APRIL 2022 - Independent Contractor Redux
INDEPENDENT CONTRACTOR REDUX. The zig-zag path the Department of Labor’s (DOL’s) independent contractor rules have followed since their inception has zigged again. A federal district judge in Texas has rejected the Biden Administration’s decision to replace the Trump Administration’s revision of those rules with an Obama Administration version the Trump Administration had rejected. The Obama-Biden rules make it more difficult to classify employees as independent contractors; the Trump rules move in the opposite direction.
U.S. District Court Judge Marcia Crone ruled that the DOL violated the administrative procedures act by allowing only 19 days, rather than the required minimum of 30, for comment on the rule change, and by failing to consider alternatives to withdrawing the rule. She also found that the DOL had failed to establish that allowing the Trump rule to take effect would cause “grave harm to the safety or security of American workers.”
The DOL had argued that classifying workers as independent contractors would deny them federal protections – for minimum wages and overtime compensation available to employees- -- and jeopardize their access to unemployment insurance and workers compensation benefits.
Advocates of the Trump rule say it clarifies the worker classification process by emphasizing two factors – the nature and degree of employer control and an employee’s opportunity for profit or loss. Critics say the assessment requires a broader view of “all the circumstances related to the employment relationship,” which the Obama-Biden rule requires.
The new ruling restores the Trump rule, at least for now, DOL officials have said they are considering all the available legal options, including a possible appeal and “the potential need for rulemaking.”
UNDETERRED. Russia’s devastating invasion of Ukraine has roiled financial markets, sent oil prices soaring with unprecedented speed, and is reshaping geo-political maps. But it hasn’t altered the Federal Reserve’s concern about inflationary pressures, nor its plan to boost interest rates in order to tame them. At its March meeting, the Federal Open Market Committee (FOMC), the Fed’s policy-making arm, approved a 0.25 percentage point hike in its benchmark rate. This was the first increase since 2018, when the Fed pushed rates near zero to limit the economic damage from the pandemic.
As the economy has rebounded strongly, the Fed’s concern that it will overheat has grown, exacerbated by rapidly increasing wages in a tight labor market. The Ukraine conflict, and the international response to it, is pushing the inflation rate higher and reducing forecasts for economic growth. The FOMC’s post-meeting statement acknowledged that point, noting: “The implications for the U.S. economy are highly uncertain, but in the near term, the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”
The committee is anticipating rate increases at each of its six remaining meetings this year, with three additional hikes in 2003. “We are attentive to the risks of further upward pressure on inflation and inflation expectations,” Fed Chairman Jerome Powell said at the news conference following the FOMC meeting. “The committee is determined to take the measures necessary to restore price stability,” he added, acknowledging that those measures might include steeper rate hikes than quarter-point adjustments policy makers are currently contemplating.
BACK TO EARTH. The housing market has soared during the past two years, But analysts are predicting that a combination of factors, led by rising mortgage rates and a chronic inventory shortage, are going to bring it back to earth. Housing analysts had expected that mortgage rates would rise, but they hadn’t expected the steep, rapid increases that have pushed them above 4.7 percent, up from about 3.45 percent this time a year ago. Mortgage applications have already slowed significantly (they’re now 8 percent below the year-ago level) and asking prices have also slipped slightly in the past two weeks, reversing what had been consistent month-over month gains
Lawrence Yun, chief economist for the National Association of Realtors (NAR), who had predicted that rates would remain in the 4 percent range this year, now thinks they will end the year closer to 5 percent, and he’s adjusted his home sales forecast accordingly. He’s now predicting that existing home sales will decline 3 percent year-over-year this year, double the dip the NAR was predicting just a few weeks ago.
Ian Shepherdson, chief economist of Pantheon Macroeconomics, a research consulting firm, is even more pessimistic “The housing market is in the early stages of a substantial downshift in activity,” he wrote recently in a research note, and that downshift, he predicted, “will trigger a steep decline in the rate of increase of home prices,” which, he said, could begin this spring, during what is traditionally the peak homebuying season. Rising prices – a byproduct of scarce inventories - have already created affordability problems for first-time buyers, he noted; rising rates “will push demand down a good deal further.” While that could ease the pressure on scarce inventories, he agreed, slowing sales could also deter sellers from listing their homes, because “no one wants to be the last person trying to sell into a falling market.”
DEFERRED MAINTENANCE. The pandemic’s worst effects seem to be receding, but households and many businesses are still struggling. Small landlords are among them. The federal eviction ban that prohibited the eviction of tenants who didn’t pay their rent also left many property owners without the operating funds they needed to cover expenses. While the ban has been lifted, many landlords continue to struggle. Nearly 30 percent of the respondents to a recent survey said they have either delayed maintenance or ignored it because of the shortfall. Some cited difficulty finding workers as the major cause, but most (more than 60 percent) said lack of funding was the issue. While property owners who did not lose rental income also reported deferring maintenance, the repair costs were much higher for those who did. More than 12 percent of those who lost income deferred more than $20,000 in repairs compared with less than $1,000 for 11 percent of those whose rental income was not affected. The Urban Institute and Avail, an online rental management service, co-sponsors of the survey, said the results underscore the need for emergency rental assistance, which has been approved by Congress but not efficiently distributed by many states. “States are struggling to distribute [the funding] and renters, unsure of their eligibility and confused by the applications, are not applying for it,” the survey report notes. The U.S. Treasury reported that only $3 billion of the $25 billion in funding allocated had been distributed by the end of June.
OWNERSHIP GAP. Strong demand for housing during the pandemic pushed the homeownership rate last year to 65.5 percent, a post-recession high. The 1.3 percent gain recorded last year was the largest year-over-year increase ever recorded, according to the National Association of Realtors (NAR). But that is only part of this story. The less than encouraging part is the persistent and widening gap in homeownership rates for whites and minorities. The NAR’s annual “Snapshot of Race and Hoe Buying in America” documents the trend. The homeownership rate for blacks currently sits at 43.4 percent – down from 44.2 percent in 2010. Home ownership rates for other groups have increased during that period, rising to 72.1 percent for whites, 61.7 percent for Asians and 51.1 percent for Hispanics. Rising home prices, scarce inventories and rising interest rates have affected all prospective home buyers, Jessica Lautz, the NAR’s vice president of Demographics and Behavioral Insights. But Black households, she said have been affected disproportionately.
The NAR estimates that 51 percent of existing homes for sale are “affordable” for households with annual income of at least $100,000, a benchmark met by only 20 percent of Black and 25 percent of Hispanic households, compared with 35 percent of White and 51 percent of Asian households.
Minorities also have a harder time accumulating the funds required for a down payment, not only because their incomes are lower, but also because they spend a larger percentage of income on rent (30 percent compared with 20 percent for whites) and because they are more likely to be burdened with student debt. According to the NAR statistics, 41 percent of Black households have some level of student debt compared with 22 percent of Whites. The average student loan debt balance for Blacks is $45000 compared with $30,000 for Whites.
The Department of Housing and Development has been focusing on ownership challenges for minorities. Responding to the recent NAR report, HUD Secretary Martha Fudge said: “Today, homeownership is the principal source of wealth creation for most American households. Unfortunately [the report] confirms that Black Americans are being locked out of homeownership opportunities at an even higher rate than a decade ago. It is critical that we bridge the racial homeownership gap with intentional solutions that recognize both the persistent history of discrimination and inequity, and the current crisis of housing affordability,” she added. market.”
IN CASE YOU MISSED THIS
Millennials say student loan debt is the primary obstacle blocking their path to home ownership.
Congress is considering a measure that would require the Federal Emergency Management Agency (FEMA) to publish the formula it uses to calculate the risk rating for federal flood insurance. The bill has bi-partisan support.
The inflation surge has renewed interest in rent control as a means of protecting low-income tenants from soaring rents in a still sizzling torrid housing market.
Bankruptcy filings have begun to rise but delinquencies have fallen to a 20-year low.
The Rhode Island attorney general has sued four landlords for violating the state’s lead poisoning prevention law.
LEGAL BRIEF
SELF-EVIDENT TRUTHS. Some truths are, to quote the Declaration of Independence, “self-evident.” But plaintiffs should not assume that the assertions they think are “self-evident” will be viewed as such by a court. That erroneous assumption defeated this Texas association’s claim for damages in a collection suit. (The Parks of Deer Creek Homeowners Association v. Hunter).
Deer Creek filed a collection action against Hunter, claiming that she had failed to pay assessments and owed $3,606 as dispute that result ─ $1,348 in unpaid assessments and $2,257 in collection-related attorneys' fees. Hunter didn’t dispute the underlying unpaid assessment claim, but she contended that the association had failed to document the attorneys’ fees it demanded.
The association’s evidence consisted of five documents: Hunter’s deed (establishing her ownership of the property; the declaration, specifying the obligation of owners to pay assessments; a demand letter from the HOA seeking payment for past-due assessments; the association’s “homeowner’s ledger” recording payments and charges; and invoices association attorneys had sent to Hunter.
Supporting testimony came from the association’s manager, who said the ledger reflected the amounts in the invoices the attorneys had sent; and from the association’s attorney, who testified that the ledger submitted in evidence was a valid copy of the original ledger, which was “kept in the regular course of business” and thus met the legal definition of a “business record.”
Inconclusive
Finding that the association had not provided conclusive evidence that the amounts claimed were “due and owing,” the trial court entered a “take nothing” judgment, which the association appealed.
The association argued that because the defense did not object to the entry of the ledger into evidence, the court should have accepted it as the “business record” the association claimed it to be, and should have rule din the association’s favor, awarding the damages it sought. The court’s ruling to the contrary, the association contended, was “arbitrary and unreasonable” and an “abuse of discretion,” and should be overturned as a result. The appeals court disagreed.
To counter a court’s finding that evidence is insufficient, the court noted, a plaintiff must demonstrate that (quoting prior Texas appellate decisions) “the evidence establishes, as a matter of law, all vital facts in support of the issue.” To meet that test, the court said, the association had to prove that Hunter had failed to pay a required assessment (which it did) and clearly establish the amounts she owed, which, the appeals court found, the association had failed to do.
Successfully introducing the ledger into evidence was not enough the court said, because the trial judge could not determine from the ledger alone what portion of the damages represented unpaid assessments and what portion represented attorneys’ fees. Testimony from witnesses did not provide the guidance the court needed to interpret more than 100 ledger entries, including “a variety of summary and unexplained memo entries” purporting to document the amount owed.
No Guidance
While the trial court could deduce that the ledger reflected both assessments and attorneys’ fees, the appeals court observed, “it was given no guidance in the testimony to segregate what portion of that balance was due for assessments and associated charges-a figure the trial court needed in order to render judgment for the sum certain that the HOA claimed that it was entitled to recover. Thus, the trial court lacked one of the most basic building blocks to enter the judgment that the HOA sought,” the appeals court explained.
Even without hat “glaring and gaping hole” created by the lack of guidance interpreting the ledger, the court said, the association could not rely on the ledger alone to document the damages, because it failed to establish that the ledger was a “business record.” To qualify, a record must be:
· Transmitted by someone with personal knowledge of it;
· Kept “in the course of a regularly conducted business activity; and
· Produced as “a regular practice of that activity.”
“The HOA introduced no underlying business records to substantiate the mass of numbers contained in the ledger,” the appeals court noted, adding: “Neither the sponsoring witness nor anyone else vouched for the accuracy of the ledger, and no one stated that he or she had personal knowledge of its accuracy.”
The association’s “superficial efforts” to document its damages left it to the court to interpret t the “mass of unexplained information in the ledger” on its own, and to weigh the value of the evidence provided. As a result, the Appeals court found, the HOA cannot prevail on its sufficiency argument -- that it proved its damages as a matter of law or that its proof was conclusive.” The trial court apparently concluded that the HOA failed to prove the key elements of its case, including its claim of damages, the court concluded. “The nature of the HOA's proof put that finding within the ambit of the trial court to make” and supported the court’s “take nothing” judgment.
WORTH QUOTING
“Yield -curve inversion is coming. It’s going to happen. But it’s not going to be the usual doom and gloom that we often associate with yield curves inverting.” Guneet Dhingra, head of U.S. interest-rates strategy at Morgan Stanley.