August 2013 Monthly Independent Contractor Compliance and Misclassification Update

August 2013

In the Courts

  • Car service drivers file proposed nationwide class action lawsuit against Uber Technologies, Inc., a car service company, in a California federal district court seeking a minimum of $5 million in damages.  The complaint alleges that Uber Technologies  misclassified the drivers as independent contractors, breached the drivers’ contract, and engaged in tortious interference when the company advised clients not to tip the drivers. O’Connor v. Uber Technologies, Inc. et al., CV No.13-3826 (N.D. Cal. Aug. 16, 2013).
  • Federal district court in Ohio denies American Family Insurance’s motion to dismiss class action claims brought by insurance agents who allege that they are employees and not independent contractors within the meaning of ERISA and as such were entitled to benefits under an ERISA-governed plan. The court found that the agents had alleged sufficient facts evidencing control on the part of the insurance company to create a plausible claim for relief. The many factors alleged to evidence employee status included the requirement to use hardware and software provided by the company; locations of the agents’ offices being determined by the company; the agents’ office hours being controlled by the company; agents required to sell the company’s products exclusively; the right of the company to unilaterally fire any of agents’ staff with or without cause; and monitoring of  the daily work of the agents, setting their production requirements, and monitoring agents’ compliance with production and conduct requirements. Jammal v. American Family Insurance, Case No.1:13 CV 437 (N.D. Ohio Aug. 9, 2013).
  • Franchisees of 7-Eleven file complaint in New Jersey federal district court claiming, among other things, that the 7-Eleven misclassifies store operators as independent contractors rather than employees in order to avoid paying them minimum and overtime wages and providing them with medical, pension, and other employee benefits under the New Jersey Wage and Hour Law.  The store operators also allege that 7-Eleven engages in fraudulent business practices and abuses in violation of the New Jersey Franchise Practices Act and New Jersey Law Against Discrimination. Atalla v. 7-Eleven (D.N.J. July 29, 2013).

Regulatory and Enforcement Initiatives 

  • Connecticut Department of Labor’s Wage and Workplace Standards Division (WWSD) shuts down Gourmet Heaven restaurants in New Haven for multiple workplace violations, including misclassification of workers as independent contractors, failure to maintain payroll and time records and not properly paying minimum wage or overtime. A media release by WWSD on August 7, 2013 stated: “Although the investigation is ongoing, fines could reach tens of thousands of dollars, based on the fact that it is a $300 fine alone for each week an employee is working while not on the payroll.”
  • California’s Labor Enforcement Task Force, a multi-agency group whose mission is to combat the underground economy, reveals wage theft violations in the construction and landscaping industries through two different investigations. According to an August 12, 2013 News Release from the California Department of Industrial Relations, the Labor Commissioner filed a mechanics’ lien to recover $247,681 in unpaid wages owed to 31 construction workers working at a Holiday Inn construction project who were misclassified as independent contractors.  In a separate News Release on August 23, 2013, the Labor Commissioner announced the assessment of $664,764 in penalties against Green Valley Landscaping Services for wage theft violations over a 3-year period, including unpaid overtime and minimum wages and failure to provide itemized wage statements to landscape employees. The investigation revealed that although the landscaping company had a workforce of up to 43 employees, only 10 were on the payroll. The rest of the workforce was misclassified as independent contractors.
  • Treasury Inspector General for Tax Administration (TIGTA) releases the results of its study of the IRS’s SS-8 program, which involves worker status determination requests. As noted in our prior blog post on August 6, 2013, IRS Form SS-8 may be used to obtain a determination by the IRS whether a worker has been properly classified as an independent contractors for purposes of federal employment tax laws.  In its Report issued last month, TIGTA found that a large percentage of businesses are not complying with the SS-8 determinations.  The Report recommends that the Commissioner, Small Business/Self-Employed Division, coordinate with the Commissioners of the Large Business and International Divisions and the Tax Exempt and Government entities Division to assess the changes needed to increase employer compliance with SS-8 determination rulings.

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

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