July 2013 Monthly Independent Contractor Compliance and Misclassification Update

July 2013

In the Courts 

  • U.S. Court of Appeals for the Eleventh Circuit reverses a Florida federal district court decision granting summary judgment to a cable, internet, and digital telephone company on its technicians’ class action misclassification lawsuit brought under the overtime and minimum wage provisions of the Fair Labor Standards Act.  Applying the “economic realities” test, the Eleventh Circuit found that four factors in particular favored employee status:  (1) the company exercised significant control over the technicians such that they did not stand as “separate economic entities” who were “in business for themselves”; (2) the technicians had limited opportunity for profit or loss; (3) the relationships were long-term; and (4) the technicians were an integral part of the company’s business. In contrast, the court found only two factors in favor or independent contractor status (the technicians had an investment in the equipment and materials and possessed special skills), but found those factors as only weakly supporting independent contractor status.  Scantland v. Knight, Docket No. 8:09-cv-01985-EAK-TBM (M.D. Fla. July 16, 2013)
  • New Jersey federal district court dismisses class action misclassification lawsuit brought under the Fair Labor Standards Act by truck drivers against a freight transportation company.  The court found that the drivers could not state a plausible claim under the FLSA where four factors supported independent contractor status: (1) minimal control was exercised by company despite the fact that it retained the right to supervise the drivers when loading the trucks and to direct the drivers to perform loading and unloading; (2) drivers had the opportunity for profit and loss because they retained substantial control over the amount of hours worked and jobs performed, could acquire additional trucks and could hire additional workers as helpers; (3) drivers have significant investment in their trucks; and (4) possession of a commercial driver’s license is a special skill. In contrast, the court found that only two factors favored employee status: drivers had “deep-rooted relationships” with the company; and drivers’ work constituted an essential part of the company’s business, which collectively did not establish an employee-employer relationship. Luxama v. Ironbound Express, 2013 U.S. Dist. LEXIS 90879 (D.N.J. June 27, 2013).
  • FedEx Ground drivers win summary judgment in their misclassification lawsuit brought against the global courier company under the Massachusetts Independent Contractor Act. As noted in more detail in my blog post dated July 9, 2013, the federal district court rejected all of FedEx Ground’s purported defenses: the Act was preempted by the Federal Airline Deregulation Act; the drivers failed to exhaust their administrative remedies; and FedEx met all three prongs of the Massachusetts Independent Contractor Act.
  • Ohio Court of Appeals, affirming lower court’s grant of summary judgment in favor of hospital, finds female physician is an independent contractor who cannot proceed with gender discrimination claims against hospital because there was no employer/employee relationship. Bower v. Henry County Hosp., 2013-Ohio-2844 (Ohio Ct. App. July 1, 2013).
  • Exotic dancers’ proposed class action alleging $5 million in back pay and other penalties for misclassification as independent contractors challenged in Pennsylvania federal court by Penthouse Club Philadelphia. In its motion to dismiss, the Penthouse Club claims that the dancers are independent businesswomen who exercise substantial control over the way they operate their businesses, including the scheduling and flexibility of their business hours, rental fees for stage time, and the manner in which the dancer performs her art.   Verma v. 3001 Castor, Inc., d/b/a The Penthouse Club, Civil Action No.: 2:13-cv-03034-AB ( E.D. Pa  July 2, 2013)

Regulatory and Enforcement Initiatives 

  • U.S. Department of Labor issues on July 3, 2013 its “semiannual” publication of its regulatory agenda, listing those that the Department intends to address over the following year, whether for promulgation, proposal, or review. Included among the regulations for consideration is the Right to Know under the Fair Labor Standards Act.  Under the Right to Know rules, the Wage and Hour Division of the Department of Labor proposes “to update the recordkeeping regulations under the Fair Labor Standards Act in order to enhance the transparency and disclosure to workers of their status as the employer’s employee or some other status, such as an independent contractor, and if an employee, how their pay is computed.”  

On the Legislative Front 

  • Governor Pat Quinn (Dem.) of Illinois signs two new laws (HB 2689 and HB 923) amending the state’s Employee Classification Act, which governs the misclassification of employees as independent contractors in the construction industry. As described more fully in my prior blog post of July 23, 2013, the amendments impose individual liability upon any officer or agent of a corporation who knowingly permits a construction employer to misclassify as an independent contractor any individual, sole proprietorship, or partnership. Civil penalties have been modified and new penalties added, including a provision that it is a separate violation of the law for each individual misclassified on each separate day. Additionally, the law adds new reporting requirements, including an annual report to the Illinois Department of Labor of all payments made by construction contractors to those not classified as employees.   

Written by Richard Reibstein.

 

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