Uber’s Former CEO and Current Chairman of the Board Sued Personally for Independent Contractor Misclassification – Is This an Effort to Circumvent Uber’s Arbitration Agreements?

Yesterday, the lawyers representing drivers who have sued Uber in California commenced another lawsuit on behalf of drivers alleging that Uber misclassified them as independent contractors instead of employees. This lawsuit, though, is not against Uber itself; rather, it is against Travis Kalanick, the former CEO and a current Board member, and Garrett Camp, the Chairman of the Board of Uber Technologies, Inc.

As reported today in an article by Tracey Lien in the Los Angeles Times, the lead counsel for the drivers, Shannon Liss-Riordan, said that the new case was “filed . . . as a precaution to ensure that if we are successful, and Uber is not around to see the end of this case, Travis Kalanick and others will be personally liable for that debt to the drivers.”

It also appears that this new lawsuit may well be an attempt to avoid the arbitration provisions in the independent contractor agreements that most Uber drivers have signed with Uber – much the same way that Gretchen Carlson sought to avoid the arbitration provisions in her employment agreement with Fox News when she decided to only sue Roger Ailes personally. Undoubtedly, Kalanick and Camp will likely argue that they are covered by the Uber arbitration clause, and it will be up to a court (or an arbitrator) to decide that issue.

The case is James v. Kalanick, No. BC666055 (Super. Ct. Los Angeles County, CA, June 22, 2017), and is assigned to Judge Maren E. Nelson.

The California Law in Question – Does It Apply?

The law under which Kalanick and Camp are being sued is the California Independent Contractor Law, enacted in 2011.  (Cal. Labor Code § 226.8)  It prohibits “willful misclassification” of employees as independent contractors.  That law contains a provision that not only imposes liability on companies who “willfully” misclassify workers as ICs, but also imposes “joint and several liability” on persons who knowingly advise an employer misclassify such individuals to avoid employee status.  (Cal. Labor Code § 2753)  However, that law exempts from liability anyone “who provides advice to his or her employer.” It is likely, therefore, that Kalanick will argue that he is exempt from joint liability. Camp is likely to make the same argument as a Board member, even if Uber was not technically his “employer.”

The law is unclear as to whether “advisors” can be jointly liable with a business they “advise” unless the company is also sued, and in this latest lawsuit the company was not.

The California Independent Contractor Law requires “willful” misclassification, which is defined to mean “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” That is a higher standard than that imposed by the laws under which Uber has currently been sued.

Whether or not this case is litigated on the merits – in court or in front of an arbitrator –Kalanick and Camp would likely argue that neither engaged in any misclassification and especially not “willful” misclassification. Indeed, the issue of whether Uber drivers are employees or independent contractors is one where there are cogent factual arguments in favor of independent contractor status and in favor of employee status. That is the reason why a federal district court denied summary judgment in this case, finding that there were material issues of fact that had to be decided by a jury.  Essentially, this is one of those types of IC misclassification cases in the “gray” area.

Takeaways for Other Businesses Using Independent Contractors in California and Elsewhere

Companies that find themselves in the “gray” area, and there are tens of thousands of such companies around the country, may wish to evaluate their current degree of IC compliance and then take steps to considerably enhance their level of compliance.

This can be done through IC Diagnostics, a proprietary process that offers alternatives to businesses that wish to minimize their exposure to independent contractor misclassification liability. One such alternative is restructuring, re-documenting, and re-implementing a company’s IC relationships in a manner that elevates a business’s level of compliance, consistent with the underlying business model, in a customized and sustainable manner. This is typically the preferred methodology chosen, as it can often be accomplished with little or no additional operating costs.

Companies whose IC compliance is already at a high level can also benefit considerably by some restructuring, re-documentation and/or re-implementation of their IC relationships. The IC legal landscape has been for many years and remains in flux.  Structures and agreements that once seemed safe may contain legal cracks that need repair.  Take, for example, FedEx, a company with top in-house and outside counsel.  As noted in a number of blog posts, its independent contractor agreement, which may at one time have been regarded as state-of-the-art, was recently found by two federal appellate courts to have created an employee relationship with its Ground Division drivers, instead of the IC relationship for which it was intended to establish.

Other alternatives may include reclassification (either voluntarily or through a governmental program or arrangement) or redistribution through the use of a knowledgeable fee-based workforce management firm. These alternatives, though, can involve a considerable cost – and they are not risk-free if not accomplished in an effective manner.

Another way in which such companies in the “gray” area can seek to minimize the likelihood of class action lawsuits is with a state-of-the-art arbitration clause with class action waiver, drafted in a manner that avoids the legal issues presently under review by the U.S. Supreme Court.

Written by Richard Reibstein

Posted in IC Compliance | Leave a comment

May 2017 Independent Contractor Misclassification and Compliance News Update

This update of May 2017 developments in the area of independent contractor misclassification and compliance highlights three key legislative developments: the enactment of two new laws (one in New York City and the other in Florida) and the introduction of a bill in Congress.  As discussed below, these legislative initiatives (unlike many prior bills that have been enacted by state legislatures over the past ten years) are not efforts to crack down on companies that misclassify employees as ICs, but rather legislative acknowledgements that legitimate independent contractors play an important role in the U.S. economy and should be protected under the law.  How? These legislative initiatives seek to guarantee ICs a right to collect their fees, provide funding for studies to determine how ICs can enjoy workplace benefits they can carry from one gig to another, and simplify the test for IC status in one industry that has been the subject of dozens of IC misclassification lawsuits.

These legislative developments, of course, do not mean that plaintiffs’ class action lawyers and state workplace agencies have lessened their efforts to challenge companies alleged to have misclassified employees as independent contractors. Indeed, this May update includes court cases and regulatory enforcement actions against companies that allegedly mistreated workers by classifying them as ICs in violation of state or federal law.  For businesses that use workers whom they classify as ICs, the need for compliance with existing independent contractor laws has not diminished.  Many companies using ICs that wish to enhance their compliance with IC laws have chosen to take steps to minimize the likelihood of legal challenges by using the processes more fully described in our White Paper.

In the Courts (3 cases)

PRO FOOTBALL CHEERLEADERS WIN PARTIAL SUMMARY JUDGMENT THAT THEY WERE MISCLASSIFIED AS IC’S BY TWO COMPANIES FOUND TO BE THEIR JOINT EMPLOYER.  In 2014, the Buffalo Jills cheerleaders sued the National Football League, the Buffalo Bills professional football franchise, and other companies alleging that the defendants had misclassified them as independent contractors in violation of the state labor laws, including the minimum wage law. The cheerleaders claimed that they were not paid for all hours worked for each season, were not reimbursed for business expenses in a timely fashion, and had unlawful deductions taken from their pay. In addition, they alleged that the Bills football team and others exercised direction and control over the cheerleaders by requiring them to attend all pre-season, regular, and post-season home football games; attend and participate in all practices, rehearsals, photo sessions, and meetings; participate in a youth cheerleading program; follow a Buffalo Jills handbook; and be subject to monitoring of their activities and behavior, with disciplinary consequences for noncompliance. A New York State court last month granted partial summary judgment in favor of former members of the Jills, concluding that, as a matter of law, Cumulus Radio Company and Stejon Productions Corporation, which reportedly managed the Buffalo Jills under an agreement with the Buffalo Bills, were joint employers of the cheerleaders. The court, however, denied summary judgment as to whether the Buffalo Bills football team was also a joint employer, concluding that there were questions of material fact that remained to be tried regarding the role of the football team in relation to the services provided by the Jills.  Jaclyn S. v. National Football League, No. 804088/2014 (Sup. Ct. Erie County N.Y. May 18, 2017).

FEDERAL COURT AFFIRMS AUTHORITY OF CALIFORNIA LABOR COMMISSIONER TO AWARD OVER $950,000 AGAINST CARTAGE COMPANIES.  A California federal court has upheld the authority of the California Labor Commissioner to issue a decision and award of $958,000 to five port and rail truck drivers due to their misclassification as independent contractors by XPO Cartage Inc.  The amounts for each driver ranged from just under $100,00 to nearly $300,000 as reimbursement for expenses and unlawful deductions, as well as attorneys’ fees and costs. According to a News Release issued by the California Department of Industrial Relations on May 23, 2017, the federal judge ruled that the cases were not pre-empted by the Federal Aviation Administration Authorization Act and that all five drivers were entitled to reimbursements described above. California Labor Commissioner Julie A. Su stated: “The United States District Court’s decision in this case vindicates the rights of five employees who have sought for years to recoup the deductions unlawfully withheld from their wages due to being misclassified as independent contractors. My office is dedicated to ensuring workers are paid what they are due under the law and ensuring workers are properly classified.” Alba v. XPO Cartage, Inc., No. 15-cv-6059 (May 16, 2017).

UBER DRIVERS DENIED RIGHT TO CONSOLIDATE THEIR NORTH CAROLINA, TENNESSEE, AND FLORIDA IC MISCLASSIFICATION SUITS.  Drivers for Uber in Florida who had opted out of their arbitration agreements with the ride-sharing company were dealt a setback by a federal multidistrict litigation panel, which refused to grant their request to consolidate two other IC misclassification lawsuits in North Carolina and Tennessee with their IC lawsuit in Florida.  Uber and the plaintiffs in the two other states opposed the motion to consolidate the cases, each of which included claims under state laws. In denying the motion to centralize the three cases in Florida, the panel held that state-specific issues and the fact that the cases were in different procedural stages militated against consolidation in a single multidistrict litigation.  The panel suggested instead that voluntary coordination by the plaintiffs was preferable to a multidistrict consolidated proceeding. The decision last month was similar to the panel’s decision in 2016 to consolidate IC misclassification lawsuits in 17 other federal courts. Rojas v. Uber Technologies Inc., No. 16-cv-23670 (S.D. Fla.), MDL No. 2784 (May 30, 2017).

Regulatory Initiatives and Administrative Matters (1 matter)

IDAHO REPORTS IC MISCLASSIFICATION FINES OF $240,000 IN 2016.  The Idaho Department of Labor assessed fines in 2016 of $240,000 against employers found to have misclassified workers as independent contractors. As reported in a May 9, 2017 article published by the Idaho Business Review, a total of 2,489 ICs were reclassified as employees by 524 Idaho employers. Ryan Linnarz of the Idaho Industrial Commission reportedly stated that, “Courts tend to favor employee/employer relationships when there is a dispute over a classification, so it is important to make sure you know what to look for when you want to hire an independent contractor.”

Legislative Initiatives (3 matters)

FLORIDA ENACTS RIDE-SHARING LAW WITH RELAXED TEST FOR IC STATUS.  On May 9, 2017, Florida governor Rick Scott signed the Transportation Network Companies Act (HB221), which designates drivers for ride-sharing companies in the on-demand or gig economy as “independent contractors” as long as the “transportation network company” (“TNC”) meets four criteria that are currently met by Uber, Lyft, and other similar companies.  As discussed more fully in our blog post of May 11, 2017, this law essentially creates a safe-harbor for ride-sharing companies from liability due to misclassification of employees as independent contractors under the labor and employment laws in Florida, including laws governing minimum wages, unemployment, workers’ compensation, and workplace discrimination. The law creates a four-pronged test for IC status in this industry: first, the TNC may not unilaterally prescribe specific hours during which the driver must be logged on to the TNC’s digital network; second, the TNC may not prohibit the driver from using digital networks from other TNCs; third, the TNC may not restrict the driver from engaging in any other occupation or business; and fourth, the TNC and driver must agree in writing that the driver is an independent contractor with respect to the TNC.

NEW YORK CITY LAW PROTECTING INDEPENDENT CONTRACTOR FEE PAYMENTS GOES INTO EFFECT WITH DOUBLE DAMAGES PROVISIONS.  NYC’s Freelance Isn’t Free Act went into effect on May 15, 2017.  It is the first law in the nation regulating the relationship between independent contractors and those who retain their services and protecting ICs from non-payment of their fees. The new law gives independent contractors a right to sue for double damages if they are not provided with a written contract containing 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, by itself or when aggregated with all contracts between the parties over the prior 120 days. The parties’ contract is to be “reduced to writing” and the “written contract” must include at least the following five terms: the parties’ names and mailing addresses, an itemization of services to be provided, the value of services to be provided pursuant to the contract, the rate and method of compensation, and the date when the “hiring party” must pay the contracted compensation or the “mechanism by which such date will be determined.” As we commented in our blog posts of November 16, 2016 and May 9, 2017, while the new law has laudable objectives and many positive attributes, it is unclear as to precisely whom it covers and whom it regulates. Further, as described in those blog posts, the new law may well have unintended yet serious consequences for some New York City-based independent contractors and for businesses that retain them. We also noted in those blog posts that businesses would be well served to include certain contractual provisions in their written IC agreements that, while not required by the new law, would better protect companies from the law’s double damages penalty.

PORTABLE BENEFITS BILL FOR IC’S INTRODUCED IN CONGRESS.  On May 25, 2017, two identical bills were introduced in Congress to better serve individuals who earn a living as independent contractors.  The bill, called the “Portable Benefits for Independent Workers Pilot Program Act,” which was introduced by Senator Mark Warner (D-Va.) and Representative Suzan DelBene (D-Wash.), would create a $20 million fund for states, local governments, and non-profit organizations to study “broad innovation and experimentation with respect to portable benefits” for independent workers.  The term “portable benefits” is defined to mean work-related benefits “that allow a[n independent] worker to maintain the benefits upon changing jobs,” and includes contributions made by the eligible independent worker and/or by an entity (or multiple entities) for whom the independent worker is performing services. These benefits would be those “commonly provided to traditional full-time employees, such as workers’ compensation, skills training, disability coverage, health insurance coverage, retirement saving, income security, and short-term saving.” Under the bill, two types of grants would be available: $5 million to evaluate and improve the design and implementation of existing models or approaches for providing portable benefits; and $15 million to study the design, implementation, and evaluation of new models or approaches for providing such benefits. Grants will be awarded by the Secretary of Labor, who is directed by the bill to focus on proposed models or approaches that can be “replicated on a large scale or at the national level.” As we noted in our May 25, 2017 blog post, instead of focusing on sponsoring legislation to curtail the use of independent contractors and crack down on companies that misclassify them, the thrust of this proposed legislation by the two Democratic members of Congress is to recognize that legitimate independent contractors serve an important place in the U.S. economy and should be eligible for benefits and be able to carry those benefits from one gig to the next.

Written by Richard Reibstein.

 

Compiled by Janet Barsky, Managing Editor.

Posted in IC Compliance

Labor Department Withdraws Independent Contractor Misclassification Guidance Issued in 2015: What Does this Mean for Businesses Using ICs?

Earlier today, the U.S. Department of Labor issued a short, 3-sentence News Release where the recently-confirmed Labor Secretary, Alexander Acosta, announced that he has withdrawn the Labor Department’s formal guidance on two key issues facing businesses: joint employment and independent contractors.  The first guidance on joint employment, which was issued in 2016, had caused an uproar in the business community, especially in the area of franchisors alleged to be joint employers with franchisees.  The independent contractor guidance was issued on July 15, 2015 in an Administrator’s Interpretation.  It was not controversial; in fact, while it was portrayed by many commentators as a dramatic move by the Department of Labor to crack down on businesses that misclassify employees as independent contractors, it did not actually make any meaningful changes in the Labor Department’s legal position.

This action today by the Labor Secretary Acosta is likely to be portrayed by many as a major shift in enforcement position of the U.S. Labor Department.  It is, however, unlikely to change the legal landscape of IC misclassification, which is now waged mostly in private class action lawsuits and state administrative proceedings – not by the Department of Labor.

The decision by Secretary Acosta to withdraw the IC guidance should not be viewed as a signal to businesses that the U.S. Labor Department will now abandon its enforcement efforts against companies that are flagrantly violating the federal labor laws or exploiting low-paid workers, but it may signal that the Labor Department will not expend its limited resources against those companies that have done little more than fail to structure and document their IC relationships in a compliant manner.

When the 2015 Administrator’s Interpretation was issued, we published a blog post that undertook a comprehensive comparison of the content of the new Interpretation with the Labor Department’s previously stated position on IC misclassification. In that blog post, we expressed the view that the Administrator’s Interpretation was simply a restatement of its long-standing six-factor test, which had resided in one form or another on the Labor Department’s website for many years (and is still there today).  We noted, however, that those six factors were not the only factors that the courts consider in determining IC status under the federal wage and hour law; instead, as the Labor Department had acknowledged on its website in an understated manner, “[t]he Supreme Court has indicated that there is no single rule or test for determining whether an individual is an employee or independent contractor for purposes of the FLSA” and “the courts look at the totality of the working relationship . . . , meaning that all facts relevant to the relationship between the worker and the employer must be considered.”

We concluded that “[a]lthough advocates of expanded employee rights will undoubtedly laud the Labor Department for its bold action in announcing the new guidelines, they should readily acknowledge that nothing in the law has really changed.” We added: “Indeed, this new Interpretation cannot change the law; it simply sets forth the Labor Department’s position on the test used by the courts in determining independent contractor status under the federal overtime and minimum wage laws.” Our takeaways in that blog post were two-fold: first, the Interpretation was an oversimplification of the law; and second, there remained no reason why most businesses using ICs could not utilize strategies and tools to restructure, re-document, and re-implement their IC relationships in a manner that enhanced compliance with the law, as articulated by the legislature and the courts.

The withdrawal of the 2015 guidance on IC misclassification was expected once a new Labor Secretary was nominated by the President and confirmed by Congress. In our blog post shortly after the election, we addressed the impact of President Trump’s election on IC misclassification, concluding that “while it is likely that the U.S. Department of Labor may dial down somewhat their enforcement efforts in this area when the Republican administration takes over the White House and appoints a new Secretary of Labor, there is no reason to expect that state labor departments will be any less aggressive in their efforts to crack down on IC misclassification.”

Our conclusion was based on the fact that state legislatures will likely continue on their current path of passing legislation that curbs IC misclassification, particularly affecting those industries where IC misclassification is regarded as prevalent. We also observed that during the eight years of the Obama presidency, one of the federal government’s initiatives in this area had significant traction with state workforce agencies: the Labor Department’s program of entering into joint/coordinated enforcement efforts with the states. We noted that since the U.S. Department of Labor announced its “Misclassification Initiative” in September 2011, 35 state labor departments had signed a Memorandum of Understanding (MOU) with the U.S. Department of Labor. Of those 35 states, most if not all will  likely continue enforcement of their IC laws.

We also commented in that post-election blog post that the Obama Administration’s Labor Department had mostly focused on the low-hanging fruit – companies that often had little or no defense to the claim that they were misclassifying employees as ICs. In contrast, private class action lawyers focused and continue to focus on more challenging cases or larger or more well-known companies, like Uber, FedEx, Amazon, Macy’s, Lowe’s, DirecTV, BMW, Google, Sleepy’s, and Jani-King, to name just a few.

Our “Takeaway” in that blog post offered some practical advice for companies that currently were using or planned to use ICs to supplement their workforce or render services to their customers – don’t view Mr. Trump’s election as an opportunity to misclassify employees as ICs. Rather, we stated, such companies should expect legal challenges to continue (a) from state workforce agencies, who will likely continue their crackdown on the misclassification of 1099ers and other types of ICs that legally should be treated as W-2 employees; and (b) from plaintiffs’ class action lawyers, who will continue to target companies that fail to structure, document, and implement their IC relationships in a manner that complies with applicable IC laws.

We concluded by noting that businesses (especially those in the on-demand, gig, and digital economies) that utilize ICs would be wise to focus on taking steps to enhance their compliance with applicable IC laws. Companies interested in enhancing their compliance with IC laws can do so in a variety of ways, as detailed in our White Paper on minimizing IC misclassification risks, including the use of IC Diagnostics™.  This process assesses IC compliance under applicable law and offers alternative approaches to enhancing IC compliance, including restructuring and re-documenting the IC relationship in a more compliant manner, and implementing the IC relationship in a customized and sustainable fashion.

Written by Richard Reibstein

Posted in IC Compliance

What the First-Ever Bill Promoting Portable Benefits for Independent Contractors Would Do – And Would Not Do

Independent contractors and other contingent workers are not currently eligible for workers’ compensation, disability benefits, health insurance coverage, and pension benefits under federal and most state laws. This may well change if the two Democratic sponsors of a bill introduced today in Congress are able to get bipartisan support for their legislation to fund a portable benefits study for independent workers. While early commentators have focused on what the bill would seek to accomplish, this blog post will also comment on what the bill does not do, including providing any comfort to businesses that fail to properly classify independent contractors.

The bill, called the “Portable Benefits for Independent Workers Pilot Program Act,” represents a dramatic turn in the approach taken by Democrats in Congress with regard to independent contractors. Now, instead of focusing on sponsoring legislation to curtail the use of independent contractors and crack down on companies that misclassify them, the thrust by these two Democratic members of Congress is to recognize that legitimate independent contractors should be eligible for benefits and be able to carry those benefits from one gig to the next.

The study that the bill would fund, however, would not be completed and reported to Congress until the early fall of 2020, just before the next presidential election is scheduled to occur. In the meantime, this bill, if passed, would not change the test for independent contractor status or afford companies a safe harbor to misclassify W-2 employees as 1099ers – nor will it likely affect state regulators and plaintiffs’ class action lawyers from targeting companies that allegedly engage in IC misclassification.

What the Bill Would Do

The bill introduced today by Senator Mark Warner (D-Va.) and a companion bill introduced today by Representative Suzan DelBene (D-Wash.) would create a $20 million fund for states, local governments, and non-profit organizations to study “broad innovation and experimentation with respect to portable benefits” for independent workers. Two types of grants would be available: $5 million to evaluate and improve the design and implementation of existing models or approaches for providing portable benefits; and $15 million to study the design, implementation, and evaluation of new models or approaches for providing such benefits. Any governmental body or non-profit organization that receives a grant must use it to study an array of benefits and not limit its study to retirement-related benefits only.  Grants will be awarded by the Secretary of Labor, who is directed by the bill to focus on proposed models or approaches that can be “replicated on a large scale or at the national level.”

The types of portable benefits contemplated by the bill are those referred to as “work-related benefits” – those “commonly provided to traditional full-time employees, such as workers’ compensation, skills training, disability coverage, health insurance coverage, retirement saving, income security, and short-term saving.”

The bill is based on the following proposed Congressional findings: that many independent workers such as independent contractors, temporary workers, self-employed, and others who engage in work on a contingent or alternative work arrangement are not eligible for “work-related benefits,” that the number of these independent workers in the U.S. is rapidly expanding, and that “[a]s the population of independent workers grows, it is increasingly important that [such] workers are provided portable benefits.”

The term “portable benefits” is defined to mean work-related benefits “that allow a[n independent] worker to maintain the benefits upon changing jobs,” and includes contributions made by the eligible independent worker and/or by an entity (or multiple entities) for whom the independent worker is performing services.

The Secretary of Labor would award grants for the upcoming fiscal year on a competitive basis to grantees whose proposals would “support broad innovation and experimentation with respect to portable benefits.” Not later than September 30, 2020, the Comptroller General of the United States would evaluate the outcome of the grants and report the results to Congress.

What the Bill Would Not Do

Since 2007, there have been a dozen bills proposed in Congress to address independent contractors. Most were designed to curtail the use of ICs and punish those businesses that misclassified W-2 employees as 1099 contractors.  Those bills, which are listed on a Resource page of this blog, included bills called the Payroll Fraud Prevention Act, Employee Misclassification Prevention Act, and Fair Playing Field Act.  Not a single one of those bills became law.

In stark contrast, though, during the same 10-year period, more than two dozen states passed legislation addressing independent contractors.  Most of these state laws (also listed on a Resource page of this blog) created greater penalties for IC misclassification or sought to curtail the use of independent contractors by making the test for IC status considerably more challenging.  Not all of the state laws, however, were enacted to limit the use of ICs; a few provide safe harbors for businesses using legitimate ICs.

This newly proposed bill by Sen. Warner and Rep. DelBene would not provide a safe harbor, would not change the federal tests for IC status, and would not create penalties for IC misclassification. Rather, instead of addressing the legal status of independent contractors, this new bill responds to an increasing body of literature that confirms that more U.S. workers are finding work in the contingent workforce and that more of those contingent workers are equally if not more content in alternative work arrangements.  As the U.S. Government Accountability Office (GAO) reported in a comprehensive study released in May 2015, 85% of independent contractors “appeared content with their employment type,” and that significantly more independent contractors (57%) were “very satisfied” with their jobs compared to those who held standard full-time employment (45%).

Analysis and Takeaways

In the past, Sen. Warner has been a proponent of creating new laws to rein in the use of independent contractors in the gig economy, as noted in a post earlier today by Caroline O’Donovan of BuzzFeed.  In her article, O’Donovan notes that Sen. Warner had been a frequent proponent of creating a third classification of workers in the U.S., somewhere between employees and independent contractors.

Now, with the changing political landscape in Washington, Sen. Warner seems to have concluded what even former U.S. Labor Secretary Thomas Perez stated publicly: that while some companies misuse the IC classification, “there’s an important place for independent contractors” in the U.S. economy.  Further, Sen. Warner’s bill now effectively acknowledges that because federal laws and almost all state laws permit the use of legitimate independent contractors ,Congress should look for ways to better the economic well-being of those workers who are properly classified as ICs.

There is, nonetheless, one caveat: this bill will not relieve businesses that use ICs from misclassification liability if they fail to structure, document, and implement their IC relationships in a manner that complies with applicable federal and state laws governing the status of workers as independent contractors. As we report each month in our comprehensive update on developments in the courts and before administrative agencies, companies that fail to satisfy the varying federal tests for IC status and a crazy quilt of state law tests for IC status are all too often the subject of multimillion dollar judgments and settlements in class action lawsuits and administrative proceedings.

Many companies have therefore chosen to enhance their IC compliance through IC Diagnostics™, a proprietary process that examines whether a group of workers 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 such solution is the restructuring, re-documenting, and re-implementing of  IC relationships in a customized manner that retains a company’s business model. For those companies that seek to retain skilled freelancers, gig workers, and other types of independent contractors to sustain their businesses into the next decade, Sen. Warner’s and Rep. DelBene’s bill may eventually result in a benefits environment that makes such contingent workers even more content with their independent work arrangements than were the respondents in the 2015 GAO report.

Written by Richard Reibstein

Posted in IC Compliance

Limited Impact of New Florida Law Deeming Uber, Lyft and Other Ride-Sharing Drivers As Independent Contractors and Not Employees

On May 9, 2017, Governor Rick Scott of Florida signed the Transportation Network Companies Act (HB 221), which designates drivers for ride-sharing companies in the on-demand or gig economy as “independent contractors” as long as the “transportation network company” meets four criteria that are currently met by Uber, Lyft, and other similar companies. The new law essentially creates a safe-harbor for such ride-sharing companies from liability misclassification of employees as independent contractors under the labor and employment laws in Florida, including laws governing minimum wages, unemployment, workers’ compensation, and workplace discrimination. It does so by creating a new four-pronged test for IC status in this industry – a test that is not the least bit challenging for ride-sharing companies to meet.

While it has been suggested this new law insulates ride-sharing companies from legal claims alleging independent contractor misclassification, it actually has only limited impact on such claims. Why? Because this new Florida law does not preempt or eliminate the federal wage and hour laws and other U.S. labor and employment statutes, which are not affected by this new law. Indeed, the tests for IC status under those federal laws remain unchanged.

The new Florida law, which takes effect on July 1, 2017, covers an array of matters pertaining to ride-sharing companies besides the independent contractor rules. It includes a ban on local governments and airports imposing their own taxes, fees, or requirements on transportation network companies (TNCs); requiring insurance for TNCs and TNC drivers; mandating TNCs to implement zero-tolerance drug and alcohol use policies; requiring a TNC to conduct background searches of drivers; and requiring TNCs to establish nondiscrimination policies in regards to riders and enforcing such policies with drivers. Those characteristics of the new Florida law are beneficial to the public and the ride-sharing industry.

What does it take to establish IC status under the new law? Not much. The new Florida law provides in relevant part as follows:

“A TNC driver is an independent contractor and not an employee of the TNC if all of the following conditions are met: (a) The TNC does not unilaterally prescribe specific hours during which the TNC driver must be logged on to the TNC’s digital network. (b) The TNC does not prohibit the TNC driver from using digital networks from other TNCs. (c) The TNC does not restrict the TNC driver from engaging in any other occupation or business. (d) The TNC and TNC driver agree in writing that the TNC driver is an independent contractor with respect to the TNC.”

It is commonly understood that all four of those conditions are met by most if not all ride-sharing companies operating in Florida or will be met by July 1, 2017. Thus, while existing claims under the state’s labor and employment laws will not likely be extinguished as of July 1, 2017, the new law will bar such claims on and after that date by drivers for ride-sharing companies in Florida.

But such companies will continue to be covered by federal laws including the Fair Labor Standards Act, which governs minimum wages and overtime. That federal law has been one of the statutes on which many class action lawsuits against Uber and other ride-sharing companies have been brought. Ride-sharing companies operating in Florida will, however, be free from claims by drivers for state unemployment and workers’ compensation benefits; there are no federal counterparts for those laws.

What does that mean for ride-sharing companies operating in Florida with regard to IC misclassification claims? Again, not much. As we reported in our blog post of March 5, 2017, Uber has already been sued in a lawsuit brought under the Fair Labor Standards Act seeking a national collective action for allegedly misclassifying drivers as ICs. However, in response to Uber’s renewed motion to compel arbitration pursuant to the agreement to arbitrate that the plaintiff driver had signed, a federal magistrate judge issued a Report and Recommendation granting Uber’s motion. Lamour v. Uber Technologies, Inc., No. 16-Civ-21449 (S.D. Fla. Mar. 1, 2017). While the magistrate judge’s decision is not final, it is likely to be adopted by the district court judge. Unless overruled on appeal, federal wage and hour claims against Uber in Florida will not be subject to a class or collective action but rather to individual arbitrations.

All on-demand companies, including those in the ride-sharing industry, who rely upon independent contractors would be wise to take steps to minimize the likelihood that they will be targets of future claims for IC misclassification – whether brought in court under applicable federal or state wage and hour laws or by state or federal workforce regulators. As detailed in our White Paper, companies can minimize IC misclassification exposure by structuring, documenting, and implementing their IC relationships in a manner than enhances compliance with applicable legal tests for IC status.

One way to accomplish this is through the use of IC Diagnostics™.  While this proprietary process cannot ensure that all businesses using ICs will be able to attain a higher level of compliance, an overwhelming number of companies based on a 1099 model or utilizing a large number of 1099ers can maximize their likelihood of avoiding legal challenges to their independent contractor relationships, and do so in a customized and sustainable manner.

While it is ideal for businesses to maximize IC compliance before they are targeted in an IC misclassification audit or administrative or court proceedings, the fundamentals of IC Diagnostics™ can also be valuable in defending new and existing legal challenges to a company’s IC classifications.

Written by Richard Reibstein.

 

Published by Richard ReibsteinLisa Petkun and Michael Crumbock.

Posted in IC Compliance