Employees – including supplier workers – are the backbone of any business. Protecting worker safety in the supply chain is a complex undertaking, and COVID-19 has introduced additional complexities regarding employee safety and remote work. While this blog has touched on modern slavery and trafficking in prior posts, the following are a few of the most recent developments in other areas of worker safety and related considerations to help employers navigate the ever-evolving laws that touch the supply chain.
Top of mind for employers is keeping employees (both its own and those in its supply chain) safe in the wake of COVID-19. To further that goal, on June 10, 2020, the Occupational Safety and Health Administration (“OSHA”) released new guidance, in the form of frequently asked questions and answers, regarding the use of masks in the workplace. The new guidance outlines the differences between cloth face coverings, surgical masks and respirators. It further reminds employers not to use surgical masks or cloth face coverings when respirators are needed. In addition, the guidance notes the need for social distancing measures, even when workers are wearing cloth face coverings, and recommends following the Centers for Disease Control and Prevention’s guidance on washing face coverings. OSHA has since provided updated guidance covering topics such as best practices to prevent the spread of COVID-19 infection in the workplace, workplace testing, and worker training. The new guidance is not a standard or regulation, and it creates no new legal obligations. It contains recommendations and descriptions of mandatory safety and health standards. OSHA states that the “recommendations are advisory in nature, informational in content, and are intended to assist employers in providing a safe and healthful workplace.”
To keep employees safe during the pandemic, there has been an increase in employers asking their employees to work from home on a more permanent basis. This is impacting workers in supply chains as well. One major consideration when requiring employees to work from home is the reimbursement of expenses associated with working from home. In the U.S., there is no federal requirement to reimburse employees for business-related expenses. However, several states (including California, the District of Columbia, Illinois, Iowa, Massachusetts, Montana and New York) have legislation requiring reimbursement for necessary businesses expenses. Typically, employers either reimburse employees for actual costs incurred for business purposes, which requires employees to submit expense reports itemizing homeworking costs incurred for work purposes along with evidence of the costs (this is a time intensive process for employees), or provide a flat amount of reimbursement. In the latter case, employees should be allowed to seek reimbursement for any additional costs incurred over the percentage or flat amount if the actual costs of business use exceed those amounts.
The rules regarding transitioning employees to remote work outside of the U.S. differ by jurisdiction. The general rule outside of the U.S. is that if an employer directs employees to work remotely, or if the government has mandated remote working, employees cannot be required to pay “out of pocket” expenses for such home working arrangements. Most jurisdictions do not have specific statutory requirements for additional payments or stipends to employees who work from home. Instead, employers are usually required to reimburse employees for “business expenses” incurred while working from home. These expenses include, for instance, home office equipment, cell phone fees, and internet costs.
Employee misclassification remains a hot topic around the world, particularly as employment structures adapt to the “gig economy.” Misclassified workers appear in virtually every type and size of business. However, certain industries historically have had a higher number of misclassified workers than others, such as businesses that use construction workers, seasonal workers, short-term or “casual” workers, and outside salespersons. To the extent that employers in the supply chain industry use independent contractors on a seasonal or short-term basis to supplement their workforce, employee misclassification risks should be carefully considered as a part of supply chain risk management.
In the U.S., California led the way by passing AB5, which became effective on January 1, 2020 and codified the California Supreme Court’s April 2018 ruling in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County. The Dynamex ruling was an unprecedented shift that replaced the nearly 30-year flexible multi-factor Borello test with the rigid ABC Test to determine whether an employer properly classified a worker as an independent contractor for purposes of California’s wage orders. Under the ABC test, a worker is presumed to be an employee, and not an independent contractor. To rebut the presumption, the company must show that the worker is:
- Free from the company’s direction and control;
- Performs work that is outside the company’s usual course of business; and
- Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company
Misclassified workers will be eligible for minimum wage, overtime, meal and rest breaks, reimbursement of business expenses, workers’ compensation coverage, unemployment insurance, paid sick leave and state family leave. As an example, on August 5, 2020, the California Labor Commissioner sued Uber and Lyft alleging wage theft. The suit argues that both companies are misclassifying their drivers as independent contractors and aims to enforce the labor practices set forth by AB5.
Other U.S. states including Illinois, New Jersey, New York, Oregon, and Washington have passed or are considering legislation similar to AB5.
Further, in February 2020, the National Labor Relations Board unveiled its joint-employer rule governing joint-employer status under the NLRA. The test set forth by the new joint-employer rule provides that a business is a joint employer only if it has “substantial direct and immediate control” over another company’s workers (e.g., supplier workers) and actually exercises that control.
Although the new rule clarifies some aspects of joint-employer liability, it is important to note that the scope of the rule is limited and that other tests may apply when determining joint-employer liability under other employment laws. Further, if a company exercises control over subcontractors and third-party service providers that goes beyond “limited and routine” instructions, then the company is more likely to be considered a joint-employer. This means that if the subcontractor or service provider is not in compliance with federal, state and local law with respect to employment law, liability could accrue to the company. For the purposes of the new rule, “limited and routine” instructions consist of telling another employer’s employees what work to perform, or when and where to perform the work, but not how to perform the work.
Outside the U.S., employers should note these updates:
- Taiwan: The Labor Standards Act has been amended to regulate “labor dispatch” arrangements (i.e., third party agency engagements), as follows: (1) dispatched contingent workers cannot be engaged on fixed-term contracts to make them easier to terminate, (2) the end user of such contingent workers can be jointly liable for the agency’s failure to pay wages and occupational injuries, and (3) the end user cannot interview or hand select dispatched contingent workers.
- UK – Changes to Taxation of Personal Services Companies (“PSCs”): Currently, an independent contractor’s PSC is responsible for tax / social security obligations if the independent contractor would be an employee if directly engaged by the client company. As of April 6, 2020, the client company is liable for such obligations.
- Mexico: The Mexican legislature is considering a draft bill that would limit subcontracting to services that are not related to the company’s primary business activity and establish certain “sham” subcontracting arrangements subject to potential criminal liability (e.g., primary business activities). Depending on how the bill develops, companies with a dual corporate structure and/or third party agency workers may need to make significant changes.
- For employers with employees returning to the workplace, consider training employees on preventative measures they can take to prevent the spread of COVID-19, such as washing their hands and disinfecting frequently touched surfaces. Further consider providing masks, tissues, and hand sanitizer with at least 60% alcohol, if possible.
- Companies in California (and states considering similar legislation) that rely on independent contractors should first determine whether they fall into any of AB 5’s enumerated exemptions. If not, they can get ahead by evaluating whether a business’s engagement with workers passes muster under the ABC test, and how to maximize the chances of satisfying the test.
- With respect to joint employer liability, employers should continue to review their business practices and contracts to ensure their employment relationships with contractors and suppliers are structured to comply with the guidelines and examples provided in the NLRB’s final rule. In addition, companies should instruct managers to avoid performing tasks likely to give rise to allegations of direct control.