December 2013

This past month, a number of cases were decided by the courts involving misclassification of employees as independent contractors, but there were no regulatory or legislative actions of note.

In the Courts

  • Massachusetts federal court grants summary judgment in favor of delivery drivers that were operating as corporations, concluding that Home Delivery of America (“HDA”) misclassified them as independent contractors instead of properly classifying them as employees under the Massachusetts wage and hour law. The drivers performed services for HDA by delivering and installing products that customers had purchased through Sears and K-Mart stores. HDA argued that, because the drivers had contracted with HDA through their LLCs and S corporations, they operated as separate business entities rather than covered “individuals” under the state’s wage and hour law.  The court rejected that argument, holding instead that, despite the corporate forms of their businesses, the drivers were employees “in substance” and not persons “acting genuinely as  independent contractors,” nor were they in a legitimate “business-to-business relationship.” In reaching its conclusion, the court relied on undisputed facts that the drivers drove trucks bearing a Sears logo, wore uniforms with Sears and HDA logos, underwent drug and alcohol testing performed by HDA, did not manage any delivery operations beyond their work for HDA, performed services on a full-time basis  for HDA, and made deliveries in accordance with manifests provided by HDA, which also dictated that drivers were required to hire a helper.  Anderson v. Inc., d/b/a Home Delivery America, and SLS Logistics Services, Inc., No. 11-10313-GAO (D. Mass. Dec. 30, 2013).
  • United States Department of Labor files suit in federal court against a Georgia restaurant, Hibachi Grill and Supreme Buffet, and its owner, Shu Wang, seeking almost $2 million in unpaid wages and damages for 84 restaurant employees under the Fair Labor Standards Act.  The claim stems from an investigation by the Labor Department’s Wage and Hour Division in Atlanta which alleged that servers were misclassified as independent contractors and not as employees, were not paid at least minimum wage, and did not receive overtime compensation.  Perez v. Wang, No. 1:13-04162 (N.D. Ga. Dec. 16, 2013).
  • California crowdsourcing internet company, CrowdFlower, Inc., reaches proposed settlement with approximately 100 members of its virtual labor pool for nearly $600,000 in a class action lawsuit that alleged minimum wage violations of the Fair Labor Standards Act and Oregon state wage laws.  The workers alleged that, as part of CrowdFlower’s business model, they worked off-site on their own computers as part of a large dispersed workforce to perform small and simple repetitive parts of larger tasks for company clients, but were misclassified as independent contractors by CrowdFlower and did not receive minimum wage.  The workers also alleged that, in some cases, they were reimbursed for expenses by CrowdFlower with online game credits instead of monetary payments.  Otey v. CrowdFlower, Inc., No. 3:12-cv-05524-JST (N.D. Cal. Dec. 12, 2013).
  • Michigan Court of Appeals overturns a 21-year-old legal precedent and determines that a worker is exempt (as an independent contractor) from the exclusive remedy provision of the state’s Workers’ Disability Compensation Act (“WDCA”) only if all three statutory criteria are met. A member of a lawn crew performing “fall cleanup” who was injured while working was found to be an employee covered by Workers’ Compensation and not an independent contractor since he (1) did not maintain a separate business; (2) did not hold himself out as rendering services to the public; and (3) was not an employer subject to the Act.  Previously, the courts in Michigan had interpreted the Workers’ Compensation statute in that state as simply requiring that only one of the three criteria be satisfied for an individual to be considered an independent contractor.  Auto-Owners Insurance Company v. All Star Lawn Specialists Plus, Inc., No. 307711 (Mich. Ct. App. Dec. 3, 2013).
  • Class action lawsuit filed in Florida federal district court by exotic dancers against Rick’s Cabaret International, which owns and operates 23 adult night clubs across the country.  In yet another lawsuit filed by “strippers” against a business in this industry, the complaint alleges, among other things, that the company misclassified at least 300 dancers as independent contractors and, in so doing, failed to pay overtime and minimum wages under the Fair Labor Standards Act. The lawsuits allege that the club owners exerted direction and control over the dancers by establishing the dancers’ work schedules, requiring them to follow written guidelines and policies, requiring the dancers to perform in a specified manner on stage and for customers, regulating the dancers’ interactions with customers, setting the prices dancers were allowed to charge, requiring attendance at meetings, and financing advertising and marketing efforts undertaken on behalf of the clubs. Espinosa v. Rick’s Cabaret International, Inc. & Langdon, No. 1:13-cv-24565 (S.D. Fla. Dec. 19, 2013).
  • Illinois construction contractor agrees with United States Department of Labor to the entry of a Consent Judgment in a lawsuit by which the company shall pay 96 workers $395,465 in back wages and liquidated damages following an investigation by the Labor Department’s Wage and Hour Division. The investigation concluded that the construction contractor misclassified 16 workers, including carpenters, electricians, masons, laborers, painters, and drywall hangers and finishers, as independent contractors and denied them and the remaining employees proper compensation for all hours worked in violation of the overtime requirements of the Fair Labor Standards Act.  Perez v. Norwood Commercial Contractors, Inc., No. 1:13-08402 (N.D. Ill. Dec. 2, 2013)

Written by Richard Reibstein.