Labor

Help wanted sign in front of corn field.
By: Jeffrey K. Lewis, Esq., Friday, February 16th, 2024

The U.S. Department of Labor (“DOL”) has introduced a new independent contractor rule, aiming to provide clarity and guidance for both employers and workers. The classification of workers as employees or independent contractors has become increasingly complex in recent years, resembling an endless carousel ride for many businesses, particularly those in the agricultural sector that frequently hire part-time and seasonal help. The DOL's new rule, published under the Fair Labor Standards Act of 1938 (“FLSA”), seeks to put an end to this perpetual uncertainty surrounding worker classification once and for all.

Background
The FLSA establishes federal standards for overtime pay, minimum wage, and child labor. Ohio law explicitly aligns its interpretation of the term "employee" with that of the FLSA for wage and hour purposes. For the FLSA to apply to an agricultural employer, an employment relationship must be established. This entails determining whether a worker is classified as an employee or an independent contractor.

However, the FLSA itself is silent on how to exactly distinguish an independent contractor from an employee. So, for years the DOL relied on the court system to develop the standard for determining whether a worker should be classified as an employee or an independent contractor. The court system developed an “economic realities test” to help determine whether an employment relationship exists with a worker. The economic realities test is a totality of the circumstances test – which means all factors should be weighed evenly – and relies on six factors. These factors are: 

  1. The nature and degree of control over the work; 
  2. The individual’s opportunity for profit or loss;
  3. The permanency of the work relationship;  
  4. Whether the work being performed is an integral part of the Employer’s business; 
  5. The worker’s investment in facilities and equipment; and 
  6. Skill and initiative. 

For decades courts and the DOL have applied these factors, or a similar variation of them, to help define employee and independent contractor under the FLSA. However, courts across the country have applied the factors inconsistently and have given certain factors different degrees of weight. 

2021 Independent Contractor Rule
In 2021, the DOL sought to resolve the inconsistent and subjective application of the factors by publishing a formal independent contractor rule (“2021 IC Rule”). This 2021 IC Rule marks the DOL’s first attempt to establish a standardized test for distinguishing between independent contractors and employees.  

The 2021 IC Rule used a variation of the economic realities test but gave greater weight to “two core factors” rather than applying each factor equally. The “two core factors” are: 

  1. The nature and degree of control over the work; and 
  2. The individual’s opportunity for profit or loss.

In the 2021 IC Rule, the DOL stated that the two core factors “are the most probative as to whether or not an individual is an economically dependent ‘employee’ . . . and each therefore typically carries greater weight in the analysis than any other factor.” The DOL also stated that if the two core factors “both point towards the same classification, whether employee or independent contractor, there is a substantial likelihood that is the individual’s accurate classification.” This is because, according to the DOL, the other factors are less probative and may not be probative at all and are “highly unlikely, either individually or collectively, to outweigh the combined probative value of the two core factors.” 

In other words, the DOL established a rule that looked at two core factors to determine the economic reality of the relationship between a worker and an employer. Thus, under the 2021 IC Rule, the economic realities test looked something like this: 

  1. Core Factors
    1. The nature and degree of control over the work; and
    2. The individual’s opportunity for profit or loss.
  2. Other Factors
    1. The permanency of the work relationship;  
    2. Whether the work being performed is an integral part of the Employer’s business; 
    3. The worker’s investment in facilities and equipment; 
    4. Skill and initiative; and
    5. Any additional factors 

New 2024 Rule
The carousel ride does not stop at the 2021 IC Rule, unfortunately. In January of 2024, the DOL published another rule, repealing the 2021 IC Rule and reverting back to a totality of the circumstances analysis of the economic realities test in which there are no core factors, and all factors are weighed evenly. The new rule, effective March 11, 2024, evaluates the following factors: 

  1. Opportunity for profit or loss depending on managerial skill; 
  2. Investments by the worker and the employer; 
  3. Degree of permanence of the work relationship; 
  4. Nature and degree of control; 
  5. Extent to which the work performed is an integral part of the employer’s business;
  6. Skill and initiative; and
  7. Any additional factors. 

Below is a more detailed analysis of the above seven factors. 

  1. Opportunity for profit or loss depending on managerial skill. This factor assesses whether a worker possesses managerial abilities that impact their capacity to generate profit or incur losses. Relevant considerations include: 
    1. Negotiating pay for services rendered 
    2. Having the freedom to accept or decline jobs 
    3. Choosing the order or time in which jobs are completed 
    4. Engaging in marketing, advertising, or other business expansion efforts
    5. Making decisions regarding hiring, purchasing materials and equipment, or renting space 

If a worker lacks the opportunity for profit or loss, they are likely an employee. 

  1. Investments by the worker and the employer. This factor examines whether a worker’s investments are capital or entrepreneurial in nature. Costs incurred by a worker to perform their job, like purchasing tools or equipment, are not indicative of entrepreneurial investment and suggest employee status. Conversely, investments supporting an independent business, such as expanding capabilities, reducing costs, or broadening market reach, suggest entrepreneurial investment and independent contractor status.  
  1. Degree of permanence of the work relationship. If the work relationship is indefinite in duration or continuous, the worker is probably an employee. If the work relationship is definite in duration, non-exclusive, project-based, or sporadic because the worker is in business for himself or herself and marketing his or her services or labor to multiple entities, then the worker is probably an independent contractor. 
  1. Nature and degree of control. This factor assesses the level of control the employer exercises over the work and economic aspects of the relationship. Greater control by the employer suggests and employee relationship, while more control by the worker indicates independent contractor status.  Factors include the employer setting the worker’s schedule, supervising work performance, limiting the worker’s ability to work for others, using technological means for supervision, reserving the right to supervise or discipline workers, determining who sets the prices or rates for services provided by the worker, and the marketing of the services or products that the worker provides. 
  1. Extent to which the work performed is an integral part of the employer’s business. This factor evaluates whether the work performed is essential to the employer's business operations. It focuses on the function performed rather than the individual worker. If the service provided is indispensable for the employer's functioning, it favors an employee classification. Conversely, if the work is not crucial to the employer's core business, it leans towards independent contractor status.
  1. Skill and initiative. The skill and initiative factor evaluates whether the worker utilizes specialized skills and demonstrates entrepreneurial initiative in their work. If the worker lacks specialized skills or relies on employer-provided training, it suggests employee status. Conversely, if the worker brings specialized skills and exhibits business-like initiative, they are likely an independent contractor. 
  1. Any Additional Factors. Additional factors may be relevant in determining the status of a worker. These additional factors may indicate whether the worker operates as an independent business entity or is economically reliant on the potential employer for work opportunities.

Under the new rule, no one factor is dispositive of determining whether a worker is an employee or independent contractor. For example, a landscaper may perform work that does not require specialized skills, but application of the other factors may demonstrate that the landscaper is an independent contractor (e.g. the landscaper may determine the price charged for the work, make decisions affecting opportunity for profit or loss, determine the extent of capital investment, work for many clients, and/or perform work for clients for which landscaping is not integral). 

What does it all mean? 
In announcing the new rule, the DOL said “[i]t is the Department’s obligation to administer and enforce the FLSA to ensure that workers who should be covered under the [FLSA] are properly classified as employees.” Many seem to suggest that this new rule is more employee friendly and makes it easier to classify a worker as an employee than the 2021 IC Rule.

The new rule, however, only affects a worker’s classification under the FLSA. The same standard does not apply to other federal laws, like the Internal Revenue Code. Nevertheless, those standards used in other federal laws may look eerily similar to the standard used here.  

Lastly, the carousel ride may not yet be over. There are already legal challenges to the new rule that might put the DOL’s hopes of ushering in a new period of clarity at risk (See Warren v U.S. Dep’t of Labor, 2:24-cv-00007, N.D. Ga.). 

Consequences of Misclassifying Workers. 
Misclassifying a worker can come with harsh consequences. An employer that misclassifies a worker may be required to pay unpaid wages owed to the employee, civil money penalties, and/or attorneys’ fees associated with litigation. Furthermore, employers may be held criminally and/or civilly liable under other federal and state statues for misclassifying a worker. It is vital that agricultural employers take classification of a worker seriously because all it takes is one disgruntled misclassified worker or workplace injury to a misclassified worker to seriously jeopardize an operation. 

Sources: 
Independent Contractor Status Under the Fair Labor Standard Act, 86 CFR 1168
Employee or Independent Contractor Classification Under the Fair Standards Act, 89 CFR 1638

 

Posted In: Labor
Tags: Farm Labor, Independent Contractor, Employee, DOL
Comments: 0
Calf standing in the snow
By: Jeffrey K. Lewis, Esq., Tuesday, January 30th, 2024

Happy 2024! We hope your new calendar year has gotten off to a delightful start. As we close out the first of twelve months, we bring you another edition of the Ag Law Harvest. In this blog post, we delve into the intricate world of employment contracts and noncompete agreements, classifying workers as independent contractors or employees, Ag-Gag laws, and agricultural policy. 

Ohio Man Violates Employer’s Noncompete Agreement. 
Kevin Ciptak (“Ciptak”), an Ohio landscaping employee, is facing legal trouble for allegedly breaching his employment contract with Yagour Group LLC, operating as Perfection Landscapes (“Perfection”). The contract included a noncompete agreement, which Ciptak is accused of violating by running his own landscaping business on the side while working for Perfection. Perfection eventually discovered the extent of Ciptak’s side business, leading to Perfection filing a lawsuit.

During the trial, Ciptak testified that Perfection was “too busy” to take on the jobs he completed. Additionally, Ciptak stated that the profits from his side jobs amounted to over $60,000. Perfection countered that they would have been able to perform the work and, because of the obvious breach of the noncompete agreement, Perfection lost out on the potential profits. The trial court ruled in favor of Perfection, ordering Ciptak to pay the $60,000 in profits along with attorney's fees and expenses, exceeding $80,000. Ciptak appealed, arguing that, according to Ohio law, Perfection could only recover its own lost profits, not Ciptak's gains from the breach. He also claimed that Perfection was not harmed as they were "too busy," and Perfection failed to provide evidence of lost profits. 

The Eighth District Court of Appeals ultimately found in favor of Perfection.  The court reasoned that “[t]his case came down to a credibility determination.” The court held there was no dispute that Ciptak had violated the noncompete agreement. What was in dispute was whether Perfection could have and would have performed the work. The Eighth District held that the trial court’s finding that Perfection could have performed the work was not unreasonable. The Eighth District noted that although Ciptak claimed that Perfection was “too busy” to do any of those jobs, Ciptak “provided no other evidence to support this assertion.” The Eighth District ruled that the evidence presented at trial showed that Perfection would have realized approximately the same amount of profit on those jobs as Ciptak did and, therefore, Perfection was damaged as a result of Ciptak’s breach of the noncompete agreement. 

New Independent Contractor Rule Announced by Department of Labor. 
The U.S. Department of Labor (“DOL”) has published a final rule to help employers better understand when a worker qualifies as an employee and when they may be considered an independent contractor. The new rule gets rid of and replaces the 2021 rule. As announced by the DOL, the new rule “restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor.” Thus, the new rule returns to a “totality of the circumstances” approach and analyzes the following six factors: (1) any opportunity for profit or loss a worker might have; (2) the financial stake and nature of any resources a worker has invested in the work; (3) the degree of permanence of the work relationship; (4) the degree of control an employer has over the person’s work; (5) whether the work the person does is essential to the employer’s business; and (6) the worker’s skill and initiative. The new rule goes into effect on March 11, 2024. 

Federal Appeals Court Reverses Injunctions on Iowa “Ag-Gag Laws.” 
On January 8, 2024, the U.S. Court of Appeals for the Eighth Circuit issued two opinions reversing injunctions against two Iowa “ag-gag laws”. At trial, the two laws were found to have violated the First Amendment of the United States Constitution. In its first opinion, the Eighth Circuit Court of Appeals analyzed Iowa’s “Agricultural Production Facility Trespass” law which makes it illegal to use deceptive practices to obtain access or employment in an “agricultural production facility, with the intent to cause physical or economic harm or other injury to the agricultural production facility’s operations . . .” The Eighth Circuit found that the intent element contained within the Iowa law prevents it from violating the First Amendment. The court reasoned that the Iowa law “is not a viewpoint-based restriction on speech, but rather a permissible restriction on intentionally false speech undertaken to accomplish a legally cognizable harm.” 

In its second opinion, the Eighth Circuit reviewed an Iowa law that penalized anyone who “while trespassing, ‘knowingly places or uses a camera or electronic surveillance device that transmits or records images or data while the device is on the trespassed property[.]’” The court found that the Iowa law did not violate the First Amendment because “the [law’s] restrictions on the use of a camera only apply to situations when there has first been an unlawful trespass, the [law] does not burden substantially more speech than is necessary to further the State’s legitimate interests.”  The court noted that Iowa has a strong interest in protecting property rights by “penalizing that subset of trespassers who – by using a camera while trespassing – cause further injury to privacy and property rights.” 

Both cases have been remanded to the trial courts for further proceedings consistent with the forgoing opinions. 

USDA Announces New Remote Beef Grading Program.
Earlier this month, the U.S. Department of Agriculture (“USDA”) announced a new pilot program to “allow more cattle producers and meat processors to access better markets through the [USDA’s] official beef quality grading and certification.” The “Remote Grading Pilot for Beef” looks to expand on the USDA’s approach to increase competition in agricultural markets for small- and mid-size farmers and ranchers. The pilot program hopes to cut expenses that otherwise deter small, independent meat processors from having a highly trained USDA grader visit their facility. 

Under the pilot program, trained plant employees capture specific images of the live animal and the beef carcass. These images are then sent to a USDA grader that will inspect the images and accompanying plant records and product data, who then assigns the USDA Quality Grade and applicable carcass certification programs. The “Remote Grading Pilot for Beef” is only available to domestic beef slaughter facilities operating under federal inspection and producing product that meets USDA grading program eligibility criteria. More information can be found at https://www.ams.usda.gov/services/remote-beef-grading

USDA Accepting Applications for Value-Added Producer Grants Program. 
On January 17, 2024, the U.S. Department of Agriculture (“USDA”) announced that it is “accepting applications for grants to help agricultural producers maximize the value of their products and venture into new and better markets.” These grants are available through the Value-Added Producer Grants Program. Independent producers, agricultural producer groups, farmer or rancher cooperatives, and majority-controlled producer-based business ventures are all eligible for the grants. The USDA may award up to $75,000 for planning activities or up to $250,000 for working capital expenses related to producing and marketing a value-added agricultural product. For more information, visit the USDA’s website or contact your local USDA Rural Development office.

 

Combine in the field.
By: Jeffrey K. Lewis, Esq., Friday, October 27th, 2023

Agricultural & Natural Resources Income Tax Issues Webinar
Barry Ward, Director, Income Tax Schools at The Ohio State University
Jeff Lewis, Income Tax Schools at The Ohio State University

Tax practitioners, farmers, and farmland owners are encouraged to connect to the Agricultural and Natural Resources Income Tax Issues Webinar (via Zoom) on December 13 from 8:45 a.m. to 3:20 p.m. The event is sponsored by Income Tax Schools at The Ohio State University.

The webinar focuses on issues specific to farm tax returns related to agriculture and natural resources and will highlight timely topics and new regulations.

The program is an intermediate-level course for tax preparers whose clients include farmers and rural landowners. Farmers who prepare and file their own taxes will also benefit from the webinar.

Tentative topics to be covered during the Ag Tax Issues webinar include:

  • Timely Tax Issues Facing Agricultural Producers
    • Employee vs Independent Contractor
    • Cost-Sharing Exclusion
    • Farm Trade or Business
    • Farming S Corporations
    • Timber Taxation
  • Legislative and Regulatory Update
  • Form 1099s Requirements for Farmers and Ranchers
  • Tax Schemes Targeting the Farm 
  • Tax Issues Arriving at the Death of a Farmer
  • Ohio Tax Update

Other chapters included in the workbook not included in the webinar includes: Material Participation Rules for Farmers, Ranchers and Landowners, Livestock Tax Issues, Depreciating and Expensing Farm Assets, Sale and Exchange of Farm Property, Sample Tax Return.

The cost for the one-day school is $180 if registered by November 29th. After November 29th, the registration increases to $230. Additionally, the course has been approved for the following continuing education credits:

•          Accountancy Board of Ohio, CPAs (6 hours)

•          Office of Professional Responsibility, IRS (6 hours)

•          Supreme Court of Ohio, Attorneys (5 hours)

Registration includes the Agricultural Tax Issues Workbook. Early registration (at least two weeks prior to the webinar) guarantees that you’ll receive a workbook prior to the webinar. 

The live webinar will also feature options for interaction and the ability to ask questions about the presented material.

More information on the workshop, including how to register, can be found at: https://farmoffice.osu.edu/tax/2023-ag-tax-issues-webinar

Contact Barry Ward at ward.8@osu.edu or Jeff Lewis at lewis.1459@osu.edu

Combine in the field ready to harvest.
By: Jeffrey K. Lewis, Esq., Monday, October 02nd, 2023

Happy Fall Y’all! We are back with another monthly edition of The Ag Law Harvest. This month’s edition brings you an Ohio Supreme Court case that clarifies a party’s obligations under express indemnification provisions in a contract, an Ohio woman’s fight against a local zoning ordinance that sought to remove her pet ducks, and agricultural labor updates. 

Common Law Notice Requirements May No Longer Exist Under Express Indemnification. 
The Ohio Supreme Court recently made a significant decision regarding indemnification clauses in contracts. Indemnification is the right of one party to be fully reimbursed for payments they made on behalf of another party who should have made those payments. There are two types of indemnity: express and implied. Express indemnity is when a written contract explicitly states that one party will reimburse the other under certain circumstances. Implied indemnity is a common law principle where each party is responsible for their own wrongdoing, and the wrongdoer should reimburse the injured party.

In this case, Discovery Oil and Gas contracted with Wildcat Drilling, which included an express indemnification provision. Wildcat was supposed to indemnify Discovery for any fines related to pollution or contamination from drilling. When Wildcat violated Ohio law by using brine improperly, Discovery settled with the Ohio Department of Natural Resources for $50,000 without notifying Wildcat and requested reimbursement. Wildcat refused, arguing that Discovery didn't follow Ohio common law, which requires notice before settling a claim.

The Ohio Supreme Court sided with Discovery, stating that the express clause in the contract indicated the parties' intent to deviate from common law principles. The court clarified that notice requirements for indemnification are determined by the contract terms. Depending on the contract, parties may not need to provide notice before settling a claim and seeking reimbursement. This ruling emphasizes the importance of contract language in determining indemnification obligations.

Medina County Woman Has All Her Ducks in a Row. 
A Medina County woman is able to keep her pet ducks after a battle with the Village of Seville and an interpretation of its zoning ordinances. Ms. Carlson, the owner of the ducks at issue, fought to keep her pet ducks after being ordered to remove them from her property by Wadsworth Municipal Court. Ms. Carlson appealed the municipal court’s ruling, arguing that Seville’s zoning ordinance against “poultry and livestock” is unconstitutionally vague. The appellate court agreed with Ms. Carlson. The appellate court found that Seville’s ordinance against poultry focused on hens, roosters, coop hygiene, and the sale of poultry byproducts such as meat and eggs. The court held that an ordinary person would not be able to understand that keeping other birds, such as ducks, as companion animals would violate Seville’s ordinances. Therefore, Ms. Carlson could not be found to have committed an unclassified misdemeanor by owning pet ducks. However, had Ms. Carlson been keeping the ducks and selling their byproducts such as duck eggs and meat, there might have been a different outcome.  

Farm Labor Stabilization and Protection Pilot Program. 
The U.S. Department of Agriculture (“USDA”) has announced the opening of the Farm Labor Stabilization and Protection Pilot Program (“FLSP”). The FLSP will award up to $65 million in grant funding to provide support for agricultural employers to implement new hearty labor standards/procedures and update existing workplace infrastructure to help promote a healthy and safe work environment. The USDA states that the purpose of the FLSP program is “to improve food and agricultural supply chain resiliency by addressing challenges agricultural employers face with labor shortages and instability.” The FLSP has three goals: (1) drive U.S. economic recovery and safeguard domestic food supply by addressing current labor shortages in agriculture; (2) reduce irregular migration from Northern Central America through the expansion of regular pathways; (3) improve working conditions for all farmworkers. Qualified applicants can receive grants ranging from $25,000 - $2,000,000. The application window closes on November 28, 2023. For more information, view the USDA’s fact sheet on the FLSP

Department of Labor Publishes Proposed Rule to Amend H-2A Regulations. 
The U.S. Department of Labor (“DOL”) Employment and Training Administration (“ETA”) has published a proposed rule titled “Improving Protections for Workers in Temporary Agricultural Employment in the United States.” The proposed rule seeks to amend several H-2A program regulations by: 

  • Adding new protections for worker self-advocacy. 
  • Clarifying when a termination is “for cause.” 
  • Making foreign labor recruitment more transparent. 
  • Making wages more predictable. 
  • Improving workers’ access to safe transportation. 
  • Enhancing enforcement to improve program integrity. 

Read more about the proposed rule by visiting the DOL’s news release. The comment period on the proposed rule ends November 14, 2023. 

Department of Homeland Security Publishes Proposed Rule Amending H-2 Program.  
The U.S. Department of Homeland Security (“DHS”) has published a proposed rule titled “Modernizing the H-2 Program Requirements, Oversight, and Worker Protections.” The DHS announced its intent to strengthen protections for temporary workers through the H-2A and H-2B worker programs by providing greater flexibility and protections for participating workers, and improving the programs’ efficiency. The proposed rule would: 

  • Provide whistleblower protection to H-2A and H-2B workers who report their employers for program violations. 
  • Extend grace periods for workers seeking new employment, preparing for departure from the United States, or seeking a change of immigration status. 
  • Establish permanent H-2 portability, allowing employers to hire H-2 workers who are already lawfully in the United States while the employer’s H-2 petition for the worker is pending. 

The comment period for the proposed rule ends on November 20, 2023. 

Thumbs up emoji
By: Jeffrey K. Lewis, Esq., Friday, July 28th, 2023

It’s getting hot! And we are here to bring you even more heat. This month’s Ag Law Harvest takes you across the country and even across our northern border as we highlight some interesting court cases, a petition to the USDA, and some legislation coming across the desks of Governors from Maine to Oregon.

Ohio Court Determines That Dairy Farm Did Not Intentionally Harm Employee. 
In 2019, a dairy farm employee sustained serious injuries after getting caught in a PTO shaft while operating a sand spreader. After his injury, the employee filed a lawsuit against his employer for failing to repair or replace the missing safety guards on the PTO shaft and sand spreader. In his lawsuit, the employee alleged that the dairy farm’s failure to repair or replace the missing safety guards amounted to a “deliberate removal” of the equipment’s safety features making the dairy farm liable for an intentional tort. In other words, the employee was accusing his employer of intentionally causing him harm. Normally, workplace injuries are adjudicated under Ohio’s workers’ compensation laws, unless an employee can prove that an employer acted intentionally to cause the employee harm. 

For an employer to be held liable for an intentional tort under Ohio law, an employee must prove that the employer acted with the specific intent to injure an employee. An employee can prove an employer’s intent in one of two ways: (1) with direct evidence of the employer’s intent; or (2) by proving that the employer “deliberately removed” equipment safety guards and/or deliberately misrepresented a toxic or hazardous substance. Because there was no direct evidence to prove the dairy farm’s intent, the employee could only try his case under the theory that the dairy farm deliberately removed the safety guards, intentionally causing him harm. 

The case went to trial and the jury found the dairy farm liable and ordered it to pay over $1.9 million in damages. The dairy farm appealed to the Twelfth District Court of Appeals arguing that its failure to repair or replace does not amount to a “deliberate removal” of the safety guards from the PTO shaft and sand spreader. The appellate court agreed

The Twelfth District decided to apply a narrow interpretation of the term “deliberate removal.” The court held that a “deliberate removal” is defined as the “deliberate decision to lift, push aside, take off, or otherwise eliminate.” The evidence presented at trial showed that the shaft guard may have simply broken off because of ordinary wear and tear. Additionally, the evidence could not establish who removed the connector guard or if the connector guard did not also break off due to ordinary wear and tear. Thus, the Twelfth District found that the evidence presented at trial did not support a finding that the dairy farm made “a careful and thorough decision to get rid of or eliminate” the safety guards. Furthermore, the Twelfth District reasoned that an employer’s “failure to repair or replace a safety guard is akin to permitting a hazardous condition to exist” and that the “mere knowledge of a hazardous condition is insufficient to show intent to injure. . .” The Twelfth District vacated and reversed the $1.9 million judgment and entered summary judgment on the dairy farm’s behalf.  

USDA Receives Petition Over “Climate-friendly” Claims. 
The Environmental Working Group (EWG) has petitioned the U.S. Department of Agriculture (“USDA”), asking the USDA to: (1) prohibit “climate-friendly” claims or similar claims on beef products; (2) require third-party verification for “climate-friendly” and similar claims; and (3) require a numerical on-pack carbon disclosure when such claims are made. The core legal issue is whether such “climate-friendly” labels and numerical carbon disclosures are protected and/or prohibited by the legal doctrine of commercial speech, which is protected under the First Amendment of the U.S. Constitution. EWG argues that the USDA has the authority to regulate such speech because commercial speech is only protected if it is not misleading. Additionally, EWG claims that requiring numerical carbon disclosures advances a substantial governmental interest by protecting consumers from fraud and deception. Although EWG has the legal right to petition the USDA, the USDA does not have to grant EWG’s petition, it must only consider the petition and respond within a reasonable time. 

Maine Governor Vetoes Ag Wage Bill.
Earlier this month Maine Governor, Janet Mills, vetoed Legislative Document 398 (“LD 398”) which required agricultural employers to pay their employees a minimum wage of $13.80 and overtime pay. Governor Mills stated that she supports the concept of LD 398 but was concerned about some of the bill’s language. The Maine legislature had the opportunity to override the Governor’s veto but failed to do so. After the legislature sustained her veto, Governor Mills signed an executive order establishing a formal stakeholder group to develop legislation that will establish a minimum wage for agricultural workers while also addressing the impacts the future legislation will have on Maine’s agriculture industry. 

A Big Thumbs Up! 
A Canadian judge recently found that a “thumbs-up” emoji is just as valid as a signature to a contract. In a recent case, a grain buyer, South West Terminal Ltd. (“SWT”), sent through text message, a deferred grain contract to a farming corporation owned and operated by Chris Achter (“Achter”). The contract stated that Achter was to sell 86 metric tonnes of flax to SWT at a price of $17 per bushel. SWT signed the contract, took a picture of the contract, and sent the picture to Achter along with a text message: “Please confirm flax contract”. Achter texted back a “thumbs-up” emoji. When the delivery date came and passed, Achter failed to deliver the flax to SWT which prompted SWT to file a lawsuit for breach of contract. SWT argued that Achter’s “thumbs-up” meant acceptance of the contract. Achter, on the other hand, claimed that the use of the emoji only conveyed his receipt of the contract. 

The Canadian court ultimately ruled in favor of SWT. The court relied on evidence that Achter and SWT had a pattern of entering into binding contracts through text message. In all previous occurrences, SWT would text the terms of the contract to Achter and Achter would usually respond with a “looks good”, “ok”, or “yup”. This time, Achter only responded with a “thumbs-up” emoji and the court concluded that an objective person would take that emoji to mean acceptance of the contract terms. Achter was ordered to pay over C$82,000 ($61,442) for the unfulfilled flax delivery. As the old saying goes: “a picture is worth a thousand words or tens of thousands of dollars.”  

Oregon Governor Signs Agriculture Worker Suicide Prevention Bill into Law. 
Earlier this month, Oregon Governor Tina Kotek signed a bill that creates a new suicide prevention hotline for agricultural producers and workers into law. Senate Bill 955 (“SB 955”) provides $300,000 to establish an endowment to fund an AgriStress Helpline in Oregon. Proponents of the bill believe the AgriStress Helpline will be able to specifically address the needs of agricultural producers and workers which “[s]tatistically . . . have one of the highest suicide rates of any occupation.” Oregon becomes the 7th state to establish an AgriStress Hotline joining Connecticut, Missouri, Pennsylvania, Texas, Virginia, and Wyoming. 

Statehouse lawn with row of Ohio flags
By: Peggy Kirk Hall, Thursday, June 22nd, 2023

Despite the arrival of summer and continuing disagreements over the state budget, Ohio legislators have been working on several pieces of legislation relevant to Ohio agriculture.  All of the proposals are at the committee level but may see action before the Senate and House after the budget bill process ends. Here’s a summary of the ag related proposals currently under consideration.

Senate Bill 111 – Urban Agriculture

Senator Paula Hicks-Hudson (D-Toledo) targets barriers for farmers in urban settings in SB 111, which has had three hearings before the Senate Agriculture and Natural Resources Committee. OSU Extension, the Ohio Municipal League, and several farmers have testified in support of the  proposal, which contains three components:

  • Establishes an Urban Farmer Youth Initiative Pilot Program to provide youth between the ages of six and eighteen living in urban areas with programming and support for farming and agriculture.  The bill would appropriate $250,000 over 2024 and 2025 for the pilot, to be administered by OSU Extension and Central State Extension.
  • Exempts temporary greenhouses, such as hoop houses, from the Ohio Building Code, consistent with Ohio law’s treatment of other agricultural buildings and structures. 
  • Codifies the Department of Taxation’s current treatment of separate smaller parcels of agricultural land under the same farming operation, which allows the acreages to be combined to meet the 10 acre eligibility requirement for Current Agricultural Use Valuation.

House Bill 64 – Eminent Domain

A proposal to make Ohio’s eminent domain laws more favorable to landowners remains on hold in the House Civil Justice Committee.  HB 64 is receiving more opposition than support, with dozens of parties testifying against it in its fourth hearing on May 23.  Read more about the proposal in our previous blog post.

House Bill 162 - Agriculture Appreciation Act

Rep. Roy Klopfenstein (R-Haviland) and Rep. Darrell Kick (R-Loudonville) introduced HB 162 on May 1 and the bill received quick and unanimous approval from the House Agriculture Committee on May 16.  The proposal would make several designations under Ohio law already recognized by federal law:

  • March 21 as "Agriculture Day."
  • October 12 as "Farmer's Day."
  • The week beginning on the Saturday before the last Saturday of February as "FFA Week."
  • The week ending with the second Saturday of March as "4-H Week."

House Bill 166 – Temporary Agricultural Workers

A bill addressing municipal income taxes for H2-A agricultural workers has met opposition in the House Ways and Means Committee.  HB 166, sponsored by Rep. Dick Stein (R-Norwalk) would subject foreign agricultural workers’ income to municipal income taxes.  The current municipal tax base in Ohio is based on federal tax laws that exclude foreign agricultural worker pay from Social Security and Medicare taxes since the workers cannot use those programs, and HB 166 would remove that exclusion and add H2-A income to the municipal tax base.  The bill would also require employers to withhold the taxes for the municipality of the workers’ residences. While municipal interests support the bill, Ohio Farm Bureau and other agricultural interests testified against it in its third hearing on June 13. Opponents argue that H2-A workers are not residents because they are “temporary,” that the proposal would have many potential adverse effects on how Ohio handles the H2-A program, and would hamper the ability of agricultural employers to use the H2-A program to hire employees.

House Bill 193 – Biosolid and biodigestion facilities  

Biosolid lagoons and biodigestion facilities would have new legal requirements and be subject to local regulation under a proposal sponsored by Rep. Kevin Miller (R-Newark) and Rep. Brian Lampton (R-Beavercreek).  HB 193 would grant county and township zoning authority over the lagoons and facilities, require a public meeting and county approval prior to seeking a facility permit from the Ohio EPA, require the Ohio EPA to develop rules requiring covers on new biosolid lagoons, and modify feedstock requirements for biodigestion facilities to qualify for Current Agricultural Use Valuation property tax assessment.  HB 193 had its first hearing before the House Agriculture Committee on June 13.

House Bill 197 – Community Solar Development   

A “community solar” proposal that did not make it through the last legislative session is back in a revised form.  HB 197 proposes to define and encourage the development of “community solar facilities,” smaller scale solar facilities that are directly connected to an electric distribution utility’s distribution system and that create electricity only for at least three “subscribers.”  The bill would establish incentives for placing such facilities on distressed sites and Appalachian region sites through a “Community Solar Pilot Program” and a “Solar Development Program.” Rep. James Hoops (R-Napoleon) and Sharon Ray (R-Wadsworth) introduced the bill on June 6, and it received its first hearing before the House Public Utilities Committee on June 21. “The goal of this legislation is to create a small-scale solar program that seeks to be a part of the solution to Ohio’s energy generation and aging infrastructure need,” stated sponsor Hoops.

House Bill 212 – Foreign ownership of property

Ohio joins a movement of states attempting to limit foreign ownership of property with the introduction of HB 212, the Ohio Property Protection Act.  Sponsored by Representatives Angela King (R-Celina) and Roy Klopfenstein (R-Haviland), the proposal would prohibit foreign adversaries and certain businesses from owning real property in Ohio. The bill was introduced in the House on June 13 and has not yet been referred to a committee for review.

 

A chicken looking directly at the camera.
By: Jeffrey K. Lewis, Esq., Friday, May 26th, 2023

We’re back! We are excited to bring back our regular Ag Law Harvest posts, where we bring you interesting, timely, and important agricultural and environmental legal issues from across Ohio and the country. This month’s post provides you with a look into Ohio’s ongoing legal battle of some provisions in the recently enacted “Chicken Bill”, a brief dive into the U.S. Department of Labor’s new H-2A wage rules, a warning about conservation easement fraud, and an explanation of a court’s recent decision to release an insurance company from its duty to defend its insured in a lawsuit. 

Battle of “Chicken Bill.”
Ohio House Bill 507 (“HB 507”), sometimes referred to as “the Chicken Bill” went into effect last month and was widely known for reducing the number of poultry chicks that can be sold in lots (from six to three). However, HB 507 contained other non-poultry related provisions that have caused quite a stir. Environmental groups have sued the State, seeking a temporary restraining order, a preliminary and permanent injunction to prevent HB 507 from going into effect, and a declaratory judgement that HB 507 violates Ohio’s Constitution. Two provisions within HB 507 have specifically caught the attention of the Plaintiffs in this case: (1) a revision to Ohio Revised Code § 155.33 that requires state agencies to lease public lands for oil and gas development (the “Mandatory Leasing Provision”); and (2) a revision to Ohio Revised Code § 4928.01 that defines “green energy” to include energy generated by using natural gas, so long as the energy generated meets certain emissions and sustainability requirements (the “Green Energy Provision”). 

Plaintiffs argue that the Mandatory Leasing Provision will cause irreparable harm to their members’ “environmental, aesthetic, social, and recreational interests” in Ohio’s public lands. Additionally, Plaintiffs assert that the Mandatory Leasing Provision and Green Energy Provision violate Ohio’s Constitution by not following the “One-Subject Rule” and the “Three-Consideration Rule” both of which require transparency when creating and passing legislation in Ohio. The Franklin County Court of Common Pleas recently denied Plaintiffs’ request for a temporary restraining order, reasoning that no new leases would likely be granted until the Oil and Gas Land Management Commission adopts its rules (as required by Ohio law) and that there is “no likelihood of any immediate and irreparable injury, loss, or damage to the plaintiffs.” Since the hearing on Plaintiffs’ request for a temporary restraining order, the State of Ohio has filed its answer denying Plaintiffs’ claims and currently all parties are in the process of briefing the court on the merits of Plaintiffs’ request for a preliminary injunction. 

New H-2A Wage Rules: Harvesting Prosperity or Sowing Seeds of Despair? 
On February 28, 2023, the U.S. Department of Labor (the “DOL”) published a final rule establishing a new methodology for determining hourly Adverse Effect Wage Rates (“AEWR”) for non-range farm occupations (i.e. all farm occupations other than herding and production of livestock on the range) for H-2A workers. The new methodology has been in effect since March 30th. Late last month Rep. Ralph Norman and the Chairman of the House Committee on Agriculture, Rep. Glenn “GT” Thompson, introduced a resolution of disapproval under the Congressional Review Act, seeking to invalidate the DOL’s final rule. Similarly, the National Council of Agricultural Employers (“NCAE”) released a statement declaring that it has filed a Motion for Preliminary Injunction against the DOL’s new methodology. 

Opponents of the new rule argue that the increased wages that farmers and ranchers will be required to pay will put family operations out of business. On the other hand, the DOL believes “this methodology strikes a reasonable balance between the [law’s] competing goals of providing employers with adequate supply of legal agricultural labor and protecting the wages and working conditions of workers in the United States similarly employed.” Producers can visit the DOL’s frequently asked questions publication to learn more about the new H-2A wage rule. As it stands, the new H-2A regulations remain in effect and producers should be taking all possible steps to follow the new rules. Make sure to speak with your attorney if you have any questions about compliance with H-2A regulations. 

Conservation Easement Fraud – Protecting Land or Preying on Profits? 
For a while now, conservation easements have been utilized by farmers and landowners to preserve their land while also obtaining a substantial tax benefit. But not all actors in the conservation easement sphere are good ones. Earlier this month, a land appraiser in North Carolina pled guilty to conspiring to defraud the United States as part of a syndicated conservation easement tax shelter scheme. According to a press release by the U.S. Department of Justice (“DOJ”), Walter “Terry” Douglas Roberts II of Shelby, North Carolina conspired with others to defraud the United States by inflating the value of conservation easements which led to $1.3 billion in fraudulent tax deductions. Roberts is guilty of inflating the value at least 18 conservation easements by failing to follow normal appraisal methods, making false statements, and manipulating or relying on knowingly manipulated data to achieve a desired tax deduction amount. Roberts faces a maximum penalty of five years in prison and could be forced to pay back a specified amount to the U.S. Government. 

Conservation easement fraud is not new, however. The Internal Revenue Service (“IRS”) has been monitoring the abuse of the conservation easement tax deductions for some time. The IRS has included these fraudulent transactions on its annual “Dirty Dozen” list of tax avoidance scams. The IRS has seen taxpayers, often encouraged by promoters armed with questionable appraisals, take inappropriately large deductions for these types of easements. These promoters twist the law to develop abusive tax shelters that do nothing more than “game the tax system with grossly inflated tax deductions and generate high fees for promoters.” The IRS urges taxpayers to avoid becoming entangled by these dishonest promoters and that “[i]f something sounds too good to be true, then it probably is.” If you have questions about the tax benefits of a conservation easement, make sure to speak with your attorney and/or tax professional.  

Alleged Intentional Acts Not Covered by Insurance. 
An animal feed manufacturer is in hot water, literally. A city in Mississippi has accused Gold Coast Commodities, Inc. (“Gold Coast”), an animal feed manufacturer, of intentionally dumping hot, greasy wastewater into the City’s sewer system. Prior to the City’s investigation into Gold Coast’s alleged toxic dumping, Gold Coast purchased a pollution liability insurance policy from Crum & Forster Specialty Insurance Company (“Crum & Forster”). After an investigation conducted by the City and the Mississippi Department of Environmental Quality, the City filed a lawsuit against the feed manufacturer alleging that it intentionally dumped toxic waste into the City’s sewer system. Gold Coast then notified its insurance company of the potential claim. However, Crum & Forster denied coverage for Gold Coast’s alleged toxic dumping. According to the insurance policy, coverage exists for an “occurrence” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Crum & Forster refused to provide a defense or coverage for Gold Coast in the City’s toxic dumping lawsuit because the City alleges multiple times that Gold Coast acted intentionally, and therefore, Gold Coast’s actions were not an accident and not covered by the policy. 

In response, Gold Coast filed a lawsuit against Crum & Forster asking a federal district court in Mississippi to declare that Crum & Forster is required to defend and provide coverage for Gold Coast under the terms of the insurance policy. On a motion to dismiss, the federal district court in Mississippi dismissed Gold Coast’s lawsuit against the insurance company. The district court reasoned that in the underlying toxic dumping lawsuit, the City is not alleging an accident, rather the City asserts that Gold Coast intentionally dumped the toxic waste. Thus, Crum & Forster is not obligated to provide a defense or coverage for Gold Coast, under the terms of the policy. Gold Coast appealed to the Fifth Circuit Court of Appeals (which has jurisdiction over federal cases arising in Texas, Louisiana, and Mississippi). 

The Fifth Circuit affirmed the decision of the federal district court, rejecting Gold Coast’s claim that Crum & Forster is obligated to provide a defense and coverage for Gold Coast in the City’s toxic dumping lawsuit. Gold Coast argued that the City seeks to recover under the legal theory of negligence in the toxic dumping case, therefore Gold Coast’s actions are accidental in nature. The Fifth Circuit was unconvinced. The Fifth Circuit explained that when reading a complaint, the court must look at the factual allegations, not the legal conclusions. The Fifth Circuit found that the factual allegations in the City’s lawsuit all referred to Gold Coast’s intentional or knowing misconduct and any recovery sought under the theory of negligence is not a factual allegation, instead it is a legal conclusion. The Fifth Circuit concluded that using terms like “negligence” do not “transform the character of the factual allegations of intentional conduct against [Gold Coast] into allegations of accidental conduct constituting an ‘occurrence.’” Thus, the Fifth Circuit affirmed the federal district court’s decision to dismiss Gold Coast’s lawsuit against its insurer. Unless the Supreme Court of the United States decides to take up the case, it looks like Gold Coast is all on its own in its fight against the City. The lesson here is that although insurance is important to have, its equally as important to speak with your insurance agent to understand what types of incidents are covered under your insurance policy. 

Ohio Bureau of Workers' Compensation logo
By: Peggy Kirk Hall, Wednesday, May 25th, 2022

Farms and other businesses can benefit by using independent contractors to fill labor needs while not having the same financial and legal responsibilities the business has for its employees.  But state and federal laws allow those advantages only if the worker is truly an independent contractor.  When a worker classified as “independent contractor” functions as an employee in the eyes of the law, a business can be liable for failing to meet its employer obligations for the worker.   That’s exactly what happened in a recent case before the Ohio Supreme Court.

The company.  The case involved Ugicom (the company), paid by Time Warner Cable under a subcontract to provide workers to install underground cable.  Workers used the company’s website to select and document installation jobs and the company paid the workers at rates it determined.  The installers were required to wear badges and vests identifying the company and to pass drug tests and background checks, all coordinated by Time Warner.  The company required installers to sign a one-year independent contractor agreement containing a “non-compete clause” that prohibited them from providing installation services for competitors.  The contract also required installers to respond to service requests within two hours.  Installers had to provide their own hand tools, transportation, cell phones, and laptops, but used cable obtained from Time Warner.  They could work any day or time consented to by customers.  The company paid the installers by the job and did not withhold taxes or provide any benefits.

The Bureau of Workers Compensation (BWC) audit.  The BWC audited the company to decide whether it had paid the correct amount of workers’ compensation premiums for all of its employees.  The BWC examined the company’s treatment of workers it had hired to install cable as independent contractors.  Concluding that the company exercised “too much control” over the installers, the BWC determined that the installers were actually employees for workers’ compensation purposes and the company owed $346,817 in unpaid premiums for the employees.  The company unsuccessfully appealed the decision to the agency and the Tenth District Court of Appeals and the case ended up before the Ohio Supreme Court.

The Ohio Supreme Court review.  For purposes of the workers’ compensation program, Ohio law provides that the controlling determination in whether a worker is an independent contractor or an employee is “who had the right to control the manner or means of doing the work.”  There is not a bright-line test for making such a determination, however.  Instead, the Ohio Supreme Court explained, the BWC must consider a set of factors related to who controls the manner or means of the work.  Those factors include:

  1. Whether the work is part of the regular business of the employer
  2. Whether the workers are engaged in an independent business
  3. The method of payment
  4. The length of employment
  5. Agreements or contracts in place
  6. Whether the parties believed they were creating an employment relationship
  7. Who provides tools for the job
  8. The skill required for the job
  9. The details and quality of the work

The Ohio Supreme Court’s role was to determine whether the BWC relied upon “some evidence” when reviewing each of the factors to reach its conclusion that the company controlled the manner or means of the installers’ work.   The Court concluded that most, although not all, of the BWC’s conclusions were supported by at least some evidence and upheld the BWC’s decision.  The factors and evidence that received the most attention from the Court included:

  • Independence from the company.  The installers’ public image when working identified them as being with the company; they all wore the same badges and vests, and some had signs on their vehicles with the company’s name. 
  • Method of payment.  The company controlled the rate of payment, which was nonnegotiable and did not include a bid process as is typical for independent contractors. The “take-it-or-leave-it” approach indicated control over the installers.
  • Length of employment.  The installers had an ongoing relationship with the company and did not advertise their services to the community at large.
  • Agreements and contracts.  The company’s non-compete clause restricted the installers’ freedom to work and indicated a measure of control over the workers.
  • Skill requirements.  The BWC concluded that the minimal skill required to install the cable was not high or unique, and the company offered no facts to show that the installers required specialized skills.

Disagreement on the court.  Two of the Supreme Court Justices, Kennedy and DeWine, dissented from the majority opinion. Their primary point of disagreement was that there was no evidence supporting the BWC decision.  The evidence instead suggested that the company controlled only how the installers were paid, and the installers controlled the manner and means of doing their work.  The dissent criticized the BWC for jumping to a quick conclusion that the company’s true motives were “to evade the obligations associated with having employees.”

What does this mean for farm employers?   Farms often rely on independent contractors for seasonal and intermittent help with work like baling hay, running equipment, and doing books. Are these workers true independent contractors or are they employees?  That is a fact dependent question, but we can imagine many scenarios where the farm has a majority of the control over the mode and manner of such work.  Farms are subject to Ohio’s workers’ compensation law, so a farm could be audited by the BWC just as the company in this case was and could see similar results for misclassifying employees as independent contractors. 

Implications for all businesses.  The case carries several implications that raise needs for businesses that use independent contractors: 

  1. Recognize that state and federal tests can differ.  Many are familiar with the IRS test for independent contractors but note that the Ohio Supreme Court applied its unique Ohio test for determining independent contractors in regard to BWC premiums. State and federal laws differ.  It’s important to apply the appropriate test for the situation.
  2. Review the manner and means factors for each independent contractor.  For each worker claimed as an independent contractor, review the nine factors listed above to ensure that the business isn’t exerting the most control over the manner and means of the work.  Where possible, adjust practices that give the business unnecessary control over how and when the work is performed.  Consider these:
      • Use employees to do the regular work of the business and independent contractors for high-skill or unique tasks.
      • Ensure that the business isn’t controlling the public image of the workers.  The workers should not be branded or identifiable with the business through clothing, name badges, hats, vehicles, etc.
      • Require independent contractors to submit bids or proposals on the amount and method of payment for their work.
      • Avoid using the same independent contractor for an extended period of time and ensure that the worker’s services are available to other businesses.
      • Don’t restrict the worker’s freedom to work for others, especially via a contract or agreement.
  3. Maintain records and evidence of the work situation.  The BWC need only have “some evidence” that the nine factors indicate a high level of control over the mode or manner of work, but the business may offer facts and evidence to the contrary.  Good recordkeeping is imperative.  A business that can’t provide stronger facts and evidence in favor of the business, like the company in this case, might be at risk of an employee classification by the BWC.

While there are benefits of using independent contractors to meet labor needs, farms must recognize the associated risk of misclassification.  For workers' compensation purposes, farms can avoid those risks by ensuring that it is the independent contractor, not the farm, who controls the "manner or means" of doing the work.  Read the Ohio Supreme Court’s opinion in State ex rel. Ugicom Enterprises v. Morrison here.

 

Picture of a black howler monkey.
By: Jeffrey K. Lewis, Esq., Friday, February 18th, 2022

Did you know that the loudest land animal is the howler monkey?  The howler monkey can produce sounds that reach 140 decibels.  For reference, that is about as loud as a jet engine at take-off, which can rupture your eardrums.  

Like the howler monkey, we are here to make some noise about recent agricultural and resource law updates from across the country.  This edition of the Ag Law Harvest brings you court cases dealing with zoning ordinances, food labeling issues, and even the criminal prosecution of a dairy farm.  We then look at a couple states proposing, or disposing, of legislation related to agriculture.  

A zoning ordinance has Michigan landowners hogtied.  The Michigan Supreme Court recently ruled that Michigan’s 6-year statute of limitations does not prevent a township from suing a landowner for alleged ongoing zoning violations, even if the start of landowner’s alleged wrongdoing occurred outside the statute of limitations period.  

Harvey and Ruth Ann Haney (“Defendants”) own property in a Michigan township that is zoned for commercial use.  Defendants began raising hogs on their property in 2006.  Defendants started with one hog and allegedly grew their herd to about 20 hogs in 2016.  In 2016, Fraser Township (“Plaintiff”) filed suit against Defendants seeking a permanent injunction to enforce its zoning ordinance and to prevent Defendants from raising hogs and other animals that would violate the zoning ordinance on their commercially zoned property.  Defendants filed a motion to dismiss and argued that Plaintiff’s claims were barred because of Michigan’s 6-year statute of limitations.  A statute of limitations is a law that prevents certain lawsuits from being filed against individuals after a certain amount of time has passed.  In Ohio, for example, if someone were to be injured in a car accident, they would only have 2 years to bring a personal injury claim against the person who caused the accident.  That’s because Ohio has passed a law that mandates most personal injury claims to be brought within 2 years of the date of injury.  

In the Michigan case, Defendants argued that because their first alleged wrongdoing occurred in 2006, Plaintiff could not file their lawsuit against the Defendants in 2016.  A trial court disagreed with Defendants and denied their motion to dismiss.  Defendants took the motion up to the Michigan Court of Appeals, and the Court of Appeals found that Plaintiff’s claim was barred because of the 6-year statute of limitations.  Plaintiff appealed to the Michigan Supreme Court, which overturned the Court of Appeals’ decision and held that Plaintiff’s claim was not barred.  The Michigan Supreme Court reasoned that the presence of the hogs constitutes the alleged unlawful conduct of the Defendants, and that unlawful conduct occurred in 2006 and has occurred almost every day thereafter.  The court concluded that because Defendants unlawful conduct was ongoing after 2006, Plaintiff’s claims were not barred by the statute of limitations.  The case now goes back to the trial court to be tried on the merits of Plaintiff’s claims against Defendants. 

Where there’s smoke, there’s fire.  Family Dollar Stores, Inc. (“Family Dollar”) has found itself in a bit of nutty situation.  Plaintiff, Heather Rudy, has filed a class action lawsuit against Family Dollar, alleging that Family Dollar has misled her and other consumers by marketing its Eatz brand Smoked Almonds as “smoked.”  Plaintiff asserts that Family Dollar is being deceptive because its Smoked Almonds are not smoked over an open fire, but instead flavored with a natural smoke flavoring.  Plaintiff’s claims against Family Dollar include violating the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”); breaches of express warranty and implied warranty of merchantability; violation of the Magnuson-Moss Warranty Act; negligent misrepresentation; fraud; and unjust enrichment.  

Family Dollar filed an early motion to dismiss, arguing that Plaintiff has not stated a claim for which relief can be granted.  A federal district court in Illinois dismissed some of Plaintiff’s claims but ruled that some claims against Family Dollar should be allowed to continue.  Plaintiff’s claims for breaches of warranty, violation of the Magnuson-Moss Warranty Act, negligent misrepresentation, and fraud were all dismissed by the court.  The court did decide that Plaintiff’s claims under ICFA unjust enrichment should stay.  The court reasoned that Plaintiff’s interpretation that Family Dollar’s almonds would be smoked over an open fire are not unreasonable.  Moreover, the court recognized that nothing on the front label of Family Dollar’s Smoked Almonds would suggest, to consumers, that the term “smoked” refers to a flavoring rather than the process by which the almonds are produced.  The court even pointed out that competitors’ products contain the word “flavored” on the front of similar “smoked” products.  Therefore, the court concluded that Plaintiff’s interpretation of Family Dollar’s Smoked Almonds was not irrational and her claims for violating the ICFA should continue into the discovery phase of litigation, and possibly to trial.  

Undercover investigation leads to criminal prosecution of Pennsylvania dairy farm.  A Pennsylvania Court of Appeals (“Court of Appeals”) recently decided on Animal Outlook’s (“AO”) appeal from a Pennsylvania trial court’s order dismissing AO’s petition to review the decision of the Franklin County District Attorney’s Office (“DA”) to not prosecute a Pennsylvania dairy farm (the “Dairy Farm”) for animal cruelty and neglect.  An undercover agent for AO held employment at the Dairy Farm and captured video of the condition and treatment of animals on the farm, which AO claims constitutes criminal activity under Pennsylvania’s animal cruelty laws.  

AO compiled a report containing evidence and expert reports documenting the Dairy Farm’s alleged animal cruelty and neglect.  AO submitted its report to the Pennsylvania State Police (“PSP”) in 2019.  The PSP conducted its own investigation which lasted for over a year, and in March 2020, issued a press release indicating that the DA would not prosecute the Dairy Farm.  

In response, AO drafted private criminal complaints against the Dairy Farm and submitted those to the local Magisterial District Judge.  The local Magisterial Judge disapproved all of AO’s complaints and concluded that the complaints “lacked merit.”  AO then filed a petition in a Pennsylvania trial court to review the Magisterial Judge’s decision.  The trial court dismissed AO’s petition and concluded that the DA correctly determined “that there was not enough evidence, based upon the law, to initiate prosecution against any of the Defendants alleged in the private criminal complaints.”  AO appealed the trial court’s decision to the Court of Appeals which ended up reversing the trial court’s decision.    

The Court of Appeals concluded that the trial court failed to view the presented evidence through a lens that is favorable to moving forward with prosecution and the trial court failed to consider all reasonable inferences that could be made on the evidence.  The Court of Appeals observed that the trial court made credibility determinations of the evidence by favoring the evidence gathered by PSP over the evidence presented by AO.  The Court of Appeals noted that a trial court’s duty is to determine “whether there was evidence proffered to satisfy each element of an offense, not to make credibility determinations and conduct fact-finding.” Additionally, the Court of Appeals found that the trial court did not do a complete review of all the evidence and favored the evidenced obtained by PSP over the evidence presented by AO.  The Court of Appeals determined that had the trial court reviewed all the evidence, it would have found that AO provided sufficient evidence to establish prima facie cases of neglect and animal cruelty, which would have provided the legal basis for the DA’s office to prosecute the claims.  

Lastly, the DA argued that no legal basis for prosecution exists because the Dairy Farm is protected by the normal agricultural operations exemption to Pennsylvania’s animal cruelty laws.  However, the Court of Appeals found that the conduct of the Dairy Farm, as alleged, would fall outside the normal agricultural operations exemption because AO’s report demonstrates that the Dairy Farm’s practices were not the dairy industry norm.    

Ultimately the Court of Appeals found that AO’s private criminal complaints did have merit and that the DA had enough evidence and a legal basis to prosecute AO's claims.  The Court of Appeals remanded the trial court’s decision and ordered that the DA to go ahead and prosecute the Dairy Farm on its alleged animal cruelty violations.  

Wyoming fails to pass legislation limiting what can be considered agricultural land.  The Wyoming House of Representatives struck down a recent piece of legislation looking to increase the threshold requirement to allow landowners the ability to classify their land as agricultural, have their land appraised at an agricultural value, and receive the lower tax rate for agricultural land.  Current Wyoming law classifies land as agricultural if: (1) the land is currently being used for an agricultural purpose; (2) the land is not part of a patted subdivision; and (3) the owner of the land derived annual gross revenue of $500 or more from the marketing of agricultural products, or if the land is leased, the lessee derived annual gross revenues of $1,000 or more from the marketing of agricultural products.  

Wyoming House Bill 23 sought to increase the threshold amount of gross revenues derived from the marketing of agricultural products to $5,000 for all producers.  The Wyoming Farm Bureau Federation and Wyoming Stock Growers associations supported the bill.  Proponents of the bill argued that the intent of agricultural land appraisals is to support commercial agriculture, not wealthy landowners taking advantage of Wyoming’s tax laws.  Opponents of the bill argued that House Bill 23 hurt small agricultural landowners and that the benefits of the bill did not outweigh the harms.  House Bill 23 died with a vote of 34-25, failing to reach the 2/3 approval for bills to advance.  

Oregon introduces legislation relating to overtime for agricultural workers.  Oregon House Bill 4002 proposes to require agricultural employers to pay all agricultural employees an overtime wage for time worked over 40-hours in a workweek.  House Bill 4002 does propose a gradual phase-in of the overtime pay requirements for agricultural employees.  For the years 2023 and 2024, agricultural employees would be entitled to overtime pay for any time worked over 55 hours in a workweek.  For 2025 and 2026, the overtime pay requirement kicks in after 48 hours.  Then in 2027, and beyond, agricultural employers would be required to pay an overtime pay rate to employees that work more than 40 hours in a workweek.   

Stack of W-2 forms.
By: Jeffrey K. Lewis, Esq., Friday, January 14th, 2022

As promised, here is the next and final installment of “An Agricultural Employer’s 2021 Tax Obligations: A Series” discussing an agricultural employer’s requirements and obligations under Ohio law.  This installment of the series provides an overview of Ohio employment taxes and additional employer obligations for Ohio’s agricultural employers.  This series covers an employer’s Ohio tax obligations and requirements that arise simply because a business has employees.  This series does not cover the business income or personal income tax reporting obligations of agricultural employers.  

We first discuss Ohio’s income and school district taxes and then we focus on Ohio’s unemployment insurance tax and Ohio’s workers’ compensation requirement for all employers.  The information contained within this series is not meant to be legal and/or tax advice, it is for educational purposes only.  Agricultural employers should seek out the counsel and guidance of an attorney or other tax professional to help ensure compliance with Ohio tax law.  

Ohio Employer Withholding Tax.   

Ohio Employer Withholding Tax.  Generally, employers are required to withhold Ohio income tax and school district tax from employees’ wages.  However, under Ohio law, Agricultural employers are not required to withhold Ohio taxes from wages paid to employees, so long as the employees fall under the definition of agricultural labor in 26 U.S.C. § 3121(g).  “Agricultural labor” includes all services performed:

  • on a farm, in the employ of any person, in connection with the cultivating, raising, and/or harvesting of any agricultural or horticultural commodity; or
  • in the employ of the owner or other operator of a farm, in connection with the operation, management, conservation, or maintenance of such farm and its tools and equipment. 

Can Ohio’s Agricultural Employers Agree to Willingly Withhold Ohio’s Taxes?  In short, the answer is yes.  An agricultural employee must still pay Ohio income tax and their local school district tax on all income earned throughout the year.  If an employee does not have their Ohio taxes withheld from their pay, they may be required to make quarterly estimated tax payments to the state.  Because of this, an employee may request their employer to withhold their Ohio taxes from each paycheck.  An agricultural employer is under no obligation to withhold Ohio taxes, but some do.    

Ohio Withholding Exemption Certificate.  It is important that each employer, even an agricultural employer, have its employees complete an Employee’s Withholding Exemption Certificate (Ohio IT 4).  For agricultural employers that are not going to withhold Ohio’s taxes, it must have each employee check the box next to “I am exempt from Ohio withholding under R.C. 5747.06(A)(1) through (6)” under Section III of Form IT 4.  If no Ohio IT 4 is completed, then an employer must withhold the Ohio’s taxes from an employee’s wages.  

Ohio requires an employer to keep Ohio IT 4 in its records for at least four years and must make it available to the Ohio Department of Taxation upon request

Registering as an Ohio Withholding Agent.  Employers that are required (or choose) to withhold Ohio’s taxes from employees’ wages must register with the Ohio Department of Taxation. This can be done one of three ways. 

  1. By internet.  Registration can be completed online through the Ohio Business Gateway
  2. By phone. Call 1-888-405-4089, listen for the message, and then press 2 to connect with an agent. 
  3. By mail or fax.  Complete Application for Registration as an Ohio Withholding Agent (Ohio IT 1) and mail it to the address provided on the form or fax it to the Ohio Department of Taxation at (614) 387-2165. 

How Much Ohio Income Tax Should an Employer Withhold?  To determine how much Ohio income tax to withhold, visit the Ohio Department of Taxation’s Employer Withholding Tables website

How Much School District Tax Should an Employer Withhold?  School districts impose a tax using one of two methods: traditional or earned income.  School district tax rates and a district’s method of taxation can be found on the Ohio Department of Taxation’s "Employer Withholding: Table of Contents" website.  

For traditional tax base school districts, an employer must use the same wage base and number of exemptions they use when calculating the employee’s Ohio income tax rate.  For earned income tax base school districts, an employer must withhold at a flat rate equal to the school district’s tax rate with no reduction or adjustment for personal exemptions. 

An employee’s school district is determined by the address of the employee’s residence.  School districts and the corresponding four-digit codes can be found at https://www.tax.ohio.gov/finder or by contacting the applicable county auditor. 

Electronic Filing Requirement.  Employers are required to file and pay Ohio income and school district withholding taxes electronically.  The easiest way to do this is through the Ohio Business Gateway.  

Filing Frequency and Payment of Ohio’s Employer Withholding Tax.  An employer’s filing frequency is determined by the combined amount of Ohio and school district income taxes that were withheld or required to be withheld during the look-back period.  Ohio’s look-back period is the 12-month period ending June 30th of the preceding calendar year.  An employer’s filing frequency is re-evaluated every year.  

Ohio’s Income Tax Filing Frequency

Quarterly.  Ohio employers that withheld $2,000 or less in Ohio taxes will be required to file and pay taxes every calendar quarter.  Ohio’s form IT 501 and payment are due by the last day of the month following each calendar quarter.  

Monthly.  Ohio employers that withheld more than $2,000 but less than $84,000 in Ohio taxes will be required to file and pay taxes every month.  Form IT 501 and payment are due within 15 days after the end of each month.  

Partial-weekly.  Ohio employers that withheld $84,000 or more in Ohio taxes are required to make payment of withheld taxes within three banking days from the end of each “partial-weekly period.”  There is no form that is required to be filed each time tax payments are filed.  There are two “partial-weekly periods” in which an employer can be categorized.  An employer’s partial weekly period depends on the day it issues payroll.   

Partial-weekly Period 1:  An employer is in period 1 if it issues payroll on Saturday, Sunday, Monday, or Tuesday. 

Partial-weekly Period 2:  An employer is in period 2 if it issues payroll on Wednesday, Thursday, or Friday.

Remember, payment is due within three banking days from the end of each period.  So, if an employer issues payroll on Wednesday, it must submit payment of Ohio taxes within three banking days starting on Friday. 

School District Tax Filing Frequency.  School district tax filing frequency is the same as an employer’s Ohio income tax filing frequency except for employers that qualify as partial-weekly filers.  Partial-weekly employers are required to file school district tax on a monthly basis.  Every time an employer files and remits the school district tax they must complete “Payment of School District Income Tax Withheld” (Ohio SD 101), which can be found on the Ohio Business Gateway.  

Quarterly and Annual Forms.  An employer’s filing obligations do not end by filing the above forms each time it remits payment of Ohio’s taxes.  The following are additional forms that must be completed by an employer either on a quarterly or yearly basis.  Not every form listed below needs to be completed by every employer.  Certain forms correspond with an employer’s filing frequency classification.  These forms can be found on the Ohio Business Gateway.  

Quarterly/Monthly Filers.  Employers that qualify to file and pay Ohio income taxe on a quarterly or monthly basis must file an “Annual Reconciliation of Income Tax Withheld” (Ohio IT 941).  Ohio IT 941 is typically due no later than January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).  The total tax withheld on Ohio IT 941 must equal the amount reported on Ohio IT 3 (discussed below).  

Partial-weekly Filers.  Employers that must pay Ohio taxes on a partial-weekly basis must file a “Quarterly Reconciliation of Income Tax Withheld” (Ohio IT 942) by the last day of each month following a calendar quarter for the 1st, 2nd, and 3rd Quarters.  A different Ohio IT 942 form titled “4th Quarter/Annual Reconciliation of Income Tax Withheld” is to be filed by partial-weekly employers by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).  Partial-weekly employers do not submit Ohio IT 941.  

“Transmittal of W-2 and 1099-R Statements” (Ohio IT 3).  All employers must submit Ohio IT 3, which can be done electronically on the Ohio Business Gateway.  Ohio IT 3 requires an employer to report and upload employee W-2s/1099-Rs.  The amount of Ohio taxes withheld and paid by an employer must match the information contained within the W-2s and 1099-Rs.  Ohio IT 3 is usually due by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).

“Annual Reconciliation of School District Income Tax Withheld” (Ohio SD 141). Employers must also submit Ohio SD 141, which can be done electronically on the Ohio Business Gateway.  Ohio SD 141 compares the amount of school district tax withheld and paid by an employer and the information contained within the W-2s and 1099-Rs uploaded when an employer files Ohio IT 3 (see above).  The amount of school district tax withheld and paid should match the information contained within the W-2s and 1099-Rs submitted by an employer.  Ohio SD 141 is usually due by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).

Ohio Unemployment Insurance Tax. 

When are Agricultural Employers required to pay Ohio’s Unemployment Insurance? Agricultural employers must pay the Ohio Unemployment insurance tax if it: 

  • Paid cash wages of $20,000 or more in a calendar to agricultural employees in the current calendar year or the preceding calendar year; or 
  • Had at least 10 agricultural employees for some portion of a day in 20 different weeks in the current year or the preceding year

Other Ways Employers can Become Liable for Ohio’s Unemployment Insurance Tax.  An employer can also be required to pay the Ohio Unemployment Insurance tax if it:

  1. Is subject to the Federal Unemployment Tax Act (“FUTA”) in either the current calendar year or preceding calendar year.  
  2. Acquires a business that was subject to Ohio’s unemployment insurance tax. 
  3. Elects to cover its employees voluntarily. 

Employer Must Report Its Own Liability.  Employers are required to report liability by filing “Report to Determine Liability” (JFS 20100) to the Ohio Department of Job and Family Services (the “ODJFS”), which can be done online at https://thesource.jfs.ohio.gov.   The ODJFS will determine an employer’s liability based on the information provided in JFS 20100.  If an employer is deemed to be liable for Ohio Unemployment Insurance, the ODJFS will issue a 10-digit employer account number.  

Employer Reporting.  Liable employers are required to file quarterly reports to the ODJFS.  Agricultural employers that must pay into the Ohio unemployment insurance fund must file the “Employer’s Wage Detail Report” and the “Quarterly Summary Report.” Employers who had no workers or paid no wages during a quarter are still required to file the above-mentioned reports.  Employers with fewer than 200 employees should file their quarterly reports by using the Ohio Business Gateway or ODJFS’s “The SOURCE Online”  The reports must be filed no later than the last day of the month following the end of a calendar quarter.  

Employer Contributions.  Like FUTA, only the employer is responsible for Ohio’s unemployment insurance tax. Payments made into the Unemployment Insurance Trust Fund are called “contributions.”  Contribution rates are determined by an employer’s “experience rating” which is a measure of how much an employer has paid in unemployment taxes and has been charged in benefits.  For more information about contribution rates, visit https://jfs.ohio.gov/ouio/uctax/rates.stm.

Contributions are due no later than the last day of the month following the end of a calendar quarter.  To determine how much tax is due each quarter, an employer multiplies its unemployment tax rate by the amount of taxable wages paid during the quarter.  Contributions must be made each quarter until the “taxable wage base” for each employee has been met.  The taxable wage base for 2022 is $9,000.  This means that an employer is only required to pay its unemployment insurance tax rate on the first $9,000 dollars earned by each employee.  If an employer is unable to make a contribution, the unpaid balance will bear an annual interest rate of 14%, compounded monthly.  

Ohio Workers’ Compensation

While not technically a “tax,” every employer in the state of Ohio, with one or more employees, must have workers’ compensation coverage.  This includes agricultural employers.  There are, however, certain businesses that do not have to carry workers compensation coverage.  These businesses include: 

  • Sole proprietors with no employees
  • Partnerships with no employees
  • Family farm corporations with no employees
  • Limited liability company acting as a sole proprietorship with no employees
  • Limited liability company acting as a partnership with no employees

As you can see, the common attribute shared by the exempt businesses listed above is the fact that those businesses have no employees.  What this means is that if anyone, other than an owner, is performing services for a business and being paid for those services, then the business is required to carry workers’ compensation coverage.  So, for example, if a couple owns and operates a small family farm corporation and only the couple performs the work on the farm, then workers’ compensation coverage is not required.  

Elective Workers’ Compensation Coverage.  For those employers that are not required to carry workers’ compensation coverage, they may still elect to do so.  Oftentimes, businesses elect to carry workers’ compensation insurance to prevent the devastating side effects of a serious injury sustained by an owner.  Using the example of the family farm corporation from above, if the couple decides not to carry workers’ compensation coverage and one of them is injured while farming, their health insurance company may deny their claim because the injury was work-related.  Generally, on-the-job injuries must be covered through workers’ compensation, not an individual’s health insurance.  So, the couple could begin to amass a large sum in medical bills due to the lack of insurance coverage, possibly bankrupting the farm corporation.    

Applying for Workers’ Compensation Coverage.  Employers required to carry workers’ compensation coverage must apply for coverage by submitting the “Application for Coverage (U-3)” to Ohio’s Bureau of Workers’ Compensation (“BWC”) which can be found at https://www.bwc.ohio.gov/employercoverage.  Employers electing to obtain coverage can apply by submitting the “Application for or Request to Cancel Elective Coverage (U-3S)” which can be found by visiting https://info.bwc.ohio.gov/wps/portal/gov/bwc/for-employers/employer-forms/application-for-request-cancel-elective-coverage.

Workers’ Compensation Premiums.  The BWC calculates an employer’s premium based on several factors, including total payroll, type of work performed by employees, and an employer’s workplace injury record.  

Premium Payments.  Installment payments of an employer’s premium is based upon a schedule chosen by the employer.  The BWC will send an invoice to each employer for premium/installment payments.  Payments can be made through an e-account on the Ohio Bureau of Workers’ Compensation website

Alternative Premium Rate Plans.  It's no secret that workers' compensation insurance can be a costly expense for an employer.  However, the BWC does have alternative premium rate plans for employers looking to reduce the cost of workers' compensation insurance.  These alternative rate plans allow employers that operate similar businesses to join together to potentially achieve a lower premium rate than they could obtain as individual employers.  For more information on alternative premium rate plans visit https://www.bwc.ohio.gov/downloads/blankpdf/altrate.pdf 

Conclusion.  This series was split into two posts because of the massive amount of information presented.  However, the broad overview of this series was very surface level.  There are many exemptions, exceptions, alternate requirements, or additional requirements based on an employer’s unique circumstances that we did not cover for the sake of brevity.  That is why is it important to speak with an attorney or other tax professional so that they can help you navigate federal and state tax laws to make sure you are fulfilling your obligations as an employer and to address any questions or concerns that you may have.  

References and Resources: 

Ohio Administrative Code Chapter 4123, Bureau of Workers’ Compensationhttps://codes.ohio.gov/ohio-administrative-code/4123

Ohio Bureau of Workers’ Compensation, BWC Basics for Employershttps://www.bwc.ohio.gov/downloads/blankpdf/BWCBASICS.pdf

Ohio Bureau of Workers’ Compensation, Workers’ Compensation Overviewhttps://info.bwc.ohio.gov/wps/portal/gov/bwc/for-employers/workers-compensation-overview

Ohio Department of Job and Family Services, Employer’s Guide to Ohio Unemployment Insurance,http://www.odjfs.state.oh.us/forms/num/JFS08201/pdf/  

Ohio Department of Job and Family Services, Unemployment Insurance: Employer Resource Hubhttps://unemploymenthelp.ohio.gov/employer/

Ohio Department of Job and Family Services, UI Tax for New Employershttps://jfs.ohio.gov/ouio/uctax/UITaxForNewEmployers.stm

Ohio Department of Taxation, 2022 Ohio Employer and School District Withholding Tax Filing Guidelines,https://tax.ohio.gov/static/employer_withholding/2021%20filing%20guidelines%20updates_rev%2012-22-21.pdf

Ohio Department of Taxation, Estimated Paymentshttps://tax.ohio.gov/wps/portal/gov/tax/individual/resources/estimated-payments

Ohio Revised Code Chapter 4141, Unemployment Compensationhttps://codes.ohio.gov/ohio-revised-code/chapter-4141

Ohio Revised Code Chapter 4123, Workers’ Compensationhttps://codes.ohio.gov/ohio-revised-code/chapter-4123

Ohio Revised Code Chapter 5747, Income Taxhttps://codes.ohio.gov/ohio-revised-code/chapter-5747

Ohio Revised Code Chapter 5748, School District Income Taxhttps://codes.ohio.gov/ohio-revised-code/chapter-5748

 

 

 

 

 

 

 

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