December 2017 Independent Contractor Misclassification and Compliance News Update

There were no notable settlements in independent contractor misclassification class action cases that came to our attention last month, but there was an array of significant IC cases in various stages of litigation.  Two of those cases involve the oil and gas industry, which is turning into a hotbed for IC lawsuits:  a successful motion to compel arbitration of a class action brought by oil well and drill site managers against a large international energy company, and an unsuccessful motion to dismiss a class action complaint filed by welders who were classified as ICs by an oil exploration and production company.

Another case involves laborers who claimed they had been misclassified as ICs by a home improvement company that engaged their services; the trial court ruled that they were ICs under the law, and an appellate court affirmed that finding.

The final case involved sports referees and game officials in Pennsylvania who filed a class action IC misclassification lawsuit against the interscholastic athletic association that retained their services.  This lawsuit appears to be an offshoot of a petition for representation that was filed with the National Labor Relations Board by a union seeking to represent the game officials and it may be related to a recent noteworthy administrative action.

As discussed below, on December 1, 2017, the new General Counsel of the National Labor Relations Board rescinded a number of enforcement initiatives of his predecessor.  One such initiative involved independent contractors.  That Obama-era initiative, which was the subject of an earlier blog post, appeared to suggest that classifying workers as independent contractors, if those workers qualify as “employees” under the National Labor Relations Act, would violate the federal labor law.  The lawsuit by the referees, brought only a week after the new General Counsel rescinded his predecessor’s IC initiative, may well be an effort by the sports officials, and/or the union seeking to represent them, to pursue alternative legal proceedings against the sports association.

In the Courts (4 cases)

COLORADO OIL EXPLORATION COMPANY UNABLE TO DISMISS RIG WELDER’S CLASS ACTION IC MISCLASSIFICATION LAWSUIT. A Colorado federal district court denied the motion of oil exploration and production company, Whiting Petroleum Corp., to dismiss a proposed collective action claiming that rig welders were not paid overtime compensation and other wages under the Fair Labor Standards Act due to their alleged misclassification as independent contractors. The specific allegations were that: (1) the welder was hired by the company, worked exclusively for the company and the company’s clients/customers, and was prohibited from working for other companies while “employed” on the company’s jobs; (2) the company supervised and controlled the “employees” work schedule or “conditions of employment,” even though the plaintiff often worked off company premises, and allegedly enforced mandatory compliance with the company’s or its clients’ policies and procedures; and (3) the company determined the rate and method of payment for all of the welders.

The company argued that the named plaintiff failed to establish that the company was his employer under the FLSA’s economic realities test. According to the company, because the complaint alleges that “[the rig welder’s] activities were controlled by Defendant and/or Defendant’s clients, some other entity – aside from Defendant – may have been [the rig welder’s] employer under the FLSA.” (Emphasis in original.) In rejecting the company’s argument, the court found that the allegations contained in the collective action complaint were sufficient to “plausibly assert”, at this early stage of the litigation, that the company was the “employer” under the FLSA. Schindler v. Whiting Petroleum Corp., D. Colo., No. 17-cv-1051 (D. Colo. Dec. 1, 2017).

CHEVRON SUCCEEDS IN OBTAINING COURT ORDER COMPELLING ARBITRATION OF IC MISCLASSIFICATION CLAIMS BY OIL WELL / DRILL SITE MANAGERS. A California federal court granted Chevron Corporation’s motions to compel arbitration of collective action claims brought by well site/drill site managers who alleged that Chevron violated the wage and overtime provisions of the FLSA due to alleged misclassification of the managers as independent contractors. The managers’ complaint alleged they were supervised by Chevron; Chevron determined their work schedules and set their pay rates without negotiation; Chevron provided all equipment to the managers, including a laptops, e-mail addresses, printers, internet access and uniforms; Chevron required the managers to follow instructions, processes, and policies regarding the method of completion of work; they were required to submit daily reports with details outlining their work and complete weekly invoices; and the managers were required to attend meetings and trainings.

Each of the four managers who were the subject of the motion to compel arbitration had entered into arbitration agreements with different consulting firms to provide services for Chevron. In granting the motion to compel arbitration, the court ruled that Chevron was entitled, as a third-party beneficiary, to enforce the arbitration provisions in the managers’ contracts with the consulting companies that had assigned the managers to work for Chevron. Each consultancy agreement contained similar arbitration language: “All claims, disputes or controversies arising out of, in connection with or in relation to this Agreement or the Services, including any and all issues of arbitration of such claim, dispute or controversy…shall be submitted to a mandatory and binding arbitration….”  The court rejected the managers’ arguments that the arbitration provisions were unconscionable, and that the arbitration agreements were unenforceable because the FLSA claims were “statutory and have nothing to do with contractual obligations.” The court reasoned that although the complaint involved statutory rights of the managers under the FLSA, the claims “are rooted in and inextricably intertwined with the third party contracting agreements.”  McQueen v. Chevron Corp., No. C 16-02089 (N.D. Cal. Dec. 18, 2017).

LOUISIANA LABORERS ARE INDEPENDENT CONTRACTORS, NOT EMPLOYEES, ACCORDING TO APPELLATE COURT.  A Louisiana appeals court has affirmed a trial court’s decision holding that laborers providing painting and related services for La Maison Renovations, LLC, a home remodeling company, were independent contractors under the Louisiana Wage Payment Act.  The laborers had claimed that they were misclassified under state law and owed wages and penalties. At trial, testimony was introduced by the owner of the remodeling company that the laborers set their own schedules; that they were not required to work a certain amount of hours; that the owner told them what to do, but not how to do it; that he laborers supplied their own tools; and that when the owner was on-site, she checked on the laborers’ progress to ensure the professionalism of their work.

In affirming the trial court’s decision, the appeals court found that the trial court’s determination that the laborers were independent contractors was supported by the evidence that an oral contract existed between the parties; the laborers used non-exclusive means in accomplishing their services; La Maison exercised minimal control over the laborers in the performance of their services; the parties agreed to a particular fee plus gas; and the work was for a specified duration. Ocampo v. Maronge, No. 17-CA-403 ( La. Ct. App., 5th Cir., Dec. 27, 2017).

SPORTS REFEREES AND OFFICIALS SUE PENNSYLVANIA HIGH SCHOOL ATHLETIC ASSOCIATION FOR IC MISCLASSIFICATION. Sports officials filed a class and collective action complaint against the Pennsylvania Interscholastic Athletic Association (PIAA) for minimum wage and overtime violations under the FLSA and Pennsylvania Minimum Wage Act due to alleged misclassification as independent contractors. According to the complaint, the purpose and function of PIAA is to develop and enforce rules that are authorized or adopted by member high schools regulating interscholastic athletic competition. The complaint alleges that PIAA has 13,200 registered sports officials who are misclassified, that it fails to pay for meetings, trainings, travel, pre- and post-game work, and uniforms, and that the officials are unable to re-assign or subcontract their assignments to other officials.

In support of the misclassification claims, the complaint further alleges that the sports officials are required by PIAA to apply for their positions using a specific application process, including taking mandatory tests administered by PIAA; affiliate with a PIAA chapter within a specified time-frame; attend the PIAA convention once every five years to maintain certain eligibilities; adhere to uniform requirements; accept PIAA’s established payment scheme; submit reports; accept the dictated game schedule set by PIAA; accept fees unilaterally set by PIAA for post-season game assignments; and be subject to discipline for failure to follow PIAA’s rules. Ruslavage v. Pennsylvania Interscholastic Athletic Association, No. 17-cv-1598 (W.D. Pa. Dec. 8, 2017).

The PIAA has previously been the subject of an NLRB petition filed by the Office and Professional Employees International Union to represent the sports officials, as reported in this blog. The NLRB found that the officials were not independent contractors but rather employees.  The PIAA has sought reconsideration of that decision by the NLRB, which is no longer comprised of a majority of Board members appointed by President Obama.

Regulatory Actions (1 matter)

NEW GENERAL COUNSEL OF THE NLRB RECENTLY APPOINTED BY PRESIDENT TRUMP RESCINDS IC MISCLASSIFICATION INITIATIVE BY HIS PREDECESSOR. The newly-appointed General Counsel of the National Labor Relations Board, Peter Robb, issued his first GC Memorandum on December 1, 2017, where he stated his intention to effectuate changes impacting many of the initiatives undertaken by the prior General Counsel, who had been appointed by President Obama. In his memorandum, Mr. Robb stated that among the initiatives that will no longer be in effect is that “an employer’s misclassification of employees as independent contractors, in and of itself, violates Section 8(a)(1).”  He noted, however, that Regional Directors should submit to the Division of Advice any case where there is evidence that an employer actively used the misclassification of employees to interfere with Section 7 activity.

Legislative Initiatives (1 matter)

NORTH CAROLINA IC MISCLASSIFICATION LAW BECAME EFFECTIVE DECEMBER 31, 2017; ALL EMPLOYERS IN THAT STATE MUST NOW POST AN IC NOTICE.  The North Carolina Employee Fair Classification Act (SB 407), aimed at combatting independent contractor misclassification, became effective December 31, 2017. As discussed in our blog post of September 6, 2017, North Carolina Governor Roy Cooper signed the new law on August 11, 2017, creating the Employee Classification Section within the North Carolina Industrial Commission.

The new law authorizes the Employee Classification Section to receive complaints of employee misclassification; investigate reports of employee misclassification; coordinate with other state agencies and District Attorneys’ offices in the prosecution of employers and individuals who fail to pay civil assessments or penalties; provide information about each report of misclassification to the Department of Labor, the Division of Employment Security, the Department of Revenue, and the Industrial Commission to facilitate investigation of potential statutory violations; educate employers, employees, and the public about employee misclassification; and report annually to the Governor and Joint Legislative Commission on Governmental Operations.

This law does not change the test for employee or independent contractor status in North Caroline; that test remains essentially a “common law” test, which is generally regarded as the test most accommodating to IC status.  Nor does the new law increase penalties for IC misclassification.

While none of these legislative requirements impacts a company’s use of independent contractors, there is one provision of the law that does affect every employer in North Carolina: they must now post a notice that includes the following language: (1) Any worker who is defined as an employee under the law shall be treated as an employee unless the individual is an independent contractor; (2) any employee who believes that he/she has been misclassified as an independent contractor may report the suspected misclassification to the Employee Classification Section within the Industrial Commission; and (3) the physical location, mailing address, telephone number, and e-mail address where alleged incidents of employee misclassification occurred may be reported to the Employee Classification Section within the Industrial Commission.

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:

  • court cases commenced;
  • developments or updates in existing court cases, including any judicial decisions;
  • legislative bills proposed or enacted;
  • regulatory or administrative actions, including enforcement initiatives and task force developments; and
  • other newsworthy matters, such as newspaper articles, white papers, and government press releases and reports.
This entry was posted in IC Compliance. Bookmark the permalink.