Human Resurces

The New General Corporate Counsel (The Outside General Counsel Solution)

In order pressure for corporations to properly react to increased pressure to be as effective and cost-efficient as possible, CEO’s are not just bringing legal work in-house, but are retaining a lawyer who acts as general counsel to the company without the company having to pay a salary and benefits associated with a full-time employee. The days of relying 100% on outside counsel are over. It is just not efficient or cost effective to do so anymore. Companies are taking the alternate route of retaining a lawyer with not only specific legal talents, but also specialized knowledge of the industry the company works in. This is the trend because a company is not just getting a lawyer, but also getting someone who knows your business intimately. CEO’s are starting to recognize that when you retain a lawyer to act as in-house counsel (outside general counsel), they start to understand the business more. To be most effective, outside general counsel should not only have a full understanding of the organization’s business and office culture, but short and long term goals as well.

In the American business environment, every company will need a lawyer at one point or another, but just how to find and retain that legal counsel can be source of debate.We all know that one person, or perhaps you are that person, who started a company from nothing and grew it into a successful business. Start-up companies often need assistance with basic contract review or understanding compliance procedures. As the company grows from a start-up into a profitable corporation, many executives take the next step of either retaining outside counsel in the form of a law firm or the company may instead pick the in-house counsel route. Both options can be very expensive. The alternative is to retain a lawyer who is not an employee of the company, but a retained lawyer who acts as outside general counsel. A sort of in-house counsel that is an independent contractor, but devotes a large portion of their time to the company and its needs.

For many companies, consideration of this outside general counsel arrangement is a worthwhile step. Not only may there be potential legal cost savings, but bringing someone onboard and inside the executive team may also help ensure the company’s vision is maintained. When searching for such counsel, a company will also be wise to select a candidate who actively maintains social connections and ties to local legal counsel and law firms. This is important because, as many companies fail to anticipate, hiring outside general counsel does not necessarily eliminate the need to retain outside counsel for specific projects or actions. Thus, the ideal outside general counsel will be able to easily access and coordinate with appropriate outside counsel.

When a legal matter is sent outside the company, the outside general counsel serves not only to select the best outside firms for specific case types, but serves as a watchdog on those cases, ensuring that the company is not being over-billed and that matters are being handled properly. A company needs to understand that rather than being a hired gun brought in to consult on individual problems after the fact, an outside general counsel is, or should be, part of the team before, during and after company projects. The outside general counsel should be able to understand the company’s long-term objectives in order to tailor advice to the best interests of the company. A good outside general counsel working in a proactive manner instead of reactive will help a company anticipate and prevent legal problems before they arise, while maintaining company values.To foster this working environment, a company should encourage its executives to keep outside general counsel in the loop by discussing and brainstorming plans and strategies with them regularly. This has the potential to reduce future legal expenses, which most companies should cite as a goal.

The right outside general counsel does not just bring experience to the table. Once they are part of your staff, they bring peace of mind. Having immediate access to a licensed attorney who is focused on your business is truly unbeatable. It can also be the difference between success and failure on not just a given deal, but the difference between success and failure of the business itself.

 

Why A Company Must Invest in their Employees

As a lawyer dedicated to not only keeping my client’s business running and in compliance with the law, I am often called upon to advise executive level personnel and corporate HR Departments on what needs to be don’t to increase employee morale as well as relations between management and staff . Properly paying an employee for their value to the  company is a very good start but is not the end all to be all. Employees need more than a salary and fulfilling work to do their best work. They need to know that you see the value in them as individual, in the work they perform and the value they add to the company. Here are some very easy ways to break down the barriers between management and staff and to show employees that you care:

 

1. Get to Know each employee.

Getting to know who works for you, who they are, what they do, what they can do for your company, what they have done in previous jobs and what they do better than anyone else is an important step in building strong, trusting relationships. It will also help show your employees how much you value them and care – not just what they have done for you lately. Seek to build a better relationship with each employee by developing a genuine interest in who they are as people and what they are passionate about, even if this means a discussion about something other than work.

2. Provide ongoing and constructive feedback.

To help your employee be the best they can be, it is important to provide feedback to them on a regular basis. Your employees will become even more valuable to you when they are constantly refining, improving, and building new skills. Feedback will fuel to performance improvement. It is imprudent to wait for the annual review to tell them how they are doing. 

3. Invest in your staff.

Know what your employees need to succeed and give them the time and resources needed to do it. You need to get to know your staff and understand their talents as well as help to develop such talents and encourage your employees to do so on their own as well. If the training and learning they need to deliver greater value doesn’t exist inside your company, you must be ready, able and willing to fund external training.

4. Prepare Employees to Succeed and Risk Losing Them.

No CEO or COO wants to lose their best people, but by preparing your employees to succeed and advance means you have to take the risk of losing them. Either way, the investment in your employees shows your commitment to them and to your company because you’re doing the right thing for both, even if it eventually creates a need to fill that person’s shoes when they leave. The risk of losing a star employee is worth the payoff of working with the best in the business, even if they don’t stay forever.

5. Set clear and measurable expectations.

For your people to succeed, they need a clear understanding of what you need them to do and how success will be measured. And in the dynamic world of work, that means providing regular updates and performance reviews. An annual conversation about performance and planning is simply insufficient.

6. Make time for them.

It is hard for the CEO, COO or HR rep to devote time to each employee, but it is essential for them to know that you have their back. Group team meetings are simply not enough and prevents building deep relationships with your employees. Take time to meet with each employee individually as often as possible and be fully attentive when you do so.

7. Acknowledge them publicly.

Sure, you likely praise your employees accomplishments during your personal meetings. To deliver even greater value, acknowledge them in meetings in front of their co-workers, and in front of senior leaders they are looking to impress. This shows your true commitment to not just your employees but also to other important persons in your organization.

8. Say the tough stuff.

You need to tell employees when they have a behavior that will limit their career advancement, or what the consequences will be if they don’t resolve a major issue. Failure to do so can be just as harmful to a company as not acknowledging their accomplishments.

9. Give them an opportunity to use their superpowers. 

We all love doing the things we are good at and sometimes a business doesn’t take advantage of that. People doing things they excel at will help deliver exceptional value while feeling fulfilled. To help your employee use their superpowers, you need to help them unearth them, and then you need to help them find situations and projects in which they can leverage their strengths.

The landscape in the workforce is rapidly changing. The old school methods of doing business where the separation between staff and management is wide is a detriment to the ongoing vitality of not only each employee, but the company as a whole. I always stick by the old adage of you treat someone as you would like to be treated. This applies not just in the workplace, but in life as well. 

An Ounce of Prevention is Surely Worth a Pound of Cure

One of the main jobs of outside corporate counsel is to manage risk along with handling the business of managing the entire spectrum of employer-employee relationship issues. From employee hiring, through to employee exit, being entrusted to manage the clients' most sensitive and complex issues. Good corporate counsel will also provide exceptional support by combining real-world human resource guidance, all informed by relevant employment law provisions.

The Shanker Law Firm, P.C. acts as outside corporate counsel and advises clients on the full spectrum of complex human resources and employment law issues. We provide strategic, operational and legally privileged advice to help our clients deliver effective business solutions to manage their employees. Clients turn to us to help them manage employee risks and provide strategic, board level advice on crucial employment-related issues, as well as counsel on day-to-day operational support.

Our unique business model allows The Shanker Law Firm, P.C. to provide clients with practical responses to new employment legislation, case law, and regulatory changes, and an ability to strategically advise on a wide range of contentious and sometimes non-contentious human resources and employment law matters, including:

  • Drafting and Negotiating Employment and Employee Documentation

  • Employment Disputes and Dismissals

  • Human Resources Policies and Procedures

  • Redundancies and Restructurings

  • Outplacement Services

  • Remuneration and Benefits

In the world of big business today, most corporate owners and CEO’s are just not as versed as they should be in the sensitive nature of employer-employee relationship and employment law matters. I always believe in the old saying that an ounce of prevention is worth a pound of cure. The only question is whether you, as a business owner or CEO, wants to pay now to protect your business later…or to pay later and hope that the problem, that could likely have been prevented, will be able to be ameliorated in the face of either costly litigation or the threat thereof.  

Time for Companies to Utilize the Outside General Counsel.

The concept behind “general counsel outsourcing” is that a business organization may not need to hire a full time in-house lawyer to perform the services and functions performed by a general counsel. Some business organizations may be able to contract outside the organization, resulting in improved efficiencies and profit.

The concept of outsourcing certain business and services functions is not new. It has been used for years. For example, most companies do not maintain their own payroll function, they outsource it – there are specialists outside contractors who can manage the function more cost-effectively. For the same reason, many companies outsource most non-strategic functions – the annual report preparation; staff recruitment; insurance; public relations; advertising; internal audit; staff training; and information services.

Outsourcing of legal counsel has become a major response to the profit pressures on many businesses. In the past, companies have outsourced mostly functions considered non-strategic to the company, such as some of those listed above. However, due to increased pressures on profits and accountability issues with respect to corporate governance, regulatory compliance and risk management, there is a trend towards outsourcing “strategic” functions of business organizations, such as the general counsel.

The concept goes beyond the legal realm and also into the operational realm of a business as well. It involves the belief that services and functions typically performed by someone in upper level management should be performed by a general counsel and such functions includes legal analysis of business decisions, planning and other input that needs to go into the strategic planning process. Legal counsel along with the operational planning and review process can be outsourced to a lawyer who understands the company’s business and culture who, in essence, becomes a part-time extension of the company’s senior management team.

Most companies recognize that they need legal resources at a senior level to perform this strategic legal function to ensure that the company’s major assets and rights are suitably protected and its major exposures and obligations are suitably managed. In practical terms, this involves an on-going legal risk and opportunities audit, and an ongoing legal compliance program. Small to middle market companies must make tough decisions when addressing such strategic legal resources. Such companies are constantly seeking ways to obtain the strategic legal resources that their business requires while at the same time trying to save money and increase efficiency. Many such companies find that traditional methods of retaining counsel are not cost effective because traditional law firm overhead costs, for office space and support staff, limit a firm’s flexibility in fee-setting. When outside counsel fees climb, emerging companies consider hiring an inside counsel as an employee. With all the benefits that employee status entails, hiring someone to be an inside counsel can also be costly; such companies simply may not have the justification or the resources to hire a full-time in-house general counsel.

Outsourced general counsel services offer an attractive option to many companies. For a specified and agreed upon monthly fee, the company contracts with an experienced and well qualified attorney to provide strategic in-house counsel legal services. The outsourced general counsel is an independent contractor, not an employee. He or she may periodically work at the company’s site in order to provide the same high quality, high level of service of law firms or employee counsel. The outsourced general counsel becomes an extension of the company’s senior management team.

In no event, should any company buy the idea that the outsourcing of general counsel legal services decision is an all or nothing choice. Certainly, some legal services are best delivered externally, from law firms that offer specialized legal services. However, other legal services such as certain employment law and labor issues, legal day-to-day corporate governance issues and strategic functions, can be performed effectively by the company with the help of an outsourced general counsel who understands the company’s business.

As in most things, it is a matter of balance and the result of informed and objective analyses. The key issue of determining whether outsourced general counsel services are proper for a company is a question of balancing the delivery of the company’s needs for such services to ensure an ultimate advantage for the company against the cost of an outsourced general counsel. 

Most companies who I represent have addressed this question would agree with many of the following:

  • the ability to operate at a senior level in the company’s organization;
  • a close understanding of the company’s policies, strategies and objectives;
  • a close understanding of the company’s operating methods, processes, products, suppliers and customers;
  • the ability to manage legal risk, to analyze the company’s strategies and in order to identify legal issues, and to develop plans and programs to manage and, if possible, to avoid legal problems that arise;
  • the timely delivery of work of high technical quality that also provides practical solutions which meet the company’s business goals;
  • the ability to work closely and co-operatively with company personnel, suppliers and customers as may be required;
  • the ability to add value to the company whether this is by saving money, avoiding losses, solving problems, achieving their business objectives, by using knowledge and skills to improve the way the company manages its legal risks and pursues its legal rights and opportunities; and
  • the ability to manage external legal services for extraordinary legal issues that arise (e.g., litigation; public/private securities offerings; bankruptcy) in a cost-effective way that achieves optimum benefits for the company

Almost by definition, these qualities can only be performed by someone inside the company, who has absorbed the company’s culture and become part of the way the company does business. An outsourced general counsel can provide this level of service and resources for the company.

We have done this many times in the past and fortunately with great success for the companies we have and continue to represent. It is an alternative to hourly billing. It is an alternative to the lawyer as the enemy. It gives you a reason to call your lawyer without fear of being charged for every 6 minutes of time. Most of all, it give the business and its owners peace of mind that the company is in good hands.

HR Departments Should Review Uber's Conduct as a Precautionary Tale.

We have all seen the news coverage of the sexual harassment and discrimination problems at Uber. According to reports, Uber has long suffered from a culture of pervasive sexual harassment and discrimination toward female employees. The issues first came to light publicly in February, when one former Uber employee published a blog post about the sexual harassment that she and other women experienced at the company.

Based on the information available, it appears that the problem at Uber did not stem only from the harassers themselves. Rather, the problems stemmed from a misguided Human Resources department that allowed the problems to go unchecked, despite receiving multiple reports of sexual harassment and discrimination from female employees.

According to reports, when a female employee reported harassment or discrimination to Uber’s Human Resources department, she was more likely to be chastised by HR than to have her concerns addressed. According to allegations, HR representatives told employees who reported such issues that, because the conduct complained of was the harasser’s “first offense” and the harasser was a “high performer,” he would receive a warning, nothing more. HR allegedly told one woman (the author of the February blog post referred to above) that the fact that she had made multiple complaints indicated that it was she, not the male employees she was reporting, who was the problem.

If true, these allegations suggest that Uber’s HR department believed that its highest priority was to protect “high performers” at all costs, even if that meant allowing sexual harassment to run rampant within the company. Generally, when an HR department adopts such an outlook, it comes from the top. HR staff who believe that management expects them to protect harassers and sweep complaints under the rug will, quite often, do so. Like any other employee, an HR rep wants to keep his or her job.

That is why it is imperative that management sets the tone for a company’s culture. HR must receive clear directives that harassment and discrimination are not to be tolerated, and employees must be made to feel that any issues they report will be taken seriously and dealt with appropriately. These messages must be conveyed through both the words and actions of management. HR must understand its role to be a watchdog for compliance issues and an advocate for employees, not a puppet of management.

Uber has terminated at least 20 employees in the fallout from the sexual harassment and discrimination scandal, and its CEO has resigned. Clearly, the company will be feeling the impact of the scandal for quite some time. Any company that has not taken proactive steps to assure that its HR department understands its true purpose and role should view this story as a cautionary tale.

Your Corporate Counsel…Doctor Or Fireman?

I believe in the old saying that an ounce of prevention will prevent a pound of cure. A little precaution before a crisis occurs is preferable to a lot of fixing after afterwards.  To put it another way, I believe a lawyer can either serve a corporation as being a doctor or fireman. If a corporation looks at a lawyer as a doctor, then they will seek effective legal counsel before there is a problem for the specific purpose of preventing a problem before it occurs. This is akin to yearly checkup at your internist’s office. On the other hand, some corporations treat a lawyer as a fireman. In other words, some corporations only seek out legal counsel when there is a problem (a.k.a. fire) and then the lawyers placed in the difficult position of having to act like a fireman, triage the problem, act quickly and effectively and hopefully put out the fire. Of course, is much more expensive to have the fire department responded fire than it is to go to your doctor's office for periodic checkup. There is no difference in the corporate world. If you want to prevent the problem, then the leaders of the corporation must decide whether they want to ensure compliance with the law by hiring the proper professionals or if they want TO take the risk of noncompliance and deal with the prospect of costly lawsuits. While the cost of compliance with the law is never cheap, the cost of noncompliance is often greater than the cost of compliance

 

Companies Should Consider Outsourcing Their Organizations HR Compliance Functions

For both small and midsized companies, effective human resource management is critical to success — especially in today’s competitive business climate. HR management is a complex, ever-changing discipline burdened with trials that impact employee productivity, HR compliance, and ultimately, the bottom line. Company HR managers and those who deal with HR corporate compliance must look at six key areas: hiring, payroll, benefits, employee relations, risk & safety and employee relations. Since HR compliance lies at the heart of effective human resource management, it is alarming to discover that most HR managers either express concern about their ability to comply with HR laws and employment laws or know that they are not in compliance with the law, but do not know what to do about it.

 

Companies Often Lack Confidence in their Organizations’ HR Compliance Capabilities

Locating and hiring qualified HR Managers should be a top business concern for many corporations.  Most companies have a moderate or slight level of confidence — or even no confidence at all — in their ability to comply with important HR and employment laws, rules and regulations. This is very troubling, especially considering the fact that most legal problems can be avoided with an ounce of prevention.

 

HR Compliance Challenges Are Expected to Increase Moving Forward

HR managers should expect the compliance legal landscape to become even more challenging over the next one to three years. Given their compliance concerns — both today and looking forward — it’s not surprising that the vast majority of companies seeks professional legal advice to address compliance issue and would even consider outsourcing their HR function entirely.

Where HR Managers See Room for HR Compliance Improvements

In my experience, many HR managers are less than confident with regard to compliance in noteworthy aspects of hiring, employee relations, and risk & safety. Non-compliance in these areas could put small and midsized businesses in jeopardy of FLSA and OSHA violations, as well as employee grievances. 

 

Taking Steps to Minimize HR Compliance Risks

Given the risks associated with non-compliance, companies should consider taking steps to address any HR compliance issues sooner rather than later. With employee litigation — and compensatory awards — on the rise, companies face major potential legal liabilities if they fail to comply with HR and employment laws, rules and regulations. Statistics compiled by Jury Verdict Research show that employment lawsuits have risen 400 percent in the last 20 years, with the average compensatory reward in federal employment cases now exceeding $490,000. For small to midsized businesses, these statistics highlight the need to address any compliance concerns, even if that means seeking guidance from third-party professionals or outsourcing the HR function entirely. 

 

Addressing HR Compliance Issues is Key to Effective Human Resource Management 

In order to achieve a competitive edge, today’s business are striving to operate as efficiently and cost-effectively as possible while maintaining HR compliance and attracting and retaining top talent. However, HR managers are recognizing the challenges of complying with complex, dynamic HR laws and employment laws. Since shortcomings in key areas of HR compliance can put businesses at a competitive and financial disadvantage, it only makes sense that small and midsized companies use the many effective tools and services available to become — and stay — compliant.

 

Conclusion

A little precaution before a crisis occurs is preferable to a lot of fixing after afterwards.

 

The Gig Economy Is Here to Stay

Lets face it. The gig economy is here to stay. If it was not a good idea, then the entire market of new companies that have been created would not be flourishing…and they are not all flourishing because they are taking advantage of loopholes in the law. When something does not go the way they expect it, the layperson calls it a “loophole in the law”. When someone or some company escapes legal liability on a “technicality” the public calls it unfair. It is almost always an afterthought reaction when a group of persons file a class action lawsuit against a company alleging that the company misclassified them as independent contractors. Of course, they don’t seek “justice” by making the market reform to the existing laws and they don’t petition their elected leaders to change the law, but they seek the usual object of a lawsuit….MONEY (compensation for missed lunch breaks, minimum wage compensation, reimbursement for business expenses, and overtime, in addition to other penalties). While a lawsuit and the payment of money may have the unintended result of making a company reform its business practices, the current wave of class action lawsuits will not change an entire industry that has been created in the past 5-6 years.

Lawsuits against companies utilizing the “gig economy” are like a threatening cloud in a brewing storm. People who provide services surely deserve respect, fair treatment, and open communication, but that does not mean that all persons who provide services are employees, as opposed to independent contractors. Yes, there surely are many companies that misclassify their workers as independent contractors as opposed to employees in order to avoid the legal and financial liabilities associated with hiring an employee. But there are also many who follow the law and do utilize independent contractors, but still have to navigate the legal maze of bottom feeding lawyers that seek out these class action lawsuits, not to reform an industry or a market, but to get money.      

This rising legal retribution is a huge threat to the gig economy. Not being responsible for employees’ taxes and benefits allows companies to operate with 20% to 30% less in labor costs than the incumbent competition. If they lose this workforce structure either via class-action lawsuits or intervention by regulators, or through the collective action of disgruntled workers, and you will surely lose the gig economy.

The lawmakers may need to alter the very definition of “employee” in order to meet the demands of the in a tech-enabled, service-driven economy in the 21st century American Gig economy. Many companies do not own cars, hotels, or even their workers’ cleaning supplies. What they own is a marketplace with two sides. On one side are people who need a job done–a ride to the airport, a clean house, a lunchtime delivery. On the other are people who are willing to do that job. In the middle is a broker. This is the one that puts the two parties together and takes a “piece of the action”. Little or no direction and control over the means by which a person provides their service is the legal equivalent of an independent contractor. If you don’t like being an independent contractor, then go out and get a job as an employee, which involves more supervision, more direction and less autonomy. There is nothing wrong with that, but just don’t complain later on that you were cheated after you speak to a scum sucking ambulance chaser.

Some say a new deal has to be worked out and one that squares the legal rules governing work with new products and new services. Some believe the gig economy created a marketplace where people who provide services do not fit neatly into the traditional definition of employee or independent contractor. Right now, one who provides services is not sure what benefits to expect from a quasi-employer. For those who want to know, all you have to do is ask. If you don’t like the answer, then don’t accept the job or don’t provide the service. I believe one can be both independent and tethered to an app-based company. The social contract between gig economy workers and employers may be outdated, but it is far from broken. Who will fix it, and how, will determine the fate of many thousands of workers and billions of dollars.

Thanks to these new on-demand startups, though, whether you’re a stay-at-home mom with a few odd hours to spare or a recently unemployed fast-food worker who needs to make ends meet while looking for a job, you can work whenever you want, doing whatever you want. Many like the flexibility and feel like it gives them a better work and life balance. In the gig economy, you’re better than an employee; you’re a little business. We now live in a world where people can be entrepreneurs or micro-entrepreneurs, Just like the government didn’t begin to regulate the Internet before it became a behemoth, regulating this new economy before it’s fully created could halt innovation. Perhaps I just don’t have much faith in regulators whose job is not to ensure a properly working system, but to regulate for the sake of regulation by implementing more and more rules of operation to the point of choking a business to death. Just like the New York City Taxi and Limousine Commission did to the for-hire vehicle industry in New York City.

 

I believe the gig economy has been improperly interpreted as a loophole for avoiding labor laws. There is little economic security or predictability in being an independent contractor, but then again, there is the promise of starting off with your own small entity and creating something new and ever bigger and better than before. If you want security and predictability, then go get a job teaching 4th grade in an elementary school. If you want to take a risk and be your own boss and possibly fulfill your dreams, then start your own business and make it rain…and don’t come complaining later when your own ideas and inventions don’t work out because it is not the fault anyone other than you and your own choices. Some don’t like the gig economy because there is no power among workers to get a fair share of the profits. For those who believe this, take a step back and realize that you don’t get the profits of a private company by being an employee or a person that provides services.  Many people try and fail to make money with gig economy jobs, and then complain that their legal rights were violated. Why did they not think of this when they signed on to be an independent contractor in the first place

It’s safe to say that there are advantages to being an employee (security, safety laws, minimum wage, benefits) and that there are also advantages to being an independent contractor (freedom, independence, opportunity for more profit). Similarly, there are advantages to hiring employees (quality control, dependable workers) and hiring contract workers (cheaper, don’t need to guarantee work). Where platforms and new markets get into legally dubious territory is when they try to claim the advantages of both systems at the same time. But just remember that simply because you utilize the platform of another company does not mean that you don’t have control over the work you did. If the company that provided the platform or means to access the marketplace, then you would not have the option to be an independent contractor.

The laws that determine independent contractor and employee status vary from state to state and from situation to situation, but many of them focus on the question of how much control workers have over their work. If their employer is mainly focused on the outcome of that work, there’s a very good chance they’re fairly being classified as an independent contractor. When their employer begins to control not only what work they do, but how they do it, that classification gets murky. Giving persons suggestions for how to do their work should not made the company more vulnerable to a lawsuit. Similarly, though traditional taxi drivers are often independent workers rather than employees, a platform like Uber takes a certain amount of control when it fires them for low ratings or changes their fare prices. Some don’t like the idea of going into work one day and your “boss” telling you that you’re going to have to do the exact same job you did last week but make less money”. But ”firing” someone for low ratings does not necessarily make them an employee, it may just means that the company no longer desires to utilize their services.

Right now, our legal system only has two buckets for workers who aren’t volunteers or interns. You are an employee. Or you are an independent contractor. The risk of being sued has led many in the gig economy to place workers into the employee bucket. This also drives costs to the consumer up because the cost structure for these companies increases by about 30% by paying for taxes and benefits that they may not have to, but they just want to be cautious. Other companies in the gig economy place workers into the independent contractor bucket, which entails the risk of worker misclassification claims for disgruntled persons who formerly provided services and/or tax hungry governmental entities that have every intention of finding an employer-employee relationship so they can increase revenue for the city, state and/or federal government. The legal risk, the risk of being asked to pay back-taxes by the IRS or Department of Labor is a battle that everyone knows is coming and each entity that utilizes independent contractors should make budgetary preparations, emotional preparations and legal preparations to fight and defend.

The pressure in the marketplace right now is to push workers into one bucket or another (employees or independent contractors). This creates an inherent fear of the governmental fines if you are wrong and the fear of the cost of defending a class-action lawsuit where a group of former disgruntled persons allege that a company misclassified its workers. But on the other hand, classifying a person as an employee will raise the cost to consumers in many situations when the worker is not an employee and thus, the increased cost to the consumer for no good reason.

But some wonder if there is some room for compromise in this system. The question is whether there is some sort of a new middle ground that works for everybody. Forcing all companies to use these old constructs (employees or independent contractors) may not quite be the right thing for the worker and for the growth of the economy. After all, the answer to decreasing employment is not to get more people deemed as misclassified.

One answer, of course, is that the gig economy should be destroyed if it can’t follow existing labor laws. These legal protections have been put in place for the protection of workers and have evolved over a century and surely were not accidental. Others call for change where parts of the sharing economy could self-regulate, with oversight from the government. Others have supported creating a third category of worker that falls between an independent contractor and employee, which would allow companies to give their independent workers some benefits without fear of being sued for treating them as employees.

Lawsuits are a big, visible threat to the gig economy, but even if none are successful, there’s another, slower-burning problem that will corrode the gig economy if left unresolved. It’s a problem that gets worse every time a worker completes hundreds of jobs via a platform with nearly unanimous perfect reviews of his work, is let go and then the person becomes disgruntled and there is nothing that the company could ever do to win him back as a dedicated service provider.

In my humble opinion, the most important thing a corporation can do is to have an experienced lawyer perform a full exam of your corporation to see if it is properly classifying its workers/service providers. Do not wait until you are sued or the government performs an audit. By that time, it is too late to do anything other than damage control. The most important thing a person can do before they take a job, is to determine whether they will be classified as an employee or an independent contractor. Go into the job with your eyes wide open, knowing what your benefits and rights are based upon who you are being classified. Speak up and ask questions and make a fully informed decision before taking the job. Don’t cry the blues later on because you were fired and failed to do your homework before taking the job. Finally, the most important thing is what the government can and should do. This means to stop the audits and put aside the money grab for the moment. Take the time to involve leaders and stakeholders in each major industry that straddles the line between hiring employees and utilizing independent contractors. Figure out a way to make the line clearer for businesses and help them understand their potential legal liabilities all while another last option is pursued. That option is to bring the same leaders and stakeholders in each major industry together with the government regulators to figure out a way to find a middle ground that works for everybody. Utilizing old constructs of what it means to be an employee or an independent contractor will not work when analyzing the new gig economy. We have to come up with new constructs and figure out a way for the companies of the nation to know its legal rights and responsibilities all while giving the independent contractor some benefits that they ordinarily would not be entitled to under the current system.

There is middle ground and finding that middle ground will be a better solution for the worker, the business and the economy in general. To do otherwise is to be trapped by dogma, which is living life with the results of other people’s thinking. 

Comments made to DCA by Steven J. Shanker, Esq. re: amendments to NYC Sick Leave Act

In the City that never sleeps, a for-hire vehicle base station never closes. The members of the Livery Roundtable run businesses that operate 24 hours per day 365 days per year. As such, a number of issues face the livery industry that is not prevalent for the average employer who does not operate 24/7/365. The requirement that livery bases be staffed every single minute of every day has caused certain provisions of the Earned Sick Time Act to result in unintended adverse effect upon these employers.

The average company in New York City is not open on Christmas, New Years Day, Labor Day and a number of other holidays. Members of the public need for-hire transportation every day, but on these and other certain well-defined holidays, the public is often traveling to gather with friends and family to celebrate. The added travel by the public on these days makes our clients even busier than usual, thus they need each employee who is scheduled to work to actually show up. Of course, most people prefer to not work on these holidays. This causes many employees to “call-out” and claim they are sick and unable to work when such is not truly the case. This ultimately leaves our clients short staffed. This not only results in the obvious adverse effects upon the operations of our clients business, but also causes the transportation needs of our clients’ customers to be unable to be satisfied. 

Holidays

As the law now stands, if an employee calls out on a holiday at the last moment, the employer has virtually no recourse. The employee is not required to produce a doctor’s note to verify that they are ill and the employer is left short staffed, thus causing harm to our clients business. Their reputation becomes sullied when they do not have sufficient operators to answer the telephone and less than the number of anticipated dispatchers that serve to ensure that the requests for transportation from the public are effectively sent to the for-hire vehicle operators who are the ones who are actually providing transportation to the public. Thus the vicious cycle begins of there being a holiday where more people are seeking to travel, but the for-hire vehicle bases that facilitate such travel are unable to effectively operate because they have a number of employees who did not come to work under the guise of “being sick”.

We believe it is not on onerous burden on the working persons of the City who are scheduled to work on certain well-defined holidays to be unable to use an accrued sick day unless they produce a doctor’s note to document their illness. This would be more equitable because it will allow the employer to be able to rely upon those who are scheduled to work on certain well defined days to show up to perform their job duties, all while permitting those who are legitimately sick to take the day off without any fear of adverse consequences to their job or their income.

Minimum increments for use of paid sick leave

While the New York City’s Earned Sick Time Act allows an employee to earn up to 40 hours of sick time per year, the employer can only mandate that the employee be paid for up to 4 hours if the employee takes a sick day. In other words, if an employee is scheduled to work 8 hours and calls out sick for the day, the employer can only require that the employee be paid for 4 hours. For an employee who has 8 or more hours of time in their “sick bank”, taking an entire day off (8 hours), but only asking to be paid for 4 hours leaves an additional 4 hours in the employee’s “sick bank”. The unintended effect of this is that employees are using the system to obtain 10 sick days instead of 5. The result is that the employee takes 10 sick days and is paid for a total of 5 of them. In essence, time and experience has proven that an employee is more satisfied to take off 10 days and only be paid for 5 of them because it allows them to effectively use some of the sick days as personal days. This was not the intent or purpose of the law.

We believe it would be more equitable if an employer can require that if an employee has 8 or more hours in their “sick bank” and they take 8 hours off, then the employer have the right to pay the employee for the full 8 hours. If the employee has less than 8 hours in their “sick bank”, then the employer should be able to pay the employee for whatever hours remain in their in their “sick bank”. This is not the act of giving something to the employer while taking something from the employee, but simply the act of creating a system where the employee is kept honest in using a sick day for a day in which they are truly sick. To do otherwise, allows the employee to game the system to maximize their days off, all the while hurting the operations of our clients businesses. There does not seem to be any legal or factual rationale for limiting the employer to mandating that an employee who has more than 4 hours in their in their “sick bank” to use and be paid for only up to 4 hours of time off.

Carry Over

As the law now stands, an employee may carry over up to 40 hours of unused sick time from one calendar year to the next, unless the employer has a policy of paying employees for unused sick time at the end of the calendar year and providing the employee with at least 40 hours of sick time for the immediately subsequent calendar year on the first day of such year. If the employee is paid for all of their unused sick time at the end of the year, then the employee is paid for exactly what they earned. In such circumstances, there seems to be no rationale for requiring the employer to providing the employee with at least 40 hours of sick time for the immediately subsequent calendar year on the first day of such year. This would, in essence, be penalizing an employer for paying the employee for their unused sick time at the end of the year. Why should an employee be entitled to 40 hours of sick time that they did not earn at the beginning of the calendar year when the employer paid them for their unused sick time at the end of the preceding year? Under these circumstances, the employee should be required to earn each hour of sick time as if they had used all of their sick time prior to the end of the preceding year. We believe it would be more equitable if an employer chooses to pay employees for all unused sick time at the end of each year for the employee to earn “new” sick time in the usual fashion. To do otherwise, would give the employee an unearned benefit by being given sick time that they did not earn. This surely was not the intent and purpose of the law

Unions and Collective Bargaining Agreements

One of the premises behind the enactment of the New York City’s Earned Sick Time Act was that an individual employee does not have the bargaining power to be able to require employers to give them certain defined sick leave benefits. The law enables the employee to obtain these benefits automatically because without it, the disparity in bargaining power between the employee and the employer will result in the employee gaining little or no sick leave benefits. This is simply not the case when a union represents a class of employees and their employment relationship is governed by a Collective Bargaining Agreement. In such a case, the union that represents a group of employees is arguably in a much greater position to be able to bargain with an employer to obtain at least as much sick leave benefits for the employee union members as possible. In these cases, there is no disparity in bargaining power. To require each employer to still comply with the mandates of the New York City’s Earned Sick Time Act places the employer in a worse position because the mandates of the Earned Sick Time Act thus become the floor for negotiations and not the norm.

A union regularly obtains added concessions from the employer, such as 48-56 hours of sick time for each employee per year. When this occurs, the parties should not be bound by the prohibition that an employer can only require a note from a doctor after more than 3 days of consecutive absences. In other words, if an employer who is subject to the terms of a Collective Bargaining Agreement is willing to give employees the ability to earn and/or use 48-56 hours of sick time per year, then the employer should be able to bargain with the union to require the employee to produce a note from a doctor to document their sick status after 2 days of consecutive absences. Under the law, as it now stands, the employer may be required to bargain with the union and give more benefits than the law requires, but is not permitted to require any benefit in return. In a nutshell, when there is a union and a Collective Bargaining Agreement, there is no rationale, since there is disparity in bargaining power between the employee and the employer, to require the employer to comply with each and every provision of the New York City Earned Sick Time Act.

Pattern of Abuse

Employers are permitted to take disciplinary action against employees who use sick time for purposes not covered by the Act, but on the whole, if the employer is not able to ask the employee to produce a doctor’s note for certain days off, then there is virtually no way for the employer to verify that the employee used sick time for purposes not covered by the Act. Furthermore, while Employers are permitted to take disciplinary action against employees who engage in a pattern of abuse of leave, there is no guidance for employers as to what the Department of Consumer Affairs (“DCA”) would consider to be a “pattern of abuse”. Some employers may consider abuse to be the use of unscheduled sick time on 3 adjacent weekends, while the DCA may not consider this to be a pattern, but merely a coincidence. The same holds true for holidays. Employers are gun shy in taking adverse action against an employee even in the face of a pattern of abuse simply because the employer has no guidance as to what the DCA may find if a complaint is made by the employee and thus, what penalties the employer may face if the DCA disagrees with the employer’s view as to what constitutes a pattern of abuse. We believe it would be more equitable if an employer is given some leeway in determining a pattern of abuse. Such leeway would be afforded and fairness can be meted out when the burden is placed on the employee to provide some kind of documentation or objective proof to document the use of unscheduled sick time on 3 adjacent weekends, 2 consecutive Mondays (to enable the employee to have a longer weekend) or the use of unscheduled sick time on 2 out of 3 consecutive holidays.

Overall, the law is never perfect, especially at the it is enacted, but when our local government that enacted such rules requests comments from stakeholders in certain industries, such as the for-hire vehicle industry, I sincerely hope that they take such comments under well advisement and consider the negative impact as well as the rationale behind such rules. To do otherwise, would be tantamount to purposefully perpetuating certain aspects of a law that has no rationale and is disproportionately unfair to one party to the equation without any rhyme or reason.