The most noteworthy legal development last month in the area of independent contractor (IC) compliance and misclassification law was the $19 million assessment paid to the New Jersey Department of Labor and Workforce Development (NJDOL) by a ride-sharing platform connecting passengers with drivers via a mobile app. As we note below, the payment was for contributions to the state for unemployment insurance and disability benefits for drivers, based on the state’s application of its strict ABC test for IC status. While the company made the payment, it maintains that it classifies drivers properly as ICs under the state’s ABC test. Notably, the NJDOL did not require the company to reclassify its drivers as employees. This type of result is not uncommon: payment by an app-based company accused of IC misclassification to resolve a legal dispute, but without any requirement to reclassify the gig workers as employees. Indeed, the first case on which we report below included a settlement by an app-based business with only minor tweaks to its business model, implicitly confirming the gig workers’ IC status. While this appears to be a solid business approach to resolving a legal challenge, is there a way for companies using an IC business model to insulate themselves from any exposure to liability and the attendant legal fees incurred in defending attacks on their worker classification? One approach many app-based businesses have used is a process such as IC Diagnostics (TM), which enhances compliance with IC laws in a customized and sustained manner while maintaining a company’s business model.

This past month, three of the longest-running class actions alleging independent contractor (IC) misclassification are finally ending. In all three cases, the companies, after vigorously defending themselves for close to a decade, have chosen to resolve their cases rather than continue to litigate, and have now settled their cases for substantial seven-figure amounts: $24.75 million in one of the cases, and $5.75 million and $2.1 million in the other two. The costs of defending and then settling class action lawsuits for IC misclassification are not limited to the amount paid in a settlement agreement; another sizeable cost for companies are the legal fees paid to their own legal counsel, which can amount to seven-figure sums. These cases, summarized below, illustrate how important it is for businesses using ICs to enhance their compliance with state and federal laws governing ICs and thereby minimize the likelihood of being sued in the first place. Many businesses have chosen to use a process such as IC Diagnostics (TM) to structure, document, and implement their IC relationships in a manner that maximizes their IC compliance in a customized and sustained manner, consistent with their business model. Plaintiffs’ class action attorneys and government agencies often choose not to initiate legal proceedings against those businesses that have taken an effective, proactive approach to IC compliance. 

Unless you were in the health care industry, July 2025 was a relatively slow month for judicial developments in the law of independent contractor (IC) misclassification and compliance. Only two significant IC cases came to our attention, and they impact doctors and nurses. As described below, a Virginia nursing agency and its owner lost their appeal of a $9 million class action judgment in connection with nurses found to have been misclassified as ICs instead of employees. The other case is a new filing by two doctors in Colorado that commenced a lawsuit against a mental health and wellness clinic, alleging they were misclassified as ICs and denied wages due to them as employees. The health care industry should take solace, however, because contract doctors and nurses can be properly classified as ICs under federal and most state laws. Businesses in that industry (and practically all other industries) can enhance their compliance with such laws governing ICs if they use a process such as IC Diagnostics (TM) to structure, document, and implement their IC relationships in a manner that maximizes IC compliance — and they can do so in a sustained manner consistent with their business model.

The following comments were submitted by Richard J. Reibstein, the publisher of this legal blog, critiquing the proposed regulation of the New Jersey Department of Labor and Industry (the Department) regarding the so-called ABC test for independent contractor (IC) status under a variety of New Jersey laws, including minimum wage and overtime, wage payment, disability benefits, and earned sick leave laws. The comment period ended August 6, 2025. The comments below are re-printed verbatim, and include some of our initial thoughts, first published in our blog post of April 30, 2025, titled “New Jersey May Soon Become Even Less Favorable to [the Use of] Independent Contractors Than the Golden State.”

Last month, there were only a couple of legal developments in the area of independent contractor (IC) compliance and misclassification, but they were significant because two more industries — home improvement and legal services — were added to those in the crosshairs of plaintiffs’ class action lawyers. As summarized below, one of the largest gutter protection companies was targeted in Colorado by class action attorneys representing salespersons who sell gutter protection systems to homeowners. And in Tennessee, intake and client retention consultants providing services for law firms sued their company for IC misclassification. There may well be defenses to both lawsuits, and the companies sued may be party to an arbitration agreement with a class and collective action waiver. But winning these types of lawsuits can be costly, so the objective is remaining free from these types of cases. Many savvy companies have resorted to a process such as IC Diagnostics (TM), which structures, documents, and implements IC relationships in a manner that enhances IC compliance and does so in a customized and sustainable manner, limiting exposure to IC misclassification liability.  

Five months ago, we reported about a class action lawsuit against an artificial intelligence (AI) company that engages workers to perform data labeling and content creation and classifies them as independent contractors (ICs) instead of employees. We remarked then that it was only a matter of time before the AI industry became the subject of independent contractor misclassification litigation. Last month, among the four court cases we summarize below, is yet another class action lawsuit alleging IC misclassification filed against an AI company that engages data annotators to perform AI work. As we noted in that earlier blog post, nothing in particular about the AI industry should dissuade AI businesses from structuring, documenting, and implementing their IC relationships in a manner that complies with federal and almost all state laws governing ICs. Like companies in many other industries, companies in the AI industry can utilize a process such as IC Diagnostics (TM) to maximize IC compliance in a customized and sustainable manner consistent with their business models. Companies working on large language models would be wise to implement these types of steps to minimize the chances they will be sued for IC misclassification.

Last month, the most significant legal development in the area of independent contractor (IC) compliance and misclassification was on Capitol Hill. Bill Cassidy of Louisiana, a Senate Republican who chairs the Senate Health, Education, Labor & Pensions Committee, has released a white paper arguing for the “removal of federal legal and regulatory barriers to portable benefits for independent workers—while protecting their flexibility and freedom to earn a living as they best see fit.” Sen. Cassidy’s report suggests that benefits could more easily be provided to independent workers if there was a single, common test for IC status under all federal laws. The white paper notes that there are no less than three distinct tests for IC status under federal laws, yet “recent independent contractor tests promulgated by executive agencies allow different courts to look at the same facts and come to separate conclusions about employment status.” Senator Cassidy proposes a solution where all federal laws would use the so-called common law test for IC status, which is the least restrictive and most favorable IC test for ICs and businesses to satisfy. This approach, however, is impractical. The tests for IC status under various federal laws differ because the U.S. Supreme Court and federal circuit courts have interpreted legislative intent of Congress when passing those laws. Savvy companies, though, assume that they are governed by the most restrictive federal test for IC status — the economic realities test applied under the federal Fair Labor Standards Act (FLSA) — and then use a process such as IC Diagnostics (TM) to structure, document, and implement their IC relationships in a manner that enhances their compliance with that test in a sustained and customized manner.

Earlier today, the U.S. Department of Labor re-issued an Opinion Letter on the issue of independent contractor (IC) status of an on-demand virtual marketplace company (VMC) that refers end-market consumers to service providers who offer delivery, transportation, shopping, moving, cleaning, plumbing, painting, and household services. This Opinion Letter had been issued under the first Trump Administration, but was rescinded by the Biden Administration, and is now restored under the second Trump Administration. Under the Opinion Letter, the Labor Department examined six factors pertinent to IC status under the federal Fair Labor Standards Act (FLSA) and concluded that all six favored IC status. The opinion is not the least bit surprising; one can hardly envision a more solid IC relationship than the one described in the Opinion Letter. Even the Labor Department during the Biden and Obama Administrations would have probably concluded that the service providers in this instance are ICs under the FLSA — although it is likely that those Administrations’ Labor Departments would have found at least one or two of the six factors to have favored employee status. But as noted below, the Opinion Letter has a very limited impact, and does not supplant state IC laws that have different and often stricter tests for IC status than the FLSA. For this reason, the takeaway for most businesses using ICs is that the only prudent course of conduct is to elevate IC status by using a process such as IC Diagnostics (TM) to minimize IC misclassification liability in a sustained and customized manner consistent with the company’s business model.