This July was another month where independent contractor compliance and misclassification was a topic that made front page news. Hillary Clinton placed independent contractor misclassification in the national spotlight when she prominently mentioned the expanding use of ICs in the “gig economy” as an issue in the upcoming election campaign. In a speech on July 13, 2015, candidate Clinton acknowledged that the on-demand economy is creating exciting opportunities and unleashing innovation, but is also raising hard questions about workplace protections and what a good job will look like in the future. IC misclassification was also placed in the national spotlight this past month by the public release two days later on July 15, 2015 by Dr. David Weil, the Administrator of the Wage and Hour Division of the U.S. Department of Labor (DOL), of his new “Administrator’s Interpretation” addressing the misclassification of employees as independent contractors under the federal Fair Labor Standards Act (FLSA). While virtually all legal commentators and news outlets gave outsized attention to the new Interpretation and treated it as nearly monumental in terms of the crackdown on IC misclassification, I closely analyzed the Interpretation in my blog post dated July 15, 2015 and concluded that it was nothing new, different, or dramatic, doing little more than restating the same six factors that have historically been applied by the Labor Department and that can still be found on its website. The main differences between the new Interpretation and the Labor Department’s prior enforcement policy is that Dr. Weil is seeking to place a greater emphasis on a worker’s “economic dependence” on the business that has engaged his or her services than courts have given that factor in their decisions, and that he chose not to indicate that the DOL will give attention to the many other factors, besides the six he commented upon in his Interpretation, that the courts have recognized as bearing on the issue of whether a worker is an independent contractor or employee. My blog post also noted that Dr. Weil seems to have overlooked the fact that most of the IC misclassification in this country is of the unintentional type and instead has focused on what many would agree with him are clear-cut abuses of the IC relationship. The Wage and Hour Administrator did, however, accomplish an important objective of the DOL: to generate increased attention on the subject of IC misclassification.

In the Courts (6 cases)

  • DOL’S PROSECUTION OF “INNOCENT” COMPANY  RESULTS IN AWARD OF ATTORNEYS’ FEES AGAINST DOL. The U.S. Court of Appeals for the Fifth Circuit imposes attorneys’ fees on the U.S. Department of Labor under the “bad faith” provision of the Equal Access to Justice Act (EAJA) in favor of Gate Guard Services (Gate Guard), a limited partnership that provides services to oil field operators by contracting with gate attendants to log in vehicles entering and exiting oil field operation sites. In April 2014, the U.S. Department of Labor was ordered by a Texas federal court to pay almost $600,000 in attorneys’ fees and expenses to Gate Guard under the EAJA’s “not substantially justified” provision, but not under EAJS’s “bad faith” provision. In reversing the district court’s decision as to the bad faith provision, the Fifth Circuit stated: “[The government] can start to repair the damage done by erroneously, indeed vindictively, attempting to sanction an innocent business. Rather than acknowledge its mistakes, …the government chose to defend the indefensible in an indefensible manner.” Summary judgment had been granted in favor of Gate Guard Services in a misclassification lawsuit with the U.S. Department of Labor, which had sought over $6 million dollars in back wages for 400 gate attendants and other workers. The court found that the gate attendants, who logged in vehicles entering and departing oil field operation sites, were properly classified as independent contractors and not employees. Gate Guard Services L. P. v. Solis, No. 14-40585 (5th Cir. July 2, 2015).
  • HANDY.COM SUED IN MASSACHUSETTS FOR ALLEGED IC MISCLASSIFICATION THROUGHOUT THE U.S. On-demand cleaning and home services company, Handy Technologies, Inc., has been sued in Massachusetts federal court by a proposed class of cleaners under the FLSA and Massachusetts state law for wage violations resulting from alleged misclassification of the cleaners as independent contractors and not employees. The proposed class would include all cleaners who worked for Handy anywhere in the U.S. except California, where they have been separately sued (as noted in my blog post of December 2, 2014). Handy makes available cleaners who can be dispatched through a smart phone application or website to clean clients’ homes and do related household work. Among the allegations raised in the complaint are that cleaners, who allege that they do not receive minimum wage payments, must follow detailed requirements imposed on them by Handy such as how to do their work, when they may cancel a job, how long they must spend at a client location; that the cleaners’ services are fully integrated into Handy’s business; and that they are subject to termination at Handy’s discretion. Emmanuel v. Handy Technologies, Inc., No. 1:2015-cv-12914 (D. Mass. July 7, 2015).
  • FED EX HANDED ANOTHER SETBACK ON ITS GROUND DIVISION DRIVERS. The U.S. Court of Appeals for the Seventh Circuit adopts the Kansas Supreme Court’s decision that FedEx Ground drivers were misclassified as independent contractors as a matter of law under the Kansas Wage Payment Act (KWPA). In answering two questions that had been certified by the Seventh Circuit to the Kansas Supreme Court, the state court ruled that the drivers were employees and not independent contractors of FedEx, and its ruling did not differ for drivers that have more than one service area, even though they would have to employ other drivers to handle the additional route(s). Although FedEx asked that the Kansas Supreme Court decision be disregarded by the Seventh Circuit, the federal appellate court concluded that “the state answers are binding.” The Seventh Circuit’s decision and its ramifications are discussed in my blog post dated July 9, 2015. Craig v. FedEx Ground Package System, No.10-3115 (7th Cir. July 8, 2015).
  • LYFT DRIVERS SUE FOR IC MISCLASSIFICATION IN FLORIDA. Lyft drivers in Florida have filed a class action lawsuit against the on-demand ride-sharing company Lyft in federal court for allegedly misclassifying them as independent contractors and violating the Florida Deceptive and Unfair Trade Practices Act and the FLSA. Lyft, through the use of a smart phone app, allows drivers to make themselves available for work whenever they want, and allows them to accept or reject rides once they have been selected by a customer through the app. As noted in my blog post of March 12, 2015, Lyft has already been sued in California on IC misclassification grounds and is facing a jury trial in that state. The drivers in the Florida lawsuit included among their allegations that Lyft retains the right to control and in fact does control the manner and means by which the drivers accomplish their work; retains the right to hire and fire in its sole discretion; retains the right to terminate the Lyft platform and app or to block drivers from the Platform and app, which effectively gives Lyft the ability to prevent the drivers from picking up customers and earning fares; sets all rates of pay for its drivers; and takes a 20% administration fee from gratuities the drivers may receive from customers. Frederic v. Lyft, Inc., No. 8:15-cv-01608 (M.D. Fla. July 8, 2015).
  • STAFFING COMPANY SUED BY U.S. LABOR DEPARTMENT IN FLORIDA FOR IC MISCLASSIFICATION OF NURSES AND OTHER HOME HEALTH WORKERS. Home healthcare personnel staffing company, Caring First, Inc., has seen sued by U.S. Department of Labor (DOL) in a Florida federal court under the FLSA. The DOL is seeking back wages and liquidated damages for certain nursing and other home health care employees. The DOL alleges, among other things, that the company has misclassified some of its employees, including licensed practical nurses and registered nurses, as independent contractors and paid them a flat hourly rate, regardless of the number of hours worked per week. The DOL further alleges that many of these home healthcare workers regularly worked hours in excess of forty in a workweek, but did not receive overtime compensation. Perez v. Caring First, Inc., No. 8:15-cv-1590-SDM-TGW (M.D. Fla. July 7, 2015).
  • DIRECT TV PREVAILS AGAINST JOINT EMPLOYER CLAIM OF IC MISCLASSIFICATION. A federal district court in Maryland has rejected a claim of satellite television installers in two consolidated cases that DirecTV was a joint employer of the installers with the DIRECTV provider network under the FLSA. The court determined that although the installers alleged facts sufficient to show that DirecTV at least indirectly supervised their work and directly controlled their schedules, they did not allege facts showing that DirecTV has the power to hire and fire technicians or determine their rate and method of payment or maintain their employment records. Additionally, no allegations even implied that the companies in the DirecTV provider network “were undercapitalized or slavishly followed every suggestion made by DirecTV in regard to the status and method of payment of the technicians with whom they had a relationship.”  Hall v. DirecTV, No. 1:14-cv-02355 (D. Md. June 30, 2015); and Lewis v. DirecTV, No. 1:14-cv-03261 (D. Md. June 30, 2015).

On the Legislative Front (2 items)

  • CALIFORNIA ENACTS LAW PROHIBITING CHEERLEADERS IN PROFESSIONAL SPORTS FROM BEING CLASSIFIED AS IC’S. California professional cheerleaders will now be protected by a wage bill signed into law by Governor Jerry Brown. The bill (AB202), which takes effect on January 1, 2016 for purposes of all state laws governing employment, requires “a cheerleader who is utilized by a California-based professional sports team during its exhibitions, events or games to be deemed an employee.” Over the past few years several professional football teams including the Buffalo Bills, New York Jets, and Tampa Bay Buccaneers had been the subjects of lawsuits brought by the team’s cheerleaders who alleged wage theft, IC misclassification, and/or failure to be compensated for hundreds of hours worked representing the team both on and off the field. California professional sports team cheerleaders will now be covered under statutes such as the California Labor Code, the Unemployment Insurance Code, and the California Fair Employment and Housing Act.
  • PAYROLL FRAUD PREVENTION ACT INTRODUCED YET AGAIN BY DEMOCRATS IN CONGRESS. The Payroll Fraud Prevention Act of 2015 was introduced on July 29, 2015 by Democrats in the U.S. Senate to protect workers from being misclassified as independent contractors. The bill, which is identical to the one introduced but not passed in 2014, was sponsored by U.S. Sen. Al Franken (D-Minn.) and Sen. Bob Casey (D-Pa.). For a detailed history and analysis of the Payroll Fraud Prevention Act, see my prior blog post dated May 20, 2014. I will address this new bill in a separate blog post.

Regulatory and Enforcement Initiatives (3 items)

  • U.S. DOL RE-SIGNS MEMORANDUM OF UNDERSTANDING WITH CALIFORNIA. On July 28, 2015, California Attorney General Kamala D. Harris issued a press release that she signed on behalf of the state a new cooperative agreement with the U.S. Department of Labor’s Wage and Hour Division (WHD) “to crack down on employer wage theft and other illegal labor practices.” This Memorandum of Understanding, which evidently replaced and/or supplemented the one that expired in 2014, will facilitate the sharing of information between the two entities and enhance enforcement of minimum wage and overtime laws. A previous partnership arrangement was entered between California and the WHD to fight independent contractor/employee misclassification through California’s Labor and Workforce Development Agency. Ruben Rosalez, the Regional Administrator for the Western Region for the U.S. Department of Labor, commented: “As host to one of the largest underground economies and immigrant populations in the United States, it makes sense that we begin our quest to combat wage theft. This partnership with the State AG’s office is long overdue.”
  • KENTUCKY BECOMES 23RD STATE TO SIGN MEMORANDUM OF UNDERSTANDING WITH U.S. DOL. The Kentucky Labor Cabinet and the U.S. Department of Labor (DOL) have entered into a three-year Memorandum of Understanding to protect the rights of employees by preventing their misclassification as independent contractors or other non-employee classifications. According to a News Brief dated July 15, 2015 by Secretary Perez of the DOL, Kentucky becomes the 23rd state to sign such an agreement. Larry L. Roberts, Kentucky Labor Cabinet Secretary, stated: “ Simply put, misclassification cheats workers, steals from taxpayers, hurts businesses that follow the law, and weakens our economy. Although legitimate independent contractors are an important part of our economy, the misclassification of employees presents a serious problem that is happening at public and private projects all over the Commonwealth.”
  • DOL ISSUES NEW “ADMINISTRATOR’S INTERPRETATION” OF IC MISCLASSICATION UNDER THE FLSA. The Wage and Hour Administrator of the U.S. Department of Labor, Dr. David Weil, announced on July 15, 2015 a new “Administrator’s Interpretation” addressing the misclassification of employees as independent contractors under the federal Fair Labor Standards Act (FLSA). As discussed in detail in my blog post dated July 15, 2015, the DOL Administrator set forth a six-part test for analyzing whether a worker is an IC or employee. Although many hoped that Dr. Weil’s publication would provide guidance in this tangled web of tests and interpretations, in fact, the new Interpretation does little more than restate the same six factors that have historically been applied by the Labor Department and that can still be found on its website.

Other Noteworthy News (5 items)

  • COMPREHENSIVE THREE-PART SERIES ON THE “COSTS OF WORKER MISCLASSIFICATION” PUBLISHED BY LAW 360. Law360 published a comprehensive three-part series entitled “The Costs of Worker Misclassification” by Richard Reibstein, the author of this Blog, in the Employment and Class Action sections of Law360 on July 7-9, 2015. The series addresses in Part 1 how misclassification of employees as independent contractors has arisen and what consequences are for companies caught in the crackdown. Part 2 discusses how regulators, legislators, plaintiffs’ class action lawyers, and union organizers have sought to crack down on businesses that are believed to have engaged in IC misclassification. Part 3 explains in detail how businesses can minimize or avoid the risks of misclassification. My blog post dated July 12, 2015 republishes the 3-part series in its entirety.
  • HOMEJOY.COM CLOSES OPERATIONS FOLLOWING IC MISCLASSIFICATION LAWSUITS. Having allegedly failed to properly structure, document, and implement its IC relationships, Homejoy, a home cleaning start-up that uses IC as home cleaners, announced that it will close down its operations in the face of four misclassification lawsuits filed against it, according to a July 17, 2015 article by Carmel DeAmicis of Re/code. As more fully discussed in my blog post dated July 17, 2015, Homejoy’s demise is likely to propel other tech start-ups to enhance their IC compliance, and those that seek to do so have a number of alternatives, including the use of a process such as IC Diagnostics™ to restructure, re-document, and re-implement IC relationships.
  • FORBES ADDRESSES UBER DRIVERS’ LAWSUIT IN CALIFORNIA. Daniel Fisher, a senior editor at Forbes, posted an article on July 10, 2015 about the upcoming trial in California against Uber by its drivers, and considers whether Uber may be able to sway a jury that its drivers desire to be treated as independent contractors and not as employees. The article notes that when Uber filed its opposition to class certification, that filing included sworn declarations from more than 400 drivers opposed to losing independent contractor status. Richard Reibstein, the publisher of this Blog, was quoted in the article as follows: “[Y]ou can usually find a huge number [of ICs who are well paid] who’ll say ‘I’m an independent contractor, I am my own boss, the company does not direct or control me, so please don’t take that away from me, jury.” Richard Reibstein was also quoted in July in several other publications, including Business Insider on July 14 (“The Driver Who Beat Uber Is Just the Beginning – Get Ready for a Flood of Copycat Cases”) and July 19 (“Investors Are Overlooking One Thing When They Throw Money at ‘Uber for X’ Startups”); Law360 on July 15 (“Employers Brace For Scrutiny After Misclassification Memo”); Fair Warning on July 23 (“On the Warpath Against Independent Contractor Schemes”); and Workforce on July 16 (“Independent Contractor Issues: A Tale of Drivers, Strippers and Lawsuits”).
  • HILLARY CLINTON INSERTS IC MISCLASSIFICATION INTO THE 2016 PRESIDENTIAL AGENDA. Democratic presidential candidate Hillary Clinton targets independent contractor misclassification as a potential campaign issue as she criticizes the “gig economy” which is rapidly expanding throughout the country. In a speech at the New School in New York City on July 13, 2015, Clinton said: “This on-demand or so-called gig economy is creating exciting opportunities and unleashing innovation. But it’s also raising hard questions about workplace protections and what a good job will look like in the future.”
  • EAST COAST PORT TRUCKERS MIMIC WEST COAST IC’S. Port truckers in Savannah, Georgia echo sentiments of their West Coast brethren that trucking companies continue to misclassify them as ICs and not employees. At a July 21, 2015 hearing conducted by Georgia’s Senate Insurance and Labor Committee, several drivers, a representative from the Teamsters Union, and the president of the Georgia Motor Trucking Association, among others, participated. The drivers contend that they are being paid below minimum wage, are told what their hours of work are, and that they are not free to do business with other companies. However, the Trucking Association sees the owner-operator model as a viable one that allows individuals the opportunity to establish their own businesses. The Georgia Senate subcommittee plans to hold two more fact-finding meetings this year and ultimately submit a report to the full Senate in January 2016.

Authored by Richard Reibstein.