Category: Wage & Hour

Employee Side Hustle

Your Employee Has a Side Hustle

Browse the internet these days, and you can find many articles extolling the virtues of allowing employees to have a side hustle. Ask many established employers, however, and the response will often be less enthusiastic. Some will ask, “a what?” Others will instinctively respond, “Bad for my business.” As an employment lawyer, it’s not my job to weigh in on either side of this debate. But I will take on the task of describing some potential legal implications and considerations that arise when employees have outside business interests.

What Is a Side Hustle?

Many companies still have “no moonlighting” policies. These forbid employees from working outside of their “day job.” However, the prevalence and ease of having a second income stream might be at all-time highs.

“Side hustle” itself isn’t a new term. Merriam-Webster reports that it entered our vocabulary in the 1950s, and generally refers to “work performed for income supplementary to one’s primary job.”

Modern and emerging usage focuses more specifically on the nature of the supplementary work. One recent description explains:

“A side hustle is not the same as a part-time job. While a part-time job still entails someone else (your employer) calling most of the shots (including hours worked and what you’ll be paid), a side hustle gives you the freedom to decide how much you want to work and earn.”

Employee Policies

Let’s move back to where the employer does call the shots. You have a business to run and need employees to operate it. While they’re working for your company, you have to exercise reasonable control over your workers. You are, after all, responsible for what they do on the job. This includes both the outcome of their work (productivity, customer satisfaction, etc.) and legal liability (harassment, personal injury, etc.).

Most companies with more than a few employees have an employee handbook of some kind. This manual contains a number of policies about what employees can and can’t do. Let’s take a closer look at some of these policy areas that relate to your employee’s side hustle.

Moonlighting

Moonlighting has typically meant having a second job outside of work. This more often meant working for a second employer. But, as mentioned, is now increasingly likely also to encompass an employee’s self-employed side hustle.

Not all of these policies are absolute. Some are limited to competitors, customers, or other restrictions related to a potential conflict of interests. Employers should revisit their moonlighting policies in consideration of the side hustle proliferation.

Conflicts of Interest

With or without specific moonlighting policies, many employers have a conflicts-of-interest policy. These policies might encompass, but often exceed, references to outside jobs. They might, accordingly, be both more and less likely to cover concerns related to employee side hustles. While unlikely to use the term, these policies are broader in scope of activity and thus not limited to outside “jobs.” At the same time, they usually don’t address outside activities that don’t relate to the company’s business.

Confidentiality

Most handbooks contain policies that prohibit employees from disclosing confidential company information or using it for personal gain. These policies should limit how employees use proprietary data, often including customer information, in their side hustle. But few of these policies were written with the current landscape of outside employee business interests in mind. So, again, now would be a good time to review your policies with modern realities in mind.

Vacation and Other Leaves

Many employers, of course, provide employees with vacation, sick leave, personal leave, or other forms of paid-time-off (PTO). Employee handbooks often address the conditions for these leaves. Sometimes these policies preclude the use of PTO for outside work or other business pursuits. But many policies are silent in that area. If your employees do have side hustles, they might decide to use vacation time to work on their personal venture. Or, in any event, they probably will not entirely abstain from working their side hustle while on vacation. Consider how those scenarios impact your business and make policy revisions, if necessary.

Computer Use & BYOD

Do your employees use computers in their jobs? Do they have smartphones (personal or company-owned) in hand during their workday? Employers usually address related issues in their handbooks or policy manuals. Some of these policies permit incidental personal use. Few specifically address an employee’s side hustle. If there is language regarding outside business ventures during work time, does the company monitor or enforce those restrictions? Striking the right balance for your workforce is important.

Bring on Employment Laws

In addition to the company’s policies, employers also must stay within the boundaries of numerous labor and employment laws. I don’t think I’m going too far out on a limb in suggesting that most of these laws came into being without specific consideration of the modern side hustle. Many of them pre-date the internet, which is the platform for much of the side hustle realm. And even newer employment laws tackle a specific concern without fully considering the workplace and societal implications.

Here are just a few examples of federal employment laws that could cause headaches when balancing employer and employee interests regarding outside business interests.

FMLA and ADA

The Family and Medical Leave Act (FMLA), directly, and Americans with Disabilities Act (Act), indirectly, give many employees the right to take time off from work for medical and certain other situations. These laws do not specifically address the extent to which employees may engage in outside employment or business activities while on protected leave. Although courts have weighed in on a case-by-case basis, employers still face a gray area when employees on leave continue to pursue their side hustles.

It is one thing for an employee on FMLA leave to spend full days running a company store. Then their employer (from whom they’re taking leave) might have the right to terminate them for FMLA abuse.

But what if an employee recovering from surgery continues to post on a personal (for-profit) blog and manage related social media accounts? Do they lose their leave protection?

Harassment

Federal laws prohibiting harassment of employees include Title VII of the Civil Rights Act of 1964 (race, color, sex, religion, and national origin), the ADA (disability), the Age Discrimination in Employment Act (ADEA), and the Genetic Information Nondiscrimination Act (GINA). Under these laws, employers must avoid a hostile work environment based on protected characteristics. This obligation does not conveniently cease once an employee steps outside the employer’s facility.

There have been many cases where employees complain of harassment because co-workers treated them inappropriately outside of work. Whether this conduct creates legal liability for the employer depends on the circumstances. But it is at least possible that an individual could create a hostile work environment for co-workers through their side hustle.

For example, despite the platforms’ user guidelines, YouTube or Instagram accounts are not always workplace friendly. People might resort to more colorful language or less conservative clothing through these channels. They might generally relax their inhibitions from what they demonstrate in their office or factory job. And co-workers might find their conduct offensive along various lines. This could affect their ability to work side-by-side Monday through Friday. Even where not raising a legal concern, productivity could suffer.

Minimum Wage and Overtime

What happens when an employee’s side hustle supports their employer’s business? At some point, it could become difficult to draw the line between the employment relationship and the outside activity. This might raise questions of whether the employer must compensate employees for time worked on their “personal” ventures.

Suppose you own a boutique clothing store and your employee has a popular fashion vlog. These could be entirely separate businesses. But if your employee repeatedly references your store (presumably in a positive way) and starts driving customers to the store, is the employee working for you while vlogging? The devil is probably in the details here. But it’s a question worth asking. Otherwise, you might run afoul of minimum wage or overtime requirements under the Fair Labor Standards Act. Or, at least, you might not be keeping adequate records of the employee’s time worked (by not counting time spent vlogging about your store).

Here’s another example. Your employee does landscaping jobs after work and on the weekends. He’s employed by your company as a facilities manager. If you pay him to mow the grass around the company offices, does that time count toward overtime? It might, depending on the nature and extent of his landscaping “business” and the scope of his normal job tasks. And it might be an open question even if the employee’s job position is entirely unrelated to any physical labor.

Plan Ahead

The side hustle is a real phenomenon that is not likely to go away soon. Employees of all ages are looking for supplemental income outside of their traditional jobs. Employers should review their policies and evaluate whether the boundaries they impose go too far or not far enough in guiding employees with outside business interests. A proper balance for your workplace might not only serve as a competitive advantage, but could also help you avoid legal compliance problems down the road.

 

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Employment Law Checkup

Quick Employment Law Checkup

If you have employees, you’re subject to an array of laws governing the workplace. Going from zero to even just one employee is a huge step. After that, the more employees you have, the more laws apply. And more employees and laws bring along increased risks of noncompliance. To tackle these issues, companies would ideally hire robust human resources departments and employment lawyers. But, that’s not practical for every business in every situation. So, in case you need somewhere to start, you can use this to conduct your own basic employment law checkup.

1. Are you paying workers enough?

I mean legally. Presumably, you’re paying them enough to work for you. And whether you pay enough to retain employees is another subject altogether. But I’m talking about minimum wage and overtime here.

With just one employee in the U.S., virtually all employers become subject to minimum wage and overtime laws. What laws apply to you and your employees? Are employees exempt from overtime? The exemptions are trickier than many understand, so double check this.

2. Are you paying payroll taxes?

For most employers, this is a no-brainer. Taxes are a way of life. But some employers try to avoid these obligations by either paying employees “under the table” or treating them as independent contractors. The first practice is simply illegal. The latter is more complicated.

Genuine independent contractors are responsible for their own taxes (and don’t have to receive minimum wage or overtime). But you can’t just avoid dealing with legal requirements by calling someone an independent contractor. The exact requirements vary, but generally, if a person is working only or primarily for you, they are probably your employee. Especially if they are performing tasks in line with your primary business. For example, a graphic designer “hired” for a one-off project creating a new company logo may be an independent contractor. But a graphic design company hiring the same person to create designs periodically for its customers looks more like an employment relationship.

3. Do you have an anti-harassment policy?

Various state and federal laws prohibit employment discrimination for all but the smallest employers. Even if you’re not subject to these laws, you can’t afford to tolerate workplace harassment. As a starting point, you should have a written anti-harassment policy that advises employees of prohibited behavior and provides a mechanism to report violations. Again, this is a bare minimum. So, after you institute or update your policy, consider providing training to employees. And, of course, take all complaints seriously and investigate promptly.

4. What do your personnel files look like?

If legal issues arise, the employee’s personnel file will come under scrutiny, so don’t be careless. Whether physical or electronic, you should have separate files for each employee. These should contain the “new hire” paperwork such as offer letters, I-9s, and tax withholding forms. They also include employee benefit documents, such as for insurance and retirement plans, if applicable. They would also include any formal disciplinary records. And if you receive medical information about an employee, that must go in a separate file.

5. How do you handle employee medical issues?

If you do have medical information, you’ve probably had to deal with employee medical issues. These can touch on a surprising number of employment laws. I regularly advise clients about single employee medical situations that potentially implicate 6-7 laws. For example, you may have to make reasonable accommodations to an employee with a disability. This might include time off, even if you don’t have a sick leave policy.

6. Will your employees go union?

Most employees have the right to join unions. As an employer, it’s not your choice. But that doesn’t mean your fate is sealed. Getting the above issues right, treating employees well, and listening to them will often keep unions out. But if your employees do unionize, then you’ll be playing by a new set of rules. You’ll have to negotiate with the union over many issues. You will enter the world of potential grievances and arbitrations. And employees will likely receive “just cause” job protection. Make sure you understand how this world works before you find yourself in it. (There are geographic and industry-based factors affecting the likelihood that your workforce will unionize, but it’s at least a possibility in nearly every company.)

Beyond this Employment Law Checkup

I’m only providing this quick employment law checkup as a starting point. I want employers to get these issues right. But that’s not always an easy task. Plus, there are many more employment laws beyond the subjects addressed here. The laws are complex. Often there are extensive regulations. Minor nuances can entirely change an employer’s responsibilities.

 

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PAID Program New York Employers

PAID Program Hits Snag for New York Employers

The U.S. Department of Labor recently launched the nationwide Payroll Audit Independent Determination (PAID) program. The PAID Program encourages employers to conduct self-audits of their minimum wage and overtime payment practices. Employers who discover violations and self-report them may avoid penalties under the Fair Labor Standards Act (FLSA).

But . . . New York Attorney General Eric Schneiderman isn’t a fan of this federal program. In response to the launch of the U.S. DOL’s PAID Program, Schneiderman proclaimed:

“The Trump Labor Department’s ‘PAID Program’ is nothing more than a Get Out of Jail Free card for predatory employers.”

Is the Attorney General right? Let’s take a look at what the PAID Program offers, focusing on what all this means for employers in New York.

How the PAID Program Works

This “pilot” program is available to employers across the country. It has three basic components.

Self-Audit

To begin the process, an employer would conduct a self-audit of its compensation practices. If the employer finds compliance concerns it wants to resolve through the U.S. DOL, it must then (according to the DOL):

  • Specifically identify the potential violations;
  • Identify which employees were affected;
  • Identify the timeframes in which each employee was affected; and
  • Calculate the amount of back wages the employer believes are owed to each employee.

Self-Report

With this information ready, the employer would then contact the U.S. DOL’s Wage and Hour Division (WHD). The WHD will advise the employer what information must be submitted. This apparently will include:

  • The back wage calculations described above, along with supporting evidence and methodology;
  • A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;
  • A certification that the employer reviewed all of the PAID Program’s information, terms and compliance assistance materials; and
  • A certification that the employer meets all eligibility criteria of the PAID Program.

Payment

The WHD will then follow up with the employer to determine resolution. This will likely include payment of back wages due to employees.

Eligibility Restrictions

Most employers subject to the FLSA are eligible to participate in the PAID Program.

However, an employer cannot participate if the:

  • WHD or a court has found within the last 5 years that the employer violated FLSA minimum wage or overtime requirements by engaging in the same compensation practices addressed by the self-audit;
  • Employer is a party to any litigation asserting that the compensation practices in the self-audit violate FLSA minimum wage or overtime requirements.
  • WHD is investigating the compensation practices at issue in the self-audit;
  • Employer is specifically aware of any recent complaints by its employees or their representatives asserting that the compensation practices in the self-audit violate FLSA minimum wage or overtime requirements; or
  • Employer has previously participated in the PAID Program to resolve potential FLSA minimum wage or overtime violations resulting from the compensation practices in the self-audit.

The WHD may otherwise decline to accept any employer into the PAID Program at its discretion.

New York’s Opposition

New York has its own minimum wage and overtime requirements for most private-sector employers. Like the FLSA, these laws include liquidated damages penalties where an employer failed to pay minimum wage or overtime properly. This means that employers found guilty of these wage violations may have to repay twice the amount originally owed. Employees can also recover their attorneys’ fees for these claims. Under New York law, employers may be found liable for unpaid wages going back as far as 6 years from the date of the claim. This is longer than the 2- (sometimes 3-) year statute of limitations under the FLSA.

New York’s Attorney General’s statement against the PAID Program demonstrates that he feels it is not enough that employees will receive the wages they should have been paid in the first place:

Employers have a responsibility under state and federal laws to pay back stolen wages, as well as damages intended to deter them from breaking the law again. The PAID Program allows employers to avoid any consequences for committing wage theft, while blocking lawsuits intended to vindicate employees’ rights.

I want to send a clear message to employers doing business in New York: my office will continue to prosecute labor violations to the fullest extent of the law, regardless of whether employers choose to participate in the PAID Program.

The most straightforward counterargument to Schneiderman’s position is that discouraging employers from self-auditing and self-reporting may mean that employees never recover the wages they should have earned. The state/federal DOLs and private claimants are highly unlikely to uncover every instance of failure to compensate employees properly for minimum wage or overtime.

What This Means in New York

First, it was not a given that the PAID Program would be a great deal for all employers anyway. There are various downsides to self-reporting minimum wage and overtime violations. Beyond having to pay back wages, this may negatively affect employee morale, public image, etc. But the program may benefit some employers depending on their specific circumstances.

Now, however, Attorney General Schneiderman’s announcement raises a major red flag for companies with employees in New York. By raising their hand to participate in the federal PAID Program, these employers would put a target on their backs for state enforcement. FLSA violations would most likely correspond to violations of New York minimum wage/overtime laws. And even if paying back wages arguably precluded further litigation for the same payments, New York’s longer statute of limitations may at least leave employers open to up to 4 more years of liability, including liquidated damages and attorneys’ fees.

Any employer contemplating participation in the PAID Program should definitely consult with an attorney with experience dealing with both the U.S. DOL and New York State DOLs before self-reporting any possible violations. Even if the attorney agrees there has been an underpayment, they may offer better options than the PAID Program. Or, if you go forward with the program, they can assist you in navigating the process appropriately.

If nothing else comes from the PAID Program, employers should use these developments as motivation to review their compensation practices. Misclassification of workers for minimum wage and overtime purposes is one of the most common and costly mistakes employers make.