December 2018 Independent Contractor Misclassification and Compliance News Update

There were only a handful of independent contractor misclassification cases of significance in December and each of those matters relates to the subject of prior comprehensive posts on this blog.

The first involved FedEx Ground, which has paid hundreds of millions of dollars to settle dozens of class action lawsuits across the country and to resolve misclassification claims brought against the company by various state Attorney Generals. In the FedEx case reported below , the company settled an IC misclassification case brought by the New York Attorney General for a seven-figure amount, with the proceeds being disbursed principally to the drivers.

As we have previously reported, FedEx has settled almost all of its lawsuits as a result of a holding by the U.S. Court of Appeals for the Ninth Circuit concluding that, as a matter of law, the company had misclassified its Ground Division drivers as independent contractors. The Ninth Circuit decision was followed soon thereafter by a similar decision of the U.S. Court of Appeals for the Seventh Circuit, finding that FedEx’s “control and micromanaging” of the drivers emanated in large part from the IC agreement it had drafted for the drivers to sign.  In those blog posts, we noted that while the FedEx IC agreements were drafted in a manner that closely resembles the way in which good corporate and employment agreements are drafted, that type of drafting can be a company’s worst enemy in the counter-intuitive world of IC compliance, which is one of the lessons other businesses can learn from FedEx’s experience.

Another one of the cases we report on below involved the subject of another blog post of ours entitled, “Oil & Gas Industry Is Next Target for Independent Contractor Misclassification Lawsuits.”  Since we published that post in May 2018, we have reported on a number of additional class actions affecting this industry, and we summarize below yet another oilfield case involving a costly settlement of an IC misclassification class action.

Two of the cases reported below relate to a third subject we have discussed in prior blog posts:  the increasingly important strategy of using arbitration agreements with class action waivers for independent contractors. As we noted only last month in a blog post entitled, “How to Effectively Draft Arbitration Clauses with Class Action Waivers in Independent Contractor Agreements,” companies that utilize these types of contractual provisions can minimize the likelihood of class and collective actions being filed against them for IC misclassification – provided the agreements are drafted in a state-of-the-art fashion.

In the Courts (4 cases)

FED EX TO PAY $2.1 MILLION TO NEW YORK AND GROUND DIVISION DRIVERS IN IC MISCLASSIFICATION ENFORCEMENT PROCEEDING. The New York Attorney General and FedEx Ground Package System, Inc. have reached a  $2.1 million settlement after an eight-year long lawsuit by the Attorney General claiming that FedEx had misclassified hundreds of package delivery drivers in New York as independent contractors, allegedly in violation of various New York labor and wage and hour laws. The Attorney General’s complaint alleged that as a result of the drivers’ misclassification by FedEx, the company made improper deductions from their wages; failed to provide “spread of hours” pay ; did not comply with recordkeeping and wage statement requirements; failed to pay overtime compensation to certain drivers; and engaged in fraudulent business activity. The company did not admit liability and no longer uses the same business model or IC agreement it used eight years ago.  State of New York v. FedEx Ground Package Inc., No. 402960/2010 (Sup. Ct. N.Y. County Dec. 19, 2018).

OIL AND NATURAL GAS COMPANY AGREES TO PAY OILFIELD WORKERS $2.9 MILLION IN SETTLEMENT OF IC MISCLASSIFICATION CLASS ACTION.   A Pennsylvania federal court has granted final approval of a $2.9 million settlement of a class and collective action brought by oilfield workers against Rice Energy, Inc., an oil and natural gas company. The plaintiff, a drilling fluid engineer, asserted that Rice Energy engaged in violations of federal and state wage and hour laws as a result of its alleged misclassification of plaintiff and other oilfield workers as independent contractors and not employees. According to the complaint, the plaintiff’s primary job duties included monitoring fluid activities at jobsites, operating oilfield equipment, coordinating transfer of fluids between rigs, controlling fluid within defined specifications, and building and maintaining various fluid systems associated with drilling and completion of wells. In support of the misclassification claims, the complaint alleged that: Rice Energy directed the hours and locations where the plaintiff worked, the tools he used, and the rates of pay he received; the plaintiff did not provide his own equipment or incur operating expenses like rent, payroll, marketing, and insurance; no real investment was required of the plaintiff; the plaintiff was economically dependent on the company and was prohibited from working other jobs while working on jobs for the defendant; Rice Energy directly determined the plaintiff’s opportunity for profit and loss; and that very little skill, training, or initiative was required of plaintiff to perform  work for the company.

The defendant’s answer denied these allegations and focused on the fact that the plaintiff  “independently contracted with Patriot Drilling Fluids, a company with which [Rice Energy] contracted to perform services at well sites.”  The answer also contained more than a dozen defenses, including : the plaintiff and proposed class and collective members were properly classified as independent contractors; they were engaged by a third party, Patriot Drilling Fluids, and not by the defendant; and any alleged damages were the sole responsibility of the third party and not the defendant. The court’s order approving the settlement expressly stated that it “makes no finding or judgment as to the validity of any claims released under the Settlement or whether Rice Energy is liable under the Fair Labor Standards Act or any other applicable law.” Williford  v. Rice Energy, Inc., No. 2:17-cv-00945-DSC (W. D. Pa. Dec. 19, 2018).

“CLICKWRAP” AGREEMENTS CONTAINING ARBITRATION PROVISIONS UPHELD IN TWO INDEPENDENT CONTRACTOR MISCLASSIFICATION LAWSUITS.  Federal courts in California and Massachusetts have compelled arbitration in two independent contractor misclassification lawsuits, holding that the company’s use of online “clickwrap” or “click-through”  arbitration agreements was binding and enforceable. While online agreements of this sort appear in various forms, they typically require a user to click either “Agree” or “Dismiss” or select from similar options abefore the user may proceed to the next screen.

In California, Postmates Inc., an on-demand delivery service that offers clients delivery from restaurants and stores by couriers engaged by Postmates to make the requested deliveries, faced a proposed class action alleging violations of wage and hour laws as a result of allegedly misclassifying couriers as ICs.   Postmates uses a “click-through process” in which prospective couriers are presented, during the process of signing up to make deliveries for Postmates, with a hyperlink to an independent contractor agreement containing an arbitration provision.  When they click on the link to proceed, the text of the agreement is displayed; and then they click either “Agree” or “Dismiss” before moving to the next step. Postmates made a motion to compel arbitration of the plaintiff’s claims, arguing that the plaintiff clicked “Agree.” The plaintiff argued that the arbitration provision in the IC agreement was not reasonably conspicuous because it was allegedly “buried deep within the contract,” and that the transportation worker exception to the Federal Arbitration Act applied and thereby precluded arbitration because the meals and goods the couriers delivered originated across state lines.

The court granted the motion to compel arbitration, holding that the plaintiff had assented to Postmates’ independent contractor agreement and its arbitration clause by executing Postmates’ “click-through” agreement. In compelling arbitration, the court concluded that the plaintiff was presented with the text of the arbitration agreement before clicking “Agree;” that she had the opportunity to opt out but did not choose to do so, and that contrary to plaintiff’s assertion that the arbitration clause was inconspicuous, the arbitration provision was actually referred to on the first page of the agreement and Postmates encouraged viewers to review that section carefully. The court also rejected the plaintiff’s argument that the transportation worker exception applied, finding that Postmates’ couriers did not engage in interstate commerce. Lee v. Postmates Inc., No. 18-cv-03421 (N. D. Cal. Dec. 18, 2018).

A Massachusetts federal court faced a similar issue in a proposed independent contractor  misclassification class action brought against on-demand ride-sharing platform, Lyft, Inc., by a driver seeking unpaid minimum wage and overtime compensation.  Lyft made a motion to compel arbitration based on the driver having clicked a checkbox when he enrolled as a driver with Lyft that stated, “I agree to Lyft’s [September 30, 2016] terms of services.” The words “Lyft’s terms of services’ were highlighted in pink and hyperlinked to the written terms. Among other provisions, the terms provided in capital letters that drivers must “SUBMIT CLAIMS…AGAINST LYFT TO BINDING AND FINAL ARBITRATION ON AN INDIVIDUAL BASIS, NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY CLASS, GROUP OR REPRESENTATIVE ACTION OR PROCEEDING.” The driver reaffirmed acceptance of a nearly identical arbitration provision in early May 2018.  A few weeks later the driver sought to opt out of the arbitration clause, arguing that the agreement to arbitrate was invalid because the terms were not reasonably communicated.  The driver claimed that the terms appeared three-quarters of the way down on a computer screen that offers no contextual clue that he was entering into a binding contract.  He also argued that the terms were buried amid a multi-screen sign-up process; they were written in the smallest font on the page; and the hyperlinked text was not italicized, bolded, underlined or in classic blue coloring to indicate that it is a hyperlink.

The court rejected the driver’s arguments, stating: “These online agreements – where a user selects “I agree” without necessarily reviewing the contract – are typically called “clickwrap” agreements, and are generally held enforceable.” The court explained that Lyft’s screen required the driver to click that he agreed to the terms of services before he could continue with the registration process and noted that although the terms were towards the bottom of the page in small font, the operative phrase was in pink and distinguishable on the screen. Regarding the driver’s claim that he had opted out of the arbitration agreement, the court held that the driver’s opt out was effective only as to the revisions the company made to the September 30, 2016 arbitration provisions, which the court viewed as “immaterial.”  Wickberg v. Lyft, Inc., No. 1:18-cv-12094-RGS (D. Mass. Dec. 19, 2018) .

Regulatory Initiatives (1 case)

RADIO TALK SHOW HOSTS BY OREGON LABOR AGENCY FOUND TO BE MISCLASSIFIED AS INDEPENDENT CONTRACTORS.  The Oregon Bureau of Labor and Industries (BOLI) announced in a News Release that Pamplin Broadcasting-Oregon, a local media group, was required to pay more than $55,000 to two radio talk show hosts for violations of the overtime pay and recordkeeping requirements of Oregon law. BOLI found that all on-air content was discussed and agreed upon by the show’s producer as well as the show’s hosts; the hosts were required to attend staff meetings and were told to be evenhanded when discussing political issues; the company made the vast majority of investments (studio equipment, office supplies) needed for the hosts to provide radio show hosting services; the amount that the hosts were paid per show was non-negotiable; the company created the show’s logo and each “opening” for the show; the hosts had an exclusive relationship with the company; the hosts’ initiatives could not be used to generate greater income from the company; and the hosts believed they would be permanently replacing a previous radio show hosted by others. BOLI applied a six-part economic realities test to determine the independent contractor/employee status of the two hosts, concluding that the facts “lean in favor of an employment relationship due to the structure, framework and guidance provided by Pamplin management.”

Written by Richard Reibstein

Compiled by Janet Barsky

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