March 2014 Monthly Independent Contractor Compliance and Misclassification Update

March 2014

In the Courts

  • LOGISTICS COMPANY HIT WITH $2.2 MILLION IC MISCLASSIFICATION CITATION. Pacer Cartage, which was recently acquired by logistics giant XPO, was ordered by the California Labor Commissioner’s Division of Labor Standards Enforcement (DLSE) to pay $2,214,496.39 in back pay, attorney’s fees, and interest for reportedly having misclassified seven short-haul drivers as independent contractors instead of employees. The order, released to the public on April 2, 2014, found that Pacer Cartage, a drayage company, “knew or should have known” that the drivers were employees rather than independent contractors.
  • HOME IMPROVEMENT INSTALLERS DENIED CLASS CERTIFICATION. Massachusetts federal district judge denies class certification to a group of installers suing home improvement retailer, Lowe’s Home Centers, under state law and the Fair Labor Standards Act for allegedly misclassifying them as independent contractors. Although the installers had signed similar contracts with Lowe’s, the court found, among other things, that the analysis of whether each installer was free from direction and control and whether each had an independently established business required individualized inquiries. The installers are free to pursue their claims individually. Magalhaes v. Lowe’s Home Centers, Inc., No. 1:13-cv-10666 (D.Mass. March 10, 2014).
  • $905,000 SETTLEMENT OF CLASS ACTION BROUGHT BY BAKERY DRIVERS. A federal judge in Pennsylvania approved a $905,000 settlement in a collective action between food distribution company and over 700 independent operator drivers delivering bakery goods for the company. The allegations against Bimbo Foods Bakeries Distribution, owner and distributor of Sara Lee, Entenmann’s, and Thomas’ baked goods, included violations of the Fair Labor Standards Act for unpaid minimum wage and overtime compensation due to misclassification of the drivers as independent contractors. Scott v. Bimbo Bakeries USA, Case No. 2:10-cv-03154 (E.D. Pa. March 5, 2014)(MSG).
  • WYOMING SUPREME COURT HOLDS THAT CASE MANAGER IS AN EMPLOYEE, NOT AN IC. The Wyoming Supreme Court upheld an administrative agency’s determination that an injured case manager working for a company that provides living assistance services to persons with developmental disabilities was entitled to workers’ compensation benefits under state law because she was an employee and not an IC. The court, ruling under the Wyoming Workers’ Compensation Act’s “ABC” test, found that Circle C Resources had failed to establish each of the three requirements that (1) the case manager was free from direction and control; (2) she represented her services to the public as a self-employed individual or independent contractor; and (3) she had the ability to select a substitute to perform her services. Circle C Resources, Inc. v. Kobielusz, No. S-13-0058 (2014 WY 35) (Sup. Ct. Wyo. March 11, 2014).
  • NEW JERSEY GETTING CLOSER TO IC TEST IN WAGE CLAIMS. The New Jersey Supreme Court heard arguments on March 17, 2014 as to what test to use in determining whether a worker is an IC or an employee under the state’s wage and hour laws. In May 2013, the U.S. Court of Appeals for the Third Circuit requested that the New Jersey Supreme Court advise it of the test to be used for determining if a worker is an IC or employee in a class action lawsuit by delivery drivers against Sleepy’s. Finding that “there are at least four distinct employment tests that have been applied under New Jersey law in other contexts (including unemployment, whistleblowing and tort claims) to determine independent contractor/employee status,” the Third Circuit certified the following question: “Under New Jersey law, which test should a court apply to determine a plaintiff’s employment status for purposes of the New Jersey Wage Payment Law…and the New Jersey Wage and Hour Law?” Hargrove v. Sleepy’s, LLC, Nos. 12-2540 & 12-2541 (3d Cir. May 2013) and Case No. 072742 (Sup. Ct. N.J. 2014).
  • FED EX GROUND PAYS $5.8 MILLION TO SETTLE MAINE IC MISCLASSIFICATION LAWSUIT. A federal judge in Maine approved a class action settlement of $5.8 million between FedEx Ground and drivers who had alleged that FedEx had misclassified them as ICs instead of as employees. As noted in my prior blog post of March 21, 2014, the federal court lawsuit alleged violations of federal and Maine wage and hour laws, including claims that FedEx Ground improperly denied the drivers’ overtime pay for hours worked over 40 in a workweek, improperly made deductions from the drivers’ pay, and improperly required the drivers to pay for their own expenses. Scovil v. FedEx Ground Package System, Inc., d/b/a FedEx Home Delivery, No. 1:10-cv-00515-DBH (D. Maine, March 14, 2014).

On the Legislative Front 

  • NEW YORK ENACTS COMMERCIAL GOODS TRANSPORTION INDUSTRY FAIR PLAY ACT. Governor Cuomo signed a bill on March 17, 2014 extending the effective date of a new IC misclassification law in New York covering the transportation and delivery industries. As of April 10, 2014, the law of IC misclassification in New York State will change dramatically in the transportation and delivery of commercial goods industry from the common law test to a more stringent standard for establishing IC status for drivers of commercial vehicles with a GVWR of more than 10,000 pounds. My latest blog post on the topic tells companies how they can comply with the new law. An earlier blog post includes a detailed article authored by the publisher of this legal blog appearing in the New York Law Journal.
  • NEW JERSEY LEGISLATURE RE-INTRODUCES TRUCK OPERATOR IC LAW. A New Jersey Assemblyman re-introduces the Truck Operator Independent Contractor Act (A2868, S992), a bill similar to the one vetoed by Governor Christie last May. The proposed bill would create a presumption that parcel (small package) delivery and drayage truck drivers are employees and not independent contractors unless they can satisfy a three-part ABC test. The bill also provides substantial civil and criminal penalties for the misclassification of such drivers. Although last year’s bill passed in the Assembly and Senate in May, the votes were along party lines, with Democrats favoring the bill and Republicans opposed. Governor Christie vetoed the bill because, in his view, it would discourage small business ownership in the parcel and drayage industries and hamper the New Jersey economy.  See my prior blog post on September 9, 2013.

Regulatory and Enforcement Initiatives 

  • U.S. WAGE HOUR DIVISION FINDS JANITORIAL FIRM MISCLASSIFIED CUSTODIANS.  The United States Department of Labor’s Wage and Hour Division (WHD) obtained the agreement of Empire Janitorial Sales and Services, Inc., a janitorial service subcontractor based in Metairie, Louisiana, to pay $277,000 in back wages to 233 janitorial services workers at the New Orleans Convention Center and other locations.  The WHD found the custodians were misclassified as independent contractors in violation of the Fair Labor Standards Act’s minimum wage, overtime, and recordkeeping provisions. According to a March 25, 2014 press release, the WHD also found that Acadian Payroll Services was a joint employer, failed to establish a seven-day workweek, and did not maintain proper records of weekly hours worked by the janitorial workers. The monetary penalties were paid by the janitorial subcontractor, and both companies agreed to future compliance with the FLSA.
  • PRESIDENT’S BUDGET INCLUDES FUNDING FOR PREVENTING AND DETECTING IC MISCLASSIFICATION. President Obama’s 2015 Budget shows no letup in the federal government’s crackdown on misclassification of employees as ICs. As noted in my blog post of March 4, 2014, the fifth of six “funding highlights” listed in the section of the Budget covering the Department of Labor is “Increasing support for agencies that protect workers’ wages and overtime pay, benefits, health and safety, and investing in preventing and detecting the misclassification of employees as independent contractors.”
  • IRS SEEKS TO PROMOTE SS-8 PROGRAM. The IRS launches a telephone forum to facilitate its Determination of Worker Status Program (SS-8 program) designed to help educate employers about the proper way to classify workers as ICs or employees, according to John Tuzynski, Employment Tax Policy Chief, IRS Small Business/Self-Employed Division. The launching of the phone forum is in response to the June 2013 report issued by the Treasury Inspector General for Tax Administration (TIGTA) that urged the IRS to take steps to encourage employer compliance with classification determinations reached by the SS-8 program.
  • IRS SETS GOALS TO CATCH WORKER MISCLASSIFICATION. Janine Cook, Deputy Division Counsel/Deputy Associate Chief Counsel of the Tax Exempt and Government Entities Division of the IRS, reportedly said at the American Payroll Association Capital Summit conference on March 10, 2014 that employers are “more likely to get a positive result sooner” if they work in conjunction with the IRS in changing their classification processes and coming into compliance on a going forward basis. She further stated: “Obviously there’s a cost, there’s a tax liability and there could be various penalties and things depending on the situation, but when we’re working with them in exam, even if it does come to litigation, a lot of what’s thought is: “is there a way we can get to resolution with compliance going forward?’”
  • NLRB SETTLEMENT INCLUDES ACKNOWLEDGMENT THAT PORT DRIVERS ARE EMPLOYEES AND NOT ICs.  On March 20, 2014, Pacific 9 Transportation Inc. settled an unfair labor practice case by agreeing to post a notice effectively acknowledging that its that port truckers working for the Los-Angeles area freight hauling company had been misclassified as independent contractors instead of employees.  By this settlement, Pacific 9 essentially concedes that the drivers are employees under the National Labor Relations Act, thereby entitling the drivers to the right to be represented by a labor union if they so choose.

Written by Richard Reibstein.

 

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