January 2017 Independent Contractor Misclassification and Compliance News Update

January was a busy month for independent contractor misclassification – and IC compliance. In addition to Lowe’s $2.85 million settlement with installers whom it classified as ICs, Lufthansa agreed to pay $1.1 million in settlement for a small group of aircraft workers.  Meanwhile, Time Warner was sued for allegedly misclassifying cable installers; Uber’s food delivery service was sued in Florida for classifying drivers as ICs; and a construction company entered into a consent judgment with the U.S. Department of Labor because it misclassified painters as ICs.

The update below also include a key case decided in New York concluding that a blogger who was treated as an IC by a news publication had been properly classified as such, in compliance with New York’s unemployment insurance laws.

January was an especially important month in terms of arbitration agreements with class action waivers. A trucking company’s arbitration agreement was found to be of no value in its effort to re-direct a federal court IC misclassification to arbitration, whereas Uber’s arbitration agreement was again upheld as enforceable (this time in New Jersey). Perhaps the biggest development in the area of arbitration and IC misclassification lawsuits was the U.S. Supreme Court’s decision to review three separate cases involving arbitration agreements containing class action waivers. The issue to be decided is whether arbitration agreements with class action waivers are enforceable or, instead, violate the National Labor Relations Act as a restriction on “concerted” activities.  That law applies not only to unionized but also non-unionized workers who are deemed to be “employees” under the NLRA. While none of the three cases accepted for review by the Supreme Court are IC misclassification cases, the Court’s ultimate decision may well be equally applicable in legal challenges by ICs as well.

Although Supreme Court guidance will be welcome on this issue, none of these three cases involved the issue of whether an arbitration clause with a class action waiver is enforceable when it affords the party signing it an opportunity to opt-out of the arbitration clause. Thus, unless the Supreme Court does something that it rarely does (i.e., decide a matter not before it at this time), it will not address a key issue facing businesses that use independent contractors: whether an opt-out “saves” an arbitration clause with a class action waiver. Additionally, a newly constituted NLRB (once new members are appointed by a Republican president) may change its view on this issue and conclude that class action waivers do not violate the NLRA. In that event, it is conceivable that the Supreme Court may choose not to decide the issue at all.

Many businesses using ICs believe that their classification of workers as ICs can be protected by the use of an arbitration clause with a class action waiver. Even if the Supreme Court were to find those clauses to be enforceable, arbitration clauses offer no protection for an array of IC misclassification claims, such as lawsuits and audits by workforce and tax agencies, private attorney general act claims, and individual claims for unemployment and workers’ compensation benefits. Companies that wish to genuinely enhance their IC compliance and avoid needless legal challenges may therefore wish to take the best approach to minimizing IC misclassification exposure: utilizing customized compliance methodologies and processes, such as those described in our White Paper, to minimize IC misclassification exposure.

In the Courts (8 cases)

LOWE’S TO PAY $2.85 MILLION TO INSTALLATION WORKERS IN SETTLEMENT OF IC MISCLASSIFICATION CASE. Lowe’s Home Centers and class of over 450 installers that provided services to Lowe’s customers have sought preliminary approval by New Jersey federal court of a proposed $2.85 million settlement of IC misclassification claims. The class complaint alleges that the installation workers were misclassified as ICs, resulting in violations of the New Jersey Construction Industry Independent Contractor Act and unjust enrichment. According to the installers, Lowe’s had the right to exercise control over the completion of installations due to the Installer Contracts and Installer Guides; had the right to dictate the timing of installations, job site conduct, and Lowe’s marketing services; and used customer survey scores and job site inspections as a means of controlling installers’ conduct. The amount that each class member may receive will not be known until all claims forms are received, but will not exceed $6,500 per individual. The installers’ counsel will seek an award of attorneys’ fees not to exceed one-third of the maximum settlement amount. Mittl v. Lowe’s Home Centers LLC, No. 15-cv-06886 (D.N.J. Jan. 31, 2017).

AIRLINE AND AIRCRAFT MAINTENANCE FIRM TO PAY $1.1 MILLION TO SETTLE WITH AVIATION WORKERS. Lufthansa Technik North America Holding Corp. and Global Aircraft Service, Inc. (GAS) have agreed to pay 33 aircraft workers $1.1 million to settle class and collective action IC misclassification lawsuits brought in Maine federal court. The complaint by sheet metal workers, mechanics, and painters include claims for unpaid overtime under the FLSA and the Maine Minimum Wage and Overtime Act. The settlement papers do not provide any details as to what the defendants allegedly did beyond classifying the workers as ICs. Venegas v. Global Aircraft Service., Inc., No.14-cv-00249 (Jan. 18, 2017).

CABLE INSTALLATION COMPANY AND TIME WARNER LOSE INITIAL BATTLE IN CLASS ACTION IC MISCLASSIFICATION CASE. A California federal court granted class certification to installation technicians (ITs) in their IC   misclassification claims against Multi Cable, Inc. (MCI) and Time Warner Cable. The ITs claimed that Time Warner had a business arrangement with MCI in which MCI supplied ITs to service Time Warner customers seeking cable installation, repair. and maintenance services for TV, phone and internet installations. The basis of the claims under federal and state law is that because the ITs were allegedly misclassified as “faux ‘independent contractors’” and not employees, MCI and Time Warner failed to pay the ITs overtime compensation. The ITs alleged that “MCI and T[ime Warner] controlled virtually every facet of the ITs’ jobs, including the uniforms they wear, the decals on their vehicles, materials they use, and the jobs they perform, including the hours during which those jobs are to be completed and the location at which the services will be provided.” Of course, obtaining class certification is not a review of the merits of the case. As the court stated, “At the class certification stage, the court makes no findings of fact and announces no ultimate conclusions on Plaintiffs’ claims.” It was therefore hardly a surprising decision, especially because there is a low burden on plaintiffs to establish the right to preliminary class certification. Luviano v. Multi Cable, Inc., No. 15-cv-05592 (C. D. Cal. Jan. 3, 2017).

UBER EATS SUED IN FLORIDA FOR IC MISCLASSIFICATION. A Florida delivery driver has filed class and collective actions in federal court against UberEATS, an on-demand meal delivery service, alleging that UberEATS misclassified him and similarly situated individuals providing services as delivery drivers.  The lawsuit alleges a violation of the minimum wage provisions of the FLSA and state law. The complaint alleges that through a mobile phone software app, customers can place orders from hundreds of partner restaurants that prepare meals that are then picked up and delivered to the customer by UberEATS’ local delivery drivers. According to the class complaint, the drivers should be regarded as employees under the law because Uber controls the manner and means by which the drivers accomplish their work; has the right to hire or fire the drivers in its sole discretion; has the right to terminate the phone app completely and block its usage by a driver; sets all rates of pay for the drivers; requires the drivers to accept discount promotions offered to customers by UberEATS; requires driver participation in a training session before being permitted to provide services; mandates that drivers’ vehicles meet UberEATS requirements; and retains the right to discipline the drivers. It is also alleged that because of a pay formula used by UberEATS, the drivers are not paid for all hours worked and are not paid at least the minimum wage for each hour worked.  Crespo v. Uber Technologies Inc., No. 17-cv-00187 (M.D. Fla. Jan. 24, 2017).

TRUCKING COMPANY LOSES KEY ARBITRATION ARGUMENT IN IC MISCLASSIFICATION CASE. An Arizona federal court granted the motion for partial summary judgment filed by a class of truckers in their IC misclassification case finding that the contractor operating agreements that the drivers entered with Swift Transportation Co. were agreements that are not covered by the Federal Arbitration Act and Arizona Arbitration Act.  The contractor operating agreements included a clause requiring arbitration of all disputes arising out of the contract and expressly stated that the contractor is an IC and not an employee of Swift, responsible for determining the method, means, and manner of performing work and services under the agreement.  Those words were regarded as empty recitals by the court, which rejected Swift’s claim that the truckers were ICs after assessing many factors that, in the court’s view, supported an employment relationship.  Some of the factors favoring employment included the agreements could be terminated at will by Swift; drivers were required to follow company policy; Swift had the right to unilaterally change terms in the agreement with notice; Swift determined load assignments for the drivers; drivers were required to have a specific communications system compatible with Swift’s; cost-advancing and leasing options were offered by Swift; and the truck leases entered by the drivers were inextricably intertwined with Swift. Although Swift argued that the leasing company was a separate entity and was separate from the contracting agreement, the court disagreed. It concluded that the two agreements were designed to operate in conjunction with each other for drivers who leased equipment for purposes of becoming contract drivers with Swift and constituted a form of further control by Swift over the drivers. In that regard, the court concluded that the ability of the drivers to keep leasing their trucks was explicitly dependent on them maintaining their Contractor Agreements with Swift; the leases required drivers to authorize and direct Swift to pay the rent due on the truck directly to the leasing company from the driver’s earned compensation on a weekly basis; and if the contractor agreement was terminated, the leasing company was entitled to terminate the lease and accelerate all remaining lease payments for the remainder of the lease, placing great financial hardship upon the drivers. Dusen v. Swift Transportation Co., Inc., No. 10-cv-00899 (D. Ariz. Jan. 6, 2017).

NEW JERSEY FEDERAL COURT UPHOLDS UBER’S ARBITRATION AGREEMENT. Uber secured a victory in a New Jersey federal court, which held that its arbitration clause with drivers is legally valid as applied to a class action lawsuit alleging misclassification of drivers as ICs. The complaint alleged that Uber failed to pay overtime compensation and imposed an unlawful requirement that the drivers pay for significant business expenses that were incurred for Uber’s benefit. To gain access to Uber’s app allowing the driver to accept ride requests from prospective passengers and transport them for a fare, a driver must electronically accept the applicable Software License and Online Services Agreement, which contains a voluntary arbitration clause that the driver is free to opt out of within 30 days of the execution of the Agreement. In granting Uber’s motion to compel arbitration of the claims, the court rejected the drivers’ argument that the Uber did not provide a copy of the arbitration clause to its New Jersey drivers and only provided a hyperlink to the online Agreement, which contained the arbitration clause. The court stated that the drivers were provided with reasonable notice as to the existence of the terms and conditions of the hyperlinked Agreement, including capitalized instructions about the need to review all of the documents; that the Agreement was prominently displayed and conspicuously located directly under the instructions; and that the named plaintiff agreed to the terms of the Agreement in two different places by clicking “YES, I AGREE.” The federal court also rejected the drivers’ argument that the class waiver contained in the arbitration clause violated the National Labor Relations Act (NLRA) and concluded that the 30-day opt-out provision gave the drivers the choice of either arbitrating their claims on an individual basis, or litigating them, either individually or collectively. The court found that the arbitration provision did not violate the NLRA because it was voluntary in nature. Singh v. Uber Technologies Inc., No. 16-cv-03044 (D.N.J. Jan. 30, 2017).

SUPREME COURT TO DECIDE IF ARBITRATION CLAUSE WITH CLASS ACTION WAIVER VIOLATES THE NLRB. The U.S. Supreme Court agreed to consider “whether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the NLRA.”  Three cases from the 5th, 7th and 9th U.S. Circuit Courts of Appeals will be consolidated in the Court’s review. In Epic Systems, the 7th Circuit held: “[The arbitration clause also] precludes employees from seeking any class, collective, or representative remedies to wage-and-hour disputes, Epic’s arbitration provision violates Sections 7 and 8 of the NLRA. Nothing in the FAA saves the ban on collective action.” Similarly, the 9th Circuit, in Ernst & Young, vacated the district court’s order compelling arbitration when it found that the employer violated the NLRA by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms and conditions of employment. The 5th Circuit in Murphy Oil took an opposite view and held that the oil company did not commit an unfair labor practice by requiring employees to sign its arbitration agreement with a class action waiver or seeking to enforce that agreement in federal district court. Ernst & Young, LLP v. Morris, No.16-300 (U.S. Jan. 13, 2017); Epic Systems Corporation v. Jacob Lewis, No.16-285 (U.S. Jan. 13, 2017); NLRB v. Murphy Oil USA Inc., No. 16-307 (U.S. Jan. 13, 2017).

BLOGGER FOUND TO BE IC BY NEW YORK APPELLATE COURT. A New York state intermediate appeals court found that a blogger for The Nation, a print magazine and website, is an independent contractor who is not entitled to state unemployment insurance benefits. In reversing the decisions of the Administrative Law Judge and the Unemployment Insurance Appeal Board, the Appellate Division Third Department applied the “more detailed, qualitative and arguably less deferential analysis of the various employment factors” used very recently by the New York Court of Appeals in Matter of Yoga Vida, NYC, Inc. v. Commissioner of Labor, 28 N.Y.3d 1013 (Oct. 25, 2016).  As noted in our blog post of October 25, 2016, in a vast number of cases the Third Department has affirmed Appeal Board decisions on the basis that, despite evidence in the record that may lead that court to a contrary result, the record contains “substantial evidence” to support the Appeal Board’s decision. To practitioners, this meant if there was even a smidgeon of evidence favoring employee status, the Third Department was likely to affirm the Appeal Board’s determination, even where there was an abundance of evidence favoring IC status. This decision confirms that the legal landscape for IC determinations in New York for unemployment law purposes has changed. Among the IC factors used in the court’s analysis were the following: the blogger, an experienced, well-known writer, author and media critic, was regarded as a professional; filed his taxes as self-employed; did not need to obtain permission to take vacations; did not receive fringe benefits; was not covered by the union contract; was free to write for other entities and in fact, simultaneously blogged for The Huffington Post and authored eight books during his engagement with The Nation; worked from home using his personal laptop; set his own hours; and did not suffer any adverse consequences if he did not post a story. In contrast, the court noted that there were some factors favoring employee status: the blogger was required to identify himself as a writer for The Nation; he received an annual salary and was reimbursed for expenses; and he was required to use The Nation’s content management system. On balance, the court concluded that these factors favoring employee status were insufficient to create an employer-employee relationship in view of the Court of Appeals’ decision in Yoga Vida. Mitchell v. The Nation Co. Ltd. Partners, No. 522892 (App. Div. N.Y. 3d Dep’t, Dec. 29, 2016).

Administrative and Regulatory Initiatives (1 item)

TEXAS COMMERCIAL PAINTING COMPANY TO PAY OVERTIME TO PAINTERS MISCLASSIFIED AS IC’S. Star Finishes LLC, a Texas commercial painting company, agreed to pay $182,000 in back overtime wages to 82 current and former workers following a U.S. Department of Labor investigation concluding that Star Finishes had misclassified the workers as ICs. As a consequence of their misclassification, the workers were paid straight time for overtime hours, without regard to the number of hours they actually worked. In a News Release issued on January 11, 2017 by the Labor Department’s Wage and Hour Division, Betty Campbell, stated: “Misclassified workers are denied fair wages and access to critical benefits and protections that come with their rightful status as employees. Companies that violate the law in these cases also gain an unfair economic advantage over employers who play by the rules.” According to Ms. Campbell, misclassification of employees as independent contractors is an “alarming trend” and is seen “all too often in the construction industry.”

Written by Richard Reibstein.

Compiled by Janet Barsky, Managing Editor. 

Published by Richard Reibstein and Lisa Petkun.

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Posted in IC Compliance

December 2016 Independent Contractor Misclassification and Compliance News Update

In our update below for last month’s developments in this area of the law, we report on five significant court cases involving companies in the transportation industry that use ICs as an integral part of their business model. Each of the cases suggests rough sailing for such businesses if they do not enhance their compliance with IC laws.

As we reported in our last blog post, the U.S. Department of Labor has stated that “Even if you are a legitimate independent contractor under one law, you may still be an employee under other laws.” Enhancement of IC compliance, therefore, requires a deep understanding not only of the tests for IC status under various federal laws but, even more importantly, a solid understanding of IC tests under all applicable state laws.

In our 2015 White Paper on “How Companies Can Minimize the Risks of Independent Contractor Misclassification,” we stated that a compliance analysis using a process such as IC Diagnostics™ “should measure the company’s anticipated compliance with each of the applicable independent contractor laws. . . . Even for businesses that operate in those states that have strict tests for determining independent contractor status, this process can provide an assessment of how [best to] minimize or eliminate future misclassification liability.”

Lastly, we report on an NLRB case where a complaint was issued against a nationwide home improvement retailer for literally doing nothing more than treating certain workers as independent contractors and requiring them to sign agreements treating them as such including arbitration agreements with a class action waiver. Previously, all other NLRB complaints involving independent contractors alleged traditional violations of the National Labor Relations Act, such as threats and interrogations regarding protected activity, if the workers involved were employees under the NLRA and not ICs. In those cases, the claim that the company had violated the NLRA by misclassifying workers as ICs can be viewed as an “add on” unfair labor practice charge.

In this latest NLRB case, because the Board regards the waiver of the right to bring or join a class and collective action as an independent violation of the NLRA, the General Counsel of the NLRB may well have pleaded the misclassification charge as an “add on.” These types of IC complaints may continue to be issued until the term of the current General Counsel, a former top lawyer for a leading industrial union, expires in November 2017 and a new General Counsel is appointed by the incoming President.

In the Courts (5 cases)

MASSACHUSETTS HIGH COURT REVERSES WIN FOR “LAST MILE” LOGISTICS COMPANY IN IC MISCLASSIFICATION CASE. The highest state court in Massachusetts reverses a grant of summary judgment in an IC misclassification class action by drivers against RDI Logistics, Inc., a furniture delivery company that provides “last mile” delivery services for large retail companies. The Supreme Judicial Court of Massachusetts rejected the company’s argument that the Massachusetts IC misclassification statute was pre-empted in its entirety by the Federal Aviation Administration Authorization Act (FAAAA).  It concluded that while a portion (Prong 2) of the three-pronged statutory test for IC status is pre-empted by the FAAAA for businesses in this industry, the remaining portions (Prongs 1 and 3) were severable and that the company was required to show that both of those remaining two prongs were met if it wished to defeat the drivers’ IC misclassification claim.

Summary judgment was also reversed on the ground that the drivers lacked standing to bring suit under the IC statute because the statute’s protections apply only to “individuals” who perform services and the drivers, in contracting with the company, did so through their own corporate entities, thereby foreclosing any IC misclassification claims. The court stated that the statute does not expressly exclude individuals who provide services through a corporation and referenced the state Attorney General’s Advisory, which noted that businesses created and maintained in order to avoid application of the IC statute would not immunize employers against enforcement. The court concluded that there were enough facts presented by the plaintiff drivers to establish a genuine issue of fact as to whether the drivers have standing under the law, including evidence that the drivers formed corporations only to be able to contract with RDI, the drivers did not perform work for anyone other than RDI, and the drivers were forbidden from performing work for any other companies besides RDI. In the court’s view, “[t]hese allegations raise the question whether the plaintiffs incorporated for their own benefit, as the defendants’ suggest, or whether RDI required them to incorporate in order to misclassify them as independent contractors.” Chambers v. RDI Logistics Inc., No. SJC-12080 (Sup. Jud. Ct. Mass. Dec. 16, 2016).

CALIFORNIA COURT DENIES MOTIONS FOR SUMMARY JUDGMENT IN IC MISCLASSIFICATION CLASS ACTION AGAINST ANOTHER LOGISTICS COMPANY AND ORDERS CASE TO TRIAL. A California federal court denies competing summary judgment motions brought by the same day delivery, logistics, and courier service, Dynamex Operations West, LLC, and by individual drivers in an IC misclassification collective action under the FLSA for unpaid minimum wage and overtime compensation. Two years after the commencement of the 2013 action, the Court issued an order in October 2015 conditionally certifying a collective action of all drivers who performed delivery work for Dynamex in California who signed the same IC agreement. In September 2016, the court denied Dynamex’s motion to decertify the collective action, and counsel for plaintiffs was directed to identify the single individual with the strongest case for misclassification against Dynamex. Both sides were then invited to bring summary judgment motions regarding that selected individual driver. On December 4, 2016, the Court denied the motions of both parties regarding misclassification, concluding that there were too many fact issues to grant either side’s motion. Among the issues to be tried included whether or not the drivers were required to wear a uniform, whether the drivers actually wore one, and whether it was a customer requirement; whether there were mandatory meetings for the driver; and how the driver received the details of his deliveries. Saravia v. Dynamex, Inc., No. C 14-05003 (N.D. Cal. Dec. 4, 2016).

NEW YORK FEDERAL COURT DENIES FEDEX GROUND’S MOTION TO DISMISS IC MISCLASSIFICATION CLASS ACTION. A New York federal court denies FedEx Ground’s motion to dismiss class action claims of IC misclassification and unlawful deductions from pay under the New York Labor Law and the state’s Commercial Goods Transportation Industry Fair Play Act.  According to the complaint, the drivers, who each signed Operating Agreements with FedEx, alleged that they were directed and controlled by FedEx, not only as to the result to be accomplished, but also  as to the manner and means by which the result was to be accomplished, including supervision by FedEx managers; required compliance with detailed instructions regarding written and unwritten company policies, procedures and directives; required training and attendance at meetings for drivers; requirements that drivers use specific FedEx signage and logos on trucks; and payments from FedEx to drivers that were subject to deductions to cover use of FedEx scanner, cost of FedEx uniforms, liability and workers’ compensation insurance, performance-based penalties, and truck lease payments. In allowing the putative class action to proceed, the federal court concluded that the drivers had plausibly alleged that they were employees under the New York common law test, regardless of whether they had been labeled as ICs under the Operating Agreements, and rejected FedEx’s argument that “it is not a ‘commercial goods transportation contractor’ under the Fair Play Act because pursuant to the Operating Agreements, FedEx Ground did not pay the Plaintiffs directly, but rather paid ‘the companies they drove for.’” Padovano v. FedEx Ground Package System Inc., No.16-cv-00017 (W.D.N.Y. Dec. 6, 2016).

UBER CANNOT DISMISS DRIVERS’ “ON CALL” WAGE CLAIM IN IC MISCLASSIFICATION CASE. A Pennsylvania federal court denies Uber’s motion to dismiss an “on-call” wage claim in an IC misclassification class action lawsuit filed against Uber by UberBLACK limousine drivers.  The drivers assert claims for unpaid minimum wage and overtime and include a claim for payment of hours during which they were “logged into” the Uber app. As more fully discussed in our blog post of December 16, 2016, the drivers claimed that they are “on call” while logged on to the Uber app awaiting ride requests.  In response, Uber argued that the drivers failed to allege any facts to suggest that they were “actually working” within the meaning of the law, “just because they were logged in.” In its decision, the Court cited Supreme Court and Third Circuit precedent and Department of Labor regulations that on-call time may be compensable if the time “on call” is so restricted that it interferes with the driver’s personal pursuits. In reaching its decision, the Court referenced the allegation that drivers who refuse a fare are subject to suspension and termination.  The court concluded that the allegations were sufficient to plead a viable claim that the drivers were restricted in their personal pursuits. This case may well spur plaintiffs’ class action lawyers to bring more “on-call” wage claims against on-demand businesses that use ICs to provide in-person services to their customers. Razak v. Uber Technologies, No. 16-cv-573 (E.D. Pa. Dec. 14, 2016).

FLOWER FOODS AGREES TO PAY $9 MILLION IN SETTLEMENT OF DISTRIBUTORS’ IC MISCLASSIFICATION CASE. Flowers Foods Inc., one of the largest producers of packaged bakery foods in the United States, including Wonder Bread, agreed to settle a class action lawsuit brought against it by bakery foods distributors who alleged they were misclassified as independent contractors. The proposed settlement amount of $9 million to resolve claims brought under the federal Fair Labor Standards Act and North Carolina wage laws is subject to court approval. Flowers Foods filed a Form 8-K with the U.S. Securities and Exchange Commission advising shareholders that the proposed agreement includes $5.2 million in settlement funds and $3.8 million in attorneys’ fees. The settlement covers approximately 270 distributors as well as other non-economic terms that are intended to strengthen and enhance the IC model which remains in place. Rehberg v. Flowers Foods, Inc., No. 12-cv-596 (W.D.N.C. Dec. 9, 2016). 

Administrative and Regulatory Initiatives (2 items)

LABOR DEPARTMENT CREATES NEW IC MISCLASSIFICATION WAGE PAGE THAT MAY ENCOURAGE 1099’ERS TO FILE CLAIMS AGAINST BUSINESSES. The U.S. Department of Labor creates a new independent contractor misclassification web page, www.dol.gov/featured/misclassification, which may encourage workers to file complaints and prompt businesses to enhance IC compliance. As discussed in our blog post of December 19, 2016, the Labor Department reissued its resources on IC misclassification and grouped them together with resources from other federal and state agencies on the subject. Our review of the posted materials reveal that no new useful information was included. Rather, the new web page included some the items that were more than 15 years old and others were more likely to confound and confuse those consulting the web page for assistance and education. The web page also highlights links to “Myths about Misclassification” and an abbreviated version of the “Myths” web page. As we reported in our blog post of August 22, 2016, the “Myths” document when issued was not an accurate restatement of the law.  Following our blog post, the Labor Department subsequently took down the page, made some revisions, and reissued it, yet still perpetuated its misapprehension that the test for IC status under the FLSA is a one-factor test – economic dependence. One likely impact of the new site will be increased awareness by workers that they may be misclassified, increased reporting and filing of complaints or enforcement actions by state and federal agencies, and more class action suits alleging IC misclassification. Another likely result is that more businesses will seek to enhance their IC compliance by the use resources like IC Diagnostics™ to minimize their risk of IC misclassification liability.

NLRB ISSUES ANOTHER IC MISCLASSIFICATION COMPLAINT. The Minneapolis regional office of National Labor Relations Board issues a complaint against Wisconsin-based national home improvement retailer, Menards, alleging that the company misclassified thousands of delivery drivers as ICs and not employees in violation of the National Labor Relations Act. The complaint, based on charges brought by the Office and Professional Employees International Union Local 153 in August and September 2016, alleges that the company interfered, restrained and coerced employees in the exercise of their Section 7 rights by maintaining a mandatory arbitration clause in its employee handbook that prohibits workers from filing collective or class-wide legal actions in any forum, legal or arbitral and prohibits them from filing unfair labor practices with the NLRB; and misclassifying the delivery drivers as ICs. According to the complaint, the remedies being sought by the NLRB include an order requiring the company to rescind or revise the mandatory arbitration clause on a nationwide basis and rescind or revise any portion of any agreements classifying the drivers as ICs NLRA; and for the company to cease and desist from communicating to the drivers that they are ICs under the NLRA. Unlike prior complaints issued by the NLRB against a company that allegedly has misclassified employees as ICs, there are no independent violations of the NLRA alleged in this case that are not dependent on the classification of the workers. Menard, Inc. v. Local 153, Office & Professional Employees International Union, AFL-CIO, Case 18-CA-181821 (NLRB Region 18, Dec. 22, 2016).

Written by Richard Reibstein.

 

Compiled by Janet Barsky, Managing Editor. 

Published by Richard ReibsteinLisa Petkun and Andrew Rudolph.

* * * * 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 reports.
Posted in IC Compliance

The Labor Department’s New Independent Contractor Misclassification Web Page: While It Is Likely To Confound Viewers, It May Prompt Workers to File Complaints and Businesses to Enhance Their IC Compliance

The U.S. Department of Labor earlier today reissued its resources on independent contractor misclassification and grouped them together with resources from other federal and state agencies on the subject. This appears to be the Labor Department’s effort to create a type of one-stop shopping page for government materials on independent contractors.

But there is nothing new here for those seeking information on the subject. Indeed, some of the materials date back over 15 years and other resources are likely to confound and confuse more than elucidate the public on IC misclassification.  The resources include  Labor Department documents with conflicting definitions of independent contractor status as well as a 175-page comparison of unemployment laws that devotes only 4 pages to IC status and a 195-page unemployment study from the year 2000.

In effect, this new website is not a whole lot different than the first few pages of a google search for independent contractors, supplemented with some out of date materials.

The website that the Labor Department used to maintain on the subject was www.dol.gov/misclassifiction.  That website now redirects a search to the new web page at www.dol.gov/featured/misclassification.

What the New Web Page Contains and Why It Confounds

The new web page lists seven different types of resources:

– Pay and Misclassification

– Health and Safety Concerns on the Job

– Unemployment Insurance and Misclassification

– Anti-Retaliation/Anti-Discrimination Rights for Workers

– Federal Taxes and Misclassification

– Health Care and Retirement Benefits

– Resources for State and Federal Governments

The centerpieces of the Labor Department’s new web page are the two links with new graphics. One is called the “Myths about Misclassification,” which we commented about last August in our post, “Misclassification Mythbusters: The Labor Department’s Latest Effort to Crack Down on Independent Contractor Misclassification.” The second is an abbreviated version of the “Myths” web page.

As we noted in our blog post, the “Myths” document when issued was not an accurate restatement of the law.  The Labor Department then took down the web page and re-posted it shortly thereafter with changes that fixed some of the erroneous statements but, even with its revisions, still perpetuated the Labor Department’s mistaken position that the test for IC status under the FLSA is a one-factor test: economic dependence.  This view is in contrast to court cases that hold that no one factor is determinative of IC status, although greater weight is given to the factor whether an employee is economically dependent on the party receiving his/her services.

Perhaps the most confounding statement to workers and businesses in the Labor Department’s materials though is its acknowledgment that “Even if you are a legitimate independent contractor under one law, you may still be an employee under other laws.” Even a sophisticated reader would wonder what an independent contractor is.

What Is the Likely Impact of the New Web Page?

Exactly what the Labor Department hopes for: more recognition by workers that they might possibly be misclassified, which may in turn lead to more reporting and an increased number of complaints and enforcement actions at the state and federal level and more class actions alleging IC misclassification.

If you are reading this blog post and are a business that uses ICs to deliver services or to supplement your workforce, then the Labor Department’s new web page may well serve your interests also.

Businesses that wish to avoid becoming a target for IC misclassification cases should take note that it is not too late to enhance your level of IC compliance. Many companies have chosen IC Diagnostics™ to assist them in determining which of several alternative strategies to undertake in minimizing misclassification exposure. The most commonly used alternative is restructuring, re-documenting, and re-implementing IC relationships.

Many IC agreements designed to withstand a legal challenge may also benefit from a re-evaluation and fine-tuning. The language in some companies’ own IC agreements have even been used against them in some cases to prove that workers classified as ICs have been misclassified and should have been treated as employees.

Some companies have even used this process to better defend against current regulatory proceedings and class action lawsuits. Companies that have been targeted and may have to pay unpaid wages, back taxes, or unemployment or workers’ compensation premiums, as well as  businesses that are considering settlement of IC misclassification lawsuits, should not presume they are somehow precluded from maintaining an IC business model or using ICs to augment their workforce once the case is resolved. Instead, IC Diagnostics™ may provide them with a form of restructuring and re-documentation that meaningfully enhances compliance with IC laws.

Written by Richard Reibstein

 

Published by Richard Reibstein, Lisa Petkun and Andrew Rudolph.

Posted in IC Compliance

New Uber Ruling Reveals Another Costly IC Misclassification Exposure for On-Demand Companies

Gig economy companies based on an independent contractor model beware. 

On December 14, 2016, a federal court in Pennsylvania denied a motion to dismiss an “on-call” wage claim in a class action lawsuit filed against Uber by limousine drivers that claim they were not paid minimum wage and overtime for hours during which they were “logged into” the Uber App. This on-call wage claim is one that, so far, has rarely been made by on-demand workers challenging their classification as independent contractors. 

Now that a federal court has issued a ruling allowing this type of claim to proceed, more plaintiffs’ class action lawyers are likely to assert this newfangled legal challenge in IC misclassification lawsuits against businesses using ICs to deliver on-demand services. As noted in our “Takeaway” below, gig economy companies that are paying attention to the IC misclassification landscape can and should take steps to enhance their IC compliance and thereby lower the risk that they will be subject to costly on-call wage and other types of legal claims. After all, a valid IC relationship should beat any and all IC misclassification challenges.

The Decision

The plaintiffs are UberBLACK drivers who are seeking minimum wage and overtime for all hours when they were logged into the Uber App. They claim they are “on call” while logged into the Uber App awaiting a ride request. Uber’s lawyers filed a motion to dismiss this claim, arguing that the drivers alleged no facts to suggest that they were “actually working” within the meaning of the law “just because they were logged in….” Razak v. Uber Technologies, No. 16-cv-573 (E.D. Pa. Dec. 14, 2016).

In his decision, Judge Michael Baylson noted that the U.S. Supreme Court ruled in 1944 that “under certain circumstances, on-call time is compensable.” Judge Baylson then set forth the prevailing law as to what must be alleged in order for “on call” time to be compensable as time worked. The key factor in this factual situation is whether the employee “finds his time on-call…so restricted that it interferes with personal pursuits.”

In denying Uber’s motion to dismiss, the court noted that the amended complaint alleged that drivers were required to wear business attire while working and those who refuse a fare are subject to suspension and termination. In the court’s mind, those allegations were sufficient to plead that the drivers were restricted in their personal pursuits. For that reason, the court ordered expedited discovery regarding the nature and extent of the interference with the drivers’ personal activities.

Analysis

As the court’s decision makes clear, it does not take much for a plaintiffs’ class action counsel to properly plead a viable on-call wage claim where there is some factual basis supporting interference with personal activities, especially where the workers provide on-demand services in person and allege there may be consequences if they don’t accept an engagement. Whether such gig workers can then prove the necessary facts to establish that such interference is sufficient to support a violation of federal or state law, will likely depend in large measure on the nature of the on-demand services provided.

In contrast to drivers and other gig workers who perform services in person, there are other on-demand workers, such as those providing services over the phone or on a laptop or tablet, whose personal activities would not likely be restricted to any meaningful degree if they choose to accept an engagement and perform services while logged onto an app.  Those workers can simply take a break from whatever else they may be doing at the time, even if they allege they had to accept the engagement.

This Uber case illustrates the importance of making the right motions at the right time. Motions to dismiss are oftentimes risky in litigation, as they require a court to make a determination assuming all allegations are factually correct, such as the allegation in this case that the workers classified by Uber as ICs are employees, that they are not paid for all hours they work, that they were restricted in some manner with regard to their personal activities while they were logged into the Uber App, and that they risked suspension or termination if they did not accept an engagement. The notoriety from this court decision denying Uber’s motion will also undoubtedly result in more plaintiffs’ class action lawyers bringing more on-call wage claims against on-demand businesses that use ICs to render services in person to their customers.

Takeaway

Even if workers classified as ICs bring an on-call wage claim and can show that their personal pursuits were significantly interfered with while “on call,” they will enjoy no success in the lawsuit if the business can establish that the workers have been properly classified as independent contractors.

While the number of companies today using ICs to provide services to customers is increasing, especially in the on-demand economy, too few have taken adequate steps to enhance compliance with applicable federal and state IC laws.  This leaves many of those businesses at risk for substantial IC misclassification liability.

How can such companies minimize the likelihood of an IC misclassification lawsuit or an audit or proceeding by a state or federal administrative agency? One way is through the use of IC Diagnostics™, a process that examines whether a group of workers not being treated as employees would pass the applicable tests for IC status under governing state and federal laws, and then offers a number of practical, alternative solutions to enhance compliance with those laws. One of those alternatives involves restructuring, re-documenting, and re-implementing a company’s relationship with its ICs to provide a customized, sustainable solution, including state-of-the-art independent contractor agreements. Such agreements can even include provisions that place the business in the best position possible to defend against on-call wage claims, such as those now facing Uber.

Written by Richard Reibstein

 

Published by Richard Reibstein, Lisa Petkun and Andrew Rudolph.

Posted in IC Compliance

November 2016 Independent Contractor Misclassification and Compliance News Update

Our news update for last month highlights the fact that IC misclassification lawsuits are happening across the country and in virtually every industry, both in the on-demand economy and in more traditional business sectors. Cases reported below for November 2016 involve misclassification lawsuits prosecuted by administrative agencies and class action lawyers affecting companies and workers located from coast to coast and from the upper Midwest to the Gulf of Mexico. They affect such diverse industries as cable equipment recovery, commercial cleaning, transportation, ride-sharing, and adult entertainment. We also report on articles we have published in the past month on the recently enacted New York City Freelancer law, which imposes hefty liabilities on business that fail to make prompt payment to independent contractors, and the effect of the new Trump Administration on IC misclassification enforcement initiatives at the federal and state level.

We also mention below one of our articles that was published in November entitled “Your Own Agreements Can Be Your Worst Enemy in IC Misclassification Cases.” In each of the cases reported below, the companies involved could each have minimized their likelihood of being sued or maximized their chances of prevailing in the lawsuits brought against them if they had undertaken the type of compliance enhancement process that we have long suggested in this legal blog.

In the Courts (5 cases)

INTERMODAL DRIVERS SEEK FINAL APPROVAL OF $2 MILLION SETTLEMENT IN IC MISCLASSIFICATION CLASS ACTION. Drivers who claim they were misclassified as independent contractors filed a motion seeking the final approval of a California federal district court for their proposed $2 million settlement with Genesis Intermodal Delivery, Inc., a drayage company.  The complaint alleged multiple causes of action against Intermodal including willful misclassification of the drivers as ICs; failure to pay the minimum wage; failure to provide certain meal and rest periods; failure to reimburse expenses; failure to provide complete and accurate wage statements; unfair business practices; and civil penalties pursuant to the Private Attorneys General Act (PAGA). According to the complaint, Intermodal retained and exercised significant control over details of the drivers’ work, including unilaterally setting fees to be paid to drivers for their services and requiring drivers to conduct safety inspections prior to and after deliveries. Under the terms of the proposed settlement, Intermodal would pay the participating members of the class $1.4 million; class counsel would receive fees of $500,000 and costs of $18,000; the class representative would receive $15,000; and the Labor and Workforce Development Agency would receive $10,000 under PAGA. Cabrera v. Genesis Intermodal Delivery, Inc., No. 15-cv-551 (C.D. Cal. Nov. 22, 2016).

MISSISSIPPI SHIPPING COMPANY SUED IN CALIFORNIA BY DRIVERS OF REFRIGERATED TRUCKS. Mississippi-based KLLM Transport, a provider of refrigerated shipping and trucking services nationwide, has been sued in a California federal district court by two drivers seeking to represent a class of drivers in California and Florida alleging that they were misclassified as ICs.  The complaint alleges that KLLM violated various California and Florida wage and labor laws, including failing to pay the minimum wage and overtime compensation, unlawful deductions of business expenses such as fuel, insurance and truck/trailer maintenance, failure to furnish accurate wage statements, and unfair competition. Etienne v. KLLM Transport Services, LLC, No. 5:16-cv-02534 (C.D. Cal. Nov. 14, 2016).

PENNSYLVANIA FEDERAL COURT DENIES MOTION TO DECERTIFY CLASS OF EXOTIC DANCERS IN IC MISCLASSIFICATION CLASS ACTION. A Pennsylvania federal court denies the motion by an adult entertainment club seeking to decertify a conditional class of exotic dancers and grants the dancers’ motion for final FLSA collective action certification and partial certification of the state law claims.  The action brought against 3001 Castor, Inc. d/b/a The Penthouse Club includes nationwide collective claims under the FLSA to recover unpaid wages, as well as state claims including failure to pay minimum wage and overtime compensation under Pennsylvania law. The court found that the dancers are not paid an hourly wage and that the Club paid the dancers nothing to perform on stage. The club argued that the monies received by the dancers from patrons were wages, but the court concluded they were tips. Additionally, the court found that the dancers were required to rent stage time from the Club for each shift; provide designated tips to the disc jockey, “house mom,” and podium host; and pay fines for violations of house rules. As to the FLSA claims, the court determined that the dancers were similarly situated because all worked in the same location; all were advancing similar misclassification claims; all sought the same form of relief; and all were paid nothing by the Club and shared similar employment circumstances. Verma v. 3001 Castor, Inc., d/b/a The Penthouse Club, No. 13-3034 (E.D. Pa. Nov. 29, 2016).  This case is an example of what adult clubs should refrain from doing; there are also steps that entertainment emporiums can follow to enhance their IC compliance. As the title of our February 8, 2015 blog post states: “Even an Exotic Dance Club (a.k.a. Strip Joint) Can Comply with Independent Contractor Laws – And Avoid or Defend Against Class Actions.”

LYFT’S $27 MILLION IC MISCLASSIFICATION SETTLEMENT LIKELY TO RECEIVE FINAL APPROVAL FROM THE COURT. Lyft’s $27 million settlement proposal is likely to receive final approval from a California federal district judge in a highly-publicized IC misclassification class action brought on behalf of California drivers who claim they were not properly reimbursed for fuel and other expenses, paid the full amount of their tips, or paid overtime and minimum wages. At a hearing last week, Judge Chhabria reportedly considered objections by a few drivers to the proposed settlement, forms of notice, and a provision releasing future FLSA claims, but he reportedly did not appear to view those objections as fatal to the proposed settlement. As we noted in our prior blog posts of May 9, 2016 and July 6, 2016, preliminary approval of the proposed $27 million class action settlement was granted by the court in June 2016 after the original $12.25 million settlement proposal was flatly rejected by the court as woefully inadequate. The original settlement proposal provided that the average payment to the drivers would be modest, well under $1,000 per driver. In rejecting that proposal in April of this year, Judge Chhabria stated that “[t]he modest nonmonetary relief set forth in the agreement does not come close to making up for…serious defects in the monetary aspect of the settlement.” Most importantly, the judge concluded that “[t]he drivers were…shortchanged by half on their reimbursement claim alone.” In June, though, the judge found that the new $27 million proposal adequately addressed the flaws in the original proposal. To date, 84,000 class members have submitted claims in response to the class notices. Cotter v. Lyft Inc., No. 13-cv-4065 (N.D. Cal. Dec. 1, 2016).

FIVE UBER IC MISCLASSIFICATION CLASS ACTIONS STAYED PENDING APPELLATE REVIEW OF UBER’S ARBITRATION CLAUSE. Five Uber class action lawsuits were temporarily stayed until at least February 2, 2017 by California federal court judge on November 21, 2016, pending review by the U.S. Court of Appeals for the Ninth Circuit regarding the validity of Uber’s arbitration clause with a class action waiver. The Ninth Circuit is currently addressing the issue of whether to reverse the federal district court’s decision certifying a class of about 240,000 drivers in California and Massachusetts who claim they were misclassified by Uber as ICs. Plaintiffs’ counsel reportedly argued that some non-class issues were ripe for trial and that thousands of drivers were not bound by the arbitration provisions, but Judge Chen disagreed and issued the stay. O’Connor v. Uber Technologies, Inc., No. 13-cv-3826 (N.D. Cal. Nov. 21, 2016).

Administrative and Regulatory Initiatives (1 item)

MINNESOTA CABLE EQUIPMENT RECOVERY COMPANY CONSENTS TO JUDGMENT; LABOR DEPARTMENT CONCLUDES IT MISCLASSIFIED MARKET CONTRACTORS AS IC’S. Following an investigation by the Wage and Hour Division of the U.S. Department of Labor in Minneapolis, a now-defunct Minnesota cable equipment recovery company, Cable Equipment Services, Inc., has entered into a consent order in court to settle an IC misclassification suit under the FLSA for $350,000.  According to a News Release issued by the Labor Department on November 10, 2016, the company violated overtime, minimum wage and recordkeeping requirements of the FLSA with regard to 41 market contractors and drivers that were misclassified as ICs and who recovered cable equipment for TimeWarner, Comcast, and Charter Communications.  David King, district director for the Wage and Hour Division in Minneapolis stated: “Far too often, employers misclassify workers as independent contractors when the law defines them as employees. In this case, Cable Equipment Services denied workers overtime, minimum wage, and access to employee benefits, unemployment insurance and the payment of federal and state taxes on their behalf. In these instances, not just the workers, but the whole economy loses. We are committed to rooting out misclassification and, as this case shows, will continue to use every enforcement tool available to us to achieve that goal.” Of the $350,000 to be paid to the workers, $196,000 represents unpaid minimum wage and overtime compensation and $153,000 constitutes liquidated damages. Perez v. Cable Equipment Services, Inc., No. 15-cv-416 (D. Minn. Nov. 7, 2016).

On the Legislative Front (1 item)

BUSINESSES ACROSS THE COUNTRY THAT USE IC’S MAY BE IMPACTED BY A NEW NYC FREELANCER LAW. New York Mayor de Blasio signed into law the “Freelance Isn’t Free Act” (No. 1017-2015) on November 16, 2016.  That bill was the subject of an article we published in the New York Law Journal on November 3, 2016, shortly after the New York City Council passed the bill, and the second in a comprehensive blog post on November 16, 2016, the day the Mayor signed the bill into law. The “Freelance Isn’t Free Act” gives independent contractors a right to sue for double damages if they are not provided with a written contract with specified terms and are not paid by the date provided in the agreement or, if not so specified, within 30 days after completion of services under the contract. The law covers any contract between a freelance worker and a “hiring party” that has a value of $800 or more. Although the new law has laudable objectives, it is likely to have unintended but serious consequences for both New York City-based independent contractors and for businesses that retain them. For example, there is a provision awarding double damages for failure to pay for services on a timely basis even if the service recipient has a good faith belief that the services were not completed or performed in a satisfactory manner or that payment is not due for a host of other legitimate reasons. As we noted in the blog post: “Because of the absence of a good faith defense to the double damages penalty in the law, unintended adverse consequences are likely once the new law goes into effect. Some companies will undoubtedly choose to only use independent contractors with mailing addresses outside of New York City. As a result, independent contractors with New York City mailing addresses would lose potential work. Meanwhile, businesses that continue to use independent contractors associated with New York City, especially companies operating there, will be at risk for lawsuits from freelancers seeking double damage awards, even where there is a legitimate dispute as to whether the work met the contract specifications.”  The blog post offers a number of tips for businesses who contract with ICs, especially ICs with NYC mailing addresses, to the extent such businesses may be covered by this new law.

Other Noteworthy Items (2 items)

EVEN IF A TRUMP ADMINISTRATION IS LESS AGGRESSIVE IN IC MISCLASSIFICATION ENFORCEMENTS, MOST STATES ARE LIKELY TO CONTINUE THEIR CRACKDOWNS. In our blog post of November 10, 2016, which is a reprint of our article published in the Class Action and Employment sections of Law360, we discussed how over the past eight years, the Obama Administration made IC enforcement initiatives a priority, including the development of joint/coordinated enforcement efforts between the U.S. Department of Labor and the state labor departments. Currently, 35 state labor departments have signed a Memorandum of Understanding with the U.S. Labor Department, and over half of the states currently have Republican governors.  Thus, regardless of whether the new Administration dials down its enforcement efforts in this area, it is unlikely that state labor departments will be any less aggressive in their crackdown on IC misclassification, as this issue enjoys bipartisan support in most states.

THE CAUTIONARY TALE OF JANI-KING: FRANCHISEES CAN BE MISCLASSIFIED EMPLOYEES. In an article we authored in the November 2016 issue of HR Specialist entitled “Your Own Agreements Can Be Your Worst Enemy in IC Misclassification Cases,” we analyzed Williams v. Jani-King of Philadelphia, No.15-2049 (3d Cir. Sept. 21, 2016), citing it as an example of how poorly drafted independent contractor agreements and other corporate documents can be the kiss of death when defending against an IC or franchisee misclassification class action.  In the article, as well as our blog post of September 23, 2016, we reported that the U.S. Court of Appeals for the Third Circuit affirmed a federal district court ruling that cleaning franchisees could proceed with their class action for IC misclassification against Jani-King under the Pennsylvania wage and hour laws. The Third Circuit used Jani-King’s own franchise agreement and written policies and manuals to uphold the lower court’s finding that Jani-King retained sufficient direction and control over the manner in which the franchisee cleaners were required to perform their services to warrant the certification of the case as a class action. Although not determining the merits of the case, the appellate court found many factors set forth in the company’s franchise agreement and franchise policies that supported the lower court’s decision to allow the case to proceed on a class-wide basis, including provisions affording Jani-King the right to control the franchisees’ communications with customers, how the cleaners must address customer complaints, what franchisees can wear, the types of records the cleaners must keep, how the franchisees must advertise, Jani-King’s right to inspect the work of the cleaners, the franchisor’s right to control assignments of the cleaners, its right to change the policies and procedures that franchisees must follow, and the right to terminate the franchise agreements at any time.  This case confirmed that, all too often, companies that use ICs and franchisees can be their own worst enemies in terms of drafting documents that needlessly accord them the right to direct or control the performance of the workers.

Written by Richard Reibstein.

Compiled by Janet Barsky, Managing Editor. 

Published by Richard ReibsteinLisa Petkun and Andrew Rudolph.

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Posted in IC Compliance