Ask the Attorney

NAAAHR-GNY members are encouraged to submit questions on topics related to employment law and human resources management for discussion and feedback from NAAAHR-GNY’s Legal Committee.  This service is limited to NAAAHR-GNY members, who are invited to submit questions by filling out the form below.  NAAAHR-GNY members must provide their name and email address, solely to confirm their membership.  Legal Corner “Ask the Attorney” submissions will be kept anonymous and  will not identify the name, email address, or employer of any NAAAHR-GNY member who submits a question.  NAAAHR-GNY’s Legal Committee will review submissions and post responses on a regular basis to address recurring or prominent topics of interest to NAAAHR-GNY’s membership.  Of course, any and all responses to “Ask the Attorney” submissions are intended for informational purposes only and should not be construed as legal advice.  Always seek competent counsel in your jurisdiction for advice on any legal matter.

CURRENT TOPIC:

I am trying to obtain a clear definition of freelance worker and the proper classification [it] falls under.

I am also looking to determine if paying commission only will have an impact on employer (not certain if worker will generate enough sales to meet the related $455/wk minimum). They would be an outside sales person so would the $455 not have to be met?

 –Diligent Hiring Manager

Dear Diligent,

The term “freelance worker” or “freelancer” is not recognized by the labor and employment laws affecting employers in New York.  Instead, the query is whether the worker is an “employee” or an “independent contractor.”  While the various government agencies and laws utilize different legal tests in making this determination, they are sufficiently similar that, for the purpose of this discussion, they can be summarized generally as a “right to control” test, or the “economic realities” test.   That is, the more the employer controls the methods, means, and manner in which the worker performs, the higher the probability that the worker will be deemed an employee, and not an independent contractor.  Conversely, independent contractors typically enjoy more freedom to decide how, when, and for whom they work. 

New York Labor Law utilizes a version of the “Right to Control” Test, and looks at whether the worker: (1) worked at his own convenience; (2) was free to engage in other employment; (3) received fringe benefits; (4) was on the employer’s payroll and; (5) was on a fixed schedule.   See Lazo v Mak’s Trading Co., 84 NY2d 896, 897 (1994) (applying standard in tort context); see also Bhanti v Brookhaven Mem. Hosp. Med. Ctr., 260 AD2d 334, 335 (2d Dept. 1999).

The New York Department of Labor applies a variation of the “economic realities” test: Employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.  See Matter of Franbilt, Inc., et. al., PR-07-019 (July 30, 2008).

Federal agencies, including the IRS, U.S. Department of Labor, and the EEOC, have their own variations of these tests.  Under all of these tests, no single factor is dispositive.  Instead, the totality of the situation is looked at to determine whether the worker is truly independent from the employer.  Thus things like contracts, issuance of a 1099, business cards, business insurance, etc., can help show that the worker is an independent contractor, but neither factor standing alone would be sufficient.  Given the risks attached to misclassifying a worker as an independent contractor, it is advised that you seek legal counsel prior to engaging an independent contractor. Failure to do so may expose you to wage and hour claims, back taxes, back insurance premiums, fines, penalties, and interest.

With respect to commission-only outside sales people, under New York law, outside salespersons are exempted from minimum wage requirements.  An outside salesperson is an employee: (1)  Whose primary duty is making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) Who is customarily and regularly engaged away from the employer’s place or places of business.  A regular commission salesperson is an employee whose principal activity includes sales and who is paid, in whole or part, on a commission basis.  Minimum wage and overtime laws apply to regular commission salespeople.  An employee may be both a commission salesperson and an outside salesperson if he or she fits the definitions for both of those terms.  See the NY Department of Labor’s helpful Q & A on the issue: https://labor.ny.gov/legal/counsel/pdf/payment-of-commissions-frequently-asked-questions.pdf

New York has strict requirements for employment of commissioned salespeople, including a requirement that employers give the employee a written commission agreement, and issue them a statement of earnings.  As always, consult with legal counsel to ensure that you are complying with applicable laws in retaining a commission-only outside salesperson. 

PREVIOUS TOPICS

Does every employer have the right to run a credit report on you? In a discussion with an employer, he indicated he regularly runs credit reports on applicants to use as a screening tool. Is this legal and could the employer be putting his company at risk for a lawsuit, particularly if the position does not handle money or is involved in the financial area of the business.

—  Concerned HR Consultant

Dear Concerned:

Employers generally have the right to run credit checks on candidates for hire, and on current employees.  However, what the employer does with the information learned from credit checks can draw the attention of the Equal Employment Opportunity Commission (“EEOC”).  This is because the EEOC strongly discourages employers from conducting credit checks because, according to the EEOC, “they tend to impact more adversely on minorities and females.”  See http://www.eeoc.gov/laws/practices/inquiries_credit.cfm.  Included in the EEOC’s definition of credit checks are “inquiries into an applicant’s past or current liabilities, or credit rating, including bankruptcy or garnishment, refusal or cancellation of bonding, car ownership, rental or ownership of a house, length of residence at an address, charge accounts, furniture ownership, or bank accounts.”  Id.  However, even the EEOC acknowledges that exceptions exist to the general prohibition on credit checks “if the employer can show that such information is essential to the particular job in question.” Id.  Seemingly in line with the EEOC’s position, the following jurisdictions have banned the use of credit checks in employment unless job-relatedness is shown:  California, Colorado, Maryland, Connecticut, Hawaii, Illinois, Washington, Oregon and Vermont, as well as at least one locality, the City of Chicago.

Conversely, the federal appeals courts in the 11th, 5th, and 3rd Circuits (and about nine district courts around the country) have expressly held that private employers may refuse to hire candidates based on their bankruptcy history (See http://www.reidkellypc.com/news/11th-circuit-joins-the-5th-3rd-circuits-in-holding-that-private-employers-may-refuse-to-hire-candidates-based-on-bankruptcy-history/).  However, none of these courts have jurisdiction in New York (the 3rd Circuit includes New Jersey).  In addition, New York’s Southern District court is the lone federal district court holding that private employers may not reject candidates based on their bankruptcy history. 

What this all means for employers is that yes, in many jurisdictions it is legal to conduct credit checks for use in making employment decisions.  However, when doing so, employers should do their best to insure that the credit worthiness of the applicant/employee is related to the job in question.  For example, as posed in the question being answered here, if the job is one in which the person is expected to handle money and/or financial information, poor credit caused by irresponsible management of personal finances may be sufficiently job-related to survive legal scrutiny. Similarly, if the job puts the employee in the position where they could be vulnerable to kickbacks due to their poor personal financial condition, one may be able to show job-relatedness.  In the absence of job-relatedness, if the employer is just using credit checks as a blanket screening tool it is exposing itself to potential significant legal exposure in the form of disparate impact lawsuits under Title VII of the Civil Rights Act of 1964.  Of course, the Fair Credit Reporting Act must also be complied with if doing credit checks. 

More and more, I see applicants showing up for job interviews with tattoos and piercings. While most of the tattoos aren’t actually offensive, they certainly don’t seem professional. Some people are showing up with earrings in an eyebrow, a nose, a lip or even in a tongue. What can I do to hire good employees and still maintain a professional workplace?

-Concerned HR Administrator

Dear Concerned:

An employer has the right to maintain and protect its professional image, and many companies do that by having a uniform dress/appearance policy in the workplace. The Equal Employment Opportunity Commission (“EEOC”) has stated that “An employer may require all workers to follow a uniform dress code even if the dress code conflicts with some workers’ ethnic beliefs or practices.’” Such a policy must be in writing and circulated to the employees (so they are aware of it). It must also be consistently applied. For example, if a female employee is punished or penalized for having a visible tattoo, a male employee bearing a similar tattoo should receive similar treatment. As always, you need to avoid either discriminating or being perceived as engaging in discrimination.

You also need to bear in mind that a general policy may need to be modified in specific circumstances. Consider, for example, whether the tattoos and/or piercings have any religious significance. If so, and the tattoo or piercing is part of the employee’s sincerely held religious beliefs or practices, you may need to make allowances. The EEOC has stated that “if the dress code conflicts with religious practices, the employer must modify the dress code unless doing so would result in undue hardship.” In that situation, the Company must balance its needs with the rights of the employee.

In addition, when crafting the appearance policy, you should make sure that it reflects the needs of your company. Not all your employees may have contact with your clients; in fact, some may not even have much contact with their fellow employees. Since we’re now living in a time when approximately one in every five adults in the U.S. has a tattoo (according to Harris Polls), it stands to reason that tattoos and piercings are going to become even more prevalent in the workforce. A blanket anti-tattoo/anti-piercing policy may end up costing you able employees.

The key is for the Company to (i) have a written policy (ii) that addresses the needs of the business, that is (iii) made known to the employees and (iv) applied consistently (although with flexibility where religious beliefs are at issue). If you believe it necessary to terminate an employee for violating the policy, I recommend that you check with counsel first, to make sure you’ve followed appropriate procedures, and have minimized any potential liability.

 

 


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