October 2019 Independent Contractor Misclassification and Compliance News Update

Last month saw large settlements and yet another new lawsuit against companies that have an independent contractor business model, but also success by such companies in obtaining a favorable jury verdict in an IC misclassification lawsuit and compelling arbitration of a lawsuit  and thereby avoiding a class action alleging misclassification of employees as independent contractors. These cases highlight the importance of two objectives:  enhancing compliance with IC laws that can lead to favorable resolutions of legal challenges (whether they are brought by class action lawyers or by regulatory or administrative agencies) and minimizing class actions by effective use of arbitration provisions with class action waivers.

More and more businesses seeking to elevate their level of IC compliance are using a process such as IC Diagnostics™ to minimize their exposure to class action lawsuits and maximize their likelihood of success if and when they are subjected to a lawsuit or regulatory or administrative review by a state or federal agency alleging IC misclassification.  This is accomplished by restructuring, re-documenting, and re-implementing IC relationships in a customized and sustainable manner consistent with a company’s business strategy and objectives.

One of the many components to a comprehensive solution-based approach to IC misclassification challenges is an effective arbitration agreement with a class and collective action waiver, consistent with the constantly evolving federal and state law in this area. Many companies are reviewing their arbitration agreements in view of new court decisions and laws affecting the enforceability of such agreements, especially provisions with class action waivers, and trying to make them as bulletproof as possible to the types of arguments that plaintiffs’ class action lawyers have been resorting to lately to challenge their validity.  In our article entitled “How to Effectively Draft Arbitration Clauses with Class Action Waivers in Independent Contractor Agreements,” which we republished in a blog post last year, we provided businesses with some of the tips we use to counteract such attacks and promote enforceability.

In the Courts (6 items)

NEW INSTACART INDEPENDENT CONTRACTOR MISCLASSIFICATION LAWSUIT FILED IN ILLINOIS.  Personal shoppers, drivers, and delivery persons have filed a proposed class and collective action lawsuit in Illinois federal court alleging wage and hour violations of the Fair Labor Standards Act and Illinois state wage laws due to their alleged misclassification as independent contractors and not employees.  Maplebear Inc. d/b/a Instacart is described in the complaint as a grocery shopping and delivery services company whose workers shop for groceries from various stores such as Safeway, Whole Foods, Trader Joe’s and Costco, and deliver them to Instacart customers within one or two hours. The plaintiffs are dispatched through a mobile phone app to shop, purchase and deliver groceries to customers at their homes and businesses. In support of their misclassification claim, the shoppers allege, among other things, that “Instacart controlled the ‘when,’ ‘where’ and ‘how’ of [their] work;” that the work performed was within the usual course of Instacart’s business of grocery delivery; and that the plaintiffs were not independently engaged in grocery delivery outside of their work for Instacart.  Additionally, the plaintiffs asserted that Instacart generated work orders for them; controlled their wages; enforced behavioral codes of conduct; directed precisely when and where they were to collect and deliver groceries to Instacart customers; expected them to hold themselves out to customers as Instacart employees by wearing lanyards with the company logo; told the plaintiffs how they were to interact with customers; had the right to terminate the plaintiffs’ relationships with Instacart; trained and directed the plaintiffs on how to evaluate and select fruits and vegetable; required them to accept every job that it sent to the plaintiffs’ smartphones within a set period of time or else be subject to financial repercussions; and monitored and managed their job performance “down to the minute.” O’Shea v. Maplebear Inc. d/b/a Instacart, No. 1:19-cv-06994 (N.D. Ill. Oct. 23, 2019).

MACY’S AND XPO LAST MILE SETTLE IC MISCLASSIFICATION CLASS ACTION BY DELIVERY DRIVERS AND HELPERS FOR $3.5 MILLION.  A California federal district court granted preliminary approval of a $3.5 million settlement reached in a proposed class action alleging independent contractor misclassification by a class of over 700  delivery drivers and helpers against Macy’s and XPO Last Mile.  XPO LM provides logistics services for Macy’s West Stores Inc., including arranging for delivery of certain consumer products and home furnishings that are sent out for delivery to consumers from the Macy’s Logistic & Operating Distribution Center in California. The named plaintiffs allege that they and the class members were not paid for all hours worked and were denied meal and rest breaks to which they were entitled. Macy’s and XPO LM denied these allegations and asserted that the drivers and helpers were not employed by either XPO LM or Macy’s. The $3.5 million settlement, which XPO LM agreed to pay on behalf of itself and Macy’s, provides for 60% of the settlement fund to be awarded to drivers and 40% to be allocated to helpers.  Garcia v. Macy’s West Stores Inc., No. 3:16-cv-04440 (N.D. Cal. Oct. 30, 2019).

XPO LOGISTICS RECEIVES FINAL APPROVAL OF $16.5 MILLION SETTLEMENT OF IC MISCLASSIFICATION CASE BROUGHT BY APPLIANCE INSTALLERS / DELIVERY DRIVERS.  A California federal district court has given final approval to a $16.5 million settlement reached between XPO Logistics and a class of drivers in an IC misclassification class action.  As we discussed in our prior blog post of July 8, 2019, the lawsuit alleged that XPO violated the federal Fair Labor Standards Act and California state wage and hour laws by misclassifying drivers as independent contractors and not employees. According to the drivers, XPO provides delivery services to retail merchants like Home Depot and Lowe’s; those companies contract with XPO to provide the delivery and basic installation services attendant to newly purchased appliances and removal of old appliances from their customers’ homes in California. The drivers claimed, among other things, that XPO reserved the rights to determine the locations where the drivers pick up and drop off merchandise assigned to them; controlled the order and timing of deliveries; required the drivers to wear XPO uniforms and follow customer service standards; determined the year and branding of the vehicles driven by the drivers; unilaterally determined the fees to be received by the drivers; and required the drivers to follow specific methods regarding how to move and install appliances and interact with customers. Estimated payments to drivers range from a high of over $140,000 to a low of $70, with an average of approximately $14,775 per driver. The settlement further provides $4,125,000 (25% of the gross settlement fund) for plaintiffs’ counsel’s fees and expenses, and $120,000 for class representative service awards. Carter v. XPO Logistics, Inc., No. 3:16-cv-01231 (N.D. Cal. Oct. 18, 2019).

DENTAL CONSULTANTS SETTLE CLASS ACTION INDEPENDENT CONTRACTOR MISCLASSIFICATION LAWSUIT FOR $3.4 MILLION.  Dental consultants including dentists and hygienists engaged to evaluate dental insurance claims have reached a proposed $3.4 million settlement of proposed class and collective action alleging wage and hour violations under the Fair Labor Standards Act, the Employee Retirement Income Security Act, and various state labor laws (IL, NJ, NY and RI) due to their alleged misclassification as independent contractors instead of employees.  According to the complaint filed in United States District Court for the Southern District of New York against Metropolitan Life Insurance Company, the dental consultants evaluated claims for benefits submitted by policyholders, participants, and beneficiaries in employee benefit plans to determine whether the services rendered were dentally necessary. The consultants alleged that, among other things, they should have been classified as employees and been entitled to overtime compensation because the company allegedly exercised direction and control over them by dictating their maximum hours of work; requiring them to work at MetLife’s offices and record their hours of work on forms issued by MetLife; requiring them to use computer hardware and software that MetLife provided to the consultants at no charge; imposed guidelines as to how to perform the work;  trained them and supervised their work through managers; created standards by which to assess the quality and quantity of their performance; and assessed their performance under those standards. Under the terms of the proposed settlement, the eligible class members (approximately 120 dental consultants) would receive no less than $1,000 each; $1,260,000 is earmarked for attorneys’ fees; and $168,000 would be set aside for service awards to particular plaintiffs. The parties’ proposed settlement agreement contains a non-admission provision on the part of the company and there is no requirement that the company change its business practices.  The parties await approval of the proposed settlement by the federal district court judge.  McNeely v. Metropolitan Life Ins. Co., No. 1:18-cv-00885 (S.D.N.Y. Oct. 7, 2019).

DOORDASH SUCCEEDS IN COMPELLING ARBITRATION OF IC MISCLASSIFICATION CLAIM.  A Massachusetts federal district court has granted a motion to compel arbitration of wage and hour claims asserted by delivery drivers against DoorDash alleging IC misclassification. The drivers claim that DoorDash, a food delivery service that provides services throughout the United States via an on-demand dispatch system, violated the Massachusetts Wage Act by failing to pay the drivers at least the minimum wage and overtime compensation as a result of its misclassification of the drivers as independent contractors and not employees. DoorDash customers may request food delivery through the mobile app or website. The order is then electronically submitted to both the restaurant and a driver wishes to deliver the order. If the driver agrees to make the delivery, he or she picks up the food and transports it to the customer. The named plaintiff driver claims the drivers are paid a delivery fee plus any customer tips, but after paying their own expenses, including for their vehicle, gas, smartphone, and data plan, their wages fall below the minimum wage.

DoorDash made a motion to dismiss the complaint and compel arbitration of the driver’s claims citing the mutual arbitration provision contained on DoorDash’s mobile app. In granting DoorDash’s motion to compel arbitration, the court rejected the driver’s argument that his arbitration agreement falls within the Federal Arbitration Act’s exclusion for “contracts of employment … of any other class of workers engaged in … interstate commerce.” The court, applying the multi-factor Lenz v. Yellow Transp. Inc. test, concluded that the driver was not a “transportation worker” exempted by section 1 of the FAA.  While the court found that certain factors favored transportation worker status, it concluded that, overall, the facts militated more strongly against interstate transportation status, including that the driver did not allege that he ever crossed state lines; did not allege that drivers are offered routes that involve transporting meals across state lines; did not allege any commercial connection between any interstate food distributor and the customers that received prepared meals via the driver’s delivery; and did not allege any connection between the out-of-state manufacturers of packaged goods and DoorDash. The court stated remarked: “[T]he outcome of this case may well be different if a driver alleged that he crossed state lines to deliver goods, as might occur where a delivery driver is stationed close to a state’s border. Similarly, the outcome of this inquiry might be different for an on-demand driver who delivers groceries for a store that buys goods in interstate commerce.”  Austin v. DoorDash Inc., No. 17-cv-12498 (D. Mass. Sept. 30, 2019).

BARBERS PROVIDING SERVICES AT A CHAIN OF BARBER SHOPS ARE HELD TO BE INDEPENDENT CONTRACTORS.  A three-judge panel of the U.S. Court of Appeals for the 11th Circuit has affirmed a district court’s decision upholding a jury verdict that barbers who provided services at Florida chain of “Razzle Dazzle” barbershops were independent contractors and not employees. The barbers alleged that they were misclassified as ICs instead of employees and, as a result, were allegedly denied overtime compensation under the FLSA. A great deal of conflicting testimony regarding employment status was presented to the jury at the trial. The barbers introduced confidentiality and non-compete agreements describing them as employees; a staff manual detailing a dress code, attendance policy, and job-related duties; and testimony that they did not set their own schedule, were not allowed to choose what hair products to use, and were required to wear specific uniforms. In contrast, the barbershop owner testified that the barbers set their own schedules, wore what they wanted, were free to choose their own hair products, could set their own prices, could provide services to others as long as it was outside the geographic limitation in the agreement, had the opportunity for profit, and provided their own equipment. In affirming the district court’s denial of the barbers’ post-trial motions, the appellate panel concluded that the jury was entitled to make credibility determinations where conflicting testimony was provided by the parties and there was “at least some evidence” to support the jury’s verdict.  Romero v. Razzle Dazzle Barbershop Inc., No. 18-12689 (11th Cir. Oct. 29, 2019).

Written by Richard Reibstein

 

 

 

 

 

 

 

 

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