By Lisa Milam-Perez, J.D.

A district court properly denied a strip club’s motion to compel arbitration of a class and collective action minimum wage suit brought by exotic dancers who alleged they were misclassified as independent contractors under the FLSA and state law. The club sought to enforce an arbitration agreement executed more than a year after the litigation began, and only after multiple summary judgment motions and other procedural maneuvers. But the district court wouldn’t have it, and denied the motion to compel arbitration. Rightly so, the Fourth Circuit affirmed, observing that the club only asked the court to compel arbitration after the court resolved several legal issues on the merits. The employer was simply looking to use arbitration as an insurance policy in case it was unable to stem the action in litigation—conduct that “could not be more at odds with the FAA’s goal of facilitating the expeditious settlement of disputes,” the appeals court said (Degidio v. Crazy Horse Saloon and Restaurant Inc. dba Thee New Dollhouse, January 18, 2018, Wilkinson, J.).

“Maneuvers.” An exotic dancer at a gentlemen’s club filed a putative class and collective action wage suit alleging the club misclassified dancers as independent contractors under the FLSA and the South Carolina Payment of Wages Act (SCPWA), thereby denying them proper minimum wage and overtime pay. From the outset, the club was “disdainful of orderly judicial process,” according to the appeals court, having carried out its litigation “maneuvers” from the moment it answered the complaint.

At the very end of the discovery period, the club began entering into arbitration agreements with its dancers (via an arbitration provision in its “lease” of the facilities) as a condition of their performing at the club. The club did not inform the court that it was communicating with potential class members about the litigation pending before it before executing the agreements. The club then filed a motion for summary judgment, contending the dancers were independent contractors and thus not covered under the FLSA and SCPWA. But it failed to mention the arbitration agreements and did not move to compel arbitration. The next day, the named plaintiff moved to certify a Rule 23 class and to conditionally certify an FLSA class. Only in opposing certification did the club, for the first time, raise the arbitration agreements, and move the court to compel arbitration as to those dancers who had signed the agreements. The court entertained the summary judgment motion, dismissing two of the dancers’ three state-law claims. But it found the dancers were employees for purposes of the FLSA, and therefore conditionally certified their FLSA collective action.

Shortly after notice was sent to potential class members, the club filed another summary judgment motion on the remaining state-law claim. Again, it did not mention arbitration. Subsequently, more than a dozen more dancers joined the case. Nine of them had signed arbitration agreements. Regardless, the club began to serve written discovery on the opt-in plaintiffs, including those who had signed arbitration agreements—discovery that went to the merits, such as documents related to the dancers’ income, work history, and number of hours worked, but unrelated to the question of arbitrability.

When their motion for summary judgment was denied, the club moved to certify several questions to the South Carolina Supreme Court, which the district court denied, having already ruled on the exact question the club would have the state high court weigh in on. While the club’s second motion to certify the wage question to the state high court was pending—and three years now into the litigation—the club filed another summary judgment motion. Now it sought to compel arbitration as to the nine plaintiffs who had signed arbitration agreements. The court denied the motion, finding the club obtained the agreements through “a unilateral, unsupervised, and misleading pattern of communication with absent class members initiated more than a year after the pendency of this case.” (The court also denied the motion to certify state-law questions to the state high court, and conditionally certify the FLSA claims.).

Not what the FAA intended. The club had pursued an aggressive litigation strategy for three years—with multiple summary judgment motions, motions to certify questions to the state supreme court, and active participation in merits discovery—and it did so to the detriment of the plaintiffs, who were forced to spend time and resources on issues that would, if the club got its way, have to be reargued before an arbitrator. As such, the appeals court found the district court properly denied the club’s late-stage bid to enforce the arbitration agreements. Instead of moving early to compel arbitration, the club engaged in “litigation activity aimed at obtaining a favorable ruling on the merits.” In fact, it did obtain dismissal of several claims.

No need to wait. The club argued that it had to wait to file a motion to compel arbitration because it could not move to compel arbitration against parties who had yet to join the suit. (The named plaintiff had not signed an arbitration agreement, it reasoned, so there was no one whom it could have compelled arbitration until the signatories opted in. The appeals court found this argument “misguided.” First, the club didn’t have to wait to tell the court about its arbitration strategy until signatories joined the case; it could have told the court it intended to compel arbitration as to any dancers who had signed arbitration agreements then sought to join the suit. Then the court could have decided to hold off on ruling on the merits until the arbitration question was resolved, reserving legal questions that an arbitrator might have to “rehash.” Instead, it forged ahead with its merits-based litigation strategy, including discovery, with no inkling that it would look to have the matter resolved in an arbitral proceeding.

“Perverse incentive.” Second, to allow the club to delay its motion to compel arbitration until after the court conditionally certified a class would create a “perverse incentive” for defendants to wait as long as possible to compel arbitration. Usually, arbitration agreements precede litigation. When they are executed during the pendency of litigation, “there is an increased risk that arbitration will operate not to expedite the resolution of disputes, but to prolong the entire process and to give defendants a second opportunity to contest unfavorable judgments.” That was precisely what the club was up to in this case, the appeals court concluded. It wasn’t looking to resolve the dispute before a neutral arbiter in lieu of litigation, it was seeking “two bites at the apple.”

“It is hard to escape the impression that defendants knew exactly what they were up to, and the district court was quite right to put a stop to it,” the appeals court wrote. “By treating arbitration as a backstop and as a last resort rather than as a substitute for judicial proceedings, [the club] pushed this case further and further from the FAA’s mandate of helping parties resolve disputes expeditiously.”

Agreements were misleading. Moreover, the “lease” agreements in question here misrepresented the dancers’ “legal posture.” They indicated that the dancers would not be able to keep tips and set their own performance schedule unless they were designated as independent contractors—and that their independent contractor status would be at risk if they opted in to the suit, and if they did not sign the arbitration agreements.

Procedurally sketchy. Finally, the agreements were presented to the dancers “in a furtive manner,” the appeals court added. Courts overseeing FLSA collective actions are required to supervise contacts with potential plaintiffs with respect to opt-in procedures, in particular, so as to ensure that potential class members are not misled about the consequences of joining a suit. But in this case, the agreements were executed without the court’s knowledge, obtained after dancers met with the club’s CFO or attorney in a setting that was “ripe for duress.” These circumstances, combined with the misleading substance of the agreements, rendered the club’s conduct here “indefensible from the get-go,” the appeals court said. Or “distinct and disturbing,” as the court below described it, refusing to enforce the “sham agreements.” The appeals court affirmed the court’s decision and remanded for further proceedings.

The Malaysian Employers Federation announced that 2018 would be a challenging year for its employment outlook as over 50,000 workers will lose their jobs during the year.

According to the Federation’s executive director Datuk Shamsuddin Bardan, the retrenchment trend of the past few years would continue in 2018. Shamsuddin Bardan added that this year would be more challenging than past years because employers would have to bear higher operating costs, including the newly implemented Employment Insurance Scheme and foreign worker levy, along with the minimum wage scheme to be reviewed in July.

“These factors will force employers to tighten their cost management by laying off workers, while some may reduce their workforce dependence by adopting new technologies and techniques,” Shamsuddin Bardan said.

“Additionally, due to the Employment Insurance Scheme, employers are more prepared to accept their companies’ retrenchment plans,” Shamsuddin Bardan said.

Furthermore, the Federation expects the banking, insurance, services, manufacturing and construction sectors to be the hardest hit while the plantation industry would be relatively stable.

Malaysia’s unemployment rate stood at 3.4% in October, according to figures from Statistics Malaysia.

[Excerpt] On behalf of the AFL-CIO, I urge you to oppose the reconciliation bill that will be considered by the Ways and Means Committee pursuant to the House-passed Ryan budget (H.Con.Res. 112). The bill would undermine the financial security of millions of working families by imposing substantial tax penalties on people benefitting from health care premium subsidies, denying the Child Tax Credit to millions of families, and eliminating the Social Services Block Grant (SSBG). You should reject this legislation because it demands sacrifice from families of modest means while refusing to ask the wealthy to pay their fair share.

Total employment levels and redundancies declined in Singapore for the first quarter of 2017 when compared to the previous quarter, according to the latest Labour Market Report from the Ministry of Manpower.

The report shows that total employment declined by 6,800 in 1Q 2017, after growth of 2,300 in the previous quarter. The decline reflected a reduction in the foreign workforce, mainly due to a decrease in Work Permit Holders in Manufacturing and Construction, a result of low oil prices and continued weakness in private sector construction activity respectively. At the same time, employment continued to grow in sectors such as Community, Social & Personal Services and Financial & Insurance Services.

Meanwhile, redundancies fell to 4,000 in Q1 2017, from 5,440 in 4Q 2016. Manufacturing redundancies were the lowest in the past six quarters.

After declining for the previous seven quarters, the seasonally-adjusted job vacancies to unemployed persons ratio improved from 0.77 in the quarter ending December 2016 to 0.81 in the first quarter of 2017.

“The labour market outlook remains uneven across sectors,” the Ministry stated. “Hiring expectations remain cautious in sectors such as Construction and Marine, while sectors such as Finance & Insurance, Information & Communications, Healthcare and certain segments of Manufacturing should continue to support job growth.”

“With continued cyclical weakness in some sectors and ongoing business restructuring, redundancies and the unemployment rate may remain elevated,” the Ministry said.

By Lorene D. Park, J.D.

Reversing a trial court, the Connecticut Supreme Court held that in deciding whether an employment relationship exists for unemployment compensation purposes, “evidence of the performance of services for third parties is not required to prove part C of the ABC test but, rather, is a single factor that may be considered under the totality of the circumstances.” A state agency had found the company liable for unemployment taxes for three individuals misclassified as independent contractors. The state high court said the agency erred in finding it dispositive that they did not actually provide services to other companies, despite ample evidence that they had independent business enterprises (Southwest Appraisal Group, LLC v. Administrator, Unemployment Compensation Act , officially released March 21, 2017, Robinson, R.).

Southwest Appraisal Group provides assessments of damaged vehicles, including estimating repair costs and evaluating total losses and salvages, for insurance companies. Southwest subcontracts with independent appraisers who do appraisals on a flat fee basis. Although they were required to pass a state licensing test, Southwest did not pay for any of the licensing or testing fees. It reported compensation to appraisers on IRS Form 1099, did not withhold any taxes, and did not provide appraisers with fringe benefits such as health insurance, vacation, travel reimbursement, or a retirement plan. In general, Southwest left appraisers to their own devices in accomplishing tasks and did not provide vehicles, liability insurance, training, or uniforms. Appraisers had home offices and provided their own equipment. Several had registered business names and all bore the risk of making a profit or loss. The only thing Southwest provided was a standardized software program that its insurance clients required.

Audit finds misclassification. In 2011, the Administrator of the Unemployment Compensation Act audited Southwest for tax years 2009 and 2010. It found that six appraisers were misclassified as independent contractors rather than employees of Southwest, which therefore owed $2,486 in unemployment taxes. Southwest appealed and the Board of Review of the Employment Security Appeals Division (the board), in a de novo review, applied the “ABC test” for determining whether an individual is an independent contractor.

ABC test. The ABC test is set forth in Conn. Gen. Stat. § 31-222 (a)(1)(B)(ii), which states, in relevant part, that service performed by an individual shall be deemed to be “employment” unless it is shown that: “(I) such individual has been and will continue to be free from control and direction in connection with the performance of such service, both under his contract for the performance of service and in fact; and (II) such service is performed either outside the usual course of the business for which the service is performed or is performed outside of all the places of business of the enterprise for which the service is performed; and (III) such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed . . . .”

Board ruling. Here, the board found parts A and B (subsections I and II) satisfied as to all six appraisers, because they were not subject to Southwest’s control in performing their work and they worked outside Southwest’s offices (at their homes and at insurers’ offices). As to part C (subsection III), the board found that Southwest proved that three appraisers held themselves out as having an “independently established auto damage appraisal business” whose lasting nature was shown by significant compensation from entities other than Southwest. With respect to the other three appraisers, Southwest failed to prove part C because, while they had indicia of independent businesses—home offices and business cards, and one tried to get work from other companies—they did not in fact perform work for other companies. Thus, Southwest was again found liable for unemployment contributions as to these three appraisers.

Trial court decision. The trial court agreed with the board. It rejected the company’s claim that the board erred by requiring under the ABC test that Southwest show the individuals worked simultaneously for multiple entities to qualify as independent contractors.

Work for other companies relevant, not dispositive. On appeal to the Connecticut Supreme Court, Southwest argued that the trial court improperly applied part C by requiring not only that the putative independent contractor have an independently established trade or business, but also required that it be successful. Agreeing in part, the state high court held that a new administrative hearing was required because “a putative employee’s work for other entities is a relevant, but not dispositive, factor in the totality of circumstances analysis” under part C.

Factors to consider. In deciding if an individual is an independent contractor, factors to consider include: (1) state licensure or specialized skills; (2) whether the individual holds himself out as an independent business with business cards, invoices, or ads; (3) a separate place of business; (4) capital investment (e.g., vehicles and equipment); (5) who holds liability insurance; (6) whether services are performed under the individual’s own name; (7) whether he or she employs others; (8) whether the individual has a saleable business or going concern; (9) whether he or she performs services for more than one entity; and (10) whether the performance of services affects the goodwill of the putative employee rather than the putative employer.

Actual services to third parties. Just as the mere freedom to provide services for third parties was not dispositive under part C, whether an individual actually provides services for third parties was not dispositive either. The court noted that evidence of services to other companies would be more significant in proving independent contractor status if other indicia of an independent enterprise was lacking. Also, the court emphasized that caution was necessary in considering the relative size or success of the individual’s otherwise independent business—giving primacy to this factor risks “subjecting an employer unfairly to the decisions of the putative employee and an unpredictable hindsight review” without considering the intent of the parties, the number of hours actually worked, and whether the individual actually sought other work.

Reversed and remanded. Here, the trial court should not have upheld the board’s decision, which was based on a misapprehension of the governing legal standard insofar as it accorded dispositive weight to the lack of evidence that the three appraisers performed services for third parties, despite ample evidence suggesting that they had independent business enterprises.