Management Update

Volume 13, Issue 2

DOL's New Independent Contractor Rule Makes Misclassification More Likely

By: Philip Giorlando and Fred Preis

On January 10, 2024, the Department of Labor (“DOL”) finalized a new independent contractor rule that returned to an independent contractor test which is more difficult for employers to meet. The DOL’s change will likely cause an increase in misclassification claims and result in more monetary exposure for businesses that classify a worker as an independent contractor.

The new rule, which takes effect on March 11, 2024, sets forth a six-factor test focused on the economic realities of work with an employer to determine independent contractor status. The six factors are: (1) the opportunity for profit or loss depending on managerial skill; (2) investments made by the worker and the potential employer; (3) degree of permanence of the work relationship; (4) the nature and degree of control; (5) the extent to which the work performed is an integral part of the potential employer’s business; and (6) the skill and initiative required for the work performed.

This new independent contractor rule not only changes the factors to be considered from five to six factors but also changes the weight previously given to the factors, making workers more likely to be classified as employees under the new rule.

Misclassifying an employee as an independent contractor can implicate many laws, including rights to minimum wage and overtime payments, which the DOL oversees and can cause substantial liability to employers. A misclassification of an employee as an independent contractor can constitute a violation of multiple laws.

Before this independent contractor rule becomes effective in March, employers should have all workers currently classified as independent contractors analyzed under the new rule to determine whether their classification needs to be changed and should seek legal guidance regarding the changes necessary to convert an independent contractor to an employee, which can provide a whole host of additional hurdles.

Weeding Out: Stoners at Work

By: Kayla M. Jacob and Fred Preis

Impairment at work is a serious liability issue for employers. Employers trying to prevent impairment at work through the implementation of a drug-free workplace policy may find the current legal landscape surrounding marijuana difficult to navigate. Here are three quick tips to clear the haze on marijuana at work:

Zero-tolerance is still good policy

Preventing intoxication at work helps prevent workplace injuries, which in turn mitigates risks and ensures minimal disruption to productivity. Impaired employees pose potential risks to themselves, their colleagues, customers/clients, and the organization as a whole. Additionally, a drug-free workplace aligns with an employer’s legal duty to create and maintain a safe work environment.

While employers should be aware of the state and local laws that contain anti-discrimination provisions against employees who use marijuana in accordance with those laws, there is no law that requires employers to allow marijuana use at work or that permits employees to work under the influence of marijuana.

Employers desiring a drug-free workplace may still establish, implement, and enforce policies that prohibit the use, possession, or impairment caused by marijuana. Employers should contact legal counsel to resolve questions on the intersection of enforcing drug policies at work and unlawful discrimination for marijuana use under state and local laws.

Recognize the limitations of marijuana drug-testing

Unlike alcohol where legal and scientific standards of intoxication have been established and can be tested through a breathalyzer, marijuana testing is not as advanced.

Drug testing for THC or THC metabolites, the psychoactive component in marijuana, is not always indicative of impairment. The various forms, methods of use, and potencies of marijuana and how marijuana is metabolized in the body all complicate drug testing for marijuana impairment. Thus, a positive marijuana drug test may simply indicate prior use.

Marijuana drug testing is further complicated by state and local laws that prohibit adverse employment actions based solely on a positive drug test or that prohibit testing for certain components of marijuana.

These limitations may require employers to show impairment in other ways and not rely solely on a drug test alone to prove impairment at work.

Train employees to recognize impairment

Being proactive about maintaining a drug-free workplace is crucial for preventing impairment at work. Employers should foster a culture of “see something, say something” by implementing reporting and investigation procedures that allow for the swift resolution of impairment claims.

Additionally, it is essential to train supervisors and managers to recognize signs of impairment. Comprehensive training programs should educate employees on the various manifestations of impairment. Training should include understanding physical and behavioral indicators such as altered coordination, slurred speech, changes in appearance, or erratic behavior.

Empowering staff to identify and address signs of impairment ensures that everyone in the organization is equipped to contribute to a safe and productive work environment.

Not so hazy after all

While the legal landscape surrounding marijuana remains complex and is everchanging, there is no law that permits marijuana impairment on-the-job. Despite state and local laws enacted in some jurisdictions that restrict adverse employment actions for marijuana use, marijuana is still illegal under federal law and employers still remain in control of the workplace. Employers may, therefore, enforce (in accordance with state and local laws) drug-free workplace policies that prohibit marijuana use, possession, or impairment while at work to ensure a safe and efficient work environment.

Game Changers: Is the NCAA Throwing in the Towel?

By: Alexandra C. Hains

In December 2023, NCAA President Charlie Baker proposed a groundbreaking framework for college athletics that, if adopted, would allow member institutions with the highest resources to directly compensate student-athletes for the first time. Baker’s proposal seemingly concedes that direct compensation from schools is a looming reality, at least for some student-athletes.

Under Baker’s proposal, a new subdivision within Division I would be created that would require schools, should they opt-in, to invest into an “enhanced educational trust fund” a minimum of $30,000 per year per student-athlete for at least half of the school’s eligible student-athletes. The proposal neither caps the amount a school can invest in each student-athlete nor requires a school to pay the same amount to each designated student. However, new subdivision members would need to remain compliant with Title IX, meaning schools would be required to provide equal monetary opportunities for female and male athletes.

If the proposal is approved, schools within the new subdivision could create their own rules separate from the rest of Division I, which would give new subdivision members the ability to move more quickly to address issues and more leeway to make policy in areas such as scholarship limits, transfers, roster size, and recruitment activities. Baker also continued the NCAA’s call on Congress to pass legislation to confer a special status or carve out for student-athletes, allowing institutions to provide enhanced benefits or direct compensation without triggering an employment relationship.

Many Division I schools have 500 or more scholarship student-athletes competing in over 20 sports. Compensating just half of those student-athletes with the base annual amount of $30,000 would cost a school $7.5 million annually, a massive investment in athletics. It is unclear from the proposal whether any benefits, including tuition, could be deducted from the investment per student-athlete. Schools unable to afford such an investment or otherwise electing not to join the new subdivision would remain in “Division I” as it currently exists.

On January 11, 2024, the Division I Board of Directors formally directed the Division I Council to examine Baker’s proposal. While the Division I Council conducts its examination of the proposal’s “key elements” and offers recommendations, member institutions should, in the meantime, proactively prepare for the future by:

Conducting internal audits, examining each program individually to accurately determine the athletics department's current revenue and liability figures.
Evaluating the cost implications of compliance with a potential voluntary or mandatory system where member institutions directly compensate student-athletes.
Identifying necessary annual budget adjustments under Baker's proposal, considering various yearly compensation levels.
Evaluating strategies for distributing educational trust funds in compliance with Title IX, ensuring equal opportunities and benefits for male and female athletes.

The NCAA's reluctance to categorize athletes as employees is evident, and any approved plan within this framework would likely emphasize the absence of an employer-employee relationship. Nevertheless, Congress and the courts are still navigating this complex issue. Unless a designated status or exception is obtained from Congress or the courts, any approved plan could have swift and extensive consequences. These consequences include the immediate inclusion of numerous college athletes under various federal and state employment and labor laws and potential tax liability for benefits previously enjoyed by student-athletes. Member institutions should, relatively quickly, become well-versed in these laws and be ready to ensure compliance.

Non-Compete Agreements Are Enforceable in Louisiana

By: Jude C. Bursavich

As we begin 2024, non-compete agreements are currently enforceable in Louisiana. While the Federal Trade Commission continues to threaten banning most non-compete agreements nationwide, the chances of such a ban surviving constitutional muster are slim. Nothing is stopping you now from putting non-compete agreements in place and protecting your business. Consider in doing so the following commonly asked questions about non-compete agreements in Louisiana:

How is the validity of non-compete agreements determined in Louisiana?

The validity and enforceability of non-compete agreements in Louisiana is controlled by a single statute, La. R.S. 23:921. Failure to strictly adhere to its requirements invalidates a Louisiana non-compete agreement.

Does reasonableness play any role in determining the validity of non-compete agreements in Louisiana?

No. Louisiana law differs with most other states on this issue. The statutory requirements of La. R.S. 23:921 include no reasonableness analysis.

What are the requirements of La. R.S. 23:921?

The statute in the first sentence makes clear that non-compete agreements in Louisiana are unenforceable, unless the agreement fits into one of the exceptions to the general prohibition listed therein. The opening sentence provides:

“[E]very contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade or business of any kind, except as provided in this section, shall be null and void.” (Emphasis added.)

What are the exceptions to the general prohibition on non-compete agreements in La. R.S. 23:921?

There are eight listed exceptions to the general prohibition. Each is relationship based, meaning that a valid non-compete agreement under Louisiana law must be between parties listed in the eight exceptions. The eight relationship exceptions are the seller/buyer of goodwill of the business relationship; the employer/employee relationship; the partnership/partner relationship involving dissolution; the franchisor/franchisee relationship; the computer employer/employee relationship; the corporation/shareholder relationship; the partnership/partner relationship irregardless of dissolution; and the limited liability company/member relationship. In other words, an agreement between an employer and employee meets the employer/employee relationship exception.

If a non-compete agreement does not fit into one of those eight listed relationships, can it be enforceable under Louisiana law?

No.

If an agreement meets one of the eight listed relationship tests, are there other requirements for an enforceable agreement under La. R.S. 23:921?

Yes. If the non-compete agreement is between one of the eight relationships listed in the law, an enforceable non-compete agreement in Louisiana can be for no longer than two years from date of termination of the relationship. It can be shorter, but it cannot be any longer than two years. Additionally, the geographical area of prohibition for which someone is prohibited from competing must be listed in the non-compete agreement “by parishes, municipalities, or parts thereof.” (i.e., you are prohibited from competing in the Parishes listed below). Finally, some Louisiana courts require that the business in which a party is prohibited from competing be defined therein. Other Louisiana jurisprudence holds that a definition of the business is no longer required. However, if a definition of the business is included, it cannot be overly broad.[1] Including a narrow and accurate definition of the business in your agreement is recommended.

Can a radius be used (50 miles from any office location) to define the geographical area of prohibition?

No. The area of prohibition must be “specified” by “parish, municipality or parts thereof.” Louisiana jurisprudence has specifically held that a radius used to define the area of prohibition fails to meet the requirements of La. R.S. 23:921.[2]

Can an employee be told that if they refuse to sign a non-compete agreement they will be terminated? Is that legal duress?

As long as they are an at-will employee, an employee can be fired for refusing to sign a non-compete agreement according to Louisiana jurisprudence.[3]

Can damages be recovered for violation of a valid non-compete agreement in Louisiana?

Yes. According to La. R.S. 23:921, “damages for the loss sustained and the profit of which” has been deprived is recoverable.

Can liquidated damages be recovered for violation of a valid non-compete agreement in Louisiana?

No. Liquidated damages, an agreed upon amount of damages provided for in an agreement, are not recoverable for violation of non-compete agreements in Louisiana.[4]

[1] Baton Rouge Computer Sales, Inc. v. Miller-Conrad, 1999-1200 (La. App. 1 Cir. 5/23/00), 767 So. 2d 763, 765; Vartech Sys., Inc. v. Hayden, 2005-2499 (La. App. 1 Cir. 12/20/06), 951 So. 2d 247, 260.

[2] Medivision, Inc. v. Germer, 617 So. 2d 69, 72 (La. Ct. App.), writ denied, 619 So. 2d 549 (La. 1993); Team Envtl. Scrvs., Inc. v. Addison, 2 F.3d 124, 126 (5th Cir.1993).

[3] Moores Pump & Supply, Inc. v. Laneaux, 98-1049 (La. App. 3 Cir. 2/3/99), 727 So. 2d 695, 698; Litig. Reprographics & Support Servs., Inc. v. Scott, 599 So. 2d 922, 923 (La. Ct. App. 1992).

[4] G.T. Michelli Co. v. McKey, 599 So. 2d 355, 357 (La. Ct. App. 1992).