March 2017 Independent Contractor Misclassification and Compliance News Update

The past month included significant state and federal appellate court decisions, large settlements of IC misclassification class actions, class and collective action certifications, and two IC misclassification class actions that survived motions to dismiss. Perhaps the most significant court development in the first quarter of 2017 was an appellate court case that was issued by the Connecticut Supreme Court. That decision clarified the “C” prong of the state’s “ABC” test for independent contractor status under that state’s unemployment insurance law. Notably, one year earlier, the Connecticut Supreme Court clarified the “A” prong of the state’s “ABC” test, as we noted in our March 2016 News Update. Both decisions are favorable to businesses that make use of legitimate ICs in that state.

The other key appellate court decision in the IC misclassification arena involves FedEx, which prevailed in its appeal of an NLRB order that it bargain with a local Teamsters union as the representative of a unit of single-route Ground Division drivers. The United States Court of Appeals for the D.C. Circuit, for a second time, rebuffed the NLRB and denied enforcement of the Board’s bargaining order, finding that the single-route drivers are independent contractors under the National Labor Relations Act.

Two well-known IC misclassification class actions settled for substantial sums: Lyft got formal approval from a federal district court judge to settle its class action IC misclassification case with its on-demand ride-sharing drivers for $27 million, while on-demand shopping delivery service Instacart entered into a proposed settlement of its IC misclassification class action with its “shoppers” for $4.625 million. Another IC misclassification class action involving 35 freelancers at The Hollywood Reporter received final court approval for a settlement of $900,000; each freelancer will recover an average of just under $15,000 after legal fees and other costs.

Class certification was granted by courts in three IC misclassification cases: a Tennessee case involving sales representatives of timeshare cancellation services; a Kentucky case involving drivers making pharmaceutical product deliveries; and a Massachusetts case involving drivers making home deliveries of furniture, appliances, and electronic products.

Finally, there were two IC misclassification cases where the companies made motions seeking to dismiss the claims – and both motions failed. In one, FedEx Ground was denied a motion to dismiss a new case brought by its Ground Division drivers. It had argued that they were not covered by that state’s “ABC” test for IC status because the drivers had entered into IC agreements through LLCs and corporations. The court, however, found that dismissal was inappropriate and that the drivers will be permitted to show that they were misclassified where they alleged that FedEx required that they incorporate. In the other case, sales representatives selling home security products and services in South Carolina survived a motion for summary judgment and were found to be entitled to try their state law IC misclassification claims to a jury.

Apart from the two appellate court decisions, the takeaway from the other eight IC misclassification class actions is that each of the companies could have averted a lawsuit altogether, settled for far less, or obtained a judgment in their favor – had they simply placed themselves in a far better position from an IC compliance standpoint. The allegations in those cases strongly suggest that the businesses involved did not pay sufficient attention to the importance of structuring, documenting, and implementing their IC relationships in a manner that enhanced their compliance with state and federal laws, such as through the use of IC Diagnostics™, as discussed in our White Paper.

In the Courts (10 cases)

CONNECTICUT SUPREME COURT CLARIFIES APPLICATION OF STATE LAW TEST FOR IC STATUS. The Connecticut Supreme Court has held that the Connecticut test for independent contractor status under the state’s unemployment insurance law does not require that a worker must provide services for more than one employer to be an independent contractor under that law. Rather, that fact is but one factor to be considered in determining if an individual is “customarily engaged in an independently established trade, occupation, profession or business,” which is Prong C of the three-part “ABC” test for independent contractor status for unemployment purposes in Connecticut.  At the underlying hearing in the case, the unemployment referee had determined that Southwest Appraisal Group, LLC, an automotive damage appraisal business that assesses damaged vehicles, had misclassified the appraisers as independent contractors and was therefore liable for unemployment taxes.  That decision was appealed to the Board of Review of the Employment Security Appeals Division, which upheld the Referee’s determination as to three of the appraisers who operated their own legitimate independent businesses but did not actually perform services for any other business besides Southwest. On appeal, the Supreme Court reversed that decision as to the three appraisers. In its decision, the Court reasoned that “just as the mere freedom to provide services for third parties is not by itself dispositive under part C… ‘whether the individual actually provided services for someone other than the employer is [not] dispositive proof of an employer-employee relationship.’”  The court observed that, in making a determination under Prong C of the test, “the totality of the circumstances” must be evaluated in light of many factors, including but not limited to (1) the existence of state licensure or specialized skills; (2) whether the individual holds himself or herself out as an independent business through the existence of business cards, printed invoices, or advertising; (3) the existence of a place of business separate from that of the putative employer; (4) the individual’s capital investment in the independent business, such as vehicles and equipment; (5) whether the individual manages risk by handling his or her own liability insurance; (6) whether services are performed under the individual’s own name as opposed to the putative employer; (7) whether the individual employs or subcontracts others; (8) whether the individual has a saleable business or going concern with an established clientele; (9) whether the performance of services affects the goodwill of the individual rather than the employer; and (10) whether the individual performs services for more than one entity – the one factor that the referee and Board of Review had focused on. Southwest Appraisal Group, LLC v. Administrator, Unemployment Compensation Act, No. SC19651 (Sup. Ct. Conn. Mar. 21, 2017).

FEDEX AGAIN ABLE TO OVERTURN NLRB RULING THAT ITS GROUND DIVISION DRIVERS ARE INDEPENDENT CONTRACTORS. FedEx has succeeded for a second time before the U.S. Court of Appeals for the D.C. Circuit in its challenge to a ruling by the National Labor Relations Board that FedEx Ground Division drivers are not independent contractors but rather employees who can be unionized. As more fully discussed in our March 7, 2017 blog post, this was the second time that the D.C. Circuit denied enforcement of an NLRB decision that, if not reversed, would have required FedEx to bargain with a local Teamsters union as the representative of a bargaining unit of Ground Division drivers. In the first decision by the D.C. Circuit, the court concluded that, as a matter of law, the FedEx drivers were independent contractors under the common-law agency test used to determine independent contractor status under the NLRA. FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009). The court in FedEx I then examined a “non-exhaustive list of ten factors [set forth in the Restatement (Second) of Agency] to consider in deciding whether a worker is an independent contractor” and concluded that the “indicia of independent contractor status ‘clearly outweighed’ the factors that would support employee status.”  The NLRB did not seek Supreme Court review of the FedEx I decision by the D.C. Circuit. In the second proceeding before the NLRB, the company had argued that the decision in FedEx I compelled a similar ruling in the second case.  The NLRB, however, chose to disregard the prior decision by the D.C. Circuit.  In its ruling, the NLRB said it “disagreed with [the D.C. Circuit’s] interpretation of the Act.”  That decision was promptly appealed by FedEx. Now, the appellate court has again reversed the NLRB: “It is as clear as clear can be that ‘the same issue presented in a later case in the same court should lead to the same result.”  The court then stated emphatically: “Doubly so when the parties are the same.” After stating that the NLRB was simply seeking to “nullify this court’s decision in FedEx I,” the court remarked:  “This case is the poster child for our law-of-the-circuit doctrine, which ensures stability, consistency, and evenhandedness in circuit law.” FedEx Home Delivery v. NLRB, No 14-1196 (D.C. Cir. March 3, 2017).

INSTACART SETTLES WITH “SHOPPERS” FOR $4.625 MILLION IN IC MISCLASSIFICATION CLASS ACTION. On-demand grocery delivery service Instacart has agreed to settle for $4.625 million an IC misclassification class action by a class of “shoppers” who shop, purchase, and deliver groceries from grocery stores including Safeway and Whole Foods to customers at their homes and businesses through Instacart’s mobile phone app.  The shoppers alleged that because of their misclassification as independent contractors, they were denied minimum wage and overtime compensation, were not reimbursed for work-related expenses, did not receive proper meal and rest breaks, and did not receive all of the tips left them by customers, as required by federal law and the laws of Colorado, New York, and California. The settlement seeks to cover shoppers who have performed work for Instacart in California, New York, Pennsylvania, Colorado, Illinois, Washington, Indiana, Texas, Georgia, Oregon, Massachusetts, Minnesota, Florida, North Carolina, Virginia, Maryland and New Jersey. Of the $4.625 million, approximately one-third ($1.54 million) will be for attorneys’ fees and costs, $120,000 for administrative costs, $80,000 for claims under the California Private Attorneys General Act, and amounts ranging from $500 to $5,000 for class members. In addition, as part of the proposed settlement Instacart has agreed to modify its app to clarify for customers the difference between service fees and tips; disclose that commercial insurance may be required in certain jurisdictions and that Instacart does not provide it; implement a formal deactivation policy under which shoppers may only be terminated for cause; and create an interface or app that will allow shoppers to obtain more detailed information regarding their work, including information about the tasks they have performed and the money they have received from those tasks. A hearing on the proposed settlement is scheduled for April 19, 2017. Camp v. Maplebear, Inc., d/b/a Instacart, No. BCC652216 (Super. Ct. Los Angeles County Mar. 17, 2017).

LYFT’S $27 MILLION CLASS ACTION SETTLEMENT FINALLY APPROVED IN DRIVER IC MISCLASSIFICATION CASE. A California federal court judge grants final approval of a $27 million class action settlement between ride-sharing company, Lyft, and about 95,000 drivers who claimed they were owed tips and reimbursement of expenses under state law due to their alleged misclassification by Lyft as independent contractors. As discussed in our blog post of March 14, 2017, which we updated on March 17, 2017, the settlement also includes a number of non-economic terms, including: (1) Lyft will no longer be able to deactivate drivers at will, for any reason, and instead will only be able to deactivate drivers for specific reasons or after providing notice and an opportunity to cure; the deactivation will be arbitrable; (2) Lyft will provide additional information about potential passengers to drivers prior to the driver accepting any ride request, which presumably will assist drivers in deciding whether to accept a ride request; and (3) Lyft will create a “favorite” driver option where drivers who are designated by riders as a “favorite” are entitled to certain benefits.  In exchange for those economic and non-economic terms, all class members (except those who have “opted out” of the settlement) waive all existing claims they may have against Lyft arising from their alleged misclassification as independent contractors. The settlement will cover all Lyft drivers who made at least one trip for Lyft in California between May 25, 2012, and July 1, 2016. Although a few class members, a Teamsters Union local and the “Uber Lyft Teamsters Rideshare Alliance” had filed objections to the settlement primarily because it allows Lyft to maintain its classification of the drivers as independent contractors and does not require Lyft to reclassify them as employees, the federal judge who approved the settlement rejected those objections. Had the drivers been reclassified as employees, federal labor laws would permit the Teamsters to unionize those drivers. The judge’s order states: “The agreement is not perfect. And the status of Lyft drivers under California law remains uncertain going forward. But the agreement falls within a range of reasonable outcomes given the benefits it achieves for drivers and the risks involved in taking the case to trial.” Cotter v. Lyft Inc., No. 13-cv-04065 (N.D. Cal. March 16, 2017).

COURT APPROVES CLASS ACTION SETTLEMENT OF IC MISCLASSIFICATION CLAIM BY ENTERTAINMENT PUBLISHING FREELANCERS. A California state court judge has approved a $900,000 settlement of a class action lawsuit filed by freelancers against Prometheus Global Media, LLC, an entertainment publishing company that publishes The Hollywood Reporter, Billboard, Adweek, and Backstage.  The freelancers, who included an assistant editor for social media and a video coordinator, alleged that the company willfully misclassified “freelancers” as independent contractors and thereby denied them wage and hour rights and protections under the California labor laws. Under the terms of the proposed $900,000 settlement, each of the 35 class members will receive approximately $15,000 (totaling about $520,000), and the balance of approximately $380,000 will be earmarked for attorneys’ fees and other costs. As discussed in our October 3, 2013 blog post, the freelancers sought allegedly unpaid overtime, pay for rest and meal breaks that were not provided, reimbursement of expenses, and penalties for failing to issue itemized wage statements and failing to make timely wage payments. The complaint had alleged that the freelancers were treated the same as employees in that they were expected to work Monday through Friday from 9 a.m. to 5 p.m.; were provided with their own work space, computer, company e-mail address, and direct dial phone number; were required to attend meetings; were directed by a supervisor and manager; and were subject to discipline. Simpson v. Prometheus Global Media LLC, No. BC522638 (Super. Ct. Los Angeles County, Mar. 22, 2017).

SALES REPRESENTATIVES OF SERVICE COMPANY ASSISTING TIME SHARE OWNERS TO CANCEL INVESTMENTS GRANTED CLASS ACTION STATUS IN IC MISCLASSIFICATION CASE. A Tennessee federal district court has granted conditional certification of a collective action brought under the Fair Labor Standards Act by sales representatives alleging that Wesley Financial Group, LLC, a company that assists individuals in modifying or cancelling their ownership interests in timeshares, has misclassified them as independent contractors and not employees.  The sales reps, who called prospective customers to determine whether they were interested in engaging Wesley’s services, were paid a percentage of any fee generated from a timeshare owner whom they successfully referred to the Company. The class action alleges that by misclassifying them as independent contractors, Wesley engaged in violations of the federal minimum wage and overtime provisions. In granting conditional class certification, the Court noted that the standard that applies at the initial stage of a collective action under the FLSA requires only that a class representative need only “make a ‘modest factual showing’ demonstrating that she and potential class members are ‘similarly situated,’” which the court held to be satisfied by the plaintiff’s declaration that all sales reps were subject to the same unlawful pay policy of being treated as independent contractors. Burgess v. Wesley Financial Group, LLC, No. 16-CV-01655 (M.D. Tenn. Mar. 16, 2017).

PHARMACEUTICAL PRODUCT DELIVERY DRIVERS GRANTED CONDITIONAL CLASS CERTIFICATION IN IC MISCLASSIFICATION. A Kentucky federal district court has granted conditional certification of an FLSA collective action brought by delivery drivers against King Bee Delivery, LLC, a company that provides pharmaceutical product delivery services to pharmacies and hospitals in Kentucky, Ohio, and Indiana.  The drivers allege that King Bee violated the overtime provisions of the FLSA when it misclassified the drivers as independent contractors.  In granting the certification motion, the court concluded that the drivers made “the modest factual showing” that their “position is similar, not identical, to the positions held by the putative class members.” The court based its conclusion on evidence that the drivers performed similar duties, adhered to similar schedules, and followed similar rules as do other delivery drivers working for the company. Although the drivers had also brought claims for unlawful deductions for GPS trackers, uniforms, and other fees under the Kentucky Wage and Hour Act, the court granted the company’s motion to dismiss those claims because they amounted to nothing more than conclusory allegations. Williams v. King Bee Delivery, LLC, No. 15-cv-306 (E.D. Ky. Mar. 14, 2017).                      

DRIVERS FOR MASSACHUSETTS APPLIANCE, FURNITURE, AND ELECTRONIC HOME DELIVERY COMPANY GRANTED CLASS ACTION CERTIFICATION IN IC MISCLASSIFICATION CASE. A Massachusetts federal district court has granted conditional class certification to delivery drivers in their IC misclassification class action brought against Spirit Delivery & Distribution Services, a logistics company specializing in appliance, furniture and electronic home delivery.  The drivers alleged violations of the Massachusetts independent contractor wage law.  The company sought to avoid class certification by arguing that the state law is preempted by the Federal Aviation Administration Authorization Act (FAAAA).  While the court agreed that the FAAAA preempts the second prong of the “ABC” test under the Massachusetts independent contractor law (that “the service is performed outside of the usual course of business of the employer”), the other two prongs of the ABC law were not.  In granting conditional class certification, the court found, among other things, that the drivers’ allegation that the Company’s system wide policy of misclassifying the drivers as ICs in violation of the state law satisfied the commonality requirement and that the injuries arise from the same events and course of conduct as those of the proposed class members. Vargas v. Spirit Delivery & Distribution Services, Inc., No. 13-cv-12635-TSH (D. Mass. Mar. 24, 2017).

FEDEX GROUND FAILS IN EFFORT TO DISMISS IC MISCLASSIFICATION WAGE PAYMENT CLAIM IN NEW JERSEY BY GROUND DIVISION DRIVERS, WHERE THEY WERE REQUIRED TO OPERATE THROUGH SEPARATE LLC’S AND CORPORATIONS. In 2016, FedEx resolved most of its remaining IC misclassification lawsuits by Ground Division drivers, as we noted in our blog post of October 24, 2016. But new cases have been filed against the courier giant, including one pending in federal court in New Jersey alleging that FedEx violated state consumer protection laws, common law, Consumer Fraud Act, and the New Jersey Wage Payment Law when it misclassified drivers as independent contractors instead of employees. The amended complaint in the case alleges that FedEx engages approximately 300 truck and van drivers in New Jersey and requires some drivers to create limited liability companies (LLCs) or corporations and enter into an Operating Agreement with drivers through their business entities for particular Ground Division routes.  Although the plaintiffs acknowledged that FedEx represents to the drivers that they can “be [their] own boss,” “grow [their] own business,” have “sole control” over their businesses, and enjoy a proprietary and entrepreneurial interest in the delivery routes, the drivers allege that FedEx treats them as employees by regulating or controlling vehicle appearance, vehicle maintenance, liability insurance, driver reports, driver uniforms, driver service areas, the prices charged for services, route schedules, electronic equipment used, forms for paperwork, and approval of substitutes and assistants. To that end, the drivers allege that FedEx ensures drivers are following those requirements by actively monitoring how drivers operate their vehicles, carry packages, and complete paperwork. FedEx filed a motion to dismiss all of the claims in the complaint and succeeded in part: the court dismissed all of the state statutory and common law complaints except for the New Jersey Wage Payment Law claim. FedEx argued that the drivers could not bring a claim under the state’s wage law because their companies, not them personally, are not parties to the Operating Agreements, and the law only protects “persons” and not business entities. Federal District Judge Robert B. Kugler, however, rejected that argument.  He stated that courts “are obliged to look behind contractual language to the actual situation – the status in which parties are placed by relationship that exists between them.”  He further stated that a court “must analyze beyond the contract formed between Defendant and the corporate entities formed by Plaintiffs in order to determine whether Plaintiffs were employees.” Carrow v. FedEx Ground Package Systems, Inc., No. 16-cv-3026 (D.N.J. Mar. 30, 2017).

HOME SECURITY COMPANY FAILS TO DISMISS IC MISCLASSIFICATION CLASS ACTION BY SALES REPRESENTATIVES. A South Carolina federal court has denied a motion for summary judgment filed by AVSX Technologies, a company that sells, installs, and services home security systems, in a class action IC misclassification lawsuit by sales representatives selling AVSX products and services.  The sales reps (who became employees of AVSX at a later point in time) claim that the company violated the FLSA and the South Carolina Wage Payment Act by treating them as ICs instead of employees.  The sales reps claim damages for allegedly unlawful holdbacks of amounts retained by the Company for any security contracts that are cancelled by the consumers and allegedly unlawful chargebacks against their commissions, as well as the company’s failure to provide them with benefits and restitution for the tax burden imposed on the sales reps due to their classification as 1099ers. In defending against the motion for summary judgment, the sales reps introduced evidence of the company’s right to and exercise of control over the sales reps’ performance by the use of contract forms provided by the company, who allegedly set the prices, terms, and conditions of sale; the company’s furnishing of company shirts, IDs, marketing materials, company iPads, cell phones, and vehicles; and the company’s right to terminate the sales reps at any time with or without cause. The company argued that the sales reps set their own schedules, determined potential clients, set their own geographic boundaries, did not have an office provided by the Company, were not required to attend meetings, and signed contracts specifying that they were independent contractors. The Court concluded that summary judgment should be granted in favor of the company on the FLSA claims, as that law does not address holdbacks, chargebacks, benefits, or tax burdens.  The Court, however, denied summary judgment for the claims under the state wage payment law on the holdback claims, finding that those claims could be brought under the state law if the sales reps had been misclassified as independent contractors.  It concluded that the facts submitted by both sides on the motion for summary judgment demonstrated that there existed a genuine issue of material fact that needed to be tried to a jury regarding the employment status of the sales reps.  As the court stated, “a reasonable jury could find that Plaintiffs were employees regardless of the contracts that they signed.” Sill v. AVSX Techs., LLC, No. 16-cv-0555 (D.S.C. Mar.17, 2017).

Regulatory and Enforcement Initiatives (1 item)

WISCONSIN REPORTS RECOVERY OF $1.1 MILLION IN UNPAID UNEMPLOYMENT INSURANCE TAXES, PENALTIES, AND INTEREST FOR IC MISCLASSIFICATION IN 2016. Wisconsin’s enhanced enforcement of IC misclassification laws since mid-2013 resulted in recovery of $1.1 million of unpaid unemployment insurance taxes, penalties and interest in 2016. According to the State of Wisconsin 2017 Report to the Unemployment Insurance Advisory Council, issued on March 15, 2017, Unemployment Insurance auditors identified a total of 8,613 misclassified workers in 2016.  The Report also notes that the Department of Workforce Development has produced educational videos to instruct employers how to properly classify a worker as an employee or an independent contractor and how to prepare for a tax appeal hearing. The Report projects that the Department has committed to conducting a total of 650 worker classification field investigations in 2017. Scott Manley, Unemployment Insurance Advisory Council Member, stated, “The UI system is funded by employers and intended to help workers in need. Protecting those funds from waste, fraud and abuse is an important mission.”

Written by Richard Reibstein.

 

Compiled by Janet Barsky, Managing Editor.

 

Published by Richard ReibsteinLisa Petkun, and Michael Crumbock.

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Posted in IC Compliance

Spoiler Alert: Rulings Expected on Uber and Lyft Independent Contractor Settlements

Judges in California will likely soon issue rulings affecting two ride-sharing companies, Uber and Lyft. Those connected with the Lyft case will be pleased because it is expected that a federal district court judge in San Francisco will formally approve a $27 million settlement in an independent contractor misclassification case against Lyft. In contrast, those involved in the Uber case pending in a state court in Los Angeles will have to accept a judicial setback when the judge handling that case is expected to formally disapprove of a $7.75 million settlement of so-called PAGA claims asserted on behalf of hundreds of thousands of Uber drivers. But, as noted below, that will not displease the plaintiffs’ lawyers involved in other Uber class action IC misclassification cases.

The Lyft Settlement Being Approved

Lyft had originally entered into a proposed agreement to settle its drivers’ IC misclassification claims for $12.25 million, but Judge Vince Chhabria rejected that settlement as inadequate, as more fully detailed in our March 15, 2016 blog post.  Following the rejection of that proposed settlement, the parties returned to Judge Chhabria with a proposed settlement of $27 million.

Objections to the higher proposed settlement were filed by a few class members, a Teamsters local, and the “Uber Lyft Teamsters Rideshare Alliance,” nicknamed ULTRA. Those objections were principally aimed at the fact that the settlement allows Lyft to maintain its classification of the drivers as independent contractors and not reclassify them as employees. If the drivers were reclassified, federal labor laws would permit the Teamsters to unionize the drivers; otherwise, as independent contractors, they remain ineligible for union representation.

According to Shannon Liss-Riordan, the lead counsel for the drivers, those that drove the most will be receiving thousands of dollars. So far, approximately 95,000 Lyft drivers have reportedly elected to participate in the settlement.

In addition to the financial terms of the settlement, the principal terms include:

  • Lyft will no longer be able to deactivate drivers at will, for any reason, and instead will only be able to deactivate drivers for specific reasons or after providing notice and an opportunity to cure. Drivers deactivated will be able to arbitrate their deactivation, with Lyft paying for the fees of arbitration. (Evidently, the drivers may have to pay their own legal fees if they choose to hire counsel to represent them at the arbitration.)
  • Lyft will provide additional information about potential passengers to drivers prior to the driver accepting any ride request, which presumably will assist drivers in deciding whether to accept a ride request.
  • Lyft will create a “favorite” driver option where drivers who are designated by riders as a “favorite” are entitled to certain benefits.
  • In exchange for the above, all class members (except those who “opt out” of the settlement) will waive all existing claims they may have against Lyft arising from their alleged misclassification as independent contractors.

The settlement will cover all Lyft drivers who made at least one trip for Lyft in California between May 25, 2012, and July 1, 2016. The case is Cotter v. Lyft Inc., No. 13-cv-04065 (N.D. Cal.).

[Updated 3/17/17:  On March 16, 2017, Judge Chhabria approved the parties’ $27 million settlement.]

The Uber Settlement Being Rejected

Uber has been sued around the country, including California. The principal case in that state is the O’Connor case, which is pending before Judge Edward Chen in federal court in San Francisco. O’Connor v. Uber Technologies, Inc., No. 3:13-cv-03826-EMC (N.D. Cal.). That case seeks damages for allegedly unreimbursed automobile, cell phone, and other expenses and includes a claim under the California Private Attorney General Act (“PAGA”).  Under PAGA, private litigants sue in place of the State and seek recovery for monies that would have been owed to the State if the government had conducted the lawsuit instead of private litigants. In a PAGA lawsuit, the private litigants keep a smaller portion of the recovery while the State receives the larger portion.

Another California case against Uber is pending in Los Angeles Superior Court before Judge Maren E. Nelson.  Price v. Uber Technologies Inc., No. BC554512 (Super. Ct. Los Angeles County). That lawsuit also asserts PAGA claims that overlap with those being sought in the federal case pending in San Francisco. Counsel for Uber and the class representatives in the Los Angeles case had submitted to the judge a proposed $7.75 million settlement of the PAGA claims.

Judge Nelson is likely to formally reject the proposed settlement, reportedly noting (among other concerns) that she wished to make sure the settlement in her Los Angeles case would not adversely affect the rights of drivers in the San Francisco case. Many Uber drivers have filed objections to the proposed settlement, which may pay each of the many hundreds of thousands of Uber drivers only a few dollars each, after payment of their attorneys’ fees.

Judge Nelson also reportedly told the lawyers for the drivers and Uber that she needed more information about the financial fairness of the proposed settlement, and was also seeking information on the PAGA claims from the California agency in charge of such claims.

Notably, lawyers for plaintiffs in other PAGA lawsuits against Uber have made known their objections to the proposed settlement in court filings. Those lawyers cite issues as to both the modest amount of the settlement and the impact of the settlement on their lawsuits against Uber.

In the San Francisco case, Judge Edward Chen last rejected a $100 million proposed settlement. As noted in our August 18, 2016 blog post, Judge Chen rejected that  settlement in large part because of his objections to the amount allocated to the PAGA claims.  He mentioned that the State agency in charge of such claims had estimated the value of the PAGA claims at $1 billion.

As we have noted in prior blog posts, Uber has received mixed results in legal challenges brought against it around the country, winning and losing some cases brought by individual drivers before administrative agencies and arbitrators.

Analysis and Takeaways

Uber and Lyft have dominated the headlines in defense of their independent contractor relationships with drivers and efforts to settle a bevy of class action lawsuits brought against them. Both companies had hoped to win their California class actions by making motions for summary judgment. But both were dealt setbacks two years ago when two separate federal judges denied their motions and set down those cases for trial. No trials have been held in either of those cases, both of which have now been the subjects of proposed settlements.

As we noted in our September 18, 2014 blog post entitled “Silicon Valley Misclassification,” we observed that tech companies that use the 1099 “on demand” business model were at risk if they “do not take care to structure, document, and implement their independent contractor relationships in a manner consistent with federal and state IC laws.”

That does not mean, however, that on-demand and other companies using independent contractors cannot prevail on IC misclassification claims.  To the contrary, the court’s decision in the Uber summary judgment opinion pointed to two recent cases where courts in California found workers to be independent contractors as a matter of law.  As Judge Chen noted, even though some factors may have “cut in favor of employee status,” courts will still find IC status when “all of the factors weighed and considered as a whole establish that [an individual] was an independent contractor and not an employee.”

So, how does a company avoid class action IC misclassification cases or, if sued, prevail in the lawsuit and secure a judgment that its 1099ers are legitimate ICs?

While Uber and Lyft can afford costly class action settlements, most other on-demand start-ups can’t. And investors don’t wish to pour money into business models that are future targets of class action lawyers and workforce agency regulators.  As we noted in our March 12, 2015 blog post on the courts’ denial of the motions for summary judgment by Uber and Lyft, many new and existing companies have resorted to IC Diagnostics™ to enhance their level of IC compliance and determine whether a group of 1099ers would pass the applicable tests for IC status under governing state and federal law.  That proprietary process also offers a number of practical, alternative solutions to enhance compliance with those laws, including: restructuring, re-documenting and re-implementing the IC relationship; reclassifying 1099ers as W-2 employees; and redistributing 1099ers – as more fully described in our White Paper on the subject.

Companies that wish to retain an IC business model generally opt for restructuring, re-documenting, and re-implementing their IC relationships. While not all companies can eliminate their control and direction over workers treated as 1099ers, the overwhelming number can effectively restructure their IC relationships to comply with federal and most state IC laws. The IC Diagnostics™  process provides the means to stress-test the IC relationship. If it can be effectively restructured to comply with IC laws, the next step in the process is re-documentation.  What seems like a simple act of dotting your i’s and crossing your t’s, though, is anything but; indeed, many IC statutes and most judicial and administrative decisions in this area are often counter-intuitive.

In our August 29, 2014 blog post entitled “Earthquake in the Independent Contractor Misclassification Field,” we noted that FedEx Ground lost a key case because of its misplaced reliance on an IC agreement and its policies and procedures that were good, but not good enough.  As we stated in that blog post: “IC agreements and policies and procedures that are not drafted in a state-of-the-art manner, free from language that can be used against the company, can cause businesses that use ICs to face class action litigation or regulatory audits or enforcement proceedings they may be able to otherwise avoid.”  For most businesses using ICs as part of their business model or to supplement their workforce, it is never too late to restructure and re-document their IC relationships.

The implementation of a legitimate IC relationship is also essential. Even when a company’s contractual provisions are drafted in a manner intended to be consistent with IC laws, a company’s failure to strictly follow contractual limitations on direction and control can lead to an adverse ruling. There is no reason, though, why a company committed to complying with IC laws cannot, when exercising both rigor and restraint, implement and carry out in practice an enhanced IC relationship.

Written by Richard Reibstein.

 

Published by Richard ReibsteinLisa Petkun, and Michael Crumbock.

 

Posted in IC Compliance

FedEx Succeeds Again On Appeal of an NLRB Ruling on Independent Contractor Misclassification

In the past 2-1/2 years, FedEx has suffered through some appellate court setbacks in the area of independent contractor misclassification, beginning with a decision by the U.S. Court of Appeals for the Ninth Circuit in San Francisco and ending with a decision by the Seventh Circuit in Chicago. Those decisions led FedEx to settle most of their remaining IC misclassification class actions covering their Ground Division drivers for several hundred million dollars.  FedEx has, however, enjoyed continued success in maintaining its position that its single-route Ground Division drivers are independent contractors for purposes of the National Labor Relations Act, the federal law that permits the unionization of workers who are “employees” under the NLRA.

The D.C. Circuit Decisions

Last Friday, March 3, 2017, the U.S. Court of Appeals for the D.C. Circuit issued a decision in favor of FedEx, denying enforcement of a decision by the National Labor Relations Board, which had held that single-route Ground Division drivers for FedEx were employees and not independent contractors. FedEx Home Delivery, an Operating Division of FedEx Ground Package System, Inc. v. NLRB, Nos. 14-1196, 15-1066, 15-1116 (D.C. Cir. Mar. 3, 2017). This was the second time that the D.C. Circuit denied enforcement of an NLRB decision that, if not reversed, would have required FedEx to bargain with a local Teamsters union as the representative of a bargaining unit of Ground Division drivers.

In the first decision by the D.C. Circuit, the court concluded that, as a matter of law, the drivers were independent contractors under the common-law agency test used to determine independent contractor status under the NLRA. FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009). The court noted in FedEx I that decisions by the NLRB and as to the application of the common-law agency test had shifted over time; at first, the NLRB had focused on an “‘employer’s right to exercise control’ over the workers’ performance of their jobs,” but later placed emphasis on whether the workers in question “have significant entrepreneurial opportunity for gain or loss.”

The court in FedEx I then examined a “non-exhaustive list of ten factors [set forth in the Restatement (Second) of Agency] to consider in deciding whether a worker is an independent contractor.”  It “look[ed] at those factors through the lens of entrepreneurial opportunity for gain or loss” and concluded that the “indicia of independent contractor status ‘clearly outweighed’ the factors that would support employee status.”  The NLRB did not seek Supreme Court review of the FedEx I decision by the D.C. Circuit.

In the second FedEx proceeding before the NLRB, the company had argued that the decision in FedEx I compelled a ruling in the second case in its favor.  The NLRB, however, chose to disregard the prior decision by the D.C. Circuit.  In its ruling, the NLRB said it “disagreed with [the D.C. Circuit’s] interpretation of the Act.”  That decision was promptly appealed by FedEx.

On review by the D.C. Circuit, the appellate court again reversed the NLRB. The court stated: “It is as clear as clear can be that ‘the same issue presented in a later case in the same court should lead to the same result.”  The court then stated emphatically: “Doubly so when the parties are the same.” After stating that the NLRB was simply seeking to “nullify this court’s decision in FedEx I,” it remarked:  “This case is the poster child for our law-of-the-circuit doctrine, which ensures stability, consistency, and evenhandedness in circuit law.”

 Analysis and Takeaway

The D.C. Circuit decision applies only to single-route FedEx Ground drivers, which was the company’s most vulnerable group of drivers in terms of IC misclassification. As we noted several years ago in an earlier blog post, FedEx Ground undertook a change in its relationship with Ground Division drivers when it implemented an Independent Service Provider (ISP) program where single-route drivers were only offered FedEx Ground routes if they acquired the rights to multiple routes.  This required them to (a) become a multi-route by incorporating as a business, purchasing from FedEx Ground three or more work areas in the same geographic area, and entering into an agreement with FedEx on an approved ISP arrangement for the work areas; or (b) become an employee driver of an approved FedEx Ground ISP (that is, become a driver for another driver that has set up a business as an ISP). Because FedEx has now undertaken a new business model in most areas of the U.S., this newest D.C. Circuit decision, while plainly of great value for FedEx with regard to any remaining single-route territories, has less significance to FedEx in those areas where it has fully accomplished its ISP conversion.

FedEx has been widely criticized by some appellate courts for having “established an employment relationship with its delivery drivers but dressed that relationship in independent contractor clothing.” But those cases were decided under a different test for independent contractor status, and under the test applied by the D.C. Circuit in applying the NLRA, FedEx came out on top.

This divergence in IC classification results, depending on the law being enforced, is not uncommon. As the U.S. Labor Department itself noted on its website in 2016, “Even if you are a legitimate independent contractor under one law, you may still be an employee under other laws.”

This type of caution, no less from the U.S. Department of Labor, can create uncertainty on the part of many businesses. What steps should a business take in the face of laws that are so variable in the area of IC misclassification?

As we noted in a blog post in February 2016, some commentators have suggested that businesses “play it safe” and convert all of their 1099ers to W-2 employees, while other businesses have decided to “play it smart” and enhance their level of IC compliance.  To that end, many companies have used IC Diagnostics™, a proprietary process that takes into account the various tests for IC status in all applicable jurisdictions and offers companies customized and sustainable solutions to enhance their compliance with an array of federal and state IC laws. The ultimate objective is avoiding or minimizing the likelihood of becoming a defendant in an IC misclassification class action or the target of a regulatory audit or proceeding. How to do so is the subject of a three-part series in Law360 entitled Misclassification of Independent Contractors: The Crackdown, Its Costs, and How to Minimize or Avoid Its Risks,” which is based on the latest Update to our White Paper.

Written by Richard Reibstein.

 

Published by Richard ReibsteinLisa Petkun, and Michael Crumbock.

 

Posted in IC Compliance

February 2017 Independent Contractor Misclassification and Compliance News Update

(Post updated 3/7/17, 11:30 pm)  Four of the eight court cases we report on below in our February 2017 monthly update of IC misclassification developments involve Uber, and each of those cases were victories for the ride-sharing, on-demand company. Although none of the four are legally momentous, are all somewhat helpful to its legal defense and use of its arbitration clause, especially in light of prior court and administrative decisions that have been unfavorable to Uber on the merits of its independent contractor defense.

The first case involved an arbitration award in favor of Uber that was issued by a well-regarded former judge, reportedly finding that “the preponderance of the evidence” favored Uber in a claim under California wage laws. While arbitration awards are not generally entitled to precedential value in courts, the award by the arbitrator may signal to other Uber drivers and their lawyers that arbitration may be an unrewarding undertaking, especially if that is their only recourse due to arbitration agreements signed by drivers.

The second involved a Florida administrative unemployment ruling that was affirmed by an appellate court. That case involved a driver for Uber who represented himself at the unemployment hearing and on appeal. It appears that the driver in that case did not seek to follow the roadmap used in other administrative cases involving claims for unemployment and unpaid wages, where the rulings had gone against Uber.

The third case development also related to Uber’s arbitration agreement. In a Florida federal court action seeking a proposed class action under the Fair Labor Standards Act, a federal magistrate judge recommended to the district court judge that Uber’s motion to compel arbitration be granted, concluding that the arbitration clause was enforceable particularly because it contained an opt-out clause.

The fourth case involved a class action lawsuit by drivers and a taxi alliance in New York City where the plaintiffs and the taxi organization agreed with Uber that the lawsuit should be dismissed without prejudice to being re-filed after the U.S. Supreme Court’s issues its decision in three cases pending before it. Those cases present the issue of whether class action waivers in arbitration agreements are valid or whether they otherwise violate federal labor law.

As we commented in our January 2017 update, although Supreme Court guidance will be welcome on this issue, none of these three cases involved the issue of whether an arbitration clause with a class action waiver is enforceable when it affords the party signing it an opportunity to opt-out of the arbitration clause. Thus, unless the Supreme Court does something that it rarely does (i.e., decide a matter not before it at this time), it will not address a key issue facing businesses that use independent contractors: whether an opt-out clause “saves” an arbitration clause with a class action waiver.

Additionally, a newly constituted NLRB (once new members are appointed by a Republican president) may change its view on this issue and conclude that class action waivers do not violate the NLRA. In that event, it is conceivable that the Supreme Court may choose not to decide the issue at all.

Another court case reported below includes the denial of a car service company’s motion to dismiss a class action IC misclassification case brought against a traditional car service company. That decision, however, was hardly surprising: motions to dismiss are too often used and rarely granted.

The monthly update includes yet another IC misclassification case that was conditionally certified as a class action – this time against a large oil company, Chevron. As the court noted in that decision, the burden on plaintiffs’ class action counsel to establish conditional class/collective certification is rather low. This is in contrast to the far greater burden imposed by courts on class and collective action plaintiffs to survive a motion for decertification following the completion, or substantial completion, of discovery.

Finally, the update includes an IC misclassification case where a group of adult entertainment clubs entered into a novel collective/class action settlement providing for a multi-factor assessment form that would categorize dancers who joined in the lawsuit as employees or ICs. It is unclear whether the adult entertainment clubs considered the value of a motion for decertification of the collective/class in lieu of the costly settlement.

The last three cases in particular highlight the value to companies of taking action to enhance their IC compliance before they become defendants in expensive class or collective action lawsuits. Many companies that wish to genuinely enhance their IC compliance and avoid needless legal challenges have chosen to utilize customized and sustainable compliance methodologies and processes, such as IC Diagnostics, to minimize their exposure to IC misclassification cases, as described in our White Paper.

In the Courts (8 cases)

ARBITRATION AWARD IN FAVOR OF UBER IN IC MISCLASSIFICATION CASE IS “CONFIRMED” BY COURT. A Los Angeles County Superior Court has “confirmed” an arbitrator’s award in favor of Uber in an IC misclassification arbitration. Under California and most state laws, arbitration decisions are not reviewable on the merits of the case and may be “confirmed” in court as a routine matter. The arbitration award that was confirmed in court was issued by former Judge Michael Marcus, a neutral affiliated with ADR Services, Inc. The 50-page arbitration award concluded that the “preponderance of the evidence” showed that Uber drivers have more in common with independent contractors than employees.  As reported by Matthew Blake in the Los Angeles Daily Journal on February 28, 2017, the arbitrator concluded that Uber is entitled under state law “to exercise a finite and restricted measure of control over drivers that keeps the company in the independent contractor realm,” and that under that standard, Uber did not exercise sufficient control over the driver to be deemed his employer. The article states that Uber “is expected to use Marcus’ ruling in the federal misclassification lawsuit that got the Uber litigation ball rolling.” The article also stated that “Uber instantly moved to place the arbitration award in the record of a state court case in which the company and California drivers proposed a . . . settlement regarding labor violations under the state’s Private Attorneys General Act.    The article included a comment by a California “labor expert at UC Irvine School of Law . . . that arbitration ‘has no value as precedent’ . . . [but the confirmation] of the decision lets Uber cite the matter going forward.” Uber Technologies Inc. v. Eisenberg, BS166561 (L.A. Super. Ct. Feb. 21, 2017). [3/7/17 Publishers’ Note: Uber’s petition to confirm the award was not opposed; neither the arbitration award nor the court confirmation of the award is therefore subject to appeal.]

UBER DRIVER FOUND TO BE AN INDEPENDENT CONTRACTOR IN APPEAL OF FLORIDA UNEMPLOYMENT DECISION. A Florida appeals court has upheld a decision of the state’s Department of Economic Opportunity (DEO) that a former Uber driver, representing himself, was an independent contractor and not an employee, thereby rendering him ineligible to receive reemployment assistance under state law. The driver had provided services to Uber’s clients until Uber revoked his access to the driver app based on alleged violations of the company’s user privacy policy. He subsequently filed for reemployment benefits; his claim was initially granted by the Department of Revenue and later reversed by the DEO, leading to this appeal, in which he proceeded on a pro se basis. In affirming the DEO’s decision, the Court made reference to Florida’s common law test for IC status and found that the following supported the determination of IC status: the parties’ independent contractor agreement unequivocally disclaimed an employer-employee relationship; the parties’ actual practice reflected adherence to the terms of the agreement; drivers supplied their own vehicles and controlled whether, when, where, with whom, and how to accept and perform trip requests; drivers could work at their own discretion and were not prohibited from working for Uber’s direct competitors; drivers received Form 1099’s; and drivers were not entitled to fringe benefits. Addressing the unique attributes of the on-demand economy, the Court concluded that, “Due in large part to the transformative nature of the internet and smartphones, Uber drivers like McGillis decide whether, when, where, with whom, and how to provide rides using Uber’s computer programs. This level of free agency is incompatible with the control to which a traditional employee is subject.” McGillis v. Dep’t of Economic Opportunity, No. 3D15-2758 (3d Dist. Ct. of App. Fla. Feb. 1, 2017).

UBER’S OPT-OUT CLAUSE RESULTS IN MAGISTRATE’S ORDER GRANTING MOTION TO COMPEL ARBITRATION IN IC MISCLASSIFICATION CASE. In a lawsuit seeking a national class action against Uber for allegedly misclassifying drivers as ICs, Uber renewed its motion to compel arbitration pursuant to the agreement to arbitrate that the plaintiff driver has signed.  Uber’s papers seeking approval of its motion to compel arbitration were submitted to the court on February 9, 2017, and less than three weeks later a federal magistrate judge issued his Report and Recommendation granting Uber’s motion. The magistrate judge quickly dismissed the driver’s argument that the arbitration clause with a class action waiver was unenforceable and violated the National Labor Relations Act, concluding that the opt-out provision in the arbitration clause added to its enforceability.  Due to the opt-out clause, the driver was not required to sign the arbitration clause. As the magistrate judge stated in his recommendation to the district court judge to grant Uber’s motion to compel arbitration: “If the agreements at issue did not contain an opt‐out clause, then the Undersigned would be evaluating the agreements with a different lens. However, the agreements here do contain opt‐out clauses. If I concluded that the opt‐out clauses here were a ruse or were purposefully ineffective and did not provide the drivers with a real and meaningful opportunity to avoid the arbitration provision, then I would be looking at the agreements under a microscope with a different legal adjustment and magnification. But there is no doubt that some Uber drivers actually took advantage of the opt‐out provisions. In fact, Plaintiff’s counsel here is simultaneously representing a collective action FLSA lawsuit against Uber on behalf of the opt‐out drivers. So we know that the opt‐out clause can be effective if the drivers take the time to read it or,af ter having reviewed the clause, choose to invoke it.” Lamour v. Uber Technologies, Inc., No. 16-Civ-21449 (S.D. Fla. Mar. 1, 2017).

UBER AND TAXI ALLIANCE AGREE TO DISMISS IC MISCLASSIFICATION CASE WITHOUT PREJUDICE PENDING SUPREME COURT REVIEW OF CLASS ACTION ARBITRATION WAIVERS. Uber drivers and the New York Taxi Workers Alliance have agreed to dismiss without prejudice their IC misclassification case while awaiting a decision from the U.S. Supreme Court on whether the National Labor Relations Act precludes enforcement of class action waivers in mandatory arbitration agreements. Uber’s position is that the drivers are bound by an enforceable arbitration agreement that requires them to arbitrate their disputes on an individual basis, while the drivers contend that in light of the class action waiver, the arbitration agreement is unenforceable and violates the NLRA. The parties had first sought an indefinite “stay” of the case, but the judge denied their request, noting that the Supreme Court “may decide the issue, they may not decide the issue.” The new stipulation, now “so ordered” by the court, provides that “in order to conserve the parties’ resources, and in the interest of judicial efficiency, the parties have agreed that this case should be dismissed without prejudice, subject to the terms of a tolling agreement …, pending issuance of the United States Supreme Court’s decision(s) in [Epic Sys. Corp. v. Lewis, No. 16-285, Ernst & Young US, LLP v. Morris, No. 16-300, and NLRB v. Murphy Oil, No. 16-307].” New York Taxi Workers Alliance v. Uber Technologies Inc., No. 16-cv-08299 (S.D.N.Y. Feb. 1, 2017).

CAR SERVICE COMPANY DRIVERS DEFEAT MOTION TO DISMISS IC MISCLASSIFICATION CLASS ACTION. A New York federal court denied a motion to dismiss a motion to dismiss by a car service company, Yellowstone Transportation, d/b/a Yes Car Services, in an independent contractor misclassification class and collective action brought by drivers alleging minimum wage and overtime violations under the Fair Labor Standards Act and the New York Labor Law.  The court examined the complaint, which included allegations that the company controlled the drivers’ work through dispatch orders; the drivers’ relationships with the Company were exclusive; drivers were subject to discipline and/or termination of the relationship if they worked for other car services; drivers’ work was monitored by the company; and as a pre-condition of employment, drivers were required to incorporate companies in their own names. Yellowstone had argued that the drivers’ “Independent Contractor Services Agreements,” purportedly signed by each of the Plaintiffs, established that they were independent contractors and not employees under the FLSA and New York Labor Law. Not surprisingly, the court concluded that in view of the allegations, “it would be premature to consider such documents at this juncture, given that the parties have not even had their initial appearance before the assigned Magistrate Judge yet and no discovery has been conducted whatsoever thus far.” The court added: “Dismissing the action on the grounds that Plaintiffs are independent contractors at this stage of the litigation would be inappropriate.” Gao v. Yellowstone Transportation, Inc., No. 15-cv-07439 (E.D.N.Y. Feb. 15, 2017).

OIL AND WELL SITE DRILLING WORKERS GRANTED CLASS ACTION STATUS IN IC MISCLASSIFICATION CASE AGAINST CHEVRON CORP. A California federal court granted conditional certification of a collective action under the Fair Labor Standards Act brought by well and drill site managers against Chevron Corporation alleging minimum wage and overtime compensation violations due to their alleged misclassification as ICs and not employees. In determining whether the managers’ claims should be conditionally certified at this initial stage, the court applied the rather lenient standard for conditional certification that “there [be] some factual basis beyond the mere averments in their complaint for the class allegations.” In concluding that the managers met that burden, the court found, “The substantial allegations, supported by the declarations submitted by Plaintiffs, indicate that the managers have similar responsibilities working for Chevron, that Chevron treats them as independent contractors, and that these managers are similarly situated with respect to many aspects of their control and employment circumstances, and they are allegedly subject to the same compensation scheme.” The case will now proceed to pre-trial discovery. McQueen v. Chevron Corp., No. 16-cv-02089 (N.D. Cal. Feb. 21, 2017).

“NOVEL” $6.5 MILLION SETTLEMENT AGREEMENT IN STRIPPERS’ IC MISCLASSIFICATION CASE. An adult entertainment firm, Déjà Vu Services, and its related companies have entered into a novel settlement with exotic dancers who had brought a class action IC misclassification case against the clubs in federal district court in Michigan.  Because some of the dancers may be employees under the Fair Labor Standards Act and others may be independent contractors, the settlement agreement, which received preliminary court approval on February 7, 2017, would create a process to determine each dancer’s status. Under the proposed settlement agreement, dancers would complete an “entertainment assessment form” that lists factors pertinent to the agreed upon test for determining independent contractor versus employee status. The settlement agreement provided for a means to resolve disputed dancer claims where the parties disagreed on their status. Doe v. Déjà Vu Services, Inc., No. 16-cv-10877 (E.D. Mich. Feb. 7, 2017).

MAIL DELIVERY COMPANY SUED FOR MISCLASSIFYING MAILROOM WORKERS AS IC’S. A Florida mail delivery management company has been sued in a proposed class action in federal court in Florida for allegedly misclassifying its mailroom workers employees as independent contractors. The plaintiff alleges that she provided services as a mailroom manager for US Postal Solutions Inc., who she claims misclassified her and other similarly situated workers as independent contractors. She seeks damages for allegedly unpaid overtime under the Fair Labor Standards Act.  The class action also seeks damages under Florida state law for the company’s failure to pay employment taxes. Caballero v. US Postal Solutions, Inc., No. 17-cv-00319 (M.D. Fla. Feb. 23, 2017).

Administrative and Regulatory Initiatives (1 item)

ALASKA WORKFORCE AGENCY ASSESSES FINES AND PENALTIES AGAINST CONSTRUCTION CONTRACTOR IN WORKERS’ COMP IC MISCLASSIFICATION CASE. The Workers’ Compensation Division of the Alaska Department of Labor and Workforce Development has reportedly assessed $280,000 in fines and penalties against construction company, North Country Services, in the death of a worker found by the workforce agency as having been misclassified as an IC. Alaska is regarded as being one of the more employee-friendly states in the nation in terms of the interpretation of its independent contractor test, both at the administrative and judicial levels, although there is no indication that the construction company had a valid basis for its classification of the deceased worker.  Deborah Kelly, director of the Department’s Labor Standards and Safety Division, stated: “One of the major issues in this case is that [the company] was hiring these young men and calling them independent contractors and not providing them any safety training at all, and not doing [its] due diligence with regard to them. These employees had no construction experience, no training, no preparation.” Labor Commissioner Heidi Drygas commented: “This tragic case illustrates the toll that misclassification can take on workers. If [the deceased worker] had been afforded the protections he deserved as an employee, he would be alive today.”

Written by Richard Reibstein.

 

Compiled by Janet Barsky, Managing Editor.

 

Published by Richard ReibsteinLisa Petkun, and Michael Crumbock.

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Posted in IC Compliance

January 2017 Independent Contractor Misclassification and Compliance News Update

January was a busy month for independent contractor misclassification – and IC compliance. In addition to Lowe’s $2.85 million settlement with installers whom it classified as ICs, Lufthansa agreed to pay $1.1 million in settlement for a small group of aircraft workers.  Meanwhile, Time Warner was sued for allegedly misclassifying cable installers; Uber’s food delivery service was sued in Florida for classifying drivers as ICs; and a construction company entered into a consent judgment with the U.S. Department of Labor because it misclassified painters as ICs.

The update below also include a key case decided in New York concluding that a blogger who was treated as an IC by a news publication had been properly classified as such, in compliance with New York’s unemployment insurance laws.

January was an especially important month in terms of arbitration agreements with class action waivers. A trucking company’s arbitration agreement was found to be of no value in its effort to re-direct a federal court IC misclassification to arbitration, whereas Uber’s arbitration agreement was again upheld as enforceable (this time in New Jersey). Perhaps the biggest development in the area of arbitration and IC misclassification lawsuits was the U.S. Supreme Court’s decision to review three separate cases involving arbitration agreements containing class action waivers. The issue to be decided is whether arbitration agreements with class action waivers are enforceable or, instead, violate the National Labor Relations Act as a restriction on “concerted” activities.  That law applies not only to unionized but also non-unionized workers who are deemed to be “employees” under the NLRA. While none of the three cases accepted for review by the Supreme Court are IC misclassification cases, the Court’s ultimate decision may well be equally applicable in legal challenges by ICs as well.

Although Supreme Court guidance will be welcome on this issue, none of these three cases involved the issue of whether an arbitration clause with a class action waiver is enforceable when it affords the party signing it an opportunity to opt-out of the arbitration clause. Thus, unless the Supreme Court does something that it rarely does (i.e., decide a matter not before it at this time), it will not address a key issue facing businesses that use independent contractors: whether an opt-out “saves” an arbitration clause with a class action waiver. Additionally, a newly constituted NLRB (once new members are appointed by a Republican president) may change its view on this issue and conclude that class action waivers do not violate the NLRA. In that event, it is conceivable that the Supreme Court may choose not to decide the issue at all.

Many businesses using ICs believe that their classification of workers as ICs can be protected by the use of an arbitration clause with a class action waiver. Even if the Supreme Court were to find those clauses to be enforceable, arbitration clauses offer no protection for an array of IC misclassification claims, such as lawsuits and audits by workforce and tax agencies, private attorney general act claims, and individual claims for unemployment and workers’ compensation benefits. Companies that wish to genuinely enhance their IC compliance and avoid needless legal challenges may therefore wish to take the best approach to minimizing IC misclassification exposure: utilizing customized compliance methodologies and processes, such as those described in our White Paper, to minimize IC misclassification exposure.

In the Courts (8 cases)

LOWE’S TO PAY $2.85 MILLION TO INSTALLATION WORKERS IN SETTLEMENT OF IC MISCLASSIFICATION CASE. Lowe’s Home Centers and class of over 450 installers that provided services to Lowe’s customers have sought preliminary approval by New Jersey federal court of a proposed $2.85 million settlement of IC misclassification claims. The class complaint alleges that the installation workers were misclassified as ICs, resulting in violations of the New Jersey Construction Industry Independent Contractor Act and unjust enrichment. According to the installers, Lowe’s had the right to exercise control over the completion of installations due to the Installer Contracts and Installer Guides; had the right to dictate the timing of installations, job site conduct, and Lowe’s marketing services; and used customer survey scores and job site inspections as a means of controlling installers’ conduct. The amount that each class member may receive will not be known until all claims forms are received, but will not exceed $6,500 per individual. The installers’ counsel will seek an award of attorneys’ fees not to exceed one-third of the maximum settlement amount. Mittl v. Lowe’s Home Centers LLC, No. 15-cv-06886 (D.N.J. Jan. 31, 2017).

AIRLINE AND AIRCRAFT MAINTENANCE FIRM TO PAY $1.1 MILLION TO SETTLE WITH AVIATION WORKERS. Lufthansa Technik North America Holding Corp. and Global Aircraft Service, Inc. (GAS) have agreed to pay 33 aircraft workers $1.1 million to settle class and collective action IC misclassification lawsuits brought in Maine federal court. The complaint by sheet metal workers, mechanics, and painters include claims for unpaid overtime under the FLSA and the Maine Minimum Wage and Overtime Act. The settlement papers do not provide any details as to what the defendants allegedly did beyond classifying the workers as ICs. Venegas v. Global Aircraft Service., Inc., No.14-cv-00249 (Jan. 18, 2017).

CABLE INSTALLATION COMPANY AND TIME WARNER LOSE INITIAL BATTLE IN CLASS ACTION IC MISCLASSIFICATION CASE. A California federal court granted class certification to installation technicians (ITs) in their IC   misclassification claims against Multi Cable, Inc. (MCI) and Time Warner Cable. The ITs claimed that Time Warner had a business arrangement with MCI in which MCI supplied ITs to service Time Warner customers seeking cable installation, repair. and maintenance services for TV, phone and internet installations. The basis of the claims under federal and state law is that because the ITs were allegedly misclassified as “faux ‘independent contractors’” and not employees, MCI and Time Warner failed to pay the ITs overtime compensation. The ITs alleged that “MCI and T[ime Warner] controlled virtually every facet of the ITs’ jobs, including the uniforms they wear, the decals on their vehicles, materials they use, and the jobs they perform, including the hours during which those jobs are to be completed and the location at which the services will be provided.” Of course, obtaining class certification is not a review of the merits of the case. As the court stated, “At the class certification stage, the court makes no findings of fact and announces no ultimate conclusions on Plaintiffs’ claims.” It was therefore hardly a surprising decision, especially because there is a low burden on plaintiffs to establish the right to preliminary class certification. Luviano v. Multi Cable, Inc., No. 15-cv-05592 (C. D. Cal. Jan. 3, 2017).

UBER EATS SUED IN FLORIDA FOR IC MISCLASSIFICATION. A Florida delivery driver has filed class and collective actions in federal court against UberEATS, an on-demand meal delivery service, alleging that UberEATS misclassified him and similarly situated individuals providing services as delivery drivers.  The lawsuit alleges a violation of the minimum wage provisions of the FLSA and state law. The complaint alleges that through a mobile phone software app, customers can place orders from hundreds of partner restaurants that prepare meals that are then picked up and delivered to the customer by UberEATS’ local delivery drivers. According to the class complaint, the drivers should be regarded as employees under the law because Uber controls the manner and means by which the drivers accomplish their work; has the right to hire or fire the drivers in its sole discretion; has the right to terminate the phone app completely and block its usage by a driver; sets all rates of pay for the drivers; requires the drivers to accept discount promotions offered to customers by UberEATS; requires driver participation in a training session before being permitted to provide services; mandates that drivers’ vehicles meet UberEATS requirements; and retains the right to discipline the drivers. It is also alleged that because of a pay formula used by UberEATS, the drivers are not paid for all hours worked and are not paid at least the minimum wage for each hour worked.  Crespo v. Uber Technologies Inc., No. 17-cv-00187 (M.D. Fla. Jan. 24, 2017).

TRUCKING COMPANY LOSES KEY ARBITRATION ARGUMENT IN IC MISCLASSIFICATION CASE. An Arizona federal court granted the motion for partial summary judgment filed by a class of truckers in their IC misclassification case finding that the contractor operating agreements that the drivers entered with Swift Transportation Co. were agreements that are not covered by the Federal Arbitration Act and Arizona Arbitration Act.  The contractor operating agreements included a clause requiring arbitration of all disputes arising out of the contract and expressly stated that the contractor is an IC and not an employee of Swift, responsible for determining the method, means, and manner of performing work and services under the agreement.  Those words were regarded as empty recitals by the court, which rejected Swift’s claim that the truckers were ICs after assessing many factors that, in the court’s view, supported an employment relationship.  Some of the factors favoring employment included the agreements could be terminated at will by Swift; drivers were required to follow company policy; Swift had the right to unilaterally change terms in the agreement with notice; Swift determined load assignments for the drivers; drivers were required to have a specific communications system compatible with Swift’s; cost-advancing and leasing options were offered by Swift; and the truck leases entered by the drivers were inextricably intertwined with Swift. Although Swift argued that the leasing company was a separate entity and was separate from the contracting agreement, the court disagreed. It concluded that the two agreements were designed to operate in conjunction with each other for drivers who leased equipment for purposes of becoming contract drivers with Swift and constituted a form of further control by Swift over the drivers. In that regard, the court concluded that the ability of the drivers to keep leasing their trucks was explicitly dependent on them maintaining their Contractor Agreements with Swift; the leases required drivers to authorize and direct Swift to pay the rent due on the truck directly to the leasing company from the driver’s earned compensation on a weekly basis; and if the contractor agreement was terminated, the leasing company was entitled to terminate the lease and accelerate all remaining lease payments for the remainder of the lease, placing great financial hardship upon the drivers. Dusen v. Swift Transportation Co., Inc., No. 10-cv-00899 (D. Ariz. Jan. 6, 2017).

NEW JERSEY FEDERAL COURT UPHOLDS UBER’S ARBITRATION AGREEMENT. Uber secured a victory in a New Jersey federal court, which held that its arbitration clause with drivers is legally valid as applied to a class action lawsuit alleging misclassification of drivers as ICs. The complaint alleged that Uber failed to pay overtime compensation and imposed an unlawful requirement that the drivers pay for significant business expenses that were incurred for Uber’s benefit. To gain access to Uber’s app allowing the driver to accept ride requests from prospective passengers and transport them for a fare, a driver must electronically accept the applicable Software License and Online Services Agreement, which contains a voluntary arbitration clause that the driver is free to opt out of within 30 days of the execution of the Agreement. In granting Uber’s motion to compel arbitration of the claims, the court rejected the drivers’ argument that the Uber did not provide a copy of the arbitration clause to its New Jersey drivers and only provided a hyperlink to the online Agreement, which contained the arbitration clause. The court stated that the drivers were provided with reasonable notice as to the existence of the terms and conditions of the hyperlinked Agreement, including capitalized instructions about the need to review all of the documents; that the Agreement was prominently displayed and conspicuously located directly under the instructions; and that the named plaintiff agreed to the terms of the Agreement in two different places by clicking “YES, I AGREE.” The federal court also rejected the drivers’ argument that the class waiver contained in the arbitration clause violated the National Labor Relations Act (NLRA) and concluded that the 30-day opt-out provision gave the drivers the choice of either arbitrating their claims on an individual basis, or litigating them, either individually or collectively. The court found that the arbitration provision did not violate the NLRA because it was voluntary in nature. Singh v. Uber Technologies Inc., No. 16-cv-03044 (D.N.J. Jan. 30, 2017).

SUPREME COURT TO DECIDE IF ARBITRATION CLAUSE WITH CLASS ACTION WAIVER VIOLATES THE NLRB. The U.S. Supreme Court agreed to consider “whether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the NLRA.”  Three cases from the 5th, 7th and 9th U.S. Circuit Courts of Appeals will be consolidated in the Court’s review. In Epic Systems, the 7th Circuit held: “[The arbitration clause also] precludes employees from seeking any class, collective, or representative remedies to wage-and-hour disputes, Epic’s arbitration provision violates Sections 7 and 8 of the NLRA. Nothing in the FAA saves the ban on collective action.” Similarly, the 9th Circuit, in Ernst & Young, vacated the district court’s order compelling arbitration when it found that the employer violated the NLRA by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms and conditions of employment. The 5th Circuit in Murphy Oil took an opposite view and held that the oil company did not commit an unfair labor practice by requiring employees to sign its arbitration agreement with a class action waiver or seeking to enforce that agreement in federal district court. Ernst & Young, LLP v. Morris, No.16-300 (U.S. Jan. 13, 2017); Epic Systems Corporation v. Jacob Lewis, No.16-285 (U.S. Jan. 13, 2017); NLRB v. Murphy Oil USA Inc., No. 16-307 (U.S. Jan. 13, 2017).

BLOGGER FOUND TO BE IC BY NEW YORK APPELLATE COURT. A New York state intermediate appeals court found that a blogger for The Nation, a print magazine and website, is an independent contractor who is not entitled to state unemployment insurance benefits. In reversing the decisions of the Administrative Law Judge and the Unemployment Insurance Appeal Board, the Appellate Division Third Department applied the “more detailed, qualitative and arguably less deferential analysis of the various employment factors” used very recently by the New York Court of Appeals in Matter of Yoga Vida, NYC, Inc. v. Commissioner of Labor, 28 N.Y.3d 1013 (Oct. 25, 2016).  As noted in our blog post of October 25, 2016, in a vast number of cases the Third Department has affirmed Appeal Board decisions on the basis that, despite evidence in the record that may lead that court to a contrary result, the record contains “substantial evidence” to support the Appeal Board’s decision. To practitioners, this meant if there was even a smidgeon of evidence favoring employee status, the Third Department was likely to affirm the Appeal Board’s determination, even where there was an abundance of evidence favoring IC status. This decision confirms that the legal landscape for IC determinations in New York for unemployment law purposes has changed. Among the IC factors used in the court’s analysis were the following: the blogger, an experienced, well-known writer, author and media critic, was regarded as a professional; filed his taxes as self-employed; did not need to obtain permission to take vacations; did not receive fringe benefits; was not covered by the union contract; was free to write for other entities and in fact, simultaneously blogged for The Huffington Post and authored eight books during his engagement with The Nation; worked from home using his personal laptop; set his own hours; and did not suffer any adverse consequences if he did not post a story. In contrast, the court noted that there were some factors favoring employee status: the blogger was required to identify himself as a writer for The Nation; he received an annual salary and was reimbursed for expenses; and he was required to use The Nation’s content management system. On balance, the court concluded that these factors favoring employee status were insufficient to create an employer-employee relationship in view of the Court of Appeals’ decision in Yoga Vida. Mitchell v. The Nation Co. Ltd. Partners, No. 522892 (App. Div. N.Y. 3d Dep’t, Dec. 29, 2016).

Administrative and Regulatory Initiatives (1 item)

TEXAS COMMERCIAL PAINTING COMPANY TO PAY OVERTIME TO PAINTERS MISCLASSIFIED AS IC’S. Star Finishes LLC, a Texas commercial painting company, agreed to pay $182,000 in back overtime wages to 82 current and former workers following a U.S. Department of Labor investigation concluding that Star Finishes had misclassified the workers as ICs. As a consequence of their misclassification, the workers were paid straight time for overtime hours, without regard to the number of hours they actually worked. In a News Release issued on January 11, 2017 by the Labor Department’s Wage and Hour Division, Betty Campbell, stated: “Misclassified workers are denied fair wages and access to critical benefits and protections that come with their rightful status as employees. Companies that violate the law in these cases also gain an unfair economic advantage over employers who play by the rules.” According to Ms. Campbell, misclassification of employees as independent contractors is an “alarming trend” and is seen “all too often in the construction industry.”

Written by Richard Reibstein.

Compiled by Janet Barsky, Managing Editor. 

Published by Richard Reibstein and Lisa Petkun.

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