In the Courts
- California Supreme Court agrees to review finding that newspaper home delivery carriers, who claim to have been misclassified as independent contractors and deprived of overtime pay under state law, could properly maintain their lawsuit as a class action where they claim to have been subject to the same company policies but allegedly conducted their services in different manners. A lower appellate court had ruled that class certification was appropriate, causing concern among employers that, unless reversed by the state’s highest court, groups of workers alleging misclassification would find it easier to bring large-scale class actions against businesses even when the workers’ situations may be dissimilar. Ayala v. Antelope Valley Newspapers, No. S206874 (Cal. Sup. Ct. Jan. 31, 2013).
- As reported by Maryland law firm Lebau & Neuworth on January 31, 2013, a New York federal court has ruled that disputed issues of fact require a trial in claim by a “tour guide” who alleges that she was misclassified as an independent contractor by an entertainment industry tour bus operator and thereby denied minimum wage and overtime under the federal Fair Labor Standards Act. The case involves workers who sold tickets for bus trips to Mohegan Sun Casino in Connecticut and accompanied the customers to and from the casino. Huang v. J&A Entertainment Inc. d/b/a Golden Globe Travel, No. 09-CV-5587 (ARR) (VVP), 2012 U.S. Dist. Lexis 184727 (E.D.N.Y. Dec. 3, 2012).
- New Jersey federal district court denies class action status sought by insurance agents in an independent contractor misclassification lawsuit alleging violation of the overtime provisions of the Fair Labor Standards Act. The court found that the 18 proposed classes and subclasses of insurance agents, including separate subclasses of agents for each of 11 different states, presented “manageability issues” for both the court and a jury and therefore could not be tried with such a diversity of subclasses. Bouder v. Prudential Financial, Inc., No. 2:06-cv-04359 (D.N.J. Jan. 18, 2013).
- Internet-based information service, kgb USA, consents to $1.3 million judgment in settlement with U.S. Department of Labor on January 15, 2013 in lawsuit alleging that it misclassified thousands of in-home workers called “Special Agents.” See Blog Post published January 24, 2013, entitled “KGB USA, Text Message and Internet Information Provider, Settles Independent Contractor Misclassification Claim with U.S. Department of Labor for $1.3 Million.”
- Staffing agencies under legal attack in New York and California:
– A staffing agency that referred promotional workers to its clients for marketing events was found by the New York Unemployment Insurance Appeal Board in 35 decisions on January 3, 2013 to have failed to cover workers under the state’s unemployment insurance law when it misclassified them as independent contractors. See, e.g., Matter of Appeal Board No. 556309 (Jan. 3, 2013).
– Arise Virtual Solutions, a “provider of virtual business process outsourcing and contact center services” for the financial services, retail, technology, e-commerce, telecommunications, travel, and hospitality industries, settled a class action IC misclassification lawsuit brought in federal court in California for $1.25 million. Arise, which reportedly provided customer service and technical support service workers to AT&T and Apple, was alleged to have failed to pay overtime to in-home workers, reimburse them for required business expenses, and provide them with meal and rest periods under state law. Perry v. Arise Virtual Solutions, No. C 11-01488 YGR (N.D. Cal. Jan. 9, 2013.).
– These two staffing cases were reported in the Blog Post published January 7, 2013, entitled “Staffing Agencies Using Independent Contractors Face Misclassification Liability and Expose Clients to Undue Risks.”
On the Legislative Front:
- Maine law, effective January 1, 2013, provides a new uniform definition of independent contractor to be applied by the Maine Department of Labor and Maine Workers’ Compensation Board in unemployment, wage and hour, and workers’ compensation cases. The new law (section 11.E.) also establishes penalties to deter businesses from intentionally misclassifying people as independent contractors when they are actually employees.
- Texas bill (H.B. 372) introduced on January 8, 2013, entitled Workplace Fraud Prevention Act, to define the term “independent contractor,” impose fines for misclassification of employees, and create website and hotline for reporting violations; bill limited to construction industry.
- Virginia bill (Senate Bill No. 879) introduced in state Senate on January 9, 2013, seeks to create Employee Misclassification Task Force to develop and recommend legislation to provide clear, consistent definition of “employee,” develop procedures for sharing misclassification information with other agencies, and publicize methods for individuals to report suspected misclassification.
- Washington state legislature introduces bill (H.B. 1440) on January 29, 2013 aimed at improving compliance with wage-related laws, including chapter entitled, “Employee Fair Classification Act (“EFCA”).
– If enacted as proposed, the EFCA would, among other things, define misclassification as “willfully designating an employee as not an employee of the employer”; create the presumption that an employer-employee relationship exists when services are performed for remuneration unless the party asserting that an individual is not an employee can establish by a preponderance of the evidence that the person is an independent contractor; set forth an “ABC” test for determining independent contractor status; and set forth penalties for willful misclassification of employees ranging from $1,000-$10,000 per employee or $10,000-$25,000 per employee in the event of a pattern or practice of willful misclassification. The term “willful” is itself defined as a “knowing and intentional action that is neither accidental nor the result of a bona fide dispute.”
– The proposed law would also prohibit the formation of a corporation, partnership, LLC, or other business entity to facilitate or evade detection of a violation of the law.
– Finally, the bill would prohibit a person from “advis[ing] an employer with the intent of violating [the new law],” yet does not exempt advice given by a lawyer in connection counseling a company as to how to comply with the law. [Publishers’ note: This type of exemption for advice provided by a lawyer is found in other state laws, such as the California Willful Misclassification Act passed in 2011, which exempts any “person who provides advice to his or her employer” and any “attorney authorized to practice law in California or another U.S. jurisdiction who provides legal advice in the course of the practice of law.” As a result of this oversight, the bill is likely to be revised to address this omission, or it may be subject to veto by the Governor if passed without the exemption] .
– We wish to thank Nigel Avilez of Mercer Law PLLC in Mercer Island, WA for alerting us to this proposed bill.
Regulatory and Enforcement Initiatives:
- Connecticut Department of Labor’s Division of Wage and Workplace Standards announces on January 22, 2013 that it has issued Stop Work orders against 25 construction companies between October 24, 2012 and January 8, 2013 for misclassifying workers as independent contractors.
- Iowa became the 14th state to sign a Memorandum of Understanding with the U.S. Department of Labor’s Wage and Hour Division as part of the federal government’s Misclassification Initiative to prevent, detect and remedy employee misclassification pursuant to a News Release by the U.S. Department of Labor on January 17, 2013.
- Missouri’s Department of Labor and Industrial Relations redesigns its website and announces an online assessment quiz to help workers determine if they are being properly classified as employees or independent contractors under the IRS’s “20-factor” test used in Missouri. [Publishers’ note: The IRS no longer uses the “20-factor” test but rather a modified test, albeit similar to the 20-factor test. Missouri’s assessment quiz may produce results inconsistent with prior judicial and administrative determinations under 20-factor and similar tests, and users should proceed with caution.]
- U.S. Department of Labor to conduct study to better understand employees’ experiences with worker misclassification. See Blog Post published January 14, 2013, entitled “New Federal Worker Misclassification Study: U.S. Department of Labor to Question Workers About Their Knowledge of Independent Contractor Misclassification.”
Other Newsworthy Matters
- Independent contractor misclassification issues oftentimes unnoticed by hedge funds, private equity firms, and other investors when conducting due diligence during acquisitions or when considering investments in companies that may be based on independent contractor model or utilize significant number of ICs to supplement its workforce. See Blog Post published January 7, 2013, entitled, “Hidden Due Diligence Risk in Mergers, Acquisitions and Investments: Independent Contractor Misclassification Oftentimes Overlooked by Private Equity Firms, Hedge Funds and Other Investors.”
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