Category: Employment Law

BACKGROUND CHECKS & COMPLIANCE: WORKER’S COMPENSATION CLAIMS

Some employers might wish to know whether a job applicant or current employee previously filed worker’s compensation claims.  At first glance, such information might seem relevant and even useful to employers.  For example, an employer in an accident-prone industry might want to know if the job applicant has a history of repeatedly filing worker’s compensation claims shortly after beginning his or her employment.  However, it is important that employers understand the liability that could result from using an applicant/employee’s previous worker’s compensation claims as a basis for making employment decisions.

Using an applicant/employee’s worker’s compensation claim to make adverse employment decisions could result in criminal liability for the employer.  Under Florida law, it is a first degree misdemeanor to knowingly fire an employee or refuse to hire an applicant because the applicant/employee filed a worker’s compensation claim.

Employers could also face civil liability if they fire, threaten to fire, intimidate, or coerce an employee because the employee filed a worker’s compensation claim.  Additionally, employers could face civil liability if they fire an employee after learning that the employee filed a worker’s compensation claim against a previous employer.

However, Florida law does not seem to impose civil liability on an employer who refuses to hire a job applicant after learning that the applicant filed worker’s compensation claims against previous employers.  Bruner v. GC-GW, Inc., 880 So. 2d 1244, 1252 (Fla. 1st DCA 2004) (Kahn, J., dissenting) (“Florida apparently does not recognize a civil cause of action against a subsequent employer who refuses to hire a job applicant for having filed a workers’ compensation claim against a previous employer”).  Employers should note, however, that while employers might not be subject to civil liability for refusing to hire an applicant based on previous worker’s compensation claims, Florida law does impose criminal liability for such refusals to hire.

An employer who takes any adverse employment action based on an applicant/employee’s previous worker’s compensation claims might also be liable under the federal Americans with Disabilities Act (“ADA”).  Under the federal ADA, an employer cannot make inquiries regarding an applicant/employee’s disability or the nature or severity of such disability.  The employer, however, is allowed to make pre-employment inquiries about the applicant’s ability to perform job-related functions.  The ADA further allows employers under certain circumstances to make medical examinations after making a conditional offer of employment to the applicant.

While some employers might consider information regarding past worker’s compensation claims relevant to their employment decisions, it is important to note that inquiries into past worker’s compensation claims could result in both civil and criminal liability.  Before implementing a background check policy that includes inquiries into job applicants’ past worker’s compensation claims, employers should consult an attorney in their respective state to ensure compliance with the applicable laws.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

BACKGROUND CHECKS & COMPLIANCE: CRIMINAL RECORDS

Under Florida law, employers could face civil liability for the harm an employee causes to a third party.  For that reasons, employers might wish to conduct a thorough investigation of a job applicant’s or current employee’s criminal record.  According to federal guidelines, however, federal law could impose liability on employers who base their employment decisions on criminal records.

Under Title VII of the federal Civil Rights Act of 1964 (“Title VII”), employers are prohibited from discriminating on the basis of race, color, religion, gender, or national origin.  Title VII prohibits not only “disparate treatment” (i.e., refusing to hire an African American applicant based on his criminal record and instead hiring a white applicant with a comparable criminal record), but also “disparate impact.”  Disparate impact occurs when the employer implements a facially-neutral policy that, in practice, has the effect of disproportionately screening out a protected group (i.e., a particular race, color, religion, gender, or national origin).  For example, a policy that screens out all applicants that have ever been convicted of a felony does not, on its face, discriminate on the basis of race or color.  However, in practice, the policy might have the result of disproportionately screening out African American or Hispanic applicants.  Such a policy could form the basis for “disparate impact” claim of discrimination.

In April 25, 2012, the Equal Employment Opportunity Commissions (“EEOC”) issued federal guidelines based on Title VII.  According to the federal guidelines, African Americans and Hispanics are incarcerated at rates disproportionate to their number in the general population.  For that reason, the federal guidelines state that facially neutral policies that screen out applicants based on criminal convictions might violate Title VII if the policies are not job-related and consistent with business necessity.

According to the guidelines, policies that screen out job applicants based on criminal records should be implemented in two steps: first, the screening policy should take into account the nature of the crime, the time elapsed since the conviction, and the nature of the job; and second, the employer should provide an opportunity for individualized assessments of those applicants that were screened out (i.e., employers should ask the applicant to show why he or she should not be excluded and assess that information in light of the job).

Because the federal guidelines are based on arrest and incarceration rates of the general population, some courts have rejected the federal guidelines and found that screening policies based on criminal records do not alone support a disparate impact claim.  Recently, a federal court in Maryland held that “[t]o use general population statistics to create an inference of disparate impact, the general populace must be representative of the relevant applicant pool. … The general population pool ‘cannot be used as a surrogate for the class of qualified job applicants, because it contains many persons who have not (and would not) be’ applying for a job with Defendant.”  EEOC v. Freeman, 961 F. Supp. 2d 783, 798 (D. Md. 2013).

While federal guidelines seem to limit an employer’s ability to make employment decisions based on criminal convictions, Florida tort law could impose liability on employers who fail to conduct adequate background checks on job applicants and current employees.  Under Florida law, employers generally owe their customers a duty to exercise reasonable care in hiring and retaining employees.  A customer who is harmed by an employee’s actions can recover damages from the employer if the customer can show the following: (1) the employer was required to make an appropriate investigation of the employee and failed to do so; (2) an appropriate investigation would have revealed the unsuitability of the employee for the job; and (3) it was unreasonable for the employer to hire or retain the employee in light of the information the employer knew or should have known.

Whether an employer is required to perform an extensive background investigation under Florida law depends on the type of work the applicant/employee will perform.  If, for example, the applicant’s job duties will require only incidental contact with others, then obtaining past employment information and personal data during the initial interview may be sufficient.  If, however, the employee is to have constant contact with the public, the employer might be required to conduct a more thorough background check, including a criminal background check, to avoid liability.

To avoid liability under Florida law, employers should conduct an appropriate pre-employment investigation of job applicants.  The nature and duties of the job will determine the comprehensiveness of the investigation.  If the employer believes that a criminal background check is required, the best practice would be to ensure that any neutral screening policy takes into account (1) the nature and gravity of the convictions; (2) the time that has elapsed since the conviction; and (3) the nature of the job.  Furthermore, the employer should provide an individualized assessment for each screened out applicant to ensure the policy, as applied to each applicant, is job-related and consistent with business necessity.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

BACKGROUND CHECKS & COMPLIANCE: FAIR CREDIT REPORTING ACT

Background checks can be a valuable tool for employers.  A thorough background check can shield an employer from future liability.  However, both federal and state law place limits on what the employer can lawfully do regarding background checks.  One such federal law is the Fair Credit Reporting Act (“FCRA”).

An employer who wishes to know a job applicant’s credit history could request a consumer report from a consumer reporting agency under the FCRA.  However, to lawfully obtain and make an employment decision based on a consumer report, employers must follow certain procedures under the FCRA.

Before requesting a consumer report for a job applicant or employee, the employer must (1) certify to the consumer reporting agency that the employer will comply with the FCRA and applicable state law; (2) disclose in writing to the job applicant/employee that the employer will seek a consumer report; and (3) secure the applicant/employee’s authorization in writing.  The employer’s written disclosure to the applicant must be in a document that consists of only the disclosure and the applicant’s written authorization.

A consumer report could contain information including the employee/applicant’s credit worthiness or criminal record.  Information in the consumer report might dissuade the employer from hiring an applicant or might encourage the employer to fire or not promote a current employee.  Any employment decision that adversely affects an applicant/employee is considered “adverse action” under the FCRA.  Before taking adverse action based in whole or in part on consumer reports, the FCRA requires that employers take certain steps.

Before taking any adverse action, the employer must provide the applicant/employee with a copy of the report and a written description of the applicant/employee’s rights under the FCRA.  After the employer gives the applicant/employee a copy of the consumer report and the summary of rights, the employer should give the applicant/employee some time to dispute the accuracy of the report before taking any adverse action.  Failure to do so could result in liability.  Beverly v. Wal-Mart Stores, Inc., 2008 U.S. Dist. LEXIS 2266, at *11-12 (E.D. Va. Jan. 11, 2008) (“Simultaneous provision of a consumer report with a notice of adverse action fails to satisfy the §1681b(b)(3)(A) requirement”).

When the employer takes adverse action, the employer must also provide to the applicant/employee oral, written, or electronic (1) notice of the adverse action; (2) notice of the name, address, and telephone number of the consumer reporting agency; (3) statement that the consumer reporting agency did not make the decision to take adverse action and is unable to provide the specific reason why the adverse action was taken; (4) notice of the applicant/employee’s right to obtain a free copy of a consumer report; and (5) notice of the applicant/employee’s right to dispute the accuracy or completeness of the consumer report.  Additionally, the employer must provide to the applicant/employee written or electronic disclosure of the applicant/employee’s credit score, the range of possible credit scores, all the key factors that adversely affected the credit score, the date on which the credit score was created, and the name of the person or entity that provided the credit score.  Failure to abide by the FCRA’s requirement could expose the employer to liability for the applicant/employee’s actual damages, punitive damages, and attorney’s fees.

The above requirements generally apply only when an employer is seeking a consumer report for “employment purposes.”  In other words, the FCRA’s notice requirements apply only when the employer is seeking a current or prospective employee’s consumer report and not an independent contractor’s consumer report.  Lamson v. EMS Energy Mktg. Serv., 868 F. Supp. 2d 804, 810 (E.D. Wis. 2012) (finding that the FCRA’s notice requirements do not apply to independent contractors).  However, as many employers have found through litigation, it is not always clear whether a hired individual is an employee or an independent contractor.  For that reason, the best practice for employers can sometimes be to abide by the FCRA’s notice requirement every time a consumer report is requested, whether in connection with an employee or independent contractor.  Furthermore, cautious employers also may wish to abide by the FCRA’s notice requirements every time they take adverse action following a request for a consumer report, even when the adverse action was not based on information contained within the consumer report.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

SUCCESSOR CORPORATIONS COULD BE LIABLE FOR PREDECESSORS’ FEDERAL WAGE LAW VIOLATIONS

Under Florida law, a corporation that acquires the assets of another corporation generally does not assume the liabilities of the predecessor corporation.  The successor corporation will acquire its predecessor’s liabilities only to the extent it agreed to acquire those liabilities in the asset purchase agreement.  Many states have similar laws regarding a successor corporation’s liability.  The analysis changes, however, when the predecessor’s liability stems from federal statutes like the federal Fair Labor Standards Act (“FLSA”).  In other words, a predecessor corporation’s failure to pay its employees minimum or overtime wages under the FLSA could result in liability to the successor corporation.

Some federal courts have held that a successor corporation could, as a matter of federal law, acquire the FLSA liabilities of its predecessor despite state law to the contrary.  Under federal law, courts consider the following factors, or slight variants thereof, to determine whether a successor corporation acquired its predecessor’s FLSA liabilities: (1) whether the successor corporation had notice of the predecessor’s liabilities; (2) whether there is continuity in operations and work force of the successor and processor; and (3) whether the predecessor has the ability to directly provide adequate relief.

In March 2013, the Seventh Circuit applied those factors, among others, in Teed v. Thomas & Betts Power Solutions, L.L.C., 711 F.3d 763 (7th Cir. 2013), and found the successor corporation liable for its predecessor’s FLSA violations.  The successor corporation in Teed purchased the assets of its predecessor through an auction.  The asset transfer agreement contained a specific condition that the transfer be “free and clear of all Liabilities” including any liabilities stemming from the predecessor’s pending FLSA litigation.  The federal appellate court noted that if “state law governed the issue of successor liability, [the successor corporation] would be off the hook.”  Teed, 711 F.3d at 765.  However, the court held that federal law, not state law, governed.  Consequently the court found that the successor corporation acquired its predecessor’s FLSA liabilities despite the exclusion in the the asset transfer agreement.  The court in Teed found that “[i]n the absence of successor liability, a violator of the [FLSA] could escape liability … by selling its assets without an assumption of liabilities by the buyer … and then dissolving.”  Teed, 711 F.3d at 766.

On April 3, 2014, the Third Circuit also applied those factors to find that the successor corporation could have acquired its predecessor’s FLSA liabilities.  Thompson v. Real Estate Mortg. Network, 2014 U.S. App. LEXIS 6150 (3d Cir. Apr. 3, 2014).  The court based its decision on the fact that the successor corporation might have “had knowledge of [the predecessor]’s allegedly improper overtime practices prior to the transfer”; that “all facets of the [predecessor’s] business … including operations, staffing, office space, email addresses, employment conditions, and work in progress, remained the same”; and that the predecessor was defunct, which meant that “it is likely incapable of satisfying any award of damages.”  Thompson, 2014 U.S. App. LEXIS 6150, at *22-24.

As the above cases demonstrate, a corporation’s liability under the FLSA should be a factor to consider when determining the purchase price in any asset purchase agreement.  Judging from the Seventh Circuit’s decision in Teed, even if the asset purchase agreement expressly states that the successor corporation does not assume any liabilities, and even if state law imposes a contrary rule, federal law could impose such liabilities on the successor corporation.  Although neither the Sixth Circuit nor the Third Circuit incorporates Florida, some federal courts in Florida have found that if the Eleventh Circuit—i.e., the circuit court of appeals incorporating Florida—were “faced with the issue, the Eleventh Circuit Court of Appeals would find that successor liability exists under the FLSA.”  Cuervo v. Airport Servs., 2013 U.S. Dist. LEXIS 163239, at *5-6 (S.D. Fla. Nov. 15, 2013).

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

RETALIATION CLAIMS UNDER THE FEDERAL WAGE LAW

The Fair Labor Standards Act (“FLSA”) not only requires that employers pay minimum and overtime wages, it also prohibits employers from retaliating against their employees for complaining about their wages.  The FLSA makes it unlawful for employers to “discharge or in any manner discriminate against any employee because such employee has filed a complaint or instituted … any proceeding under or related to [the FLSA].”  29 U.S.C. § 215(a)(3).  To establish a case for retaliation under the FLSA, an employee must prove three elements: (1) the employee engaged in protected activity under the FLSA, (2) the employee subsequently suffered adverse action by the employer, and (3) a causal connection existed between the protected activity and the adverse action.

A “protected activity” can be either formal or informal.  For example, if the employee formally files a complaint against the employer in court alleging unpaid wages, the employer cannot thereafter fire the employee for filing that complaint.  However, “informal” complaints could also lead to an FLSA retaliation claim.  For example, the employee may orally complain to the employer about unpaid overtime wages.  If the employer thereafter fires or takes other adverse action against the employee, the employer could be held liable for unlawfully retaliating against the employee.  The bottom line is: if the employee makes some form of complaint (either written or oral) that puts the employer on notice that the employee is asserting his or her rights under the FLSA, then the employee’s complaint will likely be considered “protected activity.”  The employee does not need to mention the FLSA by name.  However, the employee’s complaint also cannot be a general grievance; it must be sufficient in both content and context to put the employer on notice that the employee was asserting his or her rights under the FLSA.  A federal court in Florida recently found that the employees’ complaints that they were “improperly paid” were too vague to constitute “protected activity.”  Barquin v. Monty’s Sunset, L.L.C., 2013 U.S. Dist. LEXIS 144076, at *8-9 (S.D. Fla. Oct. 2, 2013).

An “adverse action” is any action taken by the employer that causes some injury or harm to the employee.  The most straight-forward example of “adverse action” is an employer terminating or firing the employee.  However, demotions or pay cuts could also constitute “adverse action.”  Other employment actions, such as job transfers or reassignments, will generally not be considered “adverse actions” on their own, but could rise to the level of “adverse action” under certain circumstances.  In general, if the employer’s actions would dissuade a “reasonable worker” from making or supporting a charge against the employer, then the employer’s actions would likely be considered “adverse.”

Finally, the employee must establish “a causal connection” between the protected activity and the adverse action.  Unless the employer explicitly states, “I am firing you because you filed an FLSA complaint,” it is unlikely that the employee can show direct evidence of the existence of a “causal connection.”  However, the employee could show a “causal connection” through circumstantial evidence.  For example, if the employer took adverse action against the employee within days after the employee engaged in protected activity, the close temporal proximity could serve as circumstantial evidence of a “causal connection” between the protected activity and the adverse action.

Employers should keep in mind that the FLSA retaliation provision also covers employees who are exempt from the FLSA’s minimum wage and overtime wage provisions.  In other words, even when the employer is not required to pay the employee minimum or overtime wages, the employer might still be held liable for retaliating against the employee if the employer took adverse action against the employee based on the employee’s mistaken but reasonable complaint that the employer was violating the FLSA’s minimum or overtime wage provisions.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

FLORIDA SUPREME COURT RULES ON PREGNANCY DISCRIMINATION

On April 17, 2014, the Florida Supreme Court resolved a conflict in Florida law: whether discrimination based on pregnancy constitutes “sex” discrimination in violation of the Florida Civil Rights Act of 1992 (“FCRA”).  The Court held that because pregnancy is a “natural condition unique to women and a ‘primary characteristic of the female sex,’” discrimination on the basis of pregnancy is unlawful sex discrimination.  Delva v. The Continental Group, Inc., Case No. SC12-2315, 2014 Fla. LEXIS 1316 (Fla. Apr. 17, 2014).

Under Title VII of the federal Civil Rights Act of 1964 (“Title VII”), the federal equivalent of the FCRA, it took a congressional act to make pregnancy discrimination unlawful.  In 1976, the U.S. Supreme Court held that Title VII does not prohibit pregnancy discrimination.  Two years later, in response to the U.S. Supreme Court, Congress passed the Pregnancy Discrimination Act (“PDA”), which amended Title VII to clarify that discrimination on the basis of pregnancy is sex discrimination and therefore unlawful.

The FCRA was patterned after Title VII.  Consequently, Florida courts have held that the FCRA shall be given the same meaning as Title VII.  The Florida legislature, however, has not amended the FCRA to include pregnancy discrimination.  Because Florida did not amend the FCRA, a conflict developed among Florida courts regarding whether the FCRA prohibits pregnancy-based discrimination.

In Carsillo v. City of Lake Worth, 995 So. 2d 1118, 1121 (Fla. 4th DCA 2008), the Fourth District Court of Appeals (the “4th DCA”) held that the FCRA prohibited pregnancy-based discrimination.  Because the PDA explained that Congress intended to prohibit pregnancy discrimination when it first enacted Title VII, the 4th DCA found that the FCRA should likewise be read as originally intending to prohibit pregnancy-based discrimination.

Four years later, the Third District Court of Appeals (the “3d DCA”) addressed the same question and disagreed with the 4th DCA.  Because Florida did not amend the FCRA to include pregnancy-based discrimination, the 3d DCA found that the FCRA did not prohibit pregnancy-based discrimination.  The 3d DCA consequently certified conflict with the 4th DCA.  The Florida Supreme Court recently resolved that conflict in Delva v. The Continental Group, Inc., Case No. SC12-2315, 2014 Fla. LEXIS 1316 (Fla. Apr. 17, 2014).

According to the Florida Supreme Court, the Florida legislature does not have to amend or clarify the FCRA to prohibit pregnancy-based discrimination.  Relying on the FCRA’s provision that the FCRA “shall be liberally construed” in favor of victims of employment discrimination, the Florida Supreme Court held in a 6 to 1 decision that discrimination on the basis of pregnancy is sex discrimination.  Chief Justice Ricky Polston was the sole dissenter arguing that because the plain meaning of the term “sex” does not encompass pregnancy, the FCRA does not prohibit pregnancy-based discrimination.

It seems, however, that the ultimate outcome might have turned out the same regardless of how the Florida Supreme Court ruled.  Less than one month before the Florida Supreme Court’s decision in Delva, the Florida Senate unanimously approved a bill (SB 0220) that would amend the FCRA to expressly include pregnancy-based discrimination as unlawful under the FCRA.  Also, just five days before the Florida Supreme Court’s decisions, the judicial committee of the Florida House approved the House version of the bill amending the FCRA (HB 0105).

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

FLORIDA LAW ON NON-COMPETITION COVENANTS AND CHOICE OF LAW PROVISIONS

Florida law tends to favor enforcement of non-competition covenants.  Under Florida law, non-competition covenants are enforceable if they protect one or more legitimate business interests and if they are reasonable in time, area, and line of business.  In fact, Florida law explicitly forbids courts from considering “any individualized economic or other hardship that might be caused to the person against whom enforcement is sought” when determining whether a non-competition covenant is enforceable.  Fla. Stat. § 542.335(g)(1).

For those reasons, companies might wish to take advantage of Florida’s non-competition laws even when the non-competition contract will be enforced outside of Florida.  In those situations, companies will likely include a “choice of law” provision in their non-competition covenants.  Generally, a “choice of law” contractual provision allows the parties to decide which state’s laws should apply to the contract.

Consider the following example:  A Florida corporation conducts business in New York.  To protect its legitimate business interests, the Florida corporation enters into a non-competition contract with its New York employee.  However, New York’s laws do not favor non-competition covenants to the same extent that Florida’s laws do.  New York law requires courts to consider whether the non-competition contract would impose undue hardship on the employee, a consideration that is forbidden under Florida law.  To take advantage of the Florida law, the Florida corporation includes a “choice of law” provision in the non-competition contract stating that Florida law shall apply to the contract.  That is exactly what a Florida corporation did in Brown & Brown, Inc. v Johnson, 980 N.Y.S.2d 631, 637 (N.Y. App. Div. 4th Dep’t 2014).  The New York appellate court, however, found that New York law, not Florida law, applied to the non-competition contract notwithstanding the contract’s “choice of law” provision.

Under New York law, a “choice of law” provision will be upheld if it bears a reasonable relationship to the parties or the transaction and if it is not “truly obnoxious” to New York’s public policy.  Considering New York’s public policy, the court in Brown & Brown, Inc. refused to uphold the “choice of law” provision and held that New York law will apply to the non-competition contract.  Specifically, the New York court found that “Florida law prohibiting courts from considering the hardship imposed on the person against whom enforcement is sought is ‘truly obnoxious’ to New York public policy.”  Brown & Brown, Inc., 980 N.Y.S.2d at 638.

New York was not the first state to find that Florida non-competition law was contrary to the respective state’s public policy.  In 2012, a Georgia appellate court found that “applying Florida law, the [the non-competition] covenants would almost certainly be upheld, despite the fact that they violate applicable Georgia law.”  Carson v. Obor Holding Co., LLC, 318 Ga. App. 645, 654 (Ga. Ct. App. 2012).  Consequently, the Georgia court held that the non-competition contract’s forum-selection clause selecting Florida as the forum state was unenforceable because Florida non-competition law was against Georgia public policy.

Likewise in 2008, an Illinois appellate court found that “Florida law, which specifically prohibits considering the hardship a restrictive covenant imposes upon an individual employee, is contrary to Illinois’s fundamental public policy.”  Brown & Brown, Inc. v. Mudron, 379 Ill. App. 3d 724, 728 (Ill. App. Ct. 3d Dist. 2008).  The Illinois appellate court therefore found that Illinois law applied to the non-competition contract despite the contract’s “choice of law” provision.  In 2001, a federal court in Alabama also refused to uphold a “choice of law” provision in a non-competition contract because it found that Florida non-competition law was “antithetical to Alabama’s general policy against covenants not to compete.”  Unisource Worldwide, Inc. v. S. Cent. Ala. Supply, LLC, 199 F. Supp. 2d 1194, 1201 (M.D. Ala. 2001).

As the above cases show, Florida companies seeking to enforce a non-competition covenant outside of Florida might not be able to take advantage of Florida’s non-competition laws even with a choice of law provision.  Because a choice of law provision cannot guaranty that Florida law will apply outside of Florida, proper drafting of the non-competition contract is key in those situations.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

“INDEPENDENT CONTRACTOR” VS. “EMPLOYEE” UNDER THE FAIR LABOR STANDARDS ACT

A common dispute that arises in overtime and minimum wage litigation is whether an individual hired by the defendant is an independent contractor or an employee.  Many companies choose to hire independent contractors to perform work instead of hiring employees.  Because independent contractors are not considered “employees” under the Fair Labor Standard Act (“FLSA”), the minimum wage and overtime wage provisions of the FLSA do not apply to independent contractors.  Hiring independent contractors might also be beneficial to companies for tax purposes.  However, as many companies have learned through litigation, labeling a worker an “independent contractor” will not automatically preclude that individual from being considered an “employee” under the FLSA.

Courts look to the “economic realities” of the relationship between the company and the individual the company hired to determine whether the individual is an “employee” or an “independent contractor.”  To determine whether the individual is an employee as a matter of economic reality, courts consider the following 6 factors: (1) the degree of control exercised by the company on the individual; (2) the individual’s opportunity for profit and loss based on managerial skills; (3) the individual’s investment in equipment or personnel; (4) the skill required to perform the work; (5) the duration of the relationship between the company and the individual; and (6) whether the services performed by the individual are integral to the company’s business.

As the 6 factors suggest, the determination of whether an individual is an “independent contractor” or “employee” depends on the specific facts of each case.  Adding more complexity to the analysis, courts do not mechanically apply the six factors.  The weight that courts attribute to each factor ultimately depends on the court’s analysis and on the facts of each case.  A good example of the distinction between “employee” and “independent contractor” is detailed in recent cases regarding adult entertainers.  For example, in Stevenson v. Great Am. Dream, Inc., 2013 U.S. Dist. LEXIS 181551 (N.D. Ga. Dec. 31, 2013), a class of adult entertainers sued the nightclub that hired them (the “Nightclub”) for minimum and overtime wages.  The court analyzed the facts in the case in relation to the six factors detailed above and found that the entertainers were “employees” because 5 of the 6 factors of the economic reality test suggested “employee” status.

As to the first factor (i.e., degree of control) the court found that while the entertainers were allowed to set their own schedules, the Nightclub possessed substantial control over them.  The Nightclub made and enforced rules regarding the entertainers’ dress and makeup, the entertainers’ conduct with customers, the music that the entertainers would perform to, and the procedure for settling disputes arising with the Nightclub.

As to the entertainers’ opportunity for profit and loss, the Court found that the Nightclub bore the vast majority of the overhead costs in comparison to the entertainers.  While the entertainers paid a daily fee to the Nightclub, the Nightclub was responsible for attracting customers, and making decisions regarding marketing, promotions, location, and pricing.  The entertainers could increase their profit depending on their interactions with customers, but the court found that such opportunity for profit and loss was minimal.

The court also found that although the entertainers spent their own money on hair, makeup, clothing, and styling, the Nightclub spent substantially more money on necessary personnel and equipment.  The third factor (i.e., investment in equipment) therefore suggested “employee” status.

The Nightclub argued that because the entertainers get better as they gain more experience, the work the entertainers performed required special skill.  The court disagreed.  The court acknowledged that different entertainers may possess varying degrees of skill, but found nothing to indicate that special skill was necessary for the work.  As the court noted, “[t]aking your clothes off on a nightclub stage and dancing provocatively are not the kinds of special skills that suggest independent contractor status.”  Stevenson, 2013 U.S. Dist. LEXIS 181551, at *15.

The court found that the fifth factor (i.e., the duration of the relationship between the company and the individual it hired) was the only factor that suggested “independent contractor” status because some of the entertainers’ relationships with the Nightclub were relatively short.  However, because this was the only factor that suggested “independent contractor” status, this factor alone could not nudge the entertainers out of their status as “employees.”

Finally, the court found the last factor (i.e., whether the work performed by the entertainers was integral to the Nightclub’s business) to be “most definitive.”  Because the Nightclub was an adult entertainment club, it required adult entertainers.  Without the entertainers, the Nightclub could not conduct tis business.  The entertainers’ work was therefore integral to the Nightclub’s business.  Finding that 5 of the 6 factors suggested “employee” status, the court held that the entertainers were “employees” and not “independent contractors.”

The Stevenson case serves as an example that even when a company labels the individuals it hires “independent contractors,” courts might nonetheless consider those individuals “employees” under the FLSA.  Companies could be required to pay those individuals unpaid minimum and overtime wages dating as far back as 3 years.  The potential liability to the company can increase significantly if, as in Stevenson, several workers collectively sue the company in a class action.  It is also important for companies to note that courts will generally not consider whether the hired individual signed a contract with the company wherein he or she agreed to be an “independent contractor.”  For those reasons, companies should consider all aspects of an individual’s work and consult with an experience labor and employment attorney before deciding to treat a hired worker as an independent contractor.

Peter T. Mavrick has successfully represented many employers in labor and employment matters.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.