Oregon courts recently issued two cases addressing fundamental questions about the employment relationship. One asked who is the employer; the other, who is an employee? Not surprisingly, both cases tilted the playing field in favor of workers.
Who is the employer?
In addressing this question, the Oregon Supreme Court held that a purchaser of a business can be a “successor” and be liable for wage claims of a predecessor owner without ever employing the claimants. See Blachana, LLC v. Bureau of Labor & Industries, No. S060789 (Or. S. Ct. January 16, 2014).
In Blanchana, the Oregon Supreme Court validated the aggressive application of a Bureau of Labor and Industries ("BOLI") test to determine when a new business operator can be liable for wage violations of a predecessor. In its simplest form, BOLI asks whether the new owner conducts "essentially the same business." BOLI will look to six primary factors: (1) the name and identity of the business, (2) its location, (3) the lapse of time between the previous operation and the new operation, (4) whether the same or substantially the same workforce was employed, (5) whether the same product was manufactured or the same services were offered, and (6) whether the same machinery, equipment, or methods of production were used. Under this test, not every factor must be present, and BOLI has the ability to consider additional factors.
The first factor, the "name and identity of the business," looms largest in the analysis. In Blachana, the business was a restaurant and bar. The building owner sold a business, including all equipment and goodwill, and leased the premises to the purchaser. When the purchaser stopped making payments, the seller repossessed the business and began operating under substantially the same name as it had before, though it hired an entirely new workforce. The location never changed, the client base was similar (though not identical), and the beer vendors were the same. These factors, all related to the name and identity of the business, influenced BOLI's conclusion that "essentially the same business" was operating during this time. It was not as important that the claimants had never worked for the successor. It was significant that less than two years earlier, the successor had also been the owner. Regardless, BOLI’s test can be applied to cover many situations in which the name and goodwill of a business is sold, especially if the business operates at the same premises.
Who is an employee?
"Who is an employee?" is an important question affecting a business's liability for a variety of claims, from unemployment compensation to discrimination to wage claims. But it can be difficult to answer because of inconsistencies among courts and agencies and under different laws. The Oregon Court of Appeals recently determined in Cejas Commercial Interiors, Inc. v. Torres-Lizama, No. A148291 (Or. App. Dec. 13, 2013), that under Oregon's minimum-wage law, the economic-realities test and not the right-to-control test should apply.
While the court ruled for the employer in this case, adopting the economic-realities test is generally seen as favoring workers. The new test makes a broader swath of workers to be employees. And until this case, Oregon courts generally applied the right-to-control test to Oregon employment statutes.
Cejas Commercial Interiors had just landed its biggest contract to date: completing the drywall part of a mixed commercial and residential construction project. In order to meet construction deadlines, Cejas subcontracted with Viewpoint Construction to handle the less-exacting early stages and, before doing so, verified that Viewpoint was licensed, bonded, and insured. Viewpoint hired the claimants, but disappeared before paying their wages. The claimants argued that Cejas, and not Viewpoint, had employed them and that Cejas was therefore liable.
The intent of the economic-realities test is to expose outsourcing relationships that lack a "substantial economic purpose," because an outsourcing relationship without an economic purpose is likely a "subterfuge" meant to evade labor standards. The court first asks whether the putative employer "formally controls" the worker. This part is similar to the right-to-control test. After determining the formal relationship, the court next asks whether the putative employer nonetheless "functionally controls" the worker.
Eight factors determine functional control: “(1) whether the work was a specialty job on the production line; (2) whether responsibility under the contracts passed from one subcontractor to another without material changes; (3) who controls the premises and equipment used for the work; (4) whether the group of workers had a business organization that could or did shift as a unit from one employer to another; (5) the level of supervision over the work; (6) whether the success of the workers’ enterprise depends on the initiative, judgment or foresight of the typical independent contractor; (7) whether there is permanence and exclusivity in the working relationship; and (8) whether the service rendered is an integral part of the putative employer’s business.”
The court found, first, that Cejas did not formally control the claimants. The court then found that Cejas did not have functional control, either. Importantly, the court noted that the job that Viewpoint, and the claimants, did was a small part of the overall contract for which Cejas was responsible. Also, the claimants had no association with Cejas outside this one project. And Viewpoint, not Cejas, supervised their work. Finally, Viewpoint assumed risk for the profitability of the claimants' work.