October was a relatively “slow” month for legal developments in the areas of independent ‎contractor misclassification and compliance. But for companies that engage drivers to distribute ‎pharmaceutical products, a nearly $12 million settlement of an IC misclassification case last ‎month may persuade even more companies in that industry to consider taking steps to further ‎enhance their IC compliance. Indeed, this eight-figure settlement is one of five IC ‎misclassification cases that we have reported on in the past two years where class action lawyers ‎have targeted companies that use independent contractors to deliver pharmaceutical products.‎

On October 11, 2021, we published a blog post on vaccination mandates for independent contractors.  We addressed the issue of whether OSHA, in issuing a rule covering so called “large employers” with over 100 employees, will seek to expand the definition of employee to include independent contractors. We noted that despite the national debate over the appropriate test for IC status, “OSHA is highly unlikely to wade into that hotly contested area when carrying out the Biden Administration’s COVID-19 Action Plan.”  In the Emergency Temporary Standard (ETS) just released by OHSA, the federal agency has indeed chosen not to cover independent contractors either within the scope of persons who must be vaccinated or tested or in determining whether a company employs 100 or more employees.  As the ETS states: “Part-time employees do count towards the company total, but independent contractors do not.”

State legislative efforts to expand the coverage of new employment laws to independent contractors in addition to employees continue to emerge.  It appears that New York is on the cutting edge of this trend.  We highlight below an amendment to New York’s whistleblower law, which was signed into law on October 28, 2021.  It not only significantly broadens the scope of whistleblower protections in New York State but also enlarges the definition of protected “employees” to include independent contractors. 

In the same month that 7-Eleven prevailed in a federal court trial where convenience store franchisees claimed they were not independent contractors but rather employees entitled to the protections of state labor laws, a federal appellate court concluded last month that franchisees can be employees for purposes of some state laws.  As discussed below, the issue in the appellate case involved whether a commercial cleaning franchisor, Jani-King, was permitted under the Connecticut minimum wage and anti-kickback labor laws to deduct fees from the earnings of the franchisees. The court concluded that Connecticut law permits such deductions even if the franchisees are employees under state wage laws. Franchisors should note, however, that Connecticut law is not in harmony with the minimum wage and wage deduction laws in many other states, and unless the franchisor has elevated its level of compliance with federal and state independent contractor laws, it is at risk of an adverse judgment for misclassification liability.  Franchisors would be wise to utilize a process such as IC Diagnostics (TM) to restructure, re-document, and/or re-implement their IC relationships to enhance IC compliance in a customized and sustainable manner consistent with their business model.

Can companies mandate that independent contractors be vaccinated?  Do independent contractors have any rights if they are unwilling to comply with a vaccination mandate?  The answer to these questions may depend on whether the independent contractor has been properly classified.  Before imposing a vaccination mandate on ICs, companies should take steps to enhance their compliance with applicable federal and state laws governing ICs, as discussed in this article.

The first three cases reported below regarding legal developments in August 2021 have four common denominators: the defendants are all large gig economy companies; plaintiffs’ class action counsel is the same; the lawsuits are all situated in New York; and all four are already on their way to arbitration or are highly likely to end up there shortly.  Lyft, Uber, and Instacart have been the subject of independent contractor misclassification lawsuits around the country by many law firms, but the law firm with the most class action cases against those companies is Lichten & Liss-Riordan. When faced with one of these types of cases, it seems as though we are in a déjà vu environment:  the company’s counsel typically argue that, where there is an arbitration clause with a class action waiver, the Federal Arbitration Act commands a court to compel arbitration of the claims on an individual basis. Then, in cases involving workers who drive vehicles, plaintiffs’ lawyers, including the law firm in the first three cases below, invariably argue that the FAA is inapplicable because Section 1 of that statute has an arbitration exemption for interstate transportation workers.  Thus, many of these cases seem to present the same threshold issue: are the plaintiff and members of the proposed class covered by the arbitration exemption for interstate transportation workers? 

Most class action cases of independent contractor misclassification are brought against corporate entities. Yet many laws also permit plaintiffs to sue company executives or managers for personal liability in such cases. In our roundup below of last month’s legal developments in this area of the law, a court denied a motion to dismiss claims against the CEO of a company alleged to have misclassified workers as independent contractors, thereby exposing him to the potential for individual liability. Most lawsuits seeking to impose personal liability on officers and decision-makers for allegedly misclassifying workers are brought under state wage and hour laws, but the first case reported below involves a misclassification collective action under the federal Fair Labor Standards Act. That law permits nationwide class action type lawsuits and is the most common way by which plaintiffs can mount a multi-state lawsuit against companies that operate on a nationwide or regional basis. Because the FLSA exposes companies to broad exposure if their classification of independent contractors is not compliant with the test for independent contractor status, enhancing compliance with that federal law is imperative.  This objective is even more important because courts have held that the FLSA permits plaintiffs to sue executive decision-makers who play a role in their companies’ designation of a group of workers as independent contractors. Many businesses operating throughout the U.S. have therefore used a process such as IC Diagnostics (TM) to restructure, re-document, and re-implement their independent contractor relationships that minimizes misclassification liability consistent with the company’s business model and does so in a customized and sustainable manner.

June was a relatively slow month in the area of independent contractor misclassification and compliance. But it produced what may turn out to be one of the more important judicial decisions in years affecting last-mile drivers engaged as independent contractors: a federal appellate court decision that would exclude drivers who deliver goods to a final destination from a hub or interim location from the arbitration exemption for interstate transportation workers under the Federal Arbitration Act – and subject their independent contractor misclassification claims to arbitration.  However, as we have stated repeatedly in numerous blog posts, even if the arbitration exemption for interstate transportation workers under the FAA is found to apply to a class of workers, a well-drafted arbitration clause should still provide a valid basis to arbitrate – if it is also governed by a state law favoring arbitration. Drafting effective arbitration clauses is almost as important as structuring, documenting, and implementing independent contractor relationships in a manner that enhances compliance with independent contractor laws at the state and federal levels. Both are part of the IC Diagnostics (TM) process used by a number of companies in transportation and other related industries to minimize their exposure to IC misclassification liability.

Direct sellers and door-to-door salespersons are frequently classified as independent contractors – and that classification is increasingly under attack, both by class action lawyers and the U.S. Department of Labor, as reflected in two key case developments from May 2021.  It is undeniable that many door-to-door salespersons legitimately can be classified as independent contractors under federal and most state laws, yet at the same time some undoubtedly are misclassified.  That determination depends entirely on how the IC relationship is structured, documented, and implemented.  Direct sellers, on the other hand, are regarded as ICs under federal and most state tax laws and many state unemployment insurance laws by virtue of statutory provisions essentially excluding them from the definition of employee.  Yet, those direct seller laws have typically not been applied to claims arising under laws governing overtime pay, minimum wage, expense reimbursement, and other labor and employment laws – and the U.S. Department of Labor has adopted that position as described below. Direct selling companies and businesses using door-to-door salespersons can minimize IC misclassification risk by enhancing compliance with IC laws.  Many companies use a process such as IC Diagnostics (TM) to restructure, re-document, and re-implement their IC relationships in a customized manner, consistent with their existing business model.