Independent Contractor Compliance and Misclassification Legal Blog

The Chief of the IRS’s Employment Tax Policy section, John Tuzynski, told lawyers on May 10, 2013 at an American Bar Association’s meeting of tax lawyers in Washington, D.C. that the IRS will soon be pursuing more cases involving independent contractor (IC) misclassification through its Questionable Employment Tax Practices (QETP) program.

The QETP program was first announced in November 2007.  It is a collaborative, nationwide program seeking to identify “employment tax schemes and illegal [tax] practices.”  The Program was developed by the IRS in conjunction with the National Association of State Workforce Agencies, the U.S. Department of Labor, the Federation of Tax Administrators, and the state workforce agencies of California, Michigan, New Jersey, New York, and North Carolina. As a result of their collective regulatory actions, a QTEP memorandum of understanding (MOU) was drafted and submitted to the state workforce agencies in all 50 states.

What states have agreed to participate in the IRS’s QETP program?  As of today, according to John Tuzynski, 37 state workforce agencies have signed the MOU to work with the IRS. Those states include Arizona, Arkansas, California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington and Wisconsin.

What Will Happen under the MOU?  The IRS and the participating state workforce agencies will exchange employment tax information for civil cases, which the government believes are primarily intended to evade or inappropriately reduce employment tax liabilities. The IRS and the states may also participate in coordinated enforcement efforts. The MOU will allow the IRS and the state workforce agencies to share independently conducted examination results or work side by side on an examination.  In addition, under the MOU, the IRS and the states will share employment tax training opportunities and materials.

Why haven’t we heard much about the QTEP program lately?  It appears that the QTEP Program
was overshadowed by later information-sharing arrangements between the IRS and the U.S. Department of Labor, which has itself entered into MOUs with an increasing number of state workforce agencies.  See our prior blog post in September 2011 when the DOL and IRS first announced its joint initiative.

When will the QETP program re-start?  According to John Tuzynski, the IRS will begin more audits focusing on worker classification matters under the QETP program in eight to ten months, when it is expected to complete its National Employment Tax Research Project, where it has undertaken 6,000 comprehensive audits in the past three years.

How are other cases of IC misclassification coming to the attention of the IRS?  According to Mr. Tuzynski, there have been many cases, particularly those related to worker classification, that are coming to the attention of the IRS through its whistleblower program.

What does this mean for businesses that use ICs?  Companies that currently use ICs to supplement their workforce or that operate on an IC business model should take affirmative state-of-the-art steps to enhance their state of IC compliance.  Many of those businesses are understandably concerned that their IC agreements may be outdated at best and recognize that their day-to-day practices are often inconsistent with the structure of the relationship set forth in the IC agreement.  Such companies are asking questions such as, can the positions we pay on a 1099 basis be structured legitimately as an independent contractor relationship?  Do such positions need to be re-structured, re-documented, or put into practice in a manner different than the way we are doing it now?

How can companies enhance their IC compliance?  Businesses that wish to minimize their exposure to IC misclassification liability are benefiting from the use of proprietary tools such as IC Diagnostics™, a compliance process utilizing proprietary tools, including the 48 Factors-Plus™ analysis and IC Compliance Scale™.   These tools measure compliance with applicable IC laws and guide companies through the process of re-structuring and then re-documenting and re-implementing their IC relationships.  The use of these types of tools leads to enhancement of IC compliance and, in turn, minimizes the risk of misclassification liability, as more fully detailed in our White Paper .

Richard Reibstein
Lisa Petkun
Andrew Rudolph

The U.S. Department of Labor has targeted a number of industries for allegedly misclassifying employees as independent contractors (ICs), and cable companies are one of them.  On May 9, 2013, the Labor Department announced in a press release that Bowlin Group LLC, which provides installation services for Insight Communications, a cable television, telephone, and Internet service provider in Kentucky, agreed to a consent judgment in federal court to pay $1,075,000 in back wages and liquidated damages.

The payments will be made to 77 cable installers whom Bowlin Group allegedly misclassified as ICs and then failed to pay overtime compensation at the rate of time-and-a-half to the IC installers as well as other similarly situated installers whom Bowlin designated as employees.  The consent judgment was signed April 30, 2013 by federal court Judge David L. Bunning of the U.S. District Court for the Eastern District of Kentucky.  Harris v. Bowlin Group, LLC, Case 2:12-cv-00076 (E.D. Ky. April 30, 2013).

In addition, under the consent judgment, Bowlin Group, its affiliates, and two Bowlin executives, Kerry Bowlin and James Martin, consented to a permanent injunction barring them from failing to pay overtime and minimum wages and keeping and preserving employment records in violation of the provisions of the federal Fair Labor Standards Act.  The consent judgment includes a non-admission clause that Bowlin Group and the other defendants are settling disputed claims in good faith to avoid legal fees.

Analysis: A Failure to Structure, Document, and Implement IC Relationships

It appears from the allegations and the DOL’s press release that Bowlin Group may not have structured its relationship with its installers in a manner that likely complied with the FLSA and comparable laws governing ICs.  Bowlin Group may have used both employees and ICs relatively interchangeably as cable installers.

While there is nothing under the FLSA and other comparable laws that prohibit a business from using both employees and ICs to perform the same end-result, many companies that do so fail to take steps to structure, document, and implement properly their IC relationships to demonstrate the important differences between ICs and their employees.  While these steps are essential for all companies using ICs, they are absolutely critical for any company that uses both employees and ICs to perform an end-result that is the same or appears to be the same.  Absent such steps, a business is advertising that it may be misclassifying a portion of its workforce.

Although the Labor Department’s press release states that “misclassification of employees as independent contractors . . . leads to unfair competition because businesses that play by the rules operate at a disadvantage to those that don’t,” many companies that may not currently be “playing by the rules” can readily accomplish that objective and gain a lawful competitive advantage over others in the industry.

Takeaways and Best Practices

As we noted in a prior blog post about another cable company that was also the subject of a costly class action lawsuit, the position of cable installer is an example of a function that can be legitimately structured and documented as an IC, consistent with federal and most state law tests for IC status. It is similar to the jobs of workers in many other industries that lawfully can exist either within a legitimate IC or an employment relationship, depending on how that relationship with the hiring party is structured, documented, and implemented. Examples of some of the many workers that can lawfully be either ICs or employees under federal and most state laws include:

• physicians and other medical personnel,
• recruiters,
• interpreters and translators,
• court reporters,
• truck drivers and couriers,
• computer technicians,
• taxicab or limo drivers,
• physical and occupational therapists,
• designers,
• models,
• carpet installers,
• writers and editors,
• IT consultants,
• route salespersons,
• insurance agents,
• coaches, trainers, and officials,
• tutors and instructors,
• sales consultants,
• attorneys,

as well as many others. Some states have statutes specifically excluding certain types of workers from being considered employees, or specifically mandating that they be regarded only as employees. Further, many states have laws with different tests for determining if an individual is an employee or independent contractor. Only a few states have laws that are inhospitable to almost all types of ICs.

The Bowlin Group case illustrates the value of using, in advance of a legal challenge, a methodology such as IC Diagnostics™ to (a) evaluate whether an existing position can be legitimately structured as an independent contractor relationship, and (b) if so, whether it needs to be restructured, re-documented, and re-implemented to maximize the likelihood that those workers will be held to be ICs and not employees.  Other proprietary compliance tools include the 48 Factors-Plus™ analysis and IC Compliance Scale.™

The costs of misclassification do not always end in class action cases when the last payment is made to the prevailing workers.  Any company settling a case brought by the Labor Department may also be facing liabilities for unpaid payroll taxes at the federal and state levels, unpaid unemployment tax payments, and workers compensation premiums.  There may also be claims for unpaid employee expenses and unpaid employee benefits.

A settlement or adverse IC determination, however, should not necessarily be regarded as an obligation on the part of the business to treat the workers in question as employees on a going-forward basis. If the liabilities from an adverse IC determination can be satisfied, many businesses can adopt an IC model that may well survive future scrutiny under federal and most state laws, provided the business properly engages in bona fide restructuring, conducts proper re-documentation, and implements and follows new, state-of-the-art IC practices.

Richard Reibstein
Lisa Petkun
Andrew Rudolph

April 2013

In the Courts

• New York federal district court grants plaintiffs’ motion for class certification in lawsuit  alleging that the United States Tennis Association (USTA) misclassified U.S Open umpires as independent contractors and failed to compensate them with overtime pay in violation of the New York Labor Law and Fair Labor Standards Act. The court rejected the USTA’s arguments that the plaintiffs could not show commonality or typicality, that common questions did not predominate, and that the class action is not the superior method of adjudicating the claims.  Meyer et al. v. United States Tennis Association, 11 Civ. 6268 (S.D.N.Y. April 25, 2013).
• Trucking and courier company reaches $700,000 settlement with its drivers in Pennsylvania who had brought class action lawsuit alleging that they had been misclassified as independent contractors in violation of Pennsylvania Wage Payment and Collection Law. Sherman, et al. v. American Eagle Express, Inc., Civil Case No. 09-0575 (E. D. Pa. April 12, 2013).
• California federal court grants plaintiffs’ motion for certification of a collective action brought against a military government contractor under the Fair Labor Standards Act. In October 2012, a class action complaint was filed against MHN Government Services and its parent, Managed Health Network (MHN), claiming that the government contractor misclassified over 1,200 employees (Military Family Life Consultants) as independent contractors and, as a result, failed to pay massive amounts of overtime pay as required under the federal wage and hour law.  See our prior blog post regarding this case, published October 9, 2012.  Zaborowski, et al. v. MHN Government Services, Inc., No. C 12-05109 SI (N. D. Ca. April 25, 2013).
• $8 million class action settlement reached between adult dancers and the Penthouse Executive Club where dancers claimed they were employees under federal and state laws and had been misclassified as independent contractors.  See prior blog post dated April 9, 2013, entitled, “$8 Million Independent Contractor Misclassification Class Action Settlement.”

On the Legislative Front 

• Arkansas law entitled “An Act to Regulate Motor Carriers in Relation to Workers’ Compensation Laws” was enacted April 12, 2013, allowing owner-operators of commercial motor vehicles to maintain independent contractor status even if they elect to be covered under a workers’ compensation policy or self-insurance plan that insures the motor carrier for whom they provide services.  This legislation appears to be protective of independent contractor status in the Arkansas transportation industry.
• North Carolina bill (H.B. 826) introduced in the state House of Representatives on April 10, 2013 seeks to amend that state’s labor laws by requiring employers to notify employees in writing of their employment status both at the time of hire and upon any material changes in the relationship; imposing fines for misclassification of independent contractors, including more substantial fines when the violation is intentional; and  defining “employment status” using  common law rules.
• Members of New York Teamsters Union attend advocacy day in Albany, New York seeking legislative support for proposed “New York State Commercial Goods Transportation Industry Fair Play Act” (A05237, S04589). This bill, introduced with identical language in the Assembly in February and the Senate in March, is limited to the trucking industry and, among other things, imposes a presumption of employment unless several detailed factors are demonstrated evidencing independent contractor status or that the person has a separate business entity, and provides for penalties for misclassification, including willful violations.
• Public hearing held on April 17, 2013 regarding Texas bill (HB 1925) outlining factors to be met in order to classify certain individuals as independent contractors in the construction industry and penalties to be assessed for misclassification.

Other Newsworthy Matters 

• President Obama’s 2014 fiscal year Budget makes clear that his administration, through the Department of Labor, intends to continue its crack down on employers who are misclassifying employees as independent contractors. The budget includes $14 million to combat misclassification, including $10 million for grants to States to identify misclassification and recover unpaid taxes and $4 million for personnel at the Wage and Hour Division to investigate misclassification.  See prior blog post dated April 10, 2013 entitled, “The 2014 Budget and Independent Contractor Misclassification: ‘Preventing and Detecting Misclassification of Employees as Independent Contractors’ Remains a Funding Highlight in President Obama’s Newest Budget.”

Published by Richard Reibstein, Lisa Petkun, and Andrew Rudolph.  Compiled by Janet Barsky.

* * * * To receive blog posts and regular Monthly IC Compliance and Misclassification News reports, you may subscribe by e-mail or RSS to the Independent Contractor Compliance and Misclassification Legal Blog.

* * * * Invitation to upload content: Readers may contribute to this repository of newsworthy matters by sending an e-mail to ICComplianceBlog with any recent:

• court cases commenced;
• developments or updates in existing court cases, including any judicial decisions;
• legislative bills proposed or enacted;
• regulatory or administrative actions, including enforcement initiatives and task force developments; and
• other newsworthy matters, such as newspaper articles, white papers, and government press releases and reports.

Two prior blog posts have focused on the rising costs of misclassification liability for trucking, delivery, and transportation companies and the industry’s efforts to avoid such costs when confronted by state laws governing the status of independent contractors (ICs).  One of the ways in which such companies have been seeking to avoid misclassification liability in response to state law challenges is an argument that the Federal  Aviation Administration Authorization Act (FAAAA) preempts all state laws that attempt to regulate “a price, route, or service” of a motor carrier. A new court decision recently rejected that argument, and did so emphatically.

We first reported in November 2010, in one of our most widely-read blog posts (other than our  six posts on the legal challenges to FedEx Ground’s classification of drivers as ICs), that 3PDelivery settled two class action IC misclassification cases for $2.25 million covering drivers in Oregon and Washington.

We noted in the first of two takeaways in that blog post that, when the legal fees of the plaintiffs’ lawyers and 3PD’s own lawyers were added, the “real costs” of that settlement covering drivers in only those two states would exceed $7 million, plus the costs that such companies typically have to pay when they “settle up” with the IRS and state revenue departments as well as state unemployment and workers compensation agencies. 

In the second takeaway, we noted that the “3P Delivery case is an example of how a company can become a casualty of failing to structure its relationship with its drivers in a bona fide manner that complies with applicable employment, tax, benefits, and independent contractor laws,” and that “there are at least three steps companies can take to enhance their compliance with independent contractor laws and minimize or eliminate exposure to future misclassification liability.”

The FAAAA preemption argument was the subject of a blog post in January 2012. We noted that the Massachusetts Delivery Association (MDA) has succeeded on appeal of a federal district court’s dismissal of its lawsuit to invalidate the Massachusetts Independent Contractor Law as an impermissible law “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.”  The appellate court did not rule on the validity of the defense, only that the MDA should be allowed to challenge the state law as being in conflict with the FAAAA.  The Massachusetts Attorney General had objected, arguing that the argument was currently being considered in the 3PD case.

The federal court considering that issue in the 3PD case has now ruled.  In a decision issued on March 27, 2013, Judge Douglass Woodlock considered the preemption argument and found that it was not “persuasive.”  The judge found that the Massachusetts Independent Contractor Law “do[es] not seek to regulate the prices 3PD sets for its services [as 3PD claims], but rather to seek to enforce 3PD’s obligations as an employer under Massachusetts law.”  Celso Martins v. 3PD, Inc., No. 11-11313 (DPW) (D. Mass. Mar. 27, 2013).

Although the judge in the 3PD case denied the plaintiff drivers’ motion to add as additional defendants the President and the Chief Operating Officer of 3PD because the motion was tardy, the remainder of the court’s decision was generally unfavorable to the delivery company. The court certified the case as a class action despite recent U.S. Supreme Court decisions making class certification more difficult generally, and granted the plaintiffs’ motion for summary judgment finding that the drivers “are employees of 3PD for purposes of Massachusetts law.”

Notably, the court took judicial notice of 3PD’s historical website descriptions of its business when 3PD argued that the website description from 2012 should not apply to earlier periods of time.  Finding 3PD’s arguments to be “disingenuous,” the court found that the “historical versions of the 3PD website available on the Internet Archive at Archive.org” (i.e., caches of prior website descriptions of its business) could be used as evidence under the doctrine of judicial notice.

Commentary:

3PD has not fared well to date in its legal challenges to its classification of its drivers as ICs. But, businesses in the delivery industry can lawfully classify delivery drivers as ICs, provided the companies do so in a manner cognizant of the contours and nuances in this area of the law. One judicial decision that we reported on in a blog post in April 2012 found that a mattress company’s drivers were properly classified as ICs.

Proper classification is not a daunting undertaking for a business if the company structures, documents, and implements its IC relationship in an IC-compliant manner consistent with the relevant test for classification of workers as ICs or employees.  Although the U.S. Government Accountability Office (GAO) has stated that “[t]he tests used [at the federal level] to determine whether a worker is an independent contractor or an employee are complex, subjective, and differ from law to law” (see GAO Report No. 06-656 at 25), and while the tests used by state regulatory agencies in enforcing state laws are even more diverse than the federal tests, IC compliance is attainable in most instances if a business is committed to long-term compliance instead of short-term goals.

There are diagnostic and treatment tools available to companies facing possible misclassification liability,  whether in the delivery and transportation industry or in other industries.  For example, businsses can meaningfully enhance their IC compliance through IC Diagnostics™ and other tools that measure and evaluate IC compliance both before and after, and offer proven means to re-structure, re-document, and re-implement IC relationships in a manner consistent with federal and state laws, with few exceptions.

Your comments are invited.

Richard Reibstein, Lisa Petkun and Andrew Rudolph

The President’s long-awaited 2014 fiscal year budget was released earlier today, April 10, 2013.  One of the “funding highlights” listed in the section of the Budget covering the Department of Labor is to “Maintain support for agencies that protect workers’ wages, benefits, health and safety, and invest in preventing and detecting the misclassification of employees as independent contractors.” 

On page 126 of the Budget, the President states that his Administration seeks to detect and deter the misclassification of workers as independent contractors. Specifically, the Budget states:

“When employees are misclassified as independent contractors, they are deprived of benefits and protections to which they are legally entitled such as minimum wage, overtime, unemployment insurance, and anti-discrimination protections. Misclassification, together with the underreporting of cash income for those paid as independent contractors, also costs taxpayers money in lost funds for the Treasury and in Social Security, Medicare, the Unemployment Trust Fund, and State programs. The Budget includes approximately $14 million to combat misclassification, including $10 million for grants to States to identify misclassification and recover unpaid taxes and $4 million for personnel at WHD [the Wage and Hour Division] to investigate misclassification.”

The Acting Secretary of Labor, Seth D. Harris, released a press release today about the fiscal year 2014 budget covering the Labor Department, listing the “Highlights of the FY 2014 budget request.” The third highlight provides: “Nearly $14 million to combat the misclassification of workers as independent contractors, which deprives workers of benefits and protections to which they are legally entitled and puts law-abiding businesses at a disadvantage against employers who violate the law.”

Commentary:

With the continued funding commitment by the President, the U.S. Department of Labor has, year by year, increased its own efforts and enhanced its enforcement coordination with other federal and state agencies. Last year, more state workforce agencies, including those from California and Louisiana, signed the Labor Department’s Memorandum of Understanding with states to work collectively with the federal government “to reduce misclassification of employees as independent contractors.” Most recently, Iowa signed the Memorandum of Understanding on January 17, 2013, joining those two other states as well as Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah, and Washington.

The Labor Department has also signed a Memorandum of Understanding with the IRS covering their “joint initiative to improve compliance with law and regulations administered by the IRS and DOL” to be “accomplished through enhanced information sharing and other collaboration” headed by a “joint IRS-DOL team.”

While federal legislative bills to curtain misclassification have not enjoyed bipartisan support, the emphasis on detecting and deterring IC misclassification has legislative support at the state levels; 24 states have passed legislation since July 2007 seeking to curtail IC misclassification through increased penalties, more stringent legal tests for ICs, information sharing among state agencies, and joint task force initiatives.

Best Practices for Enhancing Compliance:

Companies concerned about this continued crackdown on IC misclassification in the form of state and federal regulatory and enforcement initiatives and the proliferation of class action litigation can ameliorate their concerns in most instances by enhancing their IC compliance through IC Diagnostics™ and other means to minimize or eliminate misclassification liability.

Exposure to IC misclassification liability can be reduced by re-structuring, re-documenting, and re-implementing IC relationships, or re-classifying or re-distributing ICs.  That process oftentimes begins with an evaluation of the extent to which IC compliance should be enhanced, using, for example the IC Compliance Scale™ after examining the 48 Factors-Plus™ or other diagnostic tools. While there is no one-size-fits-all approach or simple fix, and standard or model agreements alone have little value in preventing misclassification liability, enhancing IC compliance is nonetheless readily attainable by many businesses. All too often, however, businesses wait until they receive an audit request by a tax or workplace agency, or a claim for unemployment or workers compensation benefits, or a court lawsuit. While those cases are not “lost causes” even at that late stage and can sometimes be won by counsel experienced in this area of the law, they can usually be avoided with efforts undertaken before receiving an audit request, claim, or summons and complaint.

Your comments are invited.

Richard Reibstein
Lisa Petkun
Andrew Rudolph

In October of 2010, we reported on a federal court decision certifying a class action of adult dancers that performed services at the Penthouse Executive Club in New York City; the dancers claimed they are “employees” under federal and state laws and had been misclassified as independent contractors (ICs). They had  alleged, among other things, that the Club violated the federal Fair Labor Standards Act (FLSA) by failing to pay them overtime for hours worked in excess of 40 per week, required them to pay a “house fee” that sometimes exceeded $100 per night and deducted service charges for tips.  The claims also included alleged violations of state wage laws. Penthouse asserted as a defense that the adult dancers were ICs and therefore it did not violate any federal or state wage and hour laws that only cover “employees.”

Two and a half years later, following discovery of thousands of pages of documents including time, payroll and tip allocation records, tax documents, and financial records, responding to interrogatories and the taking of depositions of the Club’s managers, a proposed settlement has been reached following a third mediation session. The total cost of the settlement to the Club and their executives is $8,000,000.

That payout is proposed to be allocated among the 1,245 class members, their four sets of lawyers, and the settlement claims administrator.  The lawyers’ fees, subject to court approval, are capped at $2,175,000 (slightly over 27% of the $8 million fund).  Under the proposed settlement, each class member would receive a minimum payment of $3,727.79.  In an uncommon circumstance, one of the named class representatives has indicated that she opposes the proposed settlement.

Takeaways:

As noted in the prior blog post on this case, where a business uses a relatively large number of independent contractors or is built on an independent contractor model, it faces misclassification liability not only for unpaid overtime and other types of wage claims but also for unpaid:

• unemployment taxes,
• workers compensation premiums,
• payroll taxes, and
• employee benefits,

just to name some of the many types of claims made by workers who claim they were misclassified as independent contractors.

Thus, in addition to the $8 million cost of this settlement, the business is likely to be faced with substantial additional costs of misclassification.  Another cost of this settlement, of course, is the business’s own legal fees; if the lawyers’ fees for the plaintiffs are as high as $2.175 million, it is likely that the defendants’ own legal fees will equal or exceed that amount as well, pushing the cost of the class action lawsuit to over $10,000,000.

Businesses that use many independent contractors or pay workers on a 1099 basis are well advised to address the issue of their independent contractor compliance before receiving a notice from a state unemployment or workers compensation office, before receiving notice from the IRS or state revenue department that it will be conducting a tax audit, or before being served with a summons and complaint (which can lead to class action certification if the case involves a substantial number of similarly situated workers).

Regardless of any business’s current state of compliance with such laws, there are a number of ways by which organizations can enhance their future compliance and minimize their exposure to future misclassification liabilities, including the costs of defending class actions by workers who receive 1099s instead of W-2s. See “Independent Contractor Misclassification: How Companies Can Minimize the Risks,” May 14, 2012, by the co-authors of this blog post. Indeed, some of these class actions seek damages for unpaid employee benefits – an area of exposure that can often be avoided simply by properly amending the language of a company’s benefit plans, as explained in the above article.

While efforts today to enhance independent contractor compliance cannot eliminate past exposure to misclassification liability, any changes that enhance compliance with the independent contractor laws will not only minimize or avoid future liability but also lessen the likelihood that the business will become a target for class action lawyers and government agencies.

Your comments are invited.

Richard Reibstein
Lisa Petkun
Andrew Rudolph

March 2013

In the Courts:

• A Pennsylvania federal district court grants motion of trucking and courier company, American Eagle Express (AEX), to decertify a class of 201 delivery drivers who allege that AEX misclassified them as independent contractors and denied them overtime compensation under the federal Fair Labor Standards Act (FLSA). Although the drivers, who had been conditionally certified as a class in 2011, all signed a contract classifying them as independent contractors,  the court found that they were not similarly situated because AEX policies were not uniformly applied among the drivers.  Some were given specific start times, while others had no set hours; some testified that they could not refuse assignments, while others said they could; some described AEX as setting the order and sequence of deliveries, while others testified that they were free to rearrange the deliveries. In a decision dated March 14, 2013, the court found that because the economic realities test for determining independent contractor status under the FLSA requires an individualized assessment of the worker’s actual relationship with AEX, the varying employment circumstances would make the certification of a class unsuitable. Spellman v. American Eagle Express d/b/a AEX Group, No. 10-1764 (E.D.Pa. Mar. 14, 2013).
• Illinois federal district court grants motion for summary judgment under the Illinois Employee Classification Act (ECA) by construction workers who claimed that they had been misclassified as independent contractors.  The Court found that the contractor’s conclusory statements that it did not exert control over the workers, that the work was not performed outside of the place of business, and that the workers were not members of an independently established trade were insufficient to defeat the workers’ motion for summary judgment on the ECA claims. Summary judgment was denied under the FLSA, Illinois Minimum Wage Law, and Illinois Wage Payment and Collection Act; the Court concluded that there were too many disputed and inconclusive issues of fact to grant the  motion as to those other claims.  Jaworski v. Master Hands Contractors, No. 09 C 07255 (N.D.Ill. Mar. 27, 2013).

On the Legislative Front:

• First public hearing held on March 4, 2013 regarding Oregon bill (H.B. 2907) proposing that the Oregon Bureau of Labor and Industries establish a full-time position for an investigator to investigate misclassification of employees as independent contractors and assess graduated civil penalties for misclassification.

Regulatory and Enforcement Initiatives: 

• U.S. Department of Labor’s Wage and Hour Division (“WHD”) collects over $226,000 in back wages and liquidated damages from a Georgia company, Southeastern Painting Contractors, which misclassified 67 painter-employees working on a federally-funded construction project as independent contractors and failed to pay them overtime compensation under the FLSA. In a press release by the WHD on March 4, 2013, the company was also was found to have violated the minimum wage and recordkeeping requirements of the FLSA and the prevailing wage and fringe benefits provisions of the Davis-Bacon Act. The WHD found that despite the company’s designation of the painters as ICs, none of the 67 was found to be “true independent contractors with businesses of their own.”
• Comments were submitted to the U.S. Department of Labor by interested parties including one of the publishers of this blog in response to the DOL’s proposed questions to be asked of workers and employers in the DOL’s upcoming Worker Classification Survey.  As noted in the Comments filed by Richard Reibstein, “absent substantial revisions to close to three dozen of the proposed interview questions to be asked of workers selected for the survey, the information to be collected would not likely serve any ‘practical utility.’”  See prior blog post dated March 19, 2013 entitled, “Comments Submitted on Worker Classification Study to U.S. Department of Labor.”

Other Newsworthy Matters:

• Business industry groups weigh in with comments on proposed regulations on the Affordable Care Act.  As noted by the publishers of this Blog, the Act extends the range of potential collateral consequences of independent contractor misclassification and retroactive re-classification of service providers. See prior blog post published March 21, 2013, entitled “Worker Classification Issues Are Raised by Affordable Care Act Proposed Regulations.”
• Freelancer’s Union, recipient of $340 million loan from the Obama Administration, makes access to affordable insurance and other types of group insurance and social benefits available to independent contractors, as noted by the publishers of this Blog.  See prior blog post published March 24, 2013 entitled “Commentary: The Freelancers Union and Independent Contractor Misclassification.”

Published by Richard Reibstein, Lisa Petkun, and Andrew Rudolph. Compiled by Janet Barsky.

* * * * To receive blog posts and regular Monthly IC Compliance and Misclassification News reports, you may subscribe by e-mail or RSS to the Independent Contractor Compliance and Misclassification Legal Blog.

* * * * Invitation to upload content: Readers may contribute to this repository of newsworthy matters by sending an e-mail to ICComplianceBlog with any recent:

• court cases commenced;
• developments or updates in existing court cases, including any judicial decisions;
• legislative bills proposed or enacted;
• regulatory or administrative actions, including enforcement initiatives and task force developments;
• and other newsworthy matters, such as newspaper articles, white papers, and government press releases and reports.