Judicial and regulatory developments in the months of September and October 2015 vividly highlight the fact that many companies in the U.S., both large and small, continue to fail to structure, document, and implement their IC relationships in a legally compliant manner – and thereby expose themselves needlessly to IC misclassification liability. As a result, plaintiffs’ class action counsel are finding a plethora of companies to target with IC misclassification lawsuits, most of which can be avoided or better defended if such companies engaged in meaningful, state-of-the-art IC compliance measures.

In the Courts (13 cases)

  • UBER CONTINUES TO BE A LIGHTNING ROD FOR IC MISCLASSICATION CLAIMS. Uber, the on-demand ride-sharing firm, remains front and center in this update on IC compliance and misclassification news, with activity in at least four suits by drivers against the company in California, New York and Pennsylvania.
    – First, as discussed in more detail in my blog post of September 1, 2015, Uber suffered a setback from a California federal district court when Judge Chen, in a 68-page ruling, decided that one of the IC misclassification claims asserted by the drivers (that they are entitled to the full amount of tips received and that Uber improperly retained a portion of the gratuities) could be maintained, at least initially, as a class action. The second misclassification claim, that the drivers must be reimbursed by Uber for all necessary expenses like car maintenance and fuel, was not permitted by the court to proceed as a class action, at least for the time being. The court also limited the scope of which drivers may be part of the class: included are drivers for UberX, a ride-sharing service where drivers use their own cars, UberBlack, a high-end car service, and UberSUV. Additionally, the class will only include drivers who began working for Uber before June 2014 and those who work for and are paid by Uber or an Uber subsidiary, not by intermediary transportation companies. O’Connor v. Uber Technologies, Inc., No.3:13-cv-03826 (N.D. Cal. Sept. 1, 2015).
    – Second, two drivers brought suit in New York state court seeking class action status on behalf of Uber drivers and alleging similar independent contractor misclassification claims as in the O’Connor case above.  Ogunmokun v. Uber Technologies Inc., No. 511072/15 (Sup. Ct. N.Y. Kings County Sept. 9, 2015).
    – Third, on September 10, 2015, Judge Chen, the same California federal district judge who is presiding over the O’Connor case above, issued a Related Case Order, reassigning to him another Uber case filed in the same court. The related case, brought by a California driver, alleges that Uber misclassified the drivers as independent contractors and not employees and failed to pay drivers at least the minimum wage rate and overtime compensation under the Fair Labor Standards Act. Although the issues in the two cases are not identical, the common threshold question of whether the drivers are independent contractors or employees is identical in each of the suits. Fisher v. Uber Technologies, Inc., No. 4:15-cv-03774 (N.D. Cal. Sept. 10, 2015).
    – Fourth, an IC misclassification class action complaint against Uber was filed in a Pennsylvania state court by a driver seeking to bring suit on behalf of himself and other current and former drivers claiming that Uber allegedly failed to pay reasonable expenses incurred by the drivers, failed to pay drivers the minimum wages and unlawfully withheld gratuities intended for the drivers but retained by Uber in violation of Pennsylvania labor law. The allegations are virtually identical to those in the Ogunmokun case above. DiNofa v. Uber Technologies, Inc., No. 150902252 (Pa. Ct. of Common Pleas, Sept. 22, 2015).
  • ON-DEMAND FOOD DELIVERY COMPANIES TARGETED FOR IC MISCLASSIFICATION CLAIMS. Three on-demand food delivery companies, Sprig, Inc., GrubHub, and DoorDash, become the subjects of separate independent contractor misclassification class action lawsuits. The complaint against Sprig alleges that, among other things, the Sprig Servers, who deliver meals prepared by the company to Sprig customers, were not paid at least the minimum wage; were not given required meal and rest periods; were not reimbursed for their own business expenses; and were not provided with gratuities paid by customers and intended for the Servers. The complaint alleges that Sprig had the right to terminate the Servers at any time in Sprig’s discretion; that Servers had no special skills; that Sprig exercised control over the hiring process by requiring background checks and requiring participation in unpaid orientation; and that Sprig directed, controlled, and supervised the performance of the Servers, created their work shifts, required the Servers to clock-in and out, set their compensation, instructed them how to complete deliveries, and prohibited the Servers from subcontracting their services. Barnes v. Sprig, Inc., No. CGC-15-548154 (Super. Ct. San Francisco, CA Sept. 25, 2015).
    – The other two proposed class action lawsuits brought against DoorDash, an on-demand company that promises food delivery within 45 minutes, and GrubHub, an online and mobile food ordering/delivery company (whose brands include Seamless, MenuPages, Allmenus, Restaurants on the Run and DiningIn) that connects diners with local takeout restaurants, reportedly share many of the same misclassification and wage/hour allegations as those in Sprig.
  • FREELANCE MEDIA CONTENT PRODUCERS GRANTED CLASS CERTIFICATION IN IC MISCLASSIFICATION CLAIMS. A California state court judge granted tentative certification of a class of 43 freelance content producers who performed services for The Hollywood Reporter, a division of Prometheus Global Media, LLC, and are suing for damages due to alleged misclassification as independent contractors. The judge limited the tentative class to those who worked between January 2010 and the present, were paid by the hour, and were provided office space, a computer, a company e-mail account, and a dedicated phone line. Additionally, the court held that the class action certification extended to the freelancers’ wage/hour claims regarding unpaid overtime, unpaid meal and rest breaks, and failure to provide wage statements. The complaint, filed in 2013, alleged among other things that the freelancers were expected to work in the office from 9 a.m to 5 p.m. Monday through Friday, were required to attend mandatory work meetings alongside rank-and-file employees, were supervised by and reported to the same managers that supervised the employees, were subject to the same discipline and discharge policies as the employees, and worked alongside and performed the same work as employees. Simpson v. Prometheus Global Media LLC, No. BC522638 (Super. Ct. Los Angeles County. Cal. Sept. 25, 2015).
  • DIRECT SELLERS FOR COSMETICS RETAILER SUE FOR IC MISCLASSIFICATION. A class action complaint was filed in New Jersey federal district court by direct selling beauty consultants against cosmetics retailer, Mary Kay, Inc., alleging that they were misclassified as ICs in violation of the New Jersey Wage Payment Law. The beauty consultants allege that the company requires that the beauty consultants purchase designated minimum amounts of Mary Kay products or face termination, and that Mary Kay exercised extensive direction and control over the manner and means of their performance by establishing rules requiring non-negotiable payments for sales and marketing materials, by prohibiting them from formulating and selecting their own marketing methods, by requiring them to wear uniforms sold by Mary Kay to the consultants at set prices when attending company events, and by requiring them to pay for all ads although they were only permitted to advertise using pre-approved ads created by the company. Collins v. Mary Kay, Inc., No. 2:15-cv-07129 (D.N.J. Sept. 28, 2015).
  • FEDEX GROUND DRIVERS’ $228 MILLION SETTLEMENT APPROVED BY COURT. A California federal district court granted preliminary approval of the proposed $228 million class action settlement in the IC misclassification class action brought by FedEx Ground drivers. As discussed more fully in my prior blog post of June 13, 2015, this settlement covers the claims by FedEx Ground drivers in California for a variety of alleged violations under federal and state law, including claims for reimbursement of business expenses, unpaid overtime, failure to provide meal and rest periods, reimbursement of deductions in pay, and non-payment of termination pay, plus attorneys’ fees and litigation costs. Alexander v. FedEx Ground Package System, No. 3:05-cv-00038-E (N.D. Cal. Oct. 15, 2015).
  • AMAZON.COM’S PRIME NOW DRIVERS BRING IC MISCLASSIFICATION CLASS ACTION. Amazon is the latest tech company to be sued in a proposed misclassification class action. This lawsuit is by drivers delivering products to arrive within two hours of being ordered through Amazon’s “Prime Now” app. As more fully discussed in my blog post dated October 28, 2015, the complaint was filed in Los Angeles County Superior Court against Amazon.com, Inc., Scoobeez Inc., and ABT Holdings, Inc. alleging in part that drivers were hired by Scoobeez, a courier company operated by ABT Holdings to work exclusively for Amazon.com’s Prime Now delivery service delivering tens of thousands of items to Amazon’s Prime Now customers based on orders placed through the Prime Now mobile app. Plaintiffs allege that the app suggests a $5.00 tip for drivers (which they claim they have not received in whole or in part); that the drivers receive multiple days of training in making Amazon Prime Now deliveries; that they are scheduled to work fixed shifts, arrive at a designated warehouse ahead of the shift time and check in with a dispatcher; that they are sent home if there is not enough work for them; that they cannot reject work assignments or request particular geographical areas; that they must follow specific rules or instructions and are subject to discipline or termination if they do not; that they are required to deliver packages in a set sequence determined by the defendants; that the Prime Now app generates routes and directions; that they cannot deliver packages either two minutes too early or too late; that they are required to ask customers to fill out customer surveys; that the rates are unilaterally determined by the defendants, who reserve the right to change the compensation terms at any time; and that the delivery drivers are required to use their own vehicles and pay for their own vehicle and transportation expenses. Truong v. Amazon.com, Inc., No. BC598993 (Cal. Sup. Ct. Los Angeles County, Oct. 27, 2015).
  • ANOTHER IC MISCLASSIFICATION CLASS ACTION FILED BY EXOTIC DANCERS. Exotic entertainers in Texas and North Carolina have filed a proposed class action lawsuit in federal district court in Texas against TMCD Corporation d/b/a The Men’s Club and its President alleging misclassification as independent contractors in the club’s Dallas, Texas and Charlotte, North Carolina locations. The complaint includes class claims under the Fair Labor Standards Act to recover unpaid minimum wage compensation, reimbursement of deducted tips and fees paid, and liquidated damages. Specifically, the entertainers allege, among other things, that the Club had the sole right to hire and fire the entertainers, provided the entertainers with music equipment and a stage, controlled the entertainers’ schedules, maintained a rigid dress code for the entertainers, supervised the entertainers through the use of managers and “house moms,” instructed the entertainers when, where, and how they were to perform their work, charged a “house fee,” and required the sharing of tips with non-service employees. Long v. TMCD Corporation d/b/a The Men’s Club of Dallas, No. 3:15-cv-03298 (N.D. Tex. Oct. 13, 2015).
  • FREIGHT CARRIER PREVAILS IN IC MISCLASSIFICATION LAWSUIT. One company that figured out how to enhance its IC compliance was TXX Services, a freight carrier. A federal district court in New York adopted the Report and Recommendation of a federal magistrate judge and granted summary judgment in favor of TXX Services. Two delivery drivers who delivered prescription medicines and other freight sent to the company by its customers brought an IC misclassification lawsuit against the company alleging violations under the Fair Labor Standards Act and New York Labor Law. In analyzing the “exercise of control” portion of the economic realities test to determine independent contractor/employee status under the FLSA, the magistrate-judge found that the drivers were not assigned work by the company but rather bid for particular routes or areas; drivers used their own vehicles which did not bear company logos; no uniforms or grooming standards were required; although scanners were leased by drivers from the company, that arrangement was optional; and only two mandatory meetings were held in the space of eight years. The court noted that although there was a certain amount of control dictated by the type of freight (controlled substances) and applicable governmental requirements, such control was dictated by the nature of the company’s business. Similarly, many of the requirements, including the routes, sequence, and timing of deliveries was customer-driven and imposed by the customers and not the company. On balance, the court found that there was insufficient evidence of control to warrant a holding that the drivers were employees under the FLSA. Other factors supporting IC status included the drivers’ opportunity for profit by non-exclusivity of services, the ability of drivers to hire additional drivers and use additional vehicles to service multiple routes; and the non-permanent nature of the relationship. The court reached the same conclusion of IC status under the New York Labor Law. Thomas v. TXX Servs., Inc., No. 2:13-cv-02789 (E.D.N.Y. Oct. 14, 2015).

On the Legislative Front (1 item)

    • CALIFORNIA LAW OFFERS AMNESTY FOR MOTOR CARRIER COMPANIES USING IC’S, BUT ONLY IF THEY CONSENT TO PAYMENT OF WAGES AND BENEFITS AND CONVERT TO AN EMPLOYEE MODEL.  California Governor Brown signs into law the Motor Carrier Employer Amnesty Program (AB621) on October 10, 2015 putting into motion a means by which a motor carrier performing drayage services may be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors. Amnesty may be granted if the motor carrier enters into a settlement agreement with the Labor Commissioner, with the cooperation and consent of the Employment Development Department prior to January 1, 2017, whereby the motor carrier agrees to convert all of its commercial drivers to employees and the settlement agreement contains an agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any.  In order to be eligible for the program, a motor carrier must not, among other things, have pending against it a lawsuit in a state or federal court that was filed on or before December 31, 2015 that alleges or involves a misclassification of a commercial driver. For purposes of this law, “motor carrier” means a registered owner, lessee, licensee, or bailee of a commercial motor vehicle.

Regulatory and Enforcement Initiatives (5 items)

  • VERMONT TEAMS UP WITH U.S. DEPARTMENT OF LABOR TO CRACK DOWN ON IC MISCLASSIFICATION. U.S. Labor Secretary Thomas Perez announced on September 3, 2015 that Vermont had become the 26th state to sign a Memorandum of Understanding with the U.S. Department of Labor (DOL) under the DOL’s Misclassification Initiative. The Vermont Department of Labor entered into a three-year Memorandum of Understanding with the DOL that seeks to protect employees’ rights by preventing their misclassification as independent contractors or as other non-employee classifications through agency interaction including coordinated enforcement and information sharing activities.
  • DRYWALL CONTRACTOR PAYS $730,000 FOR IC MISCLASSIFICATION. A $730,000 Consent Agreement was secured by the Rhode Island Department of Labor against a drywall contractor for misclassification of 27 employees as independent contractors and for failure to pay them the prevailing wage. The investigation, according to a press release issued September 1, 2015 by Rhode Island Governor Gina Raimondo, was an outgrowth of a four-point action plan conceived by the Governor in which, among other things, she established a new Workplace Fraud Unit to focus the state Department of Labor and Training on efforts on cracking down on companies that misclassify employees as ICs.
  • U.S. LABOR DEPARTMENT AWARDS $39 MILLION TO 45 STATES TO ENABLE THEM TO ENFORCE STATE UNEMPLOYMENT INSURANCE LAWS AGAINST COMPANIES ENGAGED IN IC MISCLASSIFICATION. Over $39 million in federal grants was awarded by the U.S. Department of Labor to 45 states and territories to help reduce the misclassification of employees as independent contractors and enhance unemployment insurance programs. In a News Release issued by Secretary of Labor Perez on September 22, 2015, he stated: “For more than 80 years, the unemployment insurance system has been a crucial lifeline for millions of working people who lost their job through no fault of their own. These grants will help states use every tool at its disposal to ensure payments are available to those who are eligible, and take important steps to reduce and recover improper payments.” This is the second year that the DOL awarded grants to enhance the ability of state unemployment insurance tax programs to identify instances where employers improperly classify employees as independent contractors or fail to report the wages paid to workers at all.
  • FLOORING COMPANY ASSESSED TREBLE DAMAGES AND PENALTIES. The Rhode Island Department of Labor and Training orders Mancieri Flooring Co. LLC to pay $331,000 in back wages and other civil penalties for misclassification of employees as ICs and other labor violations. According to a press release issued by the agency on October 13, 2015, the company misclassified 17 workers as independent contractors and failed to pay them the proper wage rates and overtime compensation; failed to pay the prevailing wage rate on flooring removal/installation work the company was subcontracted to perform at the University of Rhode Island; continued a pattern of deceit in falsifying payroll records; and supplied false 1099 forms to the state. The company was assessed $70,000 in back wages, a civil penalty of $210,000 (3 times the amount of wages due), and a $51,000 misclassification penalty ($3,000 for each of the 17 employees). 
  • OREGON DETERMINES UBER DRIVERS ARE EMPLOYEES AND NOT IC’S The Oregon Bureau of Labor and Industries (BOLI) issued an Advisory Opinion on October 14, 2015 that Uber drivers are employees and not independent contractors. BOLI Commissioner Brad Avakian stated in the Opinion: “In Oregon and many other states, workers are increasingly performing work in circumstances that appear to be outside of traditional employment arrangements. This trend has raised concerns that employees are being improperly misclassified as independent contractors, volunteers or interns.” BOLI applied the economic realities test using the facts that had been examined in recent California administrative and court proceedings against Uber because Uber’s practices in both Oregon and California are substantially similar. BOLI concluded that, under that test, the Uber drivers are employees because Uber exercised a significant degree of control over the drivers by unilaterally dictating fares to be charged, monitoring performance, reserving the right to issue penalties and discipline, restricting access to the app, instructing drivers as to their conduct and appearance, and conducting background checks. BOLI also found that drivers’ investment is insignificant compared to massive infrastructure provided by Uber; drivers do not exercise managerial functions that affect the opportunity for profit and loss; drivers do not exercise skills or initiative that indicate they are operating an independent business; the relationship is indefinite; and the drivers’ work is integral to Uber’s business.

Written by Richard Reibstein.