November 2013 Monthly Independent Contractor Compliance and Misclassification Update

November 2013

In the Courts

  • A Massachusetts federal court approved on November 26, 2013 a $10.0 million settlement in a class action lawsuit against CleanNet USA Inc., who was alleged to have violated Massachusetts independent contractor law by misclassifying employees as independent contractor “franchisees.”  The settlement reportedly includes $7.5 million for the janitorial workers and $2.5 million for their attorneys.  The class was comprised of over 100 custodian “franchisees.”  The lawsuit claimed that CleanNet violated the state independent contractor law as well as laws prohibiting unfair and deceptive practices when it allegedly induced class members to purchase cleaning franchises and required them to purchase general liability and workers’ compensation insurance for the benefit of CleanNet.  Sola v. CleanNet USA Inc., No. 1:12-cv-10580 (D. Mass. Nov. 26, 2013).
  • A California district court denies a motion by insurance agents who sought to proceed with their IC misclassification lawsuit as a class action against Allstate.  The agents claim that Allstate exercised extensive control over their agencies, effectively converting them from independent contractors into “de facto employees.” The agents alleged that evidence of such control included mandatory sales quotas and training sessions, a requirement to perform services without compensation, assignment and monitoring of tasks by the company, and recording and evaluating agents’ telephone interactions with potential customers. Allstate denies that the agents are employees.  In rejecting the plaintiffs’ motion, which would have certified a class of at least 1,300 agents, the court agreed with Allstate that the plaintiffs had not shown that common issues predominated in the action and that “a class action would not be a superior method for fairly and efficiently adjudicating the controversy.” Comparetto v. Allstate Insurance Company, Case No. LA CV11-09206 (JAK) (FFM) (C.D. Cal. Nov. 20, 2013).
  • In the latest series of cases involving exotic dancers suing adult entertainment clubs regarding independent contractor misclassification, federal district courts in Maryland and New York found two clubs violated federal and/or state wage and hour laws.

– In the Maryland case, the Court awarded back pay and liquidated damages under the Fair Labor Standards Act (FLSA) to a dancer at Norma Jean’s Nite Club where the court found that  she was an employee (and not an independent contractor) who had not been paid at the minimum wage.  Butler v. PP&G Inc., No. 1:13-cv-00430 (D. Md. Nov. 7, 2013).

– In the New York case, the court had determined in October that the Club had misclassified its exotic dancers as independent contractors in violation of the minimum wage law of the FLSA and the New York Labor Law. The court now has ruled on additional issues, finding that the Club violated the New York Labor Law’s wage deduction provisions by requiring the dancers to “pay tip outs, fees, and fines to the Club out of their own pockets.” Hart v. Rick’s Cabaret, No. 09 Civ. 3043 (PAE) (S.D.N.Y. Nov. 19, 2013).

– Additionally, two new lawsuits have been filed seeking class action status in Louisiana and Pennsylvania, both alleging misclassification of dancers as independent contractors and violations of the FLSA.  In the Louisiana lawsuit, Moncheski v. RCI Entertainment of Louisiana Inc., No. 2:13-cv-06388 (E.D. La. Nov. 11, 2013), the allegations include, among others, that the dancers were required to follow written guidelines and procedures of the Club, thereby demonstrating an employee, as opposed to an IC, relationship.  The complaint also alleges that the dancers were obligated to pay fines and pay a portion of their tips (their only income) to the club in the form of “house fees” (allegedly in violation of the federal wage and hour law).  The Pennsylvania case involves One Three Five, Inc., d/b/a Blush.

On the Legislative Front 

  • The Payroll Fraud Prevention Act of 2013 (S. 1687) was introduced by Senator Bob Casey (D-PA) on November 12, 2013, following a hearing of the Senate Subcommittee on Employment and Workplace Safety. As more fully discussed in my prior blog posts on November 13 and November 14, 2013, the bill, co-sponsored by Senators Tom Harkin (D-IA), Sherrod Brown (D-OH) and Al Franken (D-MN), seeks to outlaw what Senator Casey called the “intentional misclassification” of employees as independent contractors – a practice that he labeled as “payroll fraud.”  The Payroll Fraud Prevention Act would, among other things, make the misclassification of employees as independent contractors a federal offense, expand the Fair Labor Standards Act to include a new category of workers (non-employees), and require every employer and enterprise to provide a classification notice for both employees and non-employees.

Regulatory and Enforcement Initiatives 

  • The Wage and Hour Division of the U.S. Department of Labor entered into a Partnership Agreement with Labor Bureau of the New York State Office of Attorney General and a similar Agreement with the New York State Department of Labor.  New York is now the 15th state since September 2011 to sign an agreement with the Wage and Hour Division under the federal Misclassification Initiative. As noted in my blog post of November 18, 2013, the agreement between federal and New York State officials includes, but is not limited to, coordinating investigations and joint enforcement activities; exchanging and sharing investigative leads, complaints and referrals of possible violations; exchanging  confidential unemployment compensation information; and mutually disseminating outreach materials to the regulated community.

Written by Richard Reibstein.

 

This entry was posted in IC Compliance. Bookmark the permalink.