September 2018 Independent Contractor Misclassification and Compliance News Update

Independent contractor misclassification lawsuits swept across a swath of businesses last month, affecting companies in both the gig economy and traditional industries.  Discussed below are class action and individual plaintiff cases involving on-demand dog walkers, community living support specialists, oil field workers, cable installers, truckers, ride-share drivers, and exotic dancers.

We also report on two significant cases involving a large ride-sharing technology company: one where it succeeded in compelling arbitration of class members’ IC misclassification claims, and the other where it has been sued not by workers claiming misclassification but by another business – one that does not use ICs – in a class action lawsuit for unfair competition.

What does this mean for businesses?  Because there are plaintiffs’ class action lawyers willing to invest their time and resources in filing and maintaining class action lawsuits against companies in virtually every industry that use business models dependent on the use of ICs, companies should consider doing the following: enhancing their level of compliance with IC laws, and entering into arbitration agreements containing class action waivers with workers classified as independent contractors.  The most prudent companies do both, many starting with a process such as IC Diagnostics™ to restructure, re-document, and re-implement their IC relationships, and then adding or updating an arbitration clause with a class action waiver that is drafted in a manner likely to be enforced by the courts.

In the Courts (8 cases)

ON DEMAND DOG WALKING COMPANY TO PAY $1.1 MILLION TO SETTLE IC MISCLASSIFICATION CLASS ACTION.  A class of dog walkers seeks a federal court’s preliminary approval of a class and collective action settlement in an IC misclassification suit alleging violations of the federal Fair Labor Standards Act (FLSA) and the California Labor Code.  The dog walkers sued Wag Labs Inc., an on-demand company that dog owners use to engage dog walkers through a mobile app.  The proposed settlement provides that Wag Labs agrees to pay $1,050,000 into a Settlement Fund plus an additional $75,000 for Settlement Administration Costs.  $50,000 of the settlement will be paid in settlement of a claim under the  California Private Attorneys General Act (PAGA); under that law, 75% ($37,500) would be paid to the State of California via payment to the Labor and Workforce Development Agency and the remaining 25% ($12,500) would go to the class members as part of their Net Settlement Amount. Additionally, attorneys’ fees would be set at $375,000 – one-third of the total of the Settlement Fund plus Settlement Administration Costs. The motion for settlement approval notes that “were this litigation to proceed, [Wag Labs] would invoke individual arbitration agreements to bar a vast majority of settlement class members from participating or attack Plaintiff’s typicality…, leaving only a handful of class members.” Darsey v. Wag Labs, Inc., No. 2:17-cv-07014 (C. D. Cal. Sept. 27, 2018).

KENTUCKY DISABILITY SUPPORT SERVICES COMPANY SETTLES IC MISCLASSIFICATION CASE.  A Kentucky federal court has been asked a second time to approve a proposed settlement reached between a community living support specialist and A Brighter Future, Inc., which provides support services to individuals with disabilities.  In this FLSA case, the plaintiff alleged that the company’s failure to provide him with overtime compensation was a result of his classification as an independent contractor and not an employee. The first request for approval of the proposed settlement was denied because the parties had not provided sufficient information to allow the court to determine whether the agreement represented a fair and reasonable resolution of a bona fide dispute. The parties subsequently provided additional information including the plaintiff’s allegations that he consistently worked 75-80 hours per week for the company; his job required specialized knowledge, but not much skill or initiative; provided the plaintiff with materials; he had no control over profit or loss; he received hourly compensation; and his supervisors exercised extensive control over his work hours and job duties. The company asserted that the plaintiff was an independent contractor because he signed an IC agreement; his relationship was non-exclusive; he could choose as many or as few hours as he wished; and his work was not supervised. The proposed settlement would award the plaintiff $33,000, of which nearly $16,000 is to be earmarked for attorneys’ fees. Although the court has now concluded that the parties established sufficiently that the plaintiff’s “true employment status” constitutes a bona fide dispute, it ruled that it still could not approve the proposed settlement because plaintiff’s counsel had not provided the court with any documentation in support of the request for fees and costs, nor had she provided any information regarding the “reasonable hourly rate” for an attorney of her experience and practice area. The plaintiff was afforded yet another opportunity to provide the missing information and to request that the settlement then be approved.  Southerland v. A Brighter Future, Inc., No. 6:17-268-DCR (E. D. Ky. Sept. 19, 2018).

DRILLING/WELL SITE CONSULTANT FILES IC MISCLASSIFICATION CLASS ACTION IN PENNSYLVANIA. A drilling consultant/well site supervisor has filed a proposed class and collective action on behalf of himself and other oil field personnel against EdgeMarc Energy Holdings, LLC, an oil and natural gas company primarily doing business in Pennsylvania, Ohio, and West Virginia. The lawsuit is aimed at recovering unpaid overtime compensation under the FLSA and wage and hour laws of Pennsylvania and Ohio that the plaintiff claims is due because he and the other oil field workers were classified as independent contractors and not employees.  This lawsuit is one of an increasing number of IC misclassification challenges that have recently been brought against companies in the oil and gas industry, as we have previously reported in a blog post earlier this year.

According to the complaint, the workers operate oilfield machinery; perform manual labor and work long hours in the field, and are paid a day-rate with no overtime compensation.  The complaint further alleged, among other things, that the daily activities of the workers were mostly governed by EdgeMarc’s or its clients’ standardized plans, procedures and checklists; virtually every job function was pre-determined by EdgeMarc or its clients, including what tools to use, what data to compile, the schedule of work and related work duties; and the workers were prohibited from varying their job duties outside pre-determined parameters. The plaintiff also alleges that no substantial investment was required of him; that EdgeMarc or the company it contracted with exercised control over all aspects of the plaintiff’s job, including the hours and locations of work, tools used, and rates of pay received; he did not incur operating expenses like rent, payroll, marketing and insurance; he was prohibited from working other jobs for other companies; and his work required little skill, training or initiative.  Larsen v. EdgeMarc Energy Holdings LLC, No. 2:18-cv-01221 (W. D. Pa. Sept. 13, 2018).

CABLE INSTALLATION COMPANY UNABLE TO FORESTALL CLASS AND COLLECTIVE CERTIFICATION IN IC MISCLASSIFICATION LAWSUIT COVERING INSTALLERS IN TEN STATES. IC misclassification class and collective actions have been prevalent in the cable installation industry, and we have reported on many of them in past blog posts.  Last month, a Missouri federal district court granted the plaintiff’s motion for conditional certification in a proposed nationwide FLSA collective action brought by a cable installation technician alleging that she and similarly situated cable installers in ten states were improperly classified as ICs and thereby denied overtime compensation by Communications Unlimited Inc. In reaching its decision to grant conditional certification, the district court concluded that the plaintiff’s assertions in her complaint based on personal knowledge, as well her submission of detailed declarations by five other installers, were enough to establish that the installers were all subject to a single decision, policy, or plan – the company’s decision to classify installers at all of its offices as independent contractors. Specifically, the declarations all provided that the installers were assigned 2-hour timeframes in which to complete work; required to maintain and report metrics to the company; required to wear “Communications Unlimited” uniform shirts; had to carry an ID badge; were provided with equipment; and were denied overtime compensation despite working more than forty hours a week. The installers who provided the declarations worked in seven of the ten states where the company provides installation services. Fair v. Communications Unlimited Inc., No. 4:17 CV 2391 RWS (E.D. Mo. Sept. 19, 2018).

CALIFORNIA TRUCKING ASSOCIATION LOSES EFFORT TO PREEMPT STATE LAW TEST FOR IC STATUS IN THAT STATE. The U.S. Court of Appeals for the Ninth Circuit has affirmed a district court’s ruling that a federal law does not preempt the common law test for independent contractor status in California.  The Ninth Circuit held that the Borello test used by the Labor Commissioner of the California Department of Industrial Relations to determine whether drivers providing trucking services for the California Trucking Association (“CTA”) had been properly classified as independent contractors is not preempted by the Federal Aviation Administration Authorization Act (“FAAAA”). The CTA had alleged that the Commissioner’s application of the Borello standard disrupted the contractual arrangements between owner-operator drivers and motor carriers, thereby causing inefficiencies in the transportation market and, hence, was inconsistent with Congress’s goal under the FAAAA of preventing states from undermining federal deregulation of interstate transportation.

The court explained that its task was “to discern on which side of the line the Borello standard falls: a forbidden law that significantly impacts a carrier’s prices, routes, or services; or, a permissible one that has only a tenuous, remote, or peripheral connection.” CTA argued that the FAAAA preempts the Borello test because use of that standard can replace freely bargained, efficiency-driven contract terms with a state’s policy judgment about what those terms ought to be with respect to the service providers who engage in interstate transportation. In rejecting CTA’s arguments, the court stated that even if there was “a line between the permissible enforcement of contractual terms and the preempted enforcement of normative policies, the line does not control when the contractual relationship is between a carrier and its workforce, and the impact is on the protections afforded that workforce.” Likewise, the court stated that, “At most, carriers will face modest increases in business costs, or will have to take the Borello standard and its impact on labor laws into account when arranging operations.” Finally, the court addressed the recent Dynamex decision by the California Supreme Court.  As noted in a number of our blog posts, over the past six months, the California Supreme Court in Dynamex concluded that its decades-old precedent in Borello would no longer be followed in decisions involving certain California Labor Code violations that were the subject of that appeal. The Ninth Circuit noted that the CTA only sought to preempt Borello, which continues to be applied by the Labor Commissioner to laws not addressed in the Dynamex decision. California Trucking Association v. Su, No. 17-55133 (9th Cir. Sept. 10, 2018).

NINTH CIRCUIT AGREES WITH RIDE-SHARING TECHNOLOGY COMPANY THAT ARBITRATION AGREEMENTS WITH CLASS ACTION WAIVERS ARE VALID.  In a decision affecting hundreds of thousands of drivers who claim that they were misclassified as ICs, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s denial of a number of motions filed by Uber Technologies, Inc. to compel arbitration in class actions brought against it by Uber drivers.  Current and former drivers have alleged violations of various state and federal statutes due to their alleged misclassification as independent contractors and not employees. Although the court had previously considered and reversed the district court’s orders denying Uber’s motion to compel arbitration in Mohamed v. Uber Technologies, Inc., the drivers offered additional arguments in this appeal why the arbitration agreements were unenforceable: first, that even if the arbitration agreements were otherwise enforceable, they are irrelevant because the lead plaintiffs in O’Connor (among the many cases consolidated in this appeal) constructively opted out of arbitration on behalf of the entire class; and second, the arbitration agreements are unenforceable because they contain class action waivers that violate the National Labor Relations Act. The court rejected both arguments.  It first ruled that nothing gave the lead plaintiffs in one of the class action lawsuits the authority to take any action on behalf of any other drivers.  It next ruled that the U.S. Supreme Court in Epic Systems Corp. v. Lewis found arbitration agreements with class action waivers to be enforceable. The court also concluded that because the arbitration agreements were enforceable, the district court’s class certification orders must be reversed. Other than PAGA claims, these misclassification claims now will have to litigated in arbitration in individual arbitration proceedings.  O’Connor v. Uber Technologies, Inc., Nos. 14-16078, 15-17420, 15-17532, 16-17475,  No. 15-15000,  16-15595; Yucesoy v. Uber Technologies, Inc., Nos. 15-17422, 15-17534, 16-15001; Mohamed v. Uber Technologies, Inc.,  Nos. 15-17533, 16- 15035; DelRio v. Uber Technologies, Inc., No. 15-17475 (9th Cir. Sept. 25, 2018).

EEOC PREVAILS IN CLASS ACTION ON BEHALF OF EXOTIC DANCERS ALLEGEDLY DISCRIMINATED AGAINST ON THE BASIS OF RACE WHO HAD BEEN CLASSIFIED AS IC’S.  Exotic dancers at Danny’s Downtown Cabaret, a Missouri gentlemen’s club, were found to be “employees,” and not independent contractors, and therefore  covered by Title VII of the federal Civil Rights Act protecting employees from workplace discrimination. This lawsuit was brought by the Equal Employment Opportunity Commission (EEOC) on behalf of a group of black female dancers to correct allegedly unlawful employment practices of the club based on race. In its motion for partial summary judgment regarding whether the dancers were independent contractors or employees, the EEOC prevailed under a test that assessed the extent to which the employee was economically dependent upon the business, i.e. “whether the individual is, as a matter of economic reality, in business for herself.” In granting the EEOC’s motion and concluding that the dancers were employees, the court relied on the following evidence: the club exercised significant control over the dancers, including establishing work schedules and implementing workplace rules such as fines for lateness; setting the amounts charged to customers for private dances; and approving the music used. The court noted that the club failed to provide any evidence of its alleged lack of control over the dancers. Equal Employment Opportunity Commission v. Danny’s Restaurant, LLC, No. 3:16-cv-00769 (S. D. Mo. Sept. 11, 2018).

NEW TYPE OF LEGAL CHALLENGE POSED TO COMPANIES WHO USE IC’S AS PART OF THEIR BUSINESS MODEL. A new type of independent contractor misclassification lawsuit was filed last month – a legal challenge by a business that does not use independent contractors accusing another business that uses them of violating state unfair competition laws. As discussed in our blog post of October 1, 2018, Diva Limousine, Ltd., a provider of livery services who classifies its drivers as employees, has sued Uber Technologies, Inc., the largest ride sharing technology company in the U.S., in federal court. The lawsuit was brought as a class action on behalf of an array of class members. The class action complaint alleges that Uber continues to misclassify the drivers as independent contractors when California law requires them to be paid minimum wage, overtime compensation and other wage/hour protections as employees, and that Uber uses those cost savings to price rides far below their true cost, which allegedly takes business and market share from competitors who are complying with the law by classifying its drivers as employees. It is expected that Uber will deny the allegations and vigorously defend the case, pointing to arbitration, administrative, and court decisions where it has succeeded in establishing that the drivers are ICs and not employees. Diva Limousine v. Uber Technologies Inc., No. 18-cv-05546 (N. D. Cal. Sept. 10, 2018).

Written by Richard Reibstein


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New Type of Independent Contractor Misclassification Lawsuit: Business vs. Business

It was only a matter of time.  For many years, class action lawyers have filed thousands of lawsuits under wage / hour and other employment laws on behalf of individuals who allege they were employees who have been misclassified as independent contractors. Unions have likewise been prominently involved in challenging companies that use independent contractors, filing petitions with the NLRB seeking to unionize many such businesses. And state government agencies as well as the U.S. Department of Labor have commenced legal proceedings against companies using independent contractors or, like the IRS, subjected them to audits and investigations about whether they have misclassified those workers.

The newest type of legal challenge is by a business that doesn’t use independent contractors, accusing another business that does use them of violating state unfair competition laws.

The new lawsuit alleges unfair competition.  It was recently filed against the largest ride sharing technology company in a federal district court as a class action on behalf of an array of class members alleging violations of the California unfair competition laws.  The proposed class included all persons and entities who earned revenue through pre-arranged ground transportation services, including affiliates throughout the U.S. who obtained revenue for “non-shared” rides in California over the past four years. Diva Limousine, Ltd. v. Uber Technologies, Inc., No. 18-cv-05546 (N.D. Cal. Sept. 10, 2018).

The defendant has not yet responded to the complaint, but it is anticipated that a vigorous defense will be mounted.


No state or federal law prohibits the use of independent contractors and, as we have noted in prior blog posts, even the Secretary of Labor and the Wage and Hour Administrator in the past Administration publicly commented that legitimate independent contractors are an important part of the nation’s economy.

While lawsuits between competitors under unfair competition laws are not uncommon, their emergence in the independent contractor realm is a notable development.  The thrust of these types of lawsuits follow the tenor of press releases issued by state officials about companies alleged to have violated employment and independent contractor laws by misclassifying employees as ICs.

Those press releases typically state that companies that misclassify workers as independent contractors unlawfully seek to avoid the higher costs of hiring employees (including payroll and unemployment taxes, workers’ compensation premiums, and state-mandated paid leave or disability benefits) and, by so doing, are “unfairly competing against law abiding companies” that treat as employees workers who provide comparable services.  We have regularly reported on these types of press releases, such as the one issued by the New Jersey Labor Commissioner in August 2018 and a similar one issued previously by the California Labor Commissioner in June 2018.

Some unfair competition laws require only modest pleading requirements in order to survive a motion to dismiss and minimal proof to survive a motion for summary judgment.  However, at a bare minimum such laws require an affirmative showing that the defendant violated certain laws.

Few of the thousands of independent contractor misclassification cases have been litigated to judgment; the overwhelming number of such cases have been settled or dismissed prior to trial – or remain mired in protracted litigation.  When settled, these types of cases almost invariably include a standard non-admission of liability clause and/or a prominent denial of wrongdoing.

Similarly, very few administrative proceedings initiated by regulatory agencies result in admissions by a company that it violated any law; while non-admission clauses are not as universal with administrative agencies as they are in private party litigation, they are rather commonplace.

Thus, this new type of lawsuit will likely require the plaintiff to prove a violation of law – something of a challenging undertaking to say the least, particularly where the issue of misclassification of employees as independent contractors is frequently a matter that is not typically decided on a motion for summary judgment, but rather only at trial.

Further, some companies who have had several lawsuits or administrative proceedings filed against them in the past have secured decisions in their favor in certain cases.  Thus, this unfair competition claim might not be litigated on a clean slate, but rather in the context where prior decisions in favor of a defendant may further complicate the plaintiff’s proof.

In addition, this area of the law dealing with independent contractor misclassification has been evolving and is in flux in many states. As we have discussed in a number of blog posts, the California Supreme Court recently changed the test for independent contractor status in its employee-friendly decision in Dynamex. That decision, which covers some, but not all, types of claims for independent contractor misclassification, undoubtedly prompted this new lawsuit; indeed, the complaint in this newly-filed case specifically referred to Dynamex and quoted a passage from that case. Presumably, the plaintiff’s class action lawyers feel that Dynamex paved the way for this type of lawsuit.  However, the jurisprudence under Dynamex is still developing and may take years before there is clarity as to how the Dynamex test will be applied, including whether it will have retroactive effect.

In addition, many industries are asking the California Legislature to exempt certain types of businesses from the Dynamex decision, including companies in the ride-sharing technology industry. Businesses are also seeking an alteration of the newly-enunciated judicial test for independent contractor status.

Many of the more commonplace lawsuits alleging independent contractor misclassification – those filed by workers in California – include an unfair competition claim, if only to plead a cause of action that has a longer statute of limitations than that applicable to the typical Labor Code and employment claims.  Those cases by workers, though, focus not on unfair competition but rather on the Labor Code and employment law statutes.  In contrast, this new business vs. business sort of lawsuit only includes claims for unfair competition. That claim, though, asserts that the defendant violated the California Labor Code, Unemployment Insurance Code, and Insurance Code “in order to reduce the company’s labor expenses and prices, which in turn harms competition.”


This type of case presages years of litigation in an area of the law that is in flux in California and throughout the country. While the result of these types of actions are uncertain, they signal to companies that use independent contractors as part of their business model that enhancing independent contractor compliance is a sound objective.

Many companies have sought to maximize their compliance with independent contractor laws by using a legal process such as IC Diagnostics™, which examines whether a group of workers not being treated as employees would pass the applicable tests for independent contractor status under governing state and federal laws, and then offers a number of practical, alternative solutions to enhance compliance with those laws. While no solution is without some risk, one of the sustainable alternative solutions that enables many companies to minimize their independent contractor exposure is restructuring, re-documenting, and re-implementing their independent contractor relationships, without adjusting their business models, as described in our White Paper.

Written by Richard Reibstein

Your comments are invited.



Posted in IC Compliance

August 2018 Independent Contractor Misclassification and Compliance News Update

August 2018 was a busy month in the area of independent contractor misclassification and compliance, including a number of new court filings and decisions, new regulatory initiatives, and new legislation. While none of these matters were  blockbuster developments, they do provide an important message for businesses that use ICs.

One notable feature of the news updates reported below is that they cover developments in a diverse geographical area – in states on the East Coast, West Coast, Midwest, South, and the District of Columbia.  The cases summarized below also involve a diverse set of businesses – small companies operating in a single state as well as large businesses operating nationwide.  Those companies involved conduct business in extremely varied industries such as mortuary transportation, construction, online shopping, delivery services, home inspection, and airlines.  Finally, while some states passed laws or took regulatory initiatives seeking to combat IC misclassification, other states, like New York and Massachusetts, expanded the type of legal protections that are normally reserved for employees to cover independent contractors as well.

So, what’s the takeaway? Independent contractor misclassification and compliance issues arise in virtually every industry; affect companies of all sizes; arise in pretty much every state; and expose those businesses that use ICs to a variety of existing and new laws including those that can create considerable liability and legal expense.

This explains why sophisticated businesses using ICs have taken steps to minimize their risk of IC misclassification liability. Many of those businesses have resorted to a process such as IC Diagnostics™ to enhance their compliance with federal and state IC laws, expand their operations in states with laws that do not tend to restrict the legitimate use of ICs, and curtail operations in states with laws that are IC-unfriendly.

In the Courts (6 cases)

MORTUARY DRIVERS GRANTED CLASS CERTIFICATION IN IC MISCLASSIFICATION CLASS ACTION.  In a case against Serenity Transportation, a company that transports deceased persons for various clients, including hospitals and mortuaries, a federal court has granted class certification to mortuary drivers seeking damages for IC misclassification under state and federal wage/hour laws.  The drivers alleged they are subject to direction and control by Serenity because they were required to follow the company’s detailed and restrictive policies upon “hire.” The lawsuit seeks damages for allegedly unpaid on-call time, expenses reimbursement, and wage statement and waiting time penalties as well as unfair competition. The court clarified that should the trier of fact find that the on-call time is compensable, then the plaintiff’s overtime, minimum wage and meal and rest break claims may proceed on a class-wide basis as well – otherwise such claims may be litigated on an individual basis. Johnson v. Serenity Transportation, Inc., No. 15-cv-02004-JSC (N.D. Cal. Aug. 1, 2018).

AMAZON UNABLE TO MOVE IC MISCLASSIFICATION CLASS ACTION BY DRIVERS INTO FEDERAL COURT.  Amazon has failed to remove an IC misclassification class action from a Massachusetts state court into a federal court in that state. The complaint was filed in Worcester Superior Court on behalf of a proposed class of drivers who alleged wage violations under Massachusetts laws, including failure to reimburse drivers for business expenses, failure to pay drivers for hours worked after a shift ended, and failure to pay the minimum wage. Amazon filed a Notice of Removal under the Class Action Fairness Act of 2005 (CAFA), which requires that the amount in controversy exceed the federal court jurisdictional threshold of $5,000,000 for all proposed class members. Amazon estimated that damages for the class members would be at least $4.4 million, just under $20,000 for the named plaintiff, and $600,000 in legal fees (attorneys’ fees may be included in reaching the $5 million jurisdictional threshold under CAFA).

In granting the drivers’ motion to remand the case to state court, the federal court reasoned that even assuming the damage calculations for unreimbursed expenses, unpaid wages and minimum wage violations were accurate, Amazon’s assertion that attorneys’ fees for the class would equal or exceed $600,000 was speculative. The court rejected Amazon’s argument that because plaintiff’s counsel had previously spent between 900 and 1,800 hours on other misclassification cases, it would likely spend 1,200 hours on this case.  Instead, the court concluded that it was equally likely that this case would be decided on summary judgment or settle at an early stage. The court stated, “Given that Plaintiff’s attorneys’ fees through this motion totaled only $11,700, and that Plaintiff has shown that cases under Massachusetts Independent Contractor Law are routinely decided on summary judgment, it is unreasonably speculative to assume that this will be a heavily litigated case that amasses over $600,000 in attorneys’ fees.” Waithaka v. Inc., No. 4:17-cv-40141 (D. Mass. Aug. 28, 2018).

OHIO COURIER COMPANY SETTLES IC MISCLASSIFICATION CLASS ACTION FOR $600,000.  An Ohio federal court has approved a $600,000 settlement of a class and collective action brought by drivers against Premier Courier, Inc. for alleged violations of the federal Fair Labor Standards Act, minimum wage and overtime requirements of state wage and hour laws, and the Ohio Fraudulent Transfer Act, claiming they were misclassified as independent contractors and not employees.  The class and collective action complaint had alleged that the drivers were economically dependent on the company; the work the drivers performed was integral to the company’s primary business; the drivers worked in low-paying jobs requiring relatively low skill and held positions for long periods of time; the company determined the type of work performed by the drivers as well as their hours of work; the company set the fees to be paid to the driver and required them to wear uniforms and badges; and the company controlled the work the drivers performed and the manner in which they were to perform it. Wright v. Premier Courier, Inc., No. 2:16-cv-00420 (S.D. Ohio Aug. 18, 2018).

NATIONAL ELECTRICAL CONTRACTOR SUED BY D.C. ATTORNEY GENERAL FOR IC MISCLASSIFICATION OF ELECTRICAL WORKERS.  The District of Columbia Attorney General has filed suit against Power Design, Inc., a national electrical contractor headquartered in Florida, for allegedly misclassifying at least 535 electrical workers as independent contractors “in a[n alleged] scheme to cut costs and avoid legal responsibilities.” The D.C. Attorney General also sued two other companies described as “labor brokers” that were hired by Power Design to engage workers and dispatch them to provide services as independent contractors at Power Design construction sites. In its August 6, 2018 press release, the Office of the Attorney General for the District of Columbia stated that in misclassifying the workers, the companies violated the D.C. Workplace Fraud Act (applicable only to the construction industry), the D.C. Minimum Wage Revision Act, the D.C. Sick and Safe Leave Act and the D.C. Unemployment Compensation Act.  D.C. Attorney General Karl Racine added: “Power Design cheated hundreds of District workers out of their hard-earned wages and stripped them of their legal rights. When companies misclassify employees as independent contractors, they steal from their workers and gain an unfair advantage over competitors that follow the law.” According to the allegations in the complaint, Power Design “exercised significant – if not total – control and direction over the labor broker workers” because the company unilaterally set the work schedules; required workers to wear a specific uniform and provided most of the tools and supplies; set policies that were expected to be followed; closely supervised the workers’ work production a daily basis; and had the power to terminate its relationship with a worker without consulting the labor broker. District of Columbia v. Power Design, Inc., Super. Ct. D.C. Aug. 6, 2018.

RESIDENTIAL INSPECTION AGENTS FILE IC MISCLASSIFICATION CLASS ACTION LAWSUIT.  ServiceLink Field Services, LLC, a home inspection company performing services for its financial institution clients, has been sued by residential inspection agents in a class action complaint filed in California state court for alleged wage and hour violations under the California Labor Code.  The plaintiff claims that the inspection agents were misclassified as independent contractors and not employees. The inspectors allegedly were not paid for all hours worked; not paid at least the minimum wage; not paid for meal or rest breaks, travel time, or work performed at home; and not paid for supplies and maintenance of their vehicles, among other things. According to the complaint, “Defendant ServiceLink contracts with third party vendors to either perform inspections themselves and/or provide and pay other class members to perform ServiceLink inspections.” In support of the misclassification claims, the agents claim that inspections must be performed pursuant to ServiceLink policies, procedures, and directions within timeframes set by ServiceLink. Collins v. ServiceLink Field Services, LLC, No. 37-2018-00040352-CU-OE-CTL (Aug. 10, 2018).

GROUP OF THREE CASES BEFORE THE CALIFORNIA SUPREME COURT COULD IMPACT NATIONWIDE COMPANIES SENDING IC’S TO THAT STATE FOR LIMITED PERIODS OF TIME.  The U.S. Court of Appeals for the Ninth Circuit has certified three questions of law to the California Supreme Court involving the applicability of that state’s wage and hour laws to workers who only work episodically in that state.  Pilots and flight attendants for United Airlines and Delta Air Lines commenced lawsuits alleging violations of the California Labor Code. They are seeking to apply California law to their claims despite the de minimis amount of time they spend working in California.

The district courts each granted summary judgment in favor of the airlines, but the plaintiffs appealed to the Ninth Circuit. In certifying these questions to the California Supreme Court related to extraterritorial application of state laws, the Ninth Circuit stated: “There is no controlling California precedent on the question whether California labor law applies to an employee who works for an out-of-state employer and does not work principally, or even for days at a time, in California.” The three certified questions are: (1) Do California Labor Code §§ 204 and 226 apply to wage payments and wage statements provided by an out-of-state employer to an employee who, in the relevant pay period, works in California only episodically and for less than a day at a time? (2) Does the California minimum wage law apply to all work performed in California for an out-of-state employer by an employee who works in California only episodically and for less than a day at a time? and (3) Does the California Labor Code § 226 apply to wage statements provided by an out-of-state employer to an employee who resides in California, receives pay in California, and pays California income tax on her wages, but who does not work principally in California or any other state?

The court further reasoned that these certified questions are of great importance to the many California residents who work only episodically in California and to the many employers who regularly send California residents to work outside of the state.  These questions are equally of importance to businesses that engage contractors to perform services in that state on an episodic or occasional basis.  Ward v. United Airlines, Inc., 889 F.3d 1068 (9th Cir. 2018); Vidrio v. United Airlines, Inc., No. 17-55471 (9th Cir. 2018); Oman v. Delta Air Lines, Inc., 889 F.3d 1075 (9th Cir. 2018).

Administrative &Regulatory Initiatives (1 matter)

NEW JERSEY SIGNS IC MISCLASSIFICATION PARTNERSHIP AGREEMENT WITH U.S. DEPARTMENT OF LABOR.  The State of New Jersey and the U.S. Department of Labor have signed an independent contractor misclassification partnership agreement.  A News Release dated August 10, 2018 announced the three-year Memorandum of Cooperation between the Wage and Hour Division of the U.S. Department of Labor and the New Jersey Department of Labor and Workforce Development. The specific and mutual goals of this partnership include coordinating efforts to provide clear, accurate, and easy-to-access outreach to employers, employees, and other stakeholders, and to enhance enforcement of IC misclassification laws by conducting coordinated investigations and sharing information consistent with applicable law. In New Jersey alone, auditors have reportedly identified more than $80 million in underreported employer contributions since 2010 due to the purported misclassification of employees. The New Jersey Labor Commissioner stated, “One of the Labor Department’s core responsibilities is to safeguard workers from unscrupulous business practices, and to support responsible businesses by making sure everyone plays by the same set of rules. This partnership with U.S. DOL will help ensure that our business partners and the state’s workers all get the protections they deserve.”

Legislative Developments (3 laws)

VIRGINIA ESTABLISHES TASK FORCE TO COMBAT IC MISCLASSIFICATION.  Virginia Governor Ralph Northam signed Executive Order on August 13, 2018 establishing an inter-agency task force to combat worker misclassification and payroll fraud. A 2012 report of Virginia’s Joint Legislative Audit and Review Commission (JLARC) found that one third of audited employers in certain industries misclassify their employees and that worker misclassification lowers Virginia’s state income tax collections as much as $28 million a year. The proposed task force will include representatives from the following agencies: the Virginia Employment Commission, the Department of Labor and Industry, the Department of Professional and Occupational Regulation, the State Corporation Commission’s Bureau of Insurance, the Department of Taxation, and the Workers’ Compensation Commission. Included among the task force’s responsibilities are reviewing statutes and regulations related to worker misclassification and payroll fraud; evaluating the participating agencies’ current enforcement practices; adopting procedures for more effective inter-agency cooperation and joint enforcement; and publishing educational materials and developing an outreach strategy for employers. In a News Release issued on August 13, 2018, Governor Northam said, “Treating Virginia workers fairly is central to building an economy that works for everyone, no matter who you are or where you live. Every employer in the Commonwealth should be playing by the same rules and this task force will come up with a comprehensive plan to make sure workers aren’t missing out on the protections and benefits they would receive if properly classified.”

NEW MASSACHUSETTS NON-COMPETE LAW APPLIES TO INDEPENDENT CONTRACTORS.  On August 10, 2018, Governor Charlie Baker of Massachusetts signed into law new, expansive non-compete legislation that applies not only to employees but also to independent contractors. Under the new law, which the state legislature had been debating for 10 years, Massachusetts employers must comply with new non-compete rules for agreements that are executed on or after October 1, 2018.  This new law defines the term “employee” as including independent contractors. The Massachusetts law reportedly aims to prevent overuse of non-competes by prohibiting their usage with employees and/or ICs who are: categorized as non-exempt under the Fair Labor Standards Act; part-time and full-time undergraduate or graduate students; terminated without cause or laid off; or under the age of 18. To be valid and enforceable, the non-compete must, among other things, be provided to the worker with his/her formal offer of employment or 10 days prior to the worker’s first day of work, whichever is earlier; generally be signed by the employer and the worker; be limited to a 12-month period; be no broader than necessary to protect certain legitimate business interests of the employer; and be reasonable in geographic reach and scope in relation to the interests sought to be protected.

NEW YORK’S NEW SEXUAL HARASSMENT LAW NOW PROTECTS IC’S AS WELL.  The New York State Human Rights Law has been expanded to add sexual harassment protections for independent contractors.  As part of the recently-passed New York State Budget Bill, the Human Rights Law was amended to provide that it is an unlawful discriminatory practice for an employer to permit sexual harassment of “non-employees” in its workplace.  Under the new law, an employer may now be held liable to a non-employee who is a contractor, subcontractor, consultant, or vendor, when the employer, its agents, or supervisors knew or should have known that the non-employee was subjected to sexual harassment in the employer’s workplace and the employer failed to take immediate and appropriate corrective action. This expansion of the law is noteworthy because, until now, independent contractors did not share the same protections with regard to sexual harassment as employees did. This new law provides recourse to independent contractors and should sensitize employers to the fact that such contractors can be subjected to sexual harassment in their workplace as well as employees.

In carrying out the new law, the New York State Division on Human Rights issued on August 23 a Model Sexual Harassment Policy, which provides in part:  “[Employer Name] Policy applies to all employees, applicants for employment, interns, whether paid or unpaid, contractors and persons conducting business with [Employer Name].” It further provides: “New York Law protects employees, paid or unpaid interns, and non-employees, including independent contractors, and those employed by companies contracting to provide services in the workplace. A perpetrator of sexual harassment can be a superior, a subordinate, a coworker or anyone in the workplace including an independent contractor, contract worker, vendor, client, customer or visitor.”

Written by Richard Reibstein

Your comments are invited.

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Posted in IC Compliance

July 2018 Independent Contractor Misclassification and Compliance News Update

Last month was notable for a number of judicial and administrative decisions against companies defending independent contractor misclassification claims.  In one case, the plaintiff seeks to use the company’s statements in its filings with the U.S. Securities and Exchange Commission to establish IC misclassification.  This strategy is an example of why companies using ICs should closely review their public statements, including websites and marketing materials, to minimize the likelihood their own words are not used against them. Ideally, public statements should tend to support a genuine independent contractor relationship. Indeed, making effective revisions to public statements is an integral part of maximizing IC compliance, as discussed in our White Paper; it can, however, be a challenging undertaking.

In another case, the plaintiffs sought to establish employee status by relying on company ID badges and uniforms they claimed they were required to use and wear as well as insurance they alleged they were obligated to carry.  These are commonplace factors upon which plaintiffs’ class action lawyers focus in arguing that their clients have been misclassified.  Some judicial decisions, though, have held that requiring such ID badges and uniforms do not indicate employee status in selected industries, and that requiring a contractor to carry minimum insurance, particularly involving motor vehicles, is not inconsistent with IC status.

Two cases involved aggressive defense motions to dismiss claims for inadequate pleading, but in both cases the courts ultimately allowed the cases to proceed.  Another case involved a ride sharing industry; in that case, the New York Unemployment Insurance Appeal Board affirmed a decision that drivers were employees under the New York unemployment insurance law, not independent contractors.  That decision, unless reversed on appeal, is limited to unemployment insurance law in that state.

Perhaps the most significant case last month was the first reported decision in California addressing the retroactive application of the new employee-friendly “ABC” test, which was enunciated by the California Supreme Court in its April 30, 2018 decision in the Dynamex case.  That new standard replaced the prior test first articulated by the California Supreme Court in 1989 in the Borello case. A Superior Court judge in Orange County, California concluded that Dynamex should be applied retroactively.  The retroactivity of Dynamex will undoubtedly be subject to appellate review.

As we noted in our May 10, 2018 blog post entitled “Questions Left Open by Dynamex and What Companies Can Do To Enhance Their IC Compliance,” retroactive application of the ABC test to the period prior to April 30, 2018 would likely invite due process challenges by employers, who had long understood Borello to be the law by which their IC relationships were governed. The question of retroactivity depends upon considerations of fairness and public policy. As we stated in that blog post, “Given that Borello has long been understood as the applicable test by both businesses and individuals as well as California agencies such as the Division of Labor Standards Enforcement, there are compelling grounds for stakeholders to argue that they reasonably relied upon Borello as good law and that this change in the law was not foreseeable.”

While the legal landscape has certainly changed following Dynamex, some businesses and individuals that wish to enter into or maintain an independent contractor relationship can still do so.  In our blog posts dealing with the Dynamex decision, we note that by using a process such as IC Diagnostics,™ some businesses can restructure and re-document their independent contractor relationships instead of reclassifying contractors as employees.

In the Courts (5 cases)

STOCK PHOTO REVIEWERS SUE SHUTTERSTOCK FOR IC MISCLASSIFICATION.  A content reviewer providing services to Shutterstock, Inc., a nationwide company that offers high quality, royalty free stock photos, music and video for many applications like websites, blogs, and films, has sued the company in California state court.  The plaintiff seeks to represent a class of content reviewers alleging overtime, meal, rest period and other violations of the California Labor Code and Wage Orders of the Industrial Welfare Commission due to alleged independent contractor misclassification.

In support of the proposed class action, the plaintiff quotes from Shutterstock’s 10-k filing with the U.S. Securities and Exchange Commission, which provides in part: “Generally, we provide our content under a royalty-free non-exclusive license and each piece of content available for license has been vetted by a team of reviewers to ensure that it meets our standards of quality and can be appropriately licensed for commercial or editorial use.” (Emphasis added.) The plaintiff also claims, among other things, that she and all other stock photo reviewers are employees because they are not free from the control and direction of Shutterstock in the performance of their content review work; the work done by the reviewers is within the usual course of Shutterstock’s business; and the reviewers not customarily engaged in an independently established business. Included among the many allegations purportedly evidencing direction and control are Shutterstock’s expectation that the reviewers will follow the company’s detailed written standards; its alleged requirement that they escalate issues to supervisors via a proprietary Shutterstock system; and the claim that the company provides resources to reviewers to perform specific tasks. Call v. Shutterstock, Inc., No. SCV-262841 (Super. Ct. County of Sonoma, Cal. July 20, 2018).

MISSOURI CARPET CLEANING TECHNICIANS GIVEN SECOND CHANCE TO PROCEED WITH THEIR IC MISCLASSIFICATION CLASS ACTION. A Missouri federal court has denied a second motion to dismiss a proposed class action IC misclassification lawsuit brought by carpet cleaning technicians alleging wage and hour violations of the FLSA and Missouri Minimum Wage Law.  The cleaners allege that they were misclassified as independent contractors and not employees by the defendant, ProSteam Carpet Care LLC, a business offering residential and commercial cleaning of carpeting, flooring, and upholstery.  ProSteam had prevailed in a prior motion to dismiss because the cleaners had failed to set forth sufficient facts to support their overtime claims, but the court allowed the cleaners to amend their complaint. Their amended complaint included specific weeks for which they allegedly worked over 40 hours and did not receive overtime compensation, and also alleged specific facts regarding how certain company policies were purportedly applied in practice. In denying the motion, the court found that the cleaners had now sufficiently alleged facts to avoid dismissal of the complaint.  Wegat v. ProSteam Carpet Care LLC, No. 16-cv-1931(E.D. Mo. July 31, 2018).

DRIVERS FOR NORTH CAROLINA LOGISTICS COMPANY AVOID DISMISSAL OF THEIR IC MISCLASSIFICATION CLASS ACTION.  A North Carolina federal court has denied a motion to dismiss by transportation logistics company, Express Courier International, Inc., of a proposed IC misclassification class action by drivers seeking unpaid minimum wages and overtime compensation under the FLSA.  In permitting the drivers to proceed with their lawsuit, the court determined that they alleged facts that established a wage and hour violations that “nudge[s] their claim[s] from conceivable to plausible.” The court held that it was sufficient that the drivers alleged they worked over 40 hours per week and the company was aware of it yet failed to pay the drivers overtime wages, and that the drivers’ self-incurred vehicle-related expenses caused their pay to drop below the minimum wage rate.  The drivers also alleged that the company’s branch managers were in charge of drivers, assigned routes, and had authority to terminate drivers.  They also alleged that the company dictated what ID badges and uniforms the drivers had to wear, the insurance required to be carried by the drivers and the method of tracking and communication to be used.  Allen v. Express Courier Int’l, Inc., No. 18-cv-00028 (W.D.N.C. July 25, 2018).

NEW YORK UNEMPLOYMENT INSURANCE APPEAL BOARD RULES THAT DRIVERS PROVIDING SERVICES TO CUSTOMERS OF RIDE SHARING TECHNOLOGY COMPANY ARE EMPLOYEES, NOT INDEPENDENT CONTRACTORS.  Drivers providing services to customers of Uber are entitled to unemployment insurance benefits according to a recent New York Unemployment Insurance Appeal Board decision. In upholding the determinations of an Administrative Law Judge at the New York Department of Labor, the Appeal Board concluded that “Uber exercises sufficient supervision, direction or control over the three claimants and other similarly situated Drivers.” The Board found that control was exercised through Uber’s in-person assistance at its Hubs where drivers are screened; required drivers to view an onboarding video containing essential information; and drivers are required to take Uber’s roadmap test.  In addition, the Board also rested its decision on the following: Uber’s Driver App that is provided by Uber to  the drivers and contains information set up by Uber; by Uber setting the fares charged to riders, the rates of pay received by the drivers, and the music, tipping and deactivation policies; by Uber providing in-person support to drivers and monitoring their performance, including by using the ratings results provided by riders; and by providing a detailed handbook, fielding complaints and communicating trips’ most efficient routes.

Uber had argued that the controls were mandated by the Taxi and Limousine Commission – an argument that the courts in New York have recognized in the past – but the Appeal Board determined that Uber exercised or reserved the right to exercise control beyond regulatory mandates.  In its decision, the Appeal Board chose not consider the abundance of factors in support of IC status, focusing instead on the factors supporting employee status. In the Matter of Uber Technologies, Inc.,  N.Y. Unemployment Insurance Appeal Board No. 596722 (July 12, 2018).

DYNAMEX DECISION APPLIED RETROACTIVELY BY A CALIFORNIA COURT. A California state court has issued a ruling that the “ABC” test for determining independent contractor / employee status, which was enunciated by the California Supreme Court in April 2018 in the Dynamex case, will apply retroactively to Private Attorneys General Act (PAGA) claims in a case brought by exotic dancers against a gentlemen’s club, Imperial Showgirls.  The court stated that, “Even though Dynamex established a new standard for evaluating independent contractor/employee issues (at least as to claims brought under the IWC [Industrial Wage Commission] wage orders), it did not state that the decision applied only prospectively.” In reaching its decision, the Court reasoned that given the age (13 years) of the claims in the Dynamex case, “the lack of such a pronouncement [about retroactivity] suggests that the decision should apply retroactively.”

The gentlemen’s club had argued that the Dynamex decision does not apply to PAGA claims since such claims are based on Labor Code violations, not violations of wage orders. In rejecting that argument, the Court concluded that although the PAGA claims in the dancers’ case were all based on alleged violations of the Labor Code (such as failure to pay all wages owed, including minimum wage; failure to provide meal breaks, rest breaks and accurate itemized wage statements; failure to reimburse all expenses; improper deductions from wages; and failure to permit the dancers to retain gratuities), an applicable wage order also covered each of the violations except for the gratuity claim. Because all but the gratuity claim were “rooted in the wage orders,” the Court ruled that the Dynamex ABC test should apply to each such claim.  Johnson v. VCG-IS LLC, d/b/a Imperial Showgirls and  International Entertainment Consultants, Inc., No. 30-2015-00802813 (Super. Ct. Orange County, Cal. July 18, 2018).

Administrative & Regulatory Initiatives (2 matters)

NAIL SALON ASSESSED $1.2 MILLION FOR MISCLASSIFYING WORKERS.  The California Labor Commissioner’s Office has issued a $1.2 million citation to Young’s Nail Spa for allegedly misclassifying 36 workers as independent contractors, failing to pay overtime compensation, and failing to provide proper meal and rest breaks. According to the Labor Commissioner’s press release issued on July 30, 2018, an investigation was initiated through a complaint filed in accordance with the Private Attorneys General Act (PAGA). In the press release, the Labor Commissioner stated that the citation amount included $670,000 payable to workers and $572,000 in civil penalties. Of the total due to workers, $126,702 was for minimum wage violations plus $17,375 in interest, $144,076 for liquidated damages, $118,825 for failure to pay overtime, $92,492 for not providing final paychecks as required by law, $87,155 for improperly paid rest periods, $65,312 for not providing proper itemized wage statements, and $18,103 for meal period violations. The civil penalties included $207,887 for failure to maintain valid workers’ compensation insurance, $160,000 for misclassifying workers as independent contractors, $104,000 for not providing proper wage statements and $100,300 for penalties associated with the wage violations.

U.S. LABOR DEPARTMENT ISSUES GUIDANCE ON IC STATUS OF CAREGIVERS AND NURSES REFERRED BY HOME CARE REGISTRIES.  The U.S. Department of Labor issued detailed guidance to its field staff in its Wage and Hour Division to assist them in determining if and when caregiver and nurse registries are deemed to be employers under the FLSA. As more fully discussed in our blog post of July 13, 2018, the guidance was issued in the form a Field Assistance Bulletin entitled “Determining Whether Nurse or Caregiver Registries are Employers of the Caregiver.” The types of registries covered by the Bulletin are those that facilitate matches or referrals between clients and caregivers. The Bulletin provides that such registries may engage in many actions that should not be regarded as indicative of an employment relationship, including but not limited to conducting background screening; verifying credentials of potential workers; matching a client’s threshold preferences with a potential caregiver;  informing the client and caregiver about typical rates in the local area to serve as a benchmark for negotiations; handling payroll services; and compliance with mandatory requirements of the law. Likewise, the Bulletin identifies actions that may result in a finding of employer status such as interviewing a prospective caregiver to determine if he or she is “likeable” or will “work well with a particular client”; determining whether one caregiver is likely to “do a better job” than another caregiver; setting policies that require a caregiver to provide services in a particular way; requiring a caregiver to accept a job with a particular client; visiting the home to monitor a caregiver’s behavior; conducting performance evaluations of the caregiver; and setting policies for a caregiver’s time off from work. The Bulletin notes that field staff should use a “totality of the circumstances” evaluation to determine whether an employment relationship exists between a registry and a caregiver.

As noted in our blog post, the Labor Department’s assessment misses the mark in at least one key respect. The Bulletin states that a registry’s decision to terminate a caregiver “for failing to comply with the requirements and standards established by the industry, the client, or the law” indicates that the registry may be an employer of the caregiver. This view is contrary to many court decisions under the FLSA involving a variety of industries.

Written by Richard Reibstein


Compiled by Janet Barsky


Your comments are invited.

To receive blog posts and regular monthly IC Compliance 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 the publisher (through the About the Publisher page on this blog) with any recent:


  • court cases commenced;
  • developments or updates in existing court cases, including any judicial decisions;
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  • 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.

Posted in IC Compliance

Home Care and Nursing Registries Are Subject of New Independent Contractor Guidance

The home health care industry has been targeted in the past for independent contractor misclassification by the U.S. Department of Labor and state workforce agencies, particularly with respect to home health aides.  Earlier today, July 13, 2018, the U.S. Department of Labor issued guidance that, on its face, seems to provide home care, nurse, and caregiver registries with a road map as to how they can structure their IC relationships with home health aides and nurses to heighten their compliance with federal law.  But, as noted in the Analysis and Takeaways below, home care registries that are based on an IC business model would be wise to take additional steps to maximize the likelihood that they will survive scrutiny if subjected to a legal challenge by a plaintiffs’ class action law firm or an administrative agency.

The guidance issued today was in the form of a Field Assistance Bulletin from the Acting Administrator of the Wage and Hour Division of the U.S. Department of Labor to its top enforcement administrators and directors across the country.  Entitled “Determining Whether Nurse or Caregiver Registries are Employers of the Caregiver,” the Bulletin provides guidance in determining if and when caregiver and nurse registries are deemed to be employers under the federal Fair Labor Standards Act.

What Does the Field Assistance Bulletin Say?

The types of registries covered by the Bulletin are those that facilitate matches or referrals between clients and caregivers.  The Bulletin tells federal Wage and Hour Division personnel that such registries may engage in the following actions that they should not regard as indicative of an employment relationship:

  • conducting background screening;
  • verifying credentials of potential workers;
  • matching a client’s threshold preferences with a potential caregiver;
  • introducing the caregiver to the client;
  • informing the client and caregiver about typical rates in the local area to serve as a benchmark for negotiations;
  • relaying communications, offers, or counteroffers between the client and prospective caregiver;
  • collecting time sheets from caregivers or offering caregivers the use of the registry’s electronic time verification system;
  • handling payroll services;
  • affording caregivers the opportunity to purchase discounted equipment or supplies from the registry or a third party;
  • requiring an Employer Identification Number (EIN) issued by the IRS, or insurance, or a bond required by law; and
  • compliance with mandatory requirements of the law.

The Bulletin, however, makes it clear that certain types of activities engaged in by caregiver registries will result in a finding of employer status.  For example, interviewing a prospective caregiver to determine if he or she is “likeable” or will “work well with a particular client” will be regarded as an indicator of employment in contrast to merely “performing basic quality control and verification checks.”  Determining whether one caregiver is likely to “do a better job” than another caregiver is cited as yet another indicator of employment status.

Other indicators of employment status mentioned in the Bulletin include setting policies that require a caregiver to provide services in a particular way; requiring a caregiver to accept a job with a particular client; visiting the home to monitor a caregiver’s behavior; conducting performance evaluations of the caregiver; setting policies for a caregiver’s time off from work; requiring the caregiver to use only the registry; disciplining a caregiver for his or her performance; limiting the number of clients to whom a caregiver may provide services; restricting a caregiver’s hours; prohibiting a caregiver from registering with other referral services; or prohibiting a caregiver from working with his or her own clients outside of the registry.

The Bulletin concludes with a statement that the Wage and Hour Division will “consider the totality of the circumstances” to evaluate whether an employment relationship exists between a registry and a caregiver.  A Labor Department spokesperson reportedly stated that the Bulletin is not meant to apply to other industries and is tailored solely to homecare registry operators.

Analysis and Takeaways

This new Bulletin demonstrates that the U.S. Department of Labor is prepared to provide useful guidance to an industry that has been subject to uncertainty over whether an independent contractor model for home care and nursing registries is permissible under the federal wage and hour law. The Bulletin takes great pains not to favor businesses or employees but rather attempts to provide a fair and balanced assessment of which factors are indicative of employment and which favor independent contractor status.

The Labor Department’s assessment, though, misses the mark in at least one key respect. The Bulletin states that a registry’s decision to terminate a caregiver “for failing to comply with the requirements and standards established by the industry, the client, or the law” indicates that the registry is an employer of the caregiver. This view is contrary to many court decisions under the FLSA involving a variety of industries. Certainly, if a registry has reason to believe that a caregiver has engaged in theft of a client’s possessions, has mentally or physically abused a client, permits obvious tripping hazards to remain in the home of an elderly client who has ambulatory issues, or repeatedly refuses to comply with a reasonable request of a client such as not to overheat meals, virtually every homecare registry would terminate its relationship with the caregiver.  Such responsible action on the part of a registry should hardly be regarded as indicative of control indicating an employment relationship. Hopefully, the Labor Department will correct this part of the Bulletin.

While the new Bulletin provides considerable guidance to home care and nursing registries using an IC model, it does not address the legal significance or importance of a registry’s documentation in determining the validity of an IC model. As noted in our White Paper, proper documentation of an IC relationship is instrumental in an effort to maximize compliance, and is an integral part of any process used by a business in seeking to minimize IC misclassification liability.

For example, for those businesses using a process such as IC Diagnostics,™ documentation is one part of a three-pronged approach to enhancing compliance with IC laws:  structuring, documenting, and implementing the IC relationship elevates a company’s level of compliance.  Documentation, in the case of registries, would include the registry’s agreement not only with caregivers but also with its clients.

As stated in prior blog posts and our White Paper, documentation ideally should embody the entire relationship between the independent contractors in question and the business. Many independent contractors work without an agreement or, worse, work under agreements that do not reflect the true relationship between the contractor and the company. A contract that misstates the true relationship between the parties is generally of little or no benefit.

The use of form or model independent contractor agreements (sometimes called templates) and other “one size fits all” solutions are likely to be ill fitting. While some registries may operate in a similar manner to others, few businesses in any industry are operated in the same manner.  Thus, savvy companies that use ICs have opted for customized documentation with state-of-the-art clauses that maximize the likelihood that the IC relationship will be validated.

Written by Richard Reibstein

Your comments are invited.

Posted in IC Compliance