Since 2010, the First and Only Blog Dedicated to Independent Contractor Law

Jurors Disagree on Whether Ride Share Drivers Are Independent Contractors or ‎Employees: June 2024 IC Legal News Update ‎

Lawyers representing ride share drivers have argued for years that their clients are being misclassified as independent contractors under federal and state laws. They have attained little success, however, obtaining definitive rulings in their favor, particularly in states that have adopted a multi-factor test for independent contractor status, like the federal standard under the Fair Labor Standards Act (FLSA). Two consecutive hung juries in a Pennsylvania federal district court confirm that the classification status of ride share drivers is unclear. These events serve as a rejoinder to worker advocacy groups that have repeatedly asserted that ride share companies misclassify drivers. While their arguments have led to rulings in favor of employee status in the two states with strict ABC type wage laws (California and Massachusetts), the recent hung jury results in Pennsylvania confirm that independent contractor status of ride share drivers is at best murky in state and under federal law. Nonetheless, ride share and other gig economy companies can tilt the scales in their favor. Many businesses have resorted to a process such as IC Diagnostics (TM) to enhance the structure, documentation, and implementation of IC relationships in a customized and sustainable manner, maximizing compliance with IC laws and minimizing exposure from IC misclassification claims.

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Industries Counteract Class Action Independent Contractor Misclassification Claims: May ‎‎2024 IC Legal News Update‎

Class action independent contractor misclassification cases continue to be filed and most seem to settle, often for large sums, as we have reported in our blog posts on legal developments each month. But some industries have countered this trend in one of three ways: legislation, voter initiatives, and a choice not to settle but rather vigorously defend. Two of those approaches were on display last month. In one, the real estate industry in New Jersey effectively used the legislative approach. In the face of what it regarded as a likely industry-altering development if the strict ABC test for IC status under the New Jersey wage payment and wage and hour laws was applied to certain real estate salespersons in that state, the industry sought a legislative change. In 2022, the New Jersey legislature amended the real estate law to exempt real estate salespersons from the state’s ABC test. Last month the New Jersey Supreme Court held that the law not only overrode that strict test for IC status, but it did so retroactively. Another industry used the vigorous defense approach in a class action invoking the wage payment law in Pennsylvania. That case involved a well-known baked goods manufacturer, which successfully secured a federal court appellate ruling that it was entitled to summary judgment holding that distributors of its food products were properly classified as ICs. Although other food product manufacturers had not prevailed in similar class and collective action cases initiated by distributors, this case demonstrates that structuring, documenting, and implementing IC relationships in a manner that maximizes compliance with IC laws – the three key steps in a process such as IC Diagnostics (TM) – can lead to successful results in court, especially in situations involving well-compensated independent contractors.

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Can You Cover Independent Contractors With Workers’ Compensation Insurance?

We are frequently asked by businesses about workers’ compensation coverage for independent contractors. Clients ask us: Can our company cover independent contractors with workers’ compensation insurance? Is it safer for us if we do so? Or better not to? Like many issues involving independent contractor compliance, there is no one answer to these questions because workers’ comp is governed by state laws, which vary from state to state, and even under a single state’s law, the answer may depend on the nature of the services being provided by the independent contractor. One part of a comprehensive compliance process such as IC Diagnostics (TM) provides businesses with approaches to enhance compliance with independent contractor laws and minimize misclassification liability relating to workers’ comp matters.

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Supreme Court FAA Decision Creates Even More Questions About Independent ‎Contractors and Arbitration: April 2024 IC Legal News Update‎

Is an independent food distributor exempt from an arbitration agreement under the interstate transportation worker exemption in the Federal Arbitration Act (FAA)? That was the question that the U.S. Supreme Court addressed in its April 12, 2024 opinion involving a distributor of products manufactured by a baked goods company. In its opinion, the Supreme Court made it clear that a worker need not provide services to a company in the transportation industry to be considered an interstate transportation worker; to the contrary, it ruled that an individual can provide services to a company in an industry other than transportation and still invoke the interstate transportation worker exemption. But that only answered the threshold question about the scope of the exemption, leaving a very fact-specific inquiry for lower courts to address: in what activities must the worker be engaged in order to be considered an interstate transportation worker under the FAA, and to what extent must the worker be involved in such activities? The Supreme Court’s test for the availability of the exemption, explained below, will create years of litigation in the lower courts and a great deal of uncertainty. Fortunately, for companies that face these issues, such uncertainty can be averted by drafting arbitration agreements that rely on state arbitration laws in addition to the FAA. Effective and well-drafted arbitration agreements are one of the tools businesses have utilized to minimize independent contractor misclassification exposure from class actions. They remain an essential part of a compliance process such as IC Diagnostics (TM), which is used by an increasing number of savvy companies to manage their IC relationships.

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Why Was a Carpenter Misclassified as Independent Contractor But a Truck Cleaner Was ‎Not? March 2024 IC Legal News Update

Two court cases we summarize below, decided in March 2024, demonstrate that while some companies may prevail in an IC misclassification lawsuit, others do not. Why? As a starting point, the legal test for IC status under the federal wage and hour law differs from the test under most state wage laws, and a number of states have different tests for IC status depending on whether the claims are brought for unpaid wages, reimbursement of expenses, workers’ compensation, or unemployment benefits. Do cases typically turn on what law is applicable? Sometimes, but not usually. More often, it’s the facts that matter more than the law. For example, the first case reported below involves a carpenter who was found to have been misclassified as an IC. Yet, in a prior blog post, we reported on a case in which other carpenters were found to be properly classified as ICs. The different results have far less to do with the law than the facts in those cases. What these types of cases teach is that companies can minimize their misclassification liabilities, regardless of the applicable tests for IC status, if their IC relationships are structured, documented, and implemented in a way that maximizes compliance with most if not all IC laws. Can that be done? Yes, indeed many companies have accomplished that objective in a customized and sustainable manner through a process such as IC Diagnostics (TM).

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Can You Legally Get Criminal Background Checks on Independent Contractors?

Independent contractors can pose safety and security risks as much as employees. Some go into customer homes. Others have access to personally identifiable information and proprietary business information. Some independent contractors drive trucks making deliveries for companies identified by logos on the vehicles. So, businesses should be able to lawfully obtain criminal background checks on these types of independent contractors, right? Not so fast.

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The Delicate Case for Reclassification of Independent Contractors: February 2024 IC ‎Legal News Update

Two cases reported below in our review of legal developments in February 2024 address reclassification of independent contractors.  The first case is one in which a state and county sought enforcement of California’s strict ABC test for independent contractor status and secured a settlement against a staffing company including its agreement to reclassify workers as employees whom it had previously classified as ICs.  The second lawsuit involves a group of workers first engaged as independent contractors and then converted to employees.  Many companies that use ICs question whether they should reclassify their contractors and begin to treat them as employees in the hope that they can avoid IC misclassification lawsuits. The act of reclassifying workers as W-2 employees after treating them as 1099 independent contractors can, however, not only prompt an IC misclassification lawsuit but, if not done in an appropriate manner, can also be used as evidence that the workers were initially misclassified. In contrast, especially in states like California and Massachusetts with their ultra-strict ABC tests for IC status, reclassifying workers from IC to employee status as part of a settlement of a lawsuit is an option some employers have considered. The approach taken by the overwhelming number of companies, however, is not to reclassify, which can create the impetus for an IC misclassification lawsuit and typically is not financially feasible. Rather, most prudent businesses seek to enhance compliance with laws governing the use of ICs. One process used by an increasing number of businesses is IC Diagnostics (TM), which enhances IC compliance by restructuring, re-documenting, and re-implementing IC relationships in a customized and sustainable manner consistent with the company’s business model. The only approach that makes little sense is to do nothing and instead risk a legal proceeding brought by a government agency or plaintiffs’ class action lawyer, as in the first two cases reported below.

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Reminder: Final Biden Administration Independent Contractor Rule Takes Effect March 11 – ‎Do Not Fear, But Don’t Stand Still

On January 9, 2024, the same day the U.S. Department of Labor issued its final rule on independent contractor status, we published a comprehensive blog post analyzing and commenting on the new regulation, which goes into effect less than a week from now on March 11, 2024.  We have heard from numerous clients that have an IC business model, expressing concern that the legal landscape will change on that date.  It won’t. As we noted in our January 9 post, “The legal impact of the final rule … will hardly ripple the waters. After all, it is the courts that create law on this subject, not regulatory agencies.”  But we also cautioned that “the final rule issued today will give renewed impetus to disaffected workers classified as independent contractors to file class actions seeking minimum wage, overtime payments, and employee benefits under applicable laws.” We commented further that “This is likely to propel more companies using independent contractors to take steps to enhance their IC compliance by using a process such as IC Diagnostics (TM) to restructure, re-document, and re-implement their relationships with ICs in a customized and sustainable manner, consistent with their business model.”  That is exactly what we have seen – more companies have been attacked by IC misclassification lawsuits while at the same time more companies are seeking to maximize their compliance with laws governing ICs.

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Case Establishing Strict New Jersey Test for Independent Contractor Status Finally ‎Resolved: January 2024 IC Legal News Update

In early 2015, New Jersey borrowed the state’s strict ABC test under its unemployment law and adopted it as the new test for independent contractor status under its wage laws. That change in the law was not an act by the state legislature; instead, it was created entirely by the judiciary – much the same way the judiciary in California borrowed the test for IC status from Massachusetts when creating an ABC test for certain wage claims for California. These judicial decisions have created havoc for businesses and legitimate independent contractors that had developed business relationships based on then-existing law. Nine years later, that case has settled for $4.5 million, as noted below in our summary of legal developments for January 2024. Today, New Jersey is one of a few states in the U.S. where businesses and freelancers are in peril if they seek to create or maintain IC relationships including those that would otherwise be compliant with the test for IC status under the federal wage and hour law and most state wage laws. As a result, while IC misclassification claims are not nearly as ubiquitous in New Jersey as they are in California and Massachusetts, they have become quite prevalent in New Jersey. Indeed, the title of our blog post for February 2023 legal developments was “New Jersey is Becoming the Next California.” As a result, more companies operating in that state have undertaken a process such as IC Diagnostics (TM) to restructure, re-document, and/or re-implement their IC relationships in a customized and sustainable manner to minimize misclassification liability.

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Legally Nil, But Will Look a Lot Like a “Score”: Labor Department Issues Its Final Rule ‎on Independent Contractor Status‎

It has been well over a year since the U.S. Department of Labor issued its proposed rule entitled ‎‎“Employee or Independent Contractor Classification under the Fair Labor Standards Act.” The ‎regulation was expressly intended to override the Trump Administration’s regulation covering ‎the same subject, which the Biden Administration felt was weighted in favor of businesses. ‎Earlier today, the Labor Department issued its final rule on independent contractor status under ‎the FLSA. No surprise: little was changed substantively in comparison to the proposed rule. ‎Only a few tweaks were made despite the fact that over 55,000 comments to the proposed ‎regulation were posted in a two-month period by individuals and organizations both in support ‎of and in opposition to the proposed regulation. The final rule addressing the independent ‎contractor (IC) status of workers in the U.S. is an “employee-friendly” version that will ‎undoubtedly prompt jubilation among worker advocate organizations and unions while creating ‎consternation on the part of many businesses and otherwise legitimate ICs that want to retain IC ‎status. The legal impact of the final rule, however, will hardly ripple the waters. After all, it is ‎the courts that create law on this subject, not regulatory agencies. We nonetheless project that ‎the final rule issued today will give renewed impetus to disaffected workers classified as ‎independent contractors to file class actions seeking minimum wage, overtime payments, and ‎employee benefits under applicable laws. This is likely to propel more companies using ‎independent contractors to take steps to enhance their IC compliance by using a process such as ‎IC Diagnostics (TM) to restructure, re-document, and re-implement their relationships with ICs ‎in a customized and sustainable manner, consistent with their business model. ‎

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About The Publisher

Richard ReibsteinRichard Reibstein is the publisher of this legal blog, which has been, since its inception in 2010, the only legal blog in the country dedicated exclusively to publishing original content on the subject of independent contractor compliance and misclassification. Read more

JD Supra Readers Choice Top Author 2021 The publisher of this blog, Richard Reibstein, was named a "Top Author" in JD Supra Readers' Choice Awards in 2016-2017 and 2019-2022 for his thought leadership on the topics of "Employer Liability" issues and/or "Class Actions."

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