This month’s headline developments are two independent contractor misclassification class action lawsuits: one was filed in New York against a Silicon Valley giant, Google Inc., and the second was filed in California against a Silicon-valley start-up,  While the principal claims are similar (failure to pay for all hours worked or at the minimum wage, and failure to pay overtime), the companies’ workforce business models are quite different:  Google uses 1099 freelancers to supplement its vast W-2 employee workforce, whereas Handy’s workforce is almost entirely comprised of independent contractors paid on a 1099 basis.  Thus, while companies like Google are exposed to considerable financial exposure if found to misclassify the freelancers retained to complement its workforce, businesses like are potentially exposed to a bet-your-company liability if they have not structured, documented, and implemented their freelance relationships in a manner that enhances their compliance with federal and state independent contractor laws.  Regardless of whether  a business uses ICs to supplement its workforce or provides services almost exclusively by use of 1099ers, companies that wish to minimize exposure to independent contractor misclassification liability may wish to examine the publisher’s White Paper on the subject.

Tech companies may also wish to glance at the publisher’s September 18, 2014 blog post, Silicon Valley Misclassification: ‘New York’ Magazine Focuses on How the 1099 Economy May Be Exposing Tech Start-Up Companies to Costly Liability for Their Use of Independent Contractors.

In the Courts (6 cases)

  • GOOGLE SUED IN FEDERAL CLASS ACTION MISCLASSIFICATION LAWSUIT BY FREELANCE COMPUTER SERVICE PROVIDER. Google, Inc. and its global freelance staffing company, Elance-oDesk, were sued on November 12, 2014 in New York federal district court by a Site Merchandiser who was classified as a 1099er for independent contractor misclassification. The plaintiff, who was paid on a 1099 basis, alleges that he and other similarly situated freelancers who provided services to Google through a freelance staffing company were not paid at all for hours worked beyond those budgeted by Google and not paid overtime for hours worked over 40 in a workweek.  The class action lawsuit seeks damages under the federal Fair Labor Standards Act and the New York Labor Law.  The plaintiff alleges generally that “. . . Google maintains policies and practices of misclassifying employees as independent contractors who are not covered by wage and hour laws, paying these employees through outside agencies, and not paying them for all hours worked.” Specifically, the complaint alleges, among other things, that Google had a practice of limiting the number of hours for which the freelancer was paid, while assigning more work than could be completed in the allotted time; were required to adhere to the same Code of Conduct that Google employees were obligated to follow, including provisions addressing appropriate attire, blogging, and absenteeism; were not permitted to use competing products or services; were trained as to how to perform their services; and sat side-by-side with regular W-2 Google employees at Google’s Manhattan offices. The plaintiff also alleges that he was terminated after he complained about not being paid for all hours worked.  Google has not yet responded to the complaint. McPherson v. Google Inc., No. 1:14-cv-09026 (S.D.N.Y. Nov. 12, 2014).
  • HANDY.COM, A CLEANING SERVICES START-UP, SUED IN CLASS ACTION LAWSUIT IN CALIFORNIA. Handy, a California start-up company that provides cleaning services for private homes, offices, and apartments, was sued by two cleaners who seek to represent a proposed class of cleaners in state court. They allege that Handy misclassified them as independent contractors instead of employees and thereby violated various California wage and hour laws by failing to pay minimum wage and overtime pay, failing to reimburse required business expenses, and failing to provide meal and rest periods, among other alleged violations. Handy’s business of engaging cleaners and connecting them with clients is allegedly conducted through the use of mobile phone applications and Handy’s website. The cleaners claim that Handy exercises extensive control over the manner and means by which the cleaners perform their jobs, including Handy’s ability to terminate the cleaners at will; the provision of training and instructions on how the cleaners should complete their tasks; mandating which supplies the cleaners must bring to each cleaning job; monitoring and tracking each cleaner’s performance; and requiring the cleaners to follow detailed company guidelines, procedures, and protocols.  Zenelaj v. Handybook, Inc., No. RG14746429 (Super. Ct. Cal. October 30, 2014).
  • MASSACHUSETTS COURT FINDS LEADING THIRD PARTY ADMINISTRATOR FOR IC’S IN THE COURIER AND TRUCKING INDUSTRY TO BE LIABLE FOR UNEMPLOYMENT CONTRIBUTIONS. On November 12, 2014, a Massachusetts appellate court affirmed a lower court’s ruling that Subcontracting Concepts, Inc. (SCI), a company engaged in providing drivers and vehicles to perform delivery work for client courier and trucking services, is liable for contributions to the state unemployment insurance fund due to its misclassification of the drivers as independent contractors instead of employees. Applying the state’s so-called “ABC” test for independent contractor status, the Court found that SCI failed to satisfy the “A” prong  requiring the ICs to be free from direction and control because SCI had the authority to exercise a substantial degree of control over numerous details of the performance of the services. The court noted that SCI, for example, controlled how the driver maintained his vehicle and who was permitted to be present in the vehicle while servicing SCI’s clients; that SCI required the driver to check with the SCI client prior to working for other carriers; that the driver was required to follow the routes established by SCI’s clients; and that the drivers were required to wear T-shirts with the client’s logo.  The court also found that SCI had failed to satisfy Prong “C” of the test requiring that the worker be engaged in an independently established trade, occupation, business, or profession was not satisfied because the driver “depended on a single employer for the continuation of the services he performed while not wearing the hat of his own independent enterprise.” Subcontracting  Concepts, Inc. v. Commissioner of the Division of Unemployment Assistance,   13-P-269 (Ct. App. Middlesex, Mass. November 12, 2014).
  • FEDERAL APPEALS COURT UPHOLDS INJUNCTION REINSTATING FIRED PORT DRIVERS HIRED AS IC’S. The U.S. Court of Appeals for the Ninth Circuit denied an emergency motion by a California company, Green Fleet Systems (GFS), to stay an injunction issued by a federal judge against the company at the request of the National Labor Relations Board.  The injunction reinstated two port truck drivers who were allegedly terminated by GFS for challenging their classification as independent contractors, filing wage claims with the California Division of Labor Standards Enforcement, and publicly supporting the Teamsters union, were returned to work as employees of GFS.  Garcia v. Green Fleet Systems, LLC, 14-56656 (9th Cir. Oct. 31, 2014).
  • OFFSHORE DRILLING COMPANY SUED FOR ALLEGEDLY MISCLASSIFYING OIL RIGGERS AS IC’S. An oil rig consultant has filed a class action lawsuit seeking to represent 25 similarly situated rig consultants who performed work on offshore drilling rigs in the Gulf of Mexico for Onward LLC.  The rigger alleges that he and other rig consultants were improperly classified as independent contractors for a four-month period when they performed services for Onward. The lawsuit alleges that Onward violated the FLSA’s overtime provisions. In support of its misclassification claim, the consultant alleges, among other things, that the companies hired, trained and supervised the consultants’ daily work; required the consultants to comply with instructions about how to do their work; required their attendance at an onshore training course; required the consultants to perform the work personally; and set all days and hours of work for the consultants.  The lawsuit also alleges that after the four-month period when the rig consultants were ICs, they were reclassified as employees, yet still were denied pay for all hours worked and for overtime, in violation of the FLSA. Austin v. Onward LLC, 3:14-cv-00350 (S.D. Tex. Nov. 3, 2014).
  • STRIP CLUB ORDERED TO PAY OVER $10 MILLION FOR MISCLASSIFYING EXOTIC DANCERS AS IC’S. A class of exotic dancers was  awarded $10.9 million in damages by a New York federal court in a misclassification lawsuit brought against Rick’s Cabaret.  This court had issued prior rulings that the dancers were employees and not independent contractors of Rick’s Cabaret.  In addition to awarding damages, the Court denied the club’s motion to decertify the class of exotic dancers, rejecting its arguments that the dancers failed to establish commonality. Hart v. Rick’s Cabaret International, Inc., 09 Civ. 3043 (PAE)  (S.D.N.Y. Nov. 14, 2014).

Regulatory and Enforcement Initiatives (1 matter)

  • NEW HAMPSHIRE IS 17TH STATE TO SIGN COORDINATION AGREEMENT WITH U.S. LABOR DEPARTMENT TO COMBAT MISCLASSIFICATION. The New Hampshire Department of Labor is the latest agency to enter into a Memorandum of Understanding with the United States Department of Labor. According to a News Release issued on November 11, 2014 by the U.S. Labor Department, both agencies will share information and coordinate law enforcement in order to reduce misclassification of employees.  New Hampshire Labor Commissioner James W. Craig stated: “Misclassification of workers steals benefits and protections from employees, and allows unfair advantages to businesses that do it. This agreement will help us grow our state and regional economy by leveling the playing field for honest and law-abiding employers.”

Written by Richard Reibstein.