The leading news in the area of independent contractor compliance and misclassification in April 2015 is the settlement by Macy’s and its logistics company in New Jersey with the delivery drivers and their helpers used by Macy’s to deliver furniture, bedding, and other home furnishings and goods to its customers.  This is the second of two IC misclassification cases that Macy and its logistics companies settled in the past two months. Collectively, these cases were settled for $6.8 million. A review of the facts alleged in those cases indicates that the drivers and their helpers may well have been capable of being properly classified as independent contractors, but the structure, documentation, and implementation of the relationship between the logistics company and the drivers was severely wanting.  Companies retaining drivers directly, or retaining logistics companies that in turn retain drivers, to deliver their merchandise can comply with federal and most state IC laws. Many such companies have utilized a process such as IC Diagnostics™ to minimize their IC misclassification exposure. This type of diagnostic tool can also be used in some situations to defend against IC misclassification claims.  Going forward, companies such as Macy’s and/or its logistics companies need not reclassify drivers; instead, they can generally restructure, re-document, and re-implement their independent contractor relationships in a manner that enhances their IC compliance.

Also in April, the publisher of this blog released the 2015 Update of his White Paper on minimizing the risks of independent contractor misclassification.  The White Paper can be found on this site by clicking here or by accessing our “Resources/Links” on the side and/or the top of this page.

In the Courts (5 cases)

  • MACY’S AND ITS NEW JERSEY LOGISTICS COMPANY TO PAY $2.8 MILLION TO SETTLE MISCLASSIFICATION CASE BY DRIVERS. Macy’s and its New Jersey logistics company, HomeDeliveryLink (HDL), have agreed to settle for $2.8 million the independent contractor misclassification claims brought under New Jersey state law by a class of 300 furniture delivery drivers and helpers. This follows a settlement the prior month by Macy’s West Stores, Inc. and its logistics management company, which agreed to pay $4 million to settle a class action misclassification lawsuit brought in California by over 600 truck drivers and their helpers. The NJ drivers alleged, among other things, that they were required to use delivery helpers that HDL approved, were given delivery lists by HDL, had no input over and were required to adhere to rigid schedules or risk facing discipline, and that their appearance including shaving requirements was regulated and they were required to use uniforms bearing the retailer’s logo. The complaint also alleged that the drivers and helpers were jointly employed by Macy’s and HDL and that the companies violated New Jersey laws including the unlawful pay deductions and failure to pay overtime compensation. Under the proposed settlement, which is subject to court approval, class counsel will receive 33% of the settlement amount. Badia v. HomeDeliveryLink, Inc., No. 2:12-cv-06920 (D.N.J. April 15, 2015).
  • BOSTON TAXICAB DRIVERS QUALIFY AS IC’S UNDER MASSACHUSETTS IC LAW.   On April 21, 2015, the Massachusetts Supreme Judicial Court held that Boston licensed taxicab drivers are independent contractors and were not misclassified as ICs or deprived of minimum wages, overtime pay, tips and protections afforded under the state wage laws. The court determined that the Boston Police Department Rule 403, which is a comprehensive set of regulations for the Boston taxicab industry that was promulgated by the police commissioner pursuant to a delegation of authority by the Legislature, “neither precludes taxicab owners from entering into employer-employee relationships with drivers nor recasts drivers as independent contractors where they would otherwise be considered employees.” Rule 403 was viewed by the court as creating a “regulatory regime over an industry in which taxicab owners, radio associations and drivers may operate as separate businesses.” The court rejected the cab owners’ argument that the Massachusetts state independent contractor statute does not apply to the taxicab industry because the industry is separately regulated by the City of Boston as a public utility. Instead, the court found that the statute applied. However, the court found that under the Massachusetts statute, referred to as an “ABC” test for independent contractor status, the defendants satisfied all three prongs of the test: (A) the drivers were only subject to minimal control and direction by the medallion owners and radio associations which engaged them; (B) the transportation of passengers for fares was not in the ordinary course of the medallion owners’ or radio associations’ businesses; and (C) the drivers were engaged in independently established businesses. Sebago v. Boston Cab Dispatch, Inc., No. SJC-117579 (Sup. Jud. Ct. Mass. April 21, 2015).
  • WORKFORCE AGENCY MAY HAVE MISCLASSIFIED GOVERNMENT CONTRACTOR PROVIDING JOB DEVELOPMENT AND COACHING SERVICES. A Wisconsin federal judge has denied summary judgment to the Wisconsin Department of Workforce Development in a misclassification case brought under the federal Fair Labor Standards Act for allegedly unpaid minimum wages and overtime by a government vendor classified as an independent contractor who provided job development and job coaching services to the Department. In response to the Department’s motion for summary judgment, the plaintiff submitted evidence that the Department had issued a 7-page document called “technical specifications” setting forth numerous requirements and guidelines for vendors in conducting their work, some of which were quite specific, explaining everything the vendor should allegedly do when she meets with a client and the information she needs to gather and report to the department. The plaintiff also submitted another document called “agreement for services,” which imposed a number of additional requirements related to reporting and “performance outcomes.” In addition, the document states that the Department “will review performance outcomes and require appropriate action as needed.” Another part of the document required plaintiff to “accept all referrals made for all consumers authorized.” Further, the plaintiff submitted evidence that the department supplied her the computer, printer and software necessary to do her job, provided trainings and annual performance reviews, and limited her ability to do other work by restricting the potential clients she could solicit. Finally, the plaintiff submitted a document in which the Department’s own Division of Unemployment Insurance concluded that the vendor was an employee under Wisconsin law for unemployment purposes because of the amount of control the Department had over the way she performed her job. The court stated that, although the Division’s conclusion is not binding on the court, it is “telling that even the department itself has classified plaintiff as an employee for some purposes.” In the court’s view, this evidence submitted by the vendor created genuine issues of material fact that need to be decided at trial with respect to whether she was an independent contractor or employee. Williams v. Wisconsin Department of Workforce Development, No. 13-CV-794-BBC (W.D. Wisc. April 3, 2015).
  • IC MISCLASSIFICATION CASES CONTINUE TO PROLIFERATE ACROSS THE COUNTRY. In California, a state judge tentatively agreed to grant class action certification to a class of up to 800 exotic dancers claiming they were misclassified by Plan B Strip Club as independent contractors and that the club thereby engaged in wage/hour violations under the California Labor Code. Similarly, a New York federal district judge granted certification in a collective action under the Fair Labor Standards Act and New York Labor Law where three disc jockeys and 113 dancers who provided services at the VIP Club alleged they were improperly classified as independent contractors, not paid any wages at all, and were compensated only in tips. Sprunk v. Plan B Club, No. BC471171 (Super. Ct. Cal. Apr. 15, 2015); Romero v. ABCZ Corp, Sushi Fun Dining, Pacific Club Holdings, 20 West Enterprises Corp., and Selim “Sam” Zherka, No. 14 Civ. 3653 (AT)(HB) (S.D.N.Y. Apr. 28, 2015).

On the Legislative Front (1 matter)

  • NORTH CAROLINA. North Carolina House of Representatives introduces bill (HB482) on April 1, 2015 seeking to establish the “Employee Fair Classification Act.” The proposed law provides for the creation of an employee misclassification task force to, among other things, investigate reports of employee misclassification and coordinate with and assist all relevant North Carolina agencies in recovering any back taxes, wages, benefits, penalties, or other monies owed as a result of misclassification of employees as independent contractors. The bill would also provide for additional civil penalties for repeated violations. In addition, the bill includes a list of 8 specific factors to be considered when determining independent contractor/employee status, although other factors could also be considered.

Regulatory and Enforcement Initiatives (1 matter)

  • A U.S. Department of Labor (DOL) investigation into illegal misclassification practices of 16 employers in Arizona and Utah results in consent judgments requiring the companies to pay $600,000 in back wages and liquidated damages to 1,000 construction workers, as well as $100,000 in civil penalties. In a News Release dated April 2, 2015, the Wage and Hour Division of the DOL explained that “CSG Workforce Partners, Universal Contracting LLC and Arizona Tract/Arizona CLA required the construction workers to become ‘member/owners’ of limited liability companies, stripping them of federal and state protections that come with employee status.” A joint effort was made among the DOL, U.S. Department of Justice, and the state of Utah, as well as Utah’s Worker Classification Coordinated Enforcement Council. Secretary of Labor Thomas E. Perez stated in an article in the Huffington Post on April 23, 2015: “[T]he state [of Utah] ultimately outlawed the defendants’ business model by requiring workers compensation and unemployment insurance for members of LLCs. In response, the companies packed up, headed to Arizona, and set up shop under a new name, but with the same scheme. But employers can’t just run to another state or change their name. When we find business models that violate the law, we will hold them accountable no matter where they go.”

Other Noteworthy Matters (2 matters)

  • WEST COAST PORT TRUCKERS CLASSIFIED AS IC’S GO ON STRIKE SEEKING UNION REPRESENTATION. Manifesting the ongoing labor unrest in the ports of Long Beach, San Diego, and Los Angeles, California by short-haul truckers against several drayage companies, hundreds of drivers go on strike on April 27, 2015. As reported in an article by Reuters, the port truckers work for Harbor Rail Transport, Intermodal Bridge Transport, Pacer Cartage, and Pacific 9 Transportation. They claim that they were misclassified as independent contractors instead of employees. The drivers, who are not currently represented by the Teamsters or other unions for purposes of collective bargaining, are reportedly striking as a means of pressuring the companies to voluntarily reclassify them as employees entitled to all of the protections of the wage/hour, unemployment, workers’ compensation, and federal labor laws and thereby enabling them without further governmental action to be represented by the Teamsters Union.
  • 2015 UPDATE OF WHITE PAPER ON “INDEPENDENT CONTRACTOR MISCLASSIFICATION: HOW TO MINIMIZE THE RISKS.” The publisher of this blog issued his 2015 Update of the White Paper, the most widely-viewed material prepared by lawyers representing companies in independent contractor compliance and misclassification matters. The 2015 Update is a comprehensive expansion of the White Paper – over 12,000 words including 115 end notes providing over 100 links to content available on the Internet, including new laws, recent judicial decisions, academic studies, government reports, legal publications, and cross-references to many of my 125 blog posts on the subject of independent contractor compliance and misclassification. The 2015 Update continues to detail three ways by which companies that use independent contractors can minimize or avoid future independent contractor misclassification exposure: bona fide restructuring and re-documentation, using a process such as IC Diagnostics™; reclassification, either under a government program or voluntarily; and redistribution of independent contractors, using a workforce management or staffing company. See my blog post dated April 26, 2015.

Written by Richard Reibstein.