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Election impact on SCV employers

Posted: December 4, 2008 9:51 p.m.
Updated: December 5, 2008 4:30 a.m.
 
With the election of Barack Obama and a heavily Democratic Congress, Santa Clarita Valley employers can expect several changes in federal employment laws. Here are three changes I see in my crystal ball.

Contractors
The problem: Many industries traditionally treat front-line workers as independent contractors- for example, hair-cutting businesses and real estate firms.

While these arrangements provide a great deal of freedom to the workers and reduce employer costs, they also have the potential for abuse because employment taxes (and income taxes) sometimes are not paid by the independent contractors and there is no worker's compensation insurance or unemployment compensation available in the event of injury or layoff.

Congress' solution: The proposed Employee Misclassification Prevention Act substantially increases penalties if workers are improperly classified as independent contractors.

Willful or repeat violators could be fined up to $10,000 per violation. It also requires employers to inform workers of their classification as employees or independent contractors and of their right to challenge that classification.

The impact on SCV businesses: This Act almost certainly will result in more audits and far closer scrutiny by both the U.S. Department of Labor (which administers overtime and minimum wage laws) and the IRS (which collects employment taxes such as FICA, Medicare and unemployment).

Because "employment" status increases federal tax revenue, these agencies have a great incentive to find that a worker is an employee rather than an independent contractor.

Small businesses using independent contractors could find themselves on the hook for substantial employment-related taxes and subject to the IRS "100% penalty" for failure to withhold income taxes. Employers who classify workers as independent contractors should review and, if warranted, revise those arrangements.

Arbitration
The issue: Many employers require employees to sign arbitration agreements when they are hired in order to provide a speedy and less expensive alternative to lawsuits in the event of a dispute. "Consumer" attorneys claim that arbitration reduces employees' ability to fully recover for violations of employment laws.

Congress' solution: The Arbitration Fairness Act would bar companies from using predispute arbitration agreements in employment, consumer, or franchise disputes and invalidate arbitration agreements for conflicts "arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power."

The impact: Businesses may find that their arbitration agreements, whether in employment or in the sale of goods or services, are unenforceable. In other words, a lot more disputes will end up in court, with all the expense and uncertainty that entails.

There are alternatives to arbitration agreements which may be more viable. The pros and cons are complex and a call to legal counsel may be the prudent course of action.

Union organizing
The issue: In Southern California, very few private employers are unionized outside of the entertainment industry and very large construction projects. Clearly, the new administration would like that to change.

Congress' solution: The Employee Free Choice Act passed the House in March 2007 and will be a top priority for the new Congress. The legislation radically alters the process through which a union becomes the employees' representative as well as the negotiation of the initial union contract.

Unionization would be based on a showing of majority support through authorization cards, not on a secret-ballot election conducted by the National Labor Relations Board as has been the case for the last 70 years.

An employer would be required to bargain with the union almost immediately after the union is certified by the Board through a "card check."

If the employer does not agree to a union contract within 90 days, a mediator can be appointed and if the parties still cannot agree after another 30 days, the dispute would be referred to an arbitration panel whose decision - an actual union contract - would be binding on the parties for two years.

The impact: Generally, union organizing has been a non-issue for small businesses for many years. That could change dramatically. If the "Free Choice Act" passes, unions will have the ability to mount a "stealth" campaign by collecting authorization cards under the radar and then presenting the employer with a fait accompli - a unionized workforce with no employee given the opportunity to decide the issue in a secret ballot election.

Employers will have to be far more vigilant in this area if they want to remain non-union but at the same time must be very careful to not cross the line into an unfair labor practice as that threshold is quite likely to be much lower.

David Hamilton is a partner in the Valencia office of Hamilton & Cumare, LLP and practices labor and employment law and related litigation on behalf of management. His column represents his own views and not necessarily those of The Signal. "It's The Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association.

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