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. Amazon.com 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:

 

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  • 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

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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

June 2018 Independent Contractor Misclassification and Compliance News Update

This past month was not a particularly newsworthy month in the area of independent contractor misclassification and compliance, but four court cases and a government study do provide insights for businesses that rely on ICs.

In the first case reported below, a group of newspapers thought they had won their case on summary judgment but an appellate court reversed and has sent the case back to the lower court for a trial on the merits. As discussed in prior posts on this blog, the newspaper business has not fared well in legal challenges by newspaper deliver persons: as we noted in one blog post, a group of newspapers was saddled with a jury verdict of $11,000,000, while another newspaper publisher paid $22,000,000 to settle its case with delivery persons. As we discussed in that post, these cases illustrate that companies should try to structure and implement their independent contractor relationships consistent with court expectations; otherwise, they increase the risk that they will  needlessly experience IC misclassification exposure.

Inadequate documentation in IC agreements can create legal expense and increase exposure to misclassification liability. The second case reported below involves a logistics and freight company that chose New Jersey as its “choice of law” in its IC agreements but then tried to avoid the application of New Jersey law when the driver-plaintiffs sought to enforce the company’s own selection of New Jersey as governing law. Some states’ laws in the area of independent contractors are not as favorable as the laws in other states, and New Jersey’s test for IC status changed in 2015 to a worker-friendly test, as we reported in a blog post immediately following that development. States with laws that are less IC-friendly include Massachusetts, California, New Jersey, and Illinois.

The third case involved a courier who sought unemployment benefits from a company with a web-based platform for customers to request on-demand pick-up and delivery from restaurants or stores.  Although the New York Unemployment Insurance Appeal Board ruled that the courier was an employee for unemployment insurance purposes, an appellate court reversed that decision, finding that the couriers were legitimate ICs. This case illustrates that a company’s attention to structuring, documenting, and implementing an IC relationship in a manner consistent with court expectations can result in a validation of IC status – at least under that state’s unemployment insurance law.

The final case reported below involves an industry that has been plagued by costly IC misclassification verdicts and settlements: the adult entertainment business. As noted on this blog in one post after another after another, many companies operating in this industry have not  structured, documented, or implemented their IC relationships in a way that has been found to comply with applicable IC laws, oftentimes settling or paying verdicts in the $4 million to $8 million range.  Yet, as we stated in a blog post, “even an exotic dance club (a.k.a. strip joint) can comply with independent contractor laws – and avoid or defend against class actions.”

How can businesses that use ICs in industries such as newspapers, logistics and freight, and adult entertainment as well as most other industries maximize their IC compliance and minimize their IC misclassification liability?  One way is through the use of a process such as IC Diagnostics™, which examines whether a group of workers not being treated as employees would pass the applicable tests for IC status under governing state and federal laws, and then offers a number of practical alternatives to enhance compliance with those laws, including a customized and sustainable solution that may be suitable for many businesses. While no solution guarantees that all state and federal courts will validate an IC relationship, efforts to maximize compliance reduces the likelihood of IC misclassification lawsuits and increases the likelihood of success if challenged in court or by an administrative agency.

Lastly, we report on a U.S. government study released on June 7, 2018 on contingent work arrangements. The report shows that ICs make up about 7% of the U.S. workforce. The new study also provides statistics confirming that while misclassification lawsuits continue to be brought against companies that use independent contractors, the overwhelming number of those classified as ICs prefer their working arrangements over traditional employment – and only a very small percentage of those classified as ICs are dissatisfied with their working arrangements.

In the Courts (4 cases)

NEWSPAPERS DENIED SUMMARY JUDGMENT IN IC MISCLASSIFICATION CLASS ACTION BY DELIVERY PERSONS.  Media companies Torrance Holdings, LLC d/b/a The Daily Breeze, MediaNews Group, Inc., and Long Beach Publishing d/b/a Long Beach Press-Telegram were dealt a setback by a California appellate court in an independent contractor misclassification class action brought under the California Labor Code. The lower court had granted summary adjudication in favor of the newspapers, finding that the delivery persons were independent contractors under state law. The plaintiffs  appealed the court’s ruling on their claim for reimbursement of business expenses under Section 2802 of the Labor Code. On appeal, the California Court of Appeal reversed, finding that there were “triable issues of fact” that required a  factual determination at trial as to whether the delivery persons were properly classified as independent contractors or were employees under the common law employment test set out in Borello & Sons, Inc. v. Dep’t of Industrial Relations.  As noted in our blog post of April 30, 2018, Borello was recently overruled by the California Supreme Court in the Dynamex case, but not for Section 2802 claims for business expenses, which the Court expressly noted was not on appeal in that case.

In addressing the principal factor under Borello – the right to control – the appellate court noted that plaintiffs had provided sufficient evidence of control to avoid summary adjudication, including that the newspapers required them to deliver the papers in a manner satisfactory to both the papers and their customers; retained the right to terminate the independent contractor agreements on only 30 days’ notice; required that the delivery persons not receive more than a certain percentage of complaints per deliveries; and required the plaintiffs to promote circulation of the newspapers. The appellant court also noted evidence of control to the extent that the delivery persons were closely supervised by district managers; the papers had to be folded in a specific manner; and daily customized instructions were provided. In addition, the court found significant other evidence that created triable issues of fact as to the status of the delivery persons, including that if a carrier was absent, the district manager was responsible for delivering papers on that route; all carriers were required to report to a central distribution center to assemble the papers; and they were paid on a piece-rate basis. Salgado v. The Daily Breeze, No. B269302 (Cal. Ct. of App. June 6, 2018).

NEW JERSEY COURT HOLDS LOGISTICS/FREIGHT COMPANY TO ITS OWN CHOICE OF LAW SELECTION IN IC MISCLASSIFICATION CLASS ACTION.  A New Jersey federal district court has held that New Jersey law applies in a choice-of-law contest involving a proposed independent contractor misclassification class action brought by truckers against logistics/transportation company, National Freight, Inc. The plaintiffs, truckers from Pennsylvania and Rhode Island, made deliveries to Trader Joe’s stores throughout many East Coast states on behalf of NFI and claimed that NFI is liable for statutory wage/hour violations, unjust enrichment, and payment of their expenses as a result of allegedly being misclassified as ICs.  The plaintiffs initially sued under Massachusetts law, but sought to amend their claims to be governed by New Jersey law, which was the choice of law cited in the parties’ contracts.  The defendants objected to the motion to amend, even though NFI selected New Jersey law in the contracts it had drafted and tendered to the truckers to sign.

The court reviewed the language contained in the Independent Contractor Operating Agreements and Lessor and Lease Operating Agreements entered between the parties. Although the agreements had a choice-of-law provision designating New Jersey as the relevant and applicable body of law, the court applied a “narrow reading” to those provisions and explained that such an approach was warranted because the claims at issue did not implicate the terms of the contract. The court then undertook a secondary analysis using “the most significant relationship” test under New Jersey law and determined that New Jersey law did, in fact, apply to the claims brought by the truckers against NFI. The court found conflicting factors supporting usage of Pennsylvania law, which NFI favored, and New Jersey law, which the truckers favored. In reaching its conclusion, the court placed emphasis on the fact that NFI was the more sophisticated party and had drafted the contracts in which NFI elected to be bound by Jersey law, at least with regard to contract claims.  Portillo v. National Freight Inc., No. 15-cv-7908 (D.N.J. June 11, 2018).

POSTMATES COURIER FOUND TO BE AN INDEPENDENT CONTRACTOR UNDER NEW YORK UNEMPLOYMENT LAW. A New York appeals court has held that a courier engaged with Postmates, a company that operates a web-based platform for customers to request on-demand pick-up and delivery service from local restaurants or stores, is an independent contractor, not an employee. The courier had applied for unemployment benefits following the termination of his relationship with Postmates resulting from alleged negative consumer feedback and/or fraudulent activity. In reversing the decision of the Unemployment Insurance Appeal Board and finding the courier to be an independent contractor, the appellate court determined that the courier and those similarly situated were not subject to an interview; have no set work schedules; are not required to perform any minimum or maximum number of deliveries;  may accept, reject or ignore a delivery request without penalty; may choose the mode of transportation they wish to use for deliveries; provide and maintain their own transportation; choose the route they wish to take for deliveries; are not required to wear a uniform; are not provided with an ID card or logo; are only paid for deliveries they complete; and are not reimbursed for any of their delivery-related expenses.

The court also noted that although there was a required criminal background check from a third-party provider and an orientation session on how to use the application software platform, the couriers were not thereafter required to report to any supervisor and they “unilaterally retain the unfettered discretion as to whether to even log on to Postmates’ platform and actually work.” Despite the fact that there was some “incidental control” exercised by Postmates over the couriers, such as Postmates’ determining the fee to be charged to the customer and the rate to be paid to the courier, the tracking of the deliveries in real time. and the handling of customer complaints, the court concluded that those factors were not substantial enough to establish an employer-employee relationship.  In the Matter of Vega (Postmates), 2018 NY Slip Op 04610 (3d Dep’t June 21, 2018).

JURY VERDICT AGAINST ADULT ENTERTAINMENT CLUB IN AN IC MISCLASSIFICATION CASE WILL COST $1.8 MILLION.  A Florida jury has found an adult entertainment club liable to eight exotic dancers for a reported $1.8 million finding the dancers had been misclassified as independent contractors.  Miami strip club, King of Diamonds, and its owner, were found liable for misclassification in violation of the overtime and minimum wage provisions of the Fair Labor Standards Act. In addition to assessments of unpaid wage and hour amounts, liquidated damages will reportedly be paid to the dancers following the jury’s finding that the club and its owner either knew or showed reckless disregard for the FLSA when they misclassified the dancers as independent contractors. One of the dancers will receive an additional $75,000 plus liquidated damages due to the jury’s determination that she was discharged by the club because she filed a lawsuit against it and/or refused to sign an arbitration agreement after the lawsuit was filed.

The dancers had alleged in their amended complaint that they were subject to corporate-wide, uniform written rules, guidelines and policies that were established by the club; were required to dance on stage according to a stage rotation established by the club; were told how much clothing to remove during each song; were not permitted to adjust the fee schedule set by the club; were required to show up for work at a specific time and make up a schedule in advance; were charged fees for lateness; were required to attend meetings without compensation; and had to pay various shift fees.  Espinoza v. Galardi South Enterprises Inc., No. 14-cv-21244 (S. D. Florida June 27, 2018).

Administrative & Regulatory Initiatives (1 matter)

LABOR DEPARTMENT STUDY OF CONTINGENT WORKFORCE SHOWS THAT 4 OUT OF 5 INDEPENDENT CONTRACTORS PREFER THEIR WORK ARRANGEMENT.  The U.S. Department of Labor, Bureau of Labor Statistics (BLS), released on June 7, 2018 a report on Contingent and Alternative Employer Arrangements based upon data collected in May 2017. The report found that independent contractors made up 6.95% of total “employment” (10.6 million workers). This statistic is consistent with the results of a previous study conducted by the U.S. Government Accountability Office (GAO) in May 2015 and discussed in our blog post of May 22, 2015 in which the GAO reported that independent contractors made up 7.4% of total U.S. “employment.”

The most meaningful result of the new BLS report is that 79% of independent contractors prefer their alternative work arrangement to traditional jobs, while 12% were unsure or did not respond, and only 9% indicated a preference for a traditional employment relationship. (See Table 11.)  This figure is also consistent with the GAO’s 2015 report which found that “more than 85% of independent contractors and self-employed persons appeared content with their employment type.”  These statistics confirm that only a rather modest percentage of those classified as ICs are dissatisfied with their working status.

Written by Richard Reibstein

Compiled by Janet Barsky

Your comments are invited.

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Posted in IC Compliance

April and May 2018 Independent Contractor Misclassification and Compliance News Update

The past two months were momentous for many companies that engage independent contractors in California to supplement their workforce or to interact with their customers. This applies not only to businesses based in California but also to those based in other states with ICs across the U.S., including in the Golden State.  The most important legal development, however, arose in a legal context that does not involve ICs – the U.S. Supreme Court’s decision addressing the legality of employer requirements that their employees to enter into mandatory arbitration agreements with class and collective action waivers.

The U.S. Supreme Court’s decision, by a narrow 5-4 majority, held that employers may lawfully require employees to sign mandatory arbitration agreements with class and collective action waivers. This decision undoubtedly will spur employers to double down on the use of such arbitration agreements, but it is also likely to prompt many businesses to incorporate such arrangements in their IC agreements.  While some companies may mistakenly regard the Supreme Court decision as protection from liability under the federal wage and hour laws, the Supreme Court’s decision only limits a litigant’s use of a class and collective action and does not protect companies from individual claims or from audits, investigations, or enforcement proceedings by administrative or regulatory agencies. The best way for companies using ICs to minimize IC misclassification liability is to follow one of the types of alternatives described in our White Paper: restructuring, re-documenting, and re-implementing; reclassifying; or redistributing. In addition, there are compelling reasons for companies to use “opt-outs” in the arbitration provisions of their IC agreements, separate from those reasons discussed in our blog post published last fall on the eve of the Supreme Court’s oral argument on the issue.

In California, the Dynamex case changed dramatically the test for IC status under certain California Labor Code provisions, making it far more challenging for businesses and individuals who wish to utilize independent contractor relationships to lawfully maintain an IC relationship. The new test makes unlawful many IC relationships that were perfectly lawful the day before the Dynamex decision was issued on April 30, 2018.  With careful planning in view of the new test for IC status, many companies can still maintain their IC relationships in California, as described in our blog post entitled: “Questions Left Open by Dynamex, and What Companies Can Do to Enhance Their IC Compliance.”

In the Courts (7 cases)

FLOOD OF NEW IC MISCLASSIFICATION LAWSUITS HAS BEGUN AFTER THE CALIFORNIA SUPREME COURT CHANGED ITS TEST FOR IC STATUS.  On April 30, 2018, the California Supreme Court, in the Dynamex case, curtailed the lawful use of independent contractors by making the test for IC status under several California laws far more “employee-friendly.” As more fully discussed in our blog post that day, the Court in its Dynamex decision abandoned its long-standing common law test for determining worker status under various sections of the California Labor Code.  Instead, it adopted a much stricter test that makes IC status far more challenging for businesses to maintain.

In its 82-page decision, the California Supreme Court rejected the continued use of the multi-factor test as set forth by the Court in its 1989 decision in S.G. Borello & Sons, Inc. v. Dep’t of Industrial Relations.  Rather, it created a three-pronged so-called “ABC” test, each of which prongs a business must meet in order to establish a lawful IC relationship under various provisions of the California Labor Code.  As the Court stated: “The [new] ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (b) that the worker performs work that is outside the usual course of the hiring entity’s business; and (c) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” Dynamex Operations West Inc. v. Superior Court of Los Angeles County, case no. S222732 (Sup. Ct. Cal. Apr. 30, 2018).

In its wake, the Dynamex decision leaves many questions unanswered. Does the new ABC test apply to expense reimbursement claims or claims brought under the California Private Attorneys General Act? Will the new ABC test apply to matters under the jurisdiction of the California Employment Development Division (EDD) or to workers’ compensation matters? Should Dynamex be applied prospectively, retroactively or otherwise? As observed in our May 10 blog post, these and other questions may take years for the courts to decide.

The California Supreme Court said one of the reasons for this dramatic change in the law was simply to clarify the test and thus to reduce the number of IC misclassification lawsuits.  However, as we noted in our May 10 blog post, “what is most likely to follow in the wake of the Dynamex decision is a period of great uncertainty accompanied by a flood of class actions.” And that is precisely what has occurred.

The first two lawsuits were filed only eight days after the Dynamex decision was issued.  They were brought against companies that have previously defended themselves against IC misclassification lawsuits: Postmates and Lyft.  Both complaints assert claims by drivers / couriers for failure to pay business expenses, failure to pay minimum wage, and failure to pay overtime compensation. The lawsuits expressly rely on the Dynamex ABC test, alleging that neither company can establish that the drivers / couriers perform services outside each company’s usual course of business – the “B” prong of the ABC test.  Lee v. Postmates Inc., No: CGC-18-566394 (Super. Ct. San Francisco County May 8, 2018); Talbot v. Lyft, Inc., No. CGC-18-566392 (Super. Ct. San Francisco County May 8, 2018).

U.S. SUPREME COURT UPHOLDS THE USE OF MANDATORY ARBITRATION AGREEMENTS WITH CLASS AND COLLECTIVE ACTION WAIVERS.  Although the trio of cases decided May 21, 2018 by the U.S. Supreme Court regarding the legality of mandatory arbitration agreements containing class and collective action waivers did not arise in the context of an IC misclassification case, the decision by the Supreme Court is equally applicable to that type of case as well. Just as many employers in recent years have included such clauses in their employment agreements, many businesses have included such clauses in their IC agreements. In a closely-watched 5-4 decision, Justice Neil Gorsuch delivered the majority opinion that class and collective action waivers that are part of arbitration agreements are governed by the Federal Arbitration Act and are not rendered illegal by the National Labor Relations Act.  Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP, et al. v. Morris, et al., No. 16-300, National Labor Relations Board v. Murphy Oil USA. Inc. et al., No. 16-307 (U.S. Sup. Ct. May 21, 2018).

As noted in a prior blog post published just before the Supreme Court heard oral argument on these three cases, many companies have concluded that an arbitration clause with a class and collective action waiver is all they need in order to protect themselves from workplace liability.  Those companies are mistaken.  Such clauses can only protect against a claim being asserted as a class or collective action (assuming the arbitration agreement is properly drafted). As stated in the blog post: “They don’t provide any defense to a claim that employees were properly paid or that workers classified as independent contractors are not misclassified employees who allegedly are owed overtime, minimum wages, employee benefits, expense reimbursement, or other workplace benefits available to employees.” The blog post also noted that arbitration agreements with class and collective action waivers are not binding on governmental regulators; therefore, they are “wholly ineffective at forestalling federal and state regulatory agencies from conducting audits or initiating and maintaining enforcement proceedings under employment and independent contractor laws.” Therefore, the importance of enhancing compliance with employment and independent contractor laws and not relying on an arbitration clause with a class and collective action waiver “cannot be overstated.”

RIDE-SHARING GIANT PREVAILS IN IC MISCLASSIFICATION CLAIM BY DRIVERS UNDER FEDERAL AND PENNSYLVANIA LAW.  On April 11, 2018, a Pennsylvania federal district court judge granted summary judgment in favor of Uber Technologies and against UberBLACK limousine drivers, concluding that, as a matter of law, the drivers are not employees covered by the federal minimum wage and overtime laws or by Pennsylvania’s minimum wage and wage payment laws. In reaching his decision that the drivers were ICs, Judge Michael Baylson considered six factors.  He found that four favored IC status (right to control, opportunity for profit and loss, investment, and permanence of relationship) and two that favored employee status, although the court stated that one of the two factors (the absence of special skills) did not carry much weight and the other (integration of the services with the company’s business) only slightly favored employee status. Razak v. Uber Technologies, Inc., No. 16-cv-573 (E.D. Pa. Apr. 11, 2018). As noted in our blog post of April 12, this decision, if upheld on appeal, could become a seminal determination allowing Uber and other ride-sharing companies to rest comfortably knowing that their IC business models satisfy the federal Fair Labor Standards Act (FLSA) and similar state IC tests.

ON-DEMAND APP-BASED FOOD DELIVERY SERVICE SUCCEEDS IN COMPELLING ARBITRATION OF IC MISCLASSIFICATION CLAIMS.  The United States Court of Appeals for the Fifth Circuit has affirmed a lower court’s decision granting DoorDash’s motion to compel arbitration of the claims of dashers (drivers who make deliveries from certain restaurants to customers of DoorDash), without addressing their class certification motion. This suit was filed by a dasher against DoorDash alleging violations of the FLSA due to their alleged misclassification as ICs. Additionally, the dasher moved for collective certification of a nationwide class of similarly situated individuals. The district granted the motion to compel without first deciding the collective certification issue.  On appeal, the Fifth Circuit affirmed, stating: “We continue to hold that arbitrability is a ‘threshold question’ to be determined ‘at the outset,’ a holding consistent with the ‘national policy favoring arbitration.’” The appellate court found there was a valid agreement to arbitrate , rejecting the dasher’s arguments that the contract was illusory because DoorDash never signed the agreement, never delivered it, and retained the ability to unilaterally modify it. Edwards v. DoorDash, Inc., No. 17-20082 (5th Cir. Apr. 25, 2018).

MASSACHUSETTS RIGID IC MISCLASSIFICATION STATUTE DOES NOT APPLY TO WORKERS’ COMPENSATION CLAIMS.  The Massachusetts Supreme Judicial Court held that the proper test for determining independent contractor / employee status for purposes of determining eligibility under the state’s workers’ compensation law is the 12-factor MacTavish-Whitman test and not the more restrictive three-factor “ABC” test under the Massachusetts Independent Contractor Statute. The workers’ compensation claimant was a newspaper delivery agent for Publishers Circulation Fulfillment, Inc., a company that provides home delivery services for newspaper publishers and pays agents to deliver newspapers to subscribers. While providing services to the company, the claimant suffered injuries and filed a claim for workers’ compensation benefits.

The Massachusetts high court stated that although the Independent Contractor Statute contains a cross-reference to the workers’ compensation statute, “the language does not supplant the MacTavish-Whitman analysis, but merely notes that when the facts of a given case demonstrate a misclassification of a worker as an independent contractor under [the Independent Contractor Statute], the penalties of the [workers’ compensation law] are applicable.”  The Court continued: “[The Independent Contractor Statute does not apply to a determination whether an individual is eligible for workers’ compensation benefits.”  In affirming the reviewing board’s substantive decision that the claimant was an independent contractor, the court agreed that “[i]n working for [the company], the claimant was allowed to expand her business to deliver newspapers and other items for other companies; supplied all necessary instruments to complete her job at [the company], including using her own vehicle to make deliveries; hired substitutes to complete the job; purchased her own independent contractor work insurance; and filed taxes as an independent contractor.” Camargo’s Case, No. 12368, 479 Mass. 492 (Sup. Jud. Ct. May 10, 2018).

Administrative and Regulatory Actions (2 matters)

NLRB TO DECIDE IF IC MISCLASSIFICATION IS AN UNFAIR LABOR PRACTICE.  The NLRB has received numerous Amici Curiae (Friends of the Court) briefs regarding under what circumstances, if any, the Board deem an employer’s act of misclassifying employees as independent contractors to be a violation of Section 8(a)(1) of the National Labor Relations Act (NLRA). As we noted in our September monthly news update, the Administrative Law Judge (ALJ) in Velox Express, Inc., 15-CA-184006 (Sept. 25, 2017), decided that misclassification alone can constitute an unfair labor practice under the NLRA. In Velox, an unfair labor practice charge was filed by a courier / driver against Velox, a medical courier service, alleging IC misclassification. The ALJ determined that the drivers were employees and not independent contractors because Velox controlled how its drivers carried specimens, directed how they should ensure that pickups were complete and prompt, and prevented drivers from finding their own substitutes. The ALJ also concluded that Velox committed an unfair labor practice in violation of Section 8(a)(1) due to the misclassification of the workers as ICs, and restrained and interfered with their ability to engage in protected activity under Section 7 of the NLRA.

The Board issued a Notice and Invitation on February 15, 2018 for interest groups to share their views with the NLRB on the above misclassification issue. In response to the NLRB’s invitation, a joint brief was filed by Massachusetts, Pennsylvania, Connecticut, Illinois, Maryland, Minnesota, New Jersey, New Mexico, New York, Oregon, Virginia, and Washington in support of the General Counsel’s request to affirm the ALJ’s decision that IC misclassification alone constituted an unfair labor practice. The States “urge[d] the Board to consider the threat misclassification poses to the States, their treasuries, and their residents.” They also argued that IC misclassification not only results in the denial of the most basic statutory protections, such as the right to be paid a minimum wage and to be paid on time, but it also denies workers the right “to form unions, collectively bargain and engage in concerted activity in the workplace for mutual aid and protection without fear of reprisal.”

A joint Amicus Curiae brief was also filed by the Coalition for a Democratic Workplace and U.S. Chamber of Commerce, taking the position that the Board should decline to revisit or revise the existing standard – that both misclassification and some additional unfair labor practice are required before finding a violation of the Act – and it should reject the “novel theory” that IC misclassification alone is enough. They also argued that “the concept of an unfair labor practice requires that an employer take some additional steps beyond simply taking a legal position regarding the classification of a worker in order for liability to attach under the Act.” They further noted that in December 2017, current NLRB General Counsel Peter Robb formally rescinded a previously-issued guidance in support of a “misclassification-as-violation” theory. Velox Express, Inc., 15-CA-184006 (Sept. 25, 2017).

In our August 30, 2016 blog post entitled NLRB General Counsel Creates a “Misclassification-Plus” Unfair Labor Practice, we commented that the NLRB’s General Counsel not only was seeking to expand the law by alleging that IC misclassification alone would violate the NLRA, but in the process seemed to be overlooking Section 8(c) of the NLRA. That time-honored “free speech” section provides: “The expressing of any views, argument, or opinion, or the dissemination thereof, whether in written, printed, graphic, or visual form, shall not constitute or be evidence of an unfair labor practice under any of the provisions of this Act, if such expression contains no threat of reprisal or force or promise of benefit.” It is likely, given the current composition of the NLRB, that the Board will rule that the mere misclassification of an individual as an IC is not an unfair labor practice.

NEW JERSEY CREATES IC MISCLASSICATION TASK FORCE.  New Jersey Governor Phil Murphy signed an Executive Order on May 3, 2018, establishing the Employee Misclassification Task Force to address independent contractor/employee misclassification. Executive Order No. 25 provides for the establishment of a Task Force charged with providing advice and recommendations to the Governor’s office on strategies and actions to combat employee misclassification, which the Governor says  has deprived the State of New Jersey of over $500 million in tax revenue every year. The Task Force will examine and evaluate existing IC misclassification enforcement efforts by executive departments and agencies; develop best practices to increase coordination of information and enforcement; develop recommendations to foster compliance with the law, including by educating employers, workers, and the public about misclassification; and review existing laws and procedures related to misclassification. As posted on his website, Governor Murphy stated, “The exploitation of workers is not only unethical – it is illegal. In New Jersey, we promote fairness, fight against discrimination, and work to end unfair labor practices. I am proud to take this step forward to end a practice that creates an unfair advantage over companies that play by the rules and hurts our working families.”

Other Newsworthy Developments

TWO INDUSTRIES – OIL AND GAS, INSURANCE – HAVE BECOME PRIME TARGETS FOR INDEPENDENT CONTRACTOR MISCLASSIFICATION CLASS ACTION LAWSUITS.  

In our blog post of May 4, 2018, we highlighted four recent cases within the oil and gas industry: a Colorado rig welder brought a class action for IC misclassification against a modest-sized oil exploration and production company, Whiting Petroleum; California well site drilling managers sued a large energy company, Chevron Corp., for misclassifying them as ICs; oil field workers monitoring wells settled their IC misclassification case against J&A Services LLC, an Oklahoma oil patch company, for $2 million; and Texas welders for a Chinese oil rig company, Honghua America LLC, sued the company for IC misclassification in violation of the Fair Labor Standards Act and settled for an undisclosed amount.

In our blog post of April 11, 2018, we noted that class action lawyers have also been targeting  insurance companies. In one case, a Texas judge denied a motion to dismiss an independent contractor misclassification class action brought against Texas Farm Bureau Casualty Insurance Company and other insurers by insurance agents claiming unpaid overtime compensation under the FLSA. In another case, which is currently on expedited appeal to the U.S. Court of Appeals for the Sixth Circuit, the district court decided in favor of an insurance sales agent’s class action seeking pension and other employee benefits. The decision being appealed held that insurance sales agents of American Family Insurance Company (AFIC) are employees and not independent contractors for purposes of ERISA.

Written by Richard Reibstein

 

Compiled by Janet Barsky

 

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