pandering nonsense.”

Damn it, after that, I couldn’t help but listen to the lyrics. He was right. We had entered a musically superficial age. What was previously complex, gritty, risk-taking country music had largely devolved into a series of autotuned middle-America platitudes. It sucked.

Yet, Phil Vassar… oh, Phil Vassar. He’s truly an exemplar of a musically better age. When you had a feeling, he seemed to feel it. When you faced a struggle, you better believe he had struggled through the same damn thing. When you were introspective, he had a positive introspective spin for you. In his heyday, Phil Vassar wrote songs for such luminaries as Tim McGraw, Jo Dee Messina, and Kenny Chesney. But in my humble opinion, some of his finest work came when he wrote for himself.

Friday, you’re late. I guess we’ll never make our dinner date, at the restaurant. You start to cry. Baby, we’ll just improvise. Well, plan B, looks like, Domino’s Pizza in the candlelight.

That’s love, no? And real life, maybe especially for someone in the precarious relationship quagmire known as being a law student or a new lawyer?

And take exhibit B:

My next 30 years, I’m gonna watch my weight. Eat a few more salads, and not stay up so late. Drink a little lemonade, and not so many beers. Maybe I’ll remember my next 30 years.

Again, apt. One more Phil Vassar lyric, this one as originally performed by Jo Dee Messina:

Well, it’s been a long time, glad to see your face. I knew we’d meet again another time, another place. Can’t believe it’s been so many years, you better grab a chair and a couple of beers. Lookin’ good in your three-piece suit, ya’ know, I always knew you’d take the business route.

Shit, that is great. Someone understands long-term friendship.

It’s hard to say how much money Phil Vassar has made for Nashville. It’s a lot though. Moreover, he probably gets some credit for spurring certain middle-aged lawyers who came of age in the 90s into action on any given Friday afternoon.

Phil Vassar took on complexity, and sometimes hardship, but rather than being grim and defeatist about it, he was positive. His lyrics may not have been subtle, but they have always been inspiring, and relatable. So, keep an open mind. The next time you need to juice your billable hours on a late afternoon or early evening, look up Phil Vassar’s greatest hits on YouTube. What do you have to lose? And, while Phil really hit his stride for songwriting in the late 90s and early 00s, if you ever get the chance, see him live. He still performs all across the country, often for charity. You will never regret witnessing the things he does with a piano onstage. Seeing that, my friends, is a true value.

Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

Thanks to the emergence of affordable home DNA testing, we are now constantly learning surprising news relating to family connections and assisted reproductive technology. Discovering that a single sperm donor fathered a multitude of children, sometimes more than a hundred, is basically old news by now. It even inspired movies like Delivery Man, where Vince Vaughn finds out that he has fathered more than 500 children from his past side job.

Have you discovered a long lost cousin? Well, you have nothing on Dr. Bryce Cleary. Recently, a sperm donor who is also a doctor brought suit against his former medical school, which he says pressured him into donating sperm, but also misused the sperm after he donated. Per the complaint filed in Oregon’s Multnomah County Court, Dr. Cleary alleges he was in his first year of medical school at Oregon Health and Science University (OHSU) when he and other medical students were solicited to donate their sperm to the hospital to help women become pregnant and for research. Seems like this would have made a good episode of a medical school TV show!

Broken Promises

Cleary alleges that he relied on four very specific promises he says were made by OHSU that induced him to donate. These included:

(1) that all fertilizations would be limited to women residing on the East Coast, and/or women not residing anywhere near the State of Oregon and the Pacific Northwest;

(2) that no more than five children would be born of the donor’s sperm;

(3) that once five children were successfully born, Plaintiff’s sperm would no longer be available to hopeful mothers, but, instead, Plaintiff’s sperm would be utilized only for medical research; and

(4) at all times after birth, Plaintiff’s specific name, identity, and whereabouts would forever remain anonymous unless otherwise ordered by a court of competent jurisdiction.

Wow, right? Very specific promises. I hope he got them in writing.

But I’m a little confused about these promises. Why would the clinic promise all fertilizations would be on the East Coast, when Cleary could have gone anywhere in the country — including, like, the East Coast — after medical school? Wouldn’t it make more sense to distribute the sperm across the country or, even better, the world? The promise to limit the number of kids to five is a little more understandable. It’s a fair concern for a donor to worry about how many offspring he would have, so I can see a donor needing to have such an assurance before agreeing to donate.

Of course, extensive use of the donor’s sperm by OHSU has been revealed as exactly what happened. Last year, a local Oregon woman contacted Dr. Cleary after taking a DNA test that linked her to a relative of the doctor, and led her to identify Dr. Cleary as her donor parent. Dr. Cleary himself ultimately took a DNA test, and it wasn’t long before he discovered 17 (so far!) people conceived from his donations. All of them are local to his part of Oregon. Some kids have even attended the same schools, churches, and social functions as each other. Luckily, none so far have gotten married to each other. But no word yet on whether they might have gone to prom together.

The complaint alleges that the clinic never really even tried to live up to its promises. It says that the clinic didn’t follow up with those who received his sperm to see if children were born. And they gave his sperm out way more than five times. In fact, the clinic’s only knowledge as to the number of births from his donated sperm was from some self-reporting mothers of the donor-conceived children.

Eugenics

A surprising allegation within the complaint is that Dr. Cleary was unwittingly used as a “tool” of OHSU and their eugenics experiments. The complaint argues that the clinic was using medical students to see if their kids would also become doctors. Cleary accuses the clinic of engaging in a full-blown eugenics project “to perversely increase the occurrence of a superior race of desirable inheritable characteristics for profit.” Oh. Hmm.

While I am very much in favor of reform of the sperm bank industry, I’m also a little skeptical that the sperm clinic in this case had the nefarious plan of developing a race of ubermenschen Oregonian doctors. And, if you ask me, that allegation sort of undermines other portions of his lawsuit.

Calculating Difficult Damages

But if the clinic really made the promises above, will the clinic be held accountable for broken promises and damages? How would a court even begin to calculate damages for this type of harm? Cleary is requesting $5,250,000 in damages. The number comes from multiplying a flat rate of $250,000 for each known child, plus $1,000,000 for mental health treatment and lost wages. Cleary alleges emotional distress over discovering he is the biological father to so many children.

I don’t quibble with the fact having lots of kids that you didn’t intend to father is emotionally distressful to Cleary. And I could see a jury concluding that these numbers compensate for those injuries. But it seems so … hard to measure. Why $250,000 per child? What if there are more children discovered next year? Are those an additional $250,000 each? What would the pure contractual damages be? In sum, I have questions.

But one thing is clear. Courts are going to struggle with these types of questions more and more. Whether it’s not having kids because a freezer melts down, having someone else’s kids because of an embryo mix-up, or having too many kids because a sperm clinic might have deceived you, courts are going to have to figure out how much money a plaintiff with a claim ought to be entitled to, if any. Hopefully, the judge isn’t one of Dr. Cleary’s kids.

Ellen Trachman is the Managing Attorney of Trachman Law Center, LLC, a Denver-based law firm specializing in assisted reproductive technology law, and co-host of the podcast I Want To Put A Baby In You. You can reach her at babies@abovethelaw.com.

At least clients are putting up a brave front.

When asked about new regulations like the California Consumer Privacy Act, 68 percent of in-house legal department respondents are either “not concerned” or only “somewhat concerned.” That’s a good indication that corporate counsel have a great plan for this stuff, right? Well, in the same survey, when asked “do you feel concerned about your organization’s ability to
meet all aspects of the new privacy requirements?” 69 percent were “concerned” or “very concerned” with an additional 25 percent “somewhat concerned.” And 84 percent “have no clearly defined processes to meet new and emerging privacy regulations.” Maybe this is like the football coach telling the team they have everything they need to win and then turning around and telling the press that the other team presents a real challenge. Still, that’s probably not how to run a legal department.

These stats come from the 2019 In-House Legal Benchmarking Report produced by Exterro, ACEDS, and In The House.

While those responses seem contradictory, maybe the twist is in the phrasing — “of course we’ll be fine with all these laws… but maybe not every aspect of these new laws.” If that’s the source of this disconnect, it may be a product of the GDPR experience, where months of fret resulted in not too much on-the-ground disruption — indeed over half of those surveyed said GDPR hadn’t impacted them at all and only 3 percent reported that the rule changed their processes any more than “somewhat.” But even if GDPR involved a good deal of crying wolf, it shouldn’t numb institutions to the changing regulations.

Also worth noting from the report, legal departments are starting to scale back on their outside counsel. While some of this is due to increased in-sourcing respondents appeared evenly divided between whether insourcing will increase, decrease, or stay the same over the coming years, meaning the contraction in outside counsel choices speaks in part to something else. After years of branching out in choosing law firms, most clients are aiming to have between 1 and 10 law firms at any given time.

Speaking of that in-sourcing trend, while 70 percent of respondents said they handle at least 50 percent of their litigation services internally, only 45 percent said they employ review technology. That presents in-house departments with a lot of low-hanging fruit if they want to take discovery work away from outside counsel. Advances in review technology have enabled smaller and smaller teams to tackle larger and larger tasks — it’s not a stretch to suggest that in-house teams could take on a much larger share of review with a modest upfront investment in legal technology.

Maybe these companies should consider that investment before they have to pay their narrow team of 5 law firms to bail them out for all those privacy violations.

In-House Legal Benchmarking Report [Exterro]

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

I would love to open up a firm and hire formerly incarcerated people that have spent so much time having to fight for their lives inside. They know the law better than anybody and I think I would have the best firm if I had a firm [filled with these types of people].

I spend a lot of time visiting prisons and some of the most enlightened people I’ve ever met, some of the smartest people, and the people that know law the best are people that are spending time in prison.

— Kim Kardashian West, commenting on her career ambitions to specialize in criminal law in a recent interview. Kardashian, who has largely focused on criminal justice reform during the first year of her “law school” studies, went on to note, “I already know that I really want to study criminal law but you have to go through the motions of contracts and torts and civil, and everything else, but I’ve really enjoyed the process.”

Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.

In case you had any doubt about how a sharply divided Supreme Court will play out over the next several years, Justice Samuel Alito is here to make sure you know petty barbs are now par for the course.

On Monday, the Court heard arguments in Ramos v. Louisiana. In a unique twist, both sides in the case are asking the justices to overturn the 1972 case Apodaca v. Oregon. Evangelisto Ramos, a man convicted of murder on a 10 of 12 jury vote, is asking the justices to formally incorporate the Sixth Amendment’s unanimous jury conviction requirement to the states. The state of Louisiana is also asking for Apodaca to be overturned, but they prefer the Court find there is no right to conviction by unanimous jury under the Sixth Amendment. And Justice Elena Kagan seemed perturbed at Louisiana’s position, as reported by Law360:

“You have this stare decisis, except you’re giving it away,” she said. “And I don’t know what to make of that because I would think what you would do is to say something like: This is an outlier in our incorporation doctrine. There’s no question that it is. But it has been an on outlier for 50 years. It has been completely administrable. It has been completely clear.”

Despite Justice Kagan’s grilling of the respondent over the abandonment of stare decisis, Justice Alito made sure to get in a dig at the expense of the liberal justices who have been disturbed over the majority’s ease in shedding precedent in other cases:

[Alito] lightly chided his liberal colleagues…. pointing out that “last term, the majority was lectured pretty sternly in a couple of dissents about the importance of stare decisis,” the Latin term for respecting precedent.

If there was any doubt to whom he was referring, Justice Alito said he was “thinking about the dissent in Franchise Tax Board and the dissent in Knick versus Township of Scott.”

In those two cases, Justices Stephen Breyer and Elena Kagan blasted the conservatives for overturning a pair of precedents governing state sovereign immunity and the Fifth Amendment’s takings clause. Their dissents also warned about “which cases the court will overrule next.”

I guess precedent matters to Alito when it means a convict might get out of jail. Or perhaps he just wants to get it out there early and often that breaking the eggs of precedent is part of making a Supreme Court omelet before the Court overturns Roe. Regardless, it seems obvious that, at least for the near future, snipping will simply be a feature of the Supreme Court.

Kathryn Rubino is a Senior Editor at Above the Law, and host of The Jabot podcast. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).