September included three court cases that have attracted considerable attention in the area of independent contractor misclassification: an $8.75 million settlement in the nationwide class action against Postmates by its couriers ; the riveting non-jury trial before a federal judge in California in what is believed to be the first trial of an IC misclassification claim in the on-demand industry; and a decision sending to trial perhaps the longest-running IC misclassification case in the country against FedEx Ground.

Another court case involved the denial of a staffing company’s motion to dismiss a class action IC misclassification case brought by nurses whom the staffing company supplied to a state corrections department. Regardless of whether the nurses might otherwise be legitimate independent contractors, the staffing company lost this motion – and may conceivably lose the case – because it was signatory to a contract with the state corrections department that provided that the nurses were “employees of Contractor and not of [the state].” This case stands as a stark reminder to businesses that utilize independent contractors to ensure not only that their own relationships with workers whom they treat as independent contractors are compliant with applicable IC laws, but also that they not enter into agreements with their clients that contain any contractual provisions that might undermine an otherwise valid IC relationship.  Staffing companies and other businesses that refer such workers to their clients should consider a compliance process, such as IC Diagnostics™, that not only assists in the structuring and documentation of IC relationships, but also addresses in detail the implementation of such relationships in a manner that enhances compliance with IC laws.  To that end, many companies fail to take into account that their IC relationships can be undermined by a variety of ancillary agreements as well as writings that they themselves create.  A comprehensive review of all communications and writings dealing with the 1099ers is essential.

In the Courts (5 cases)

$8.75 MILLION SETTLEMENT APPROVED IN IC MISCLASSIFICATION CASE AGAINST POSTMATES. A California federal court has preliminarily approved an $8.75 million settlement between the on-demand delivery service, Postmates, Inc., and proposed class of couriers in their state and federal wage and hour claims against the company arising from its alleged misclassification of the couriers as independent contractors.  The couriers, who provide services on the Postmates platform, alleged that the company failed to pay minimum wages and overtime required by federal and selected state laws, that the company failed to reimburse expenses under California and Massachusetts state laws. The settlement provides for a settlement fund of $8,750,000, of which and $6.1 million is to be allocated among the couriers; $100,000 will be allocated to the plaintiffs’ California Private Attorneys General Act claim; $300,000 will be paid to the Settlement Administrator; $2.2 million is designated for attorneys’ fees and costs; and $57,000 is payable to the named plaintiffs and certain opt-in participants as service fees.

The amount of the settlement fund was discounted due to the company’s defenses facing the couriers: some of the class members may otherwise have been compelled to arbitration; the class may be subject to decertification; some of the claims might not be suitable for class-wide adjudication; and the plaintiffs might lose at trail on the independent contractor issue.  The settlement also provides for certain non-monetary components, including changes to Postmates’ policies and practice such as modifying the terms of the couriers’ IC agreement to provide that the contractual relationship may only be terminated for certain material breaches and not at will; a provision that couriers whose contracts are terminated will have a right to appeal through an arbitration process to be paid for by Postmates; agreement by Postmates to facilitate access to third-party occupational accident insurance for bicycle couriers to be procured at the couriers’ expense; and Postmates’ agreement to establish an e-mail address exclusively dedicated to receiving feedback from couriers regarding all aspects of Postmates’ business.  The settlement agreement includes a provision that Postmates does not admit liability.  A fairness hearing has been scheduled for February 23, 2018. Singer v. Postmates Inc., No. 5-cv-01284 (N.D. Cal. Sept. 1, 2017).

GRUB HUB IC MISCLASSIFICATION TRIAL ENDS; LAWYERS TO BRIEF CASE TO THE JUDGE. Lawyers have completed their presentation of evidence in what may be the first trial of an IC misclassification claim in an on-demand business. The case involves a delivery driver for GrubHub who claims that he and other similarly situated drivers are employees whom GrubHub misclassified as independent contractors. The case was not tried to a jury but rather a federal district court judge, who has asked the lawyers for the parties to file post-trial briefs. The driver, Raef Lawson, claims that he was denied minimum wage, overtime, and reimbursement for business expenses allegedly in violation of California wage and hour laws. The driver has testified that he and other drivers are required to sign up for shifts in advance; that GrubHub directs drivers’ work in detail, instructing them where to report for shifts, how to dress, and where to pick up or await deliveries; drivers are required to follow requirements imposed on them by GrubHub regarding handling of the food and timeliness of the deliveries or risk termination; GrubHub requires drivers to sign up for work shifts (such as blocks of 2.5 hours, 3 hours, or 4 hours) where, during those shifts, drivers must be within an area assigned by GrubHub and be available to accept delivery assignments. GrubHub countered by introducing evidence that Lawson simply connects customers seeking food deliveries from restaurants with drivers willing to make those deliveries, and that Lawson had control over how when, where, and how often he performed delivery services. The trial is limited to whether this particular driver was misclassified; if so, a subsequent phase of the case will focus on whether the claims can be expanded class-wide. A deadline of October 30, 2017 has been set for submission of post-trial briefs and appearances for closing arguments.

While many commentators regard this case as likely to be precedent-setting, almost every IC misclassification case against a different company presents a separate set of facts, and cases in the “gray area” can turn on one or two key facts that may not be present in another case.  Indeed, even in IC misclassification cases against the same company, there are sometimes vastly different facts relevant to IC status between one plaintiff and the next, and those differences can lead to different results.  Lawson v. GrubHub Holdings, Inc., No. 15-cv-05128 (N.D. Cal.).

STAFFING COMPANY PROVIDING SKILLED NURSES TO SOUTH CAROLINA UNABLE TO GAIN DISMISSAL OF IC MISCLASSIFICATION CLAIM BECAUSE OF ITS CONTRACT WITH ITS CUSTOMER.  A South Carolina federal court has denied a motion to dismiss by skilled labor staffing agency in a proposed class action alleging the nursing professionals were misclassified as independent contractors in violation of the federal Fair Labor Standards Act and the South Carolina Payment of Wages Act. The company, Condustrial Inc., d/b/a Medustrial Healthcare and Staffing Services, provides nurses for patients under the custody and control of the South Carolina Department of Corrections.  The company had argued that dismissal was warranted because the amended complaint failed to state a claim under the state wage payment law inasmuch as the plaintiff failed to identify an employer policy or contract giving her the right to vacation, holiday,  and sick leave payments. In denying the motion to dismiss, the court found that under the contract between Condustrial and the South Carolina Department of Corrections, the contract between the state agency and staffing company provided that the nurses “are employees of Contractor and not SCDC,” and further stated that “[a]ll matters concerning wages, expenses, hours worked and paid, working conditions, and other similar administrative matters shall be resolved between Contractor and its employees and not between employees and SCDC.”  Based solely on the contract between the staffing agency and its client, the court held that the nurse could proceed with her IC misclassification claim.  Turner v. Condustrial Inc., No. 17-cv-00205-MBS (D.S.C. Sept. 21, 2017).

OKLAHOMA OIL AND GAS RIG LEASING COMPANY DENIED SUMMARY JUDGMENT IN IC MISCLASSIFICATION CLAIM. An Oklahoma federal court has denied summary judgment to an oil and gas rig leasing company, Black Cat Oil Company, finding that there are genuine issue of material fact to be tried to a jury as to whether the company and its owner qualify as the owner’s personal assistant’s “employer” under the FLSA. The plaintiff alleged that in addition to being owed unpaid compensation under the FLSA due to misclassification as an independent contractor, the company and its owner engaged in sexual harassment, wrongful discharge, intentional infliction of emotional distress, and assault and battery under state laws.  The plaintiff alleges she was the personal assistant to the owner of Black Cat, while the company and owner argue that she was a part-time contractor who did light secretarial work.  With regard to the company’s disputed status as an “employer” under the FLSA, the court applied the economic realities test and, viewing the facts in the light most favorable to the plaintiff, as it is required to do on a motion for summary judgment when the facts are in dispute, determined that there was evidence of “control and supervision over [the plaintiff’s] work”; a “predominate lack of opportunity for profit or loss”; a “complete lack of investment” by the plaintiff; a consistent working relationship;  a relative lack of skill or training; and a necessity for her to work. The court stated: “[b]ecause a trier of fact could make findings as to…the economic realities test which would support the legal conclusion that [the plaintiff] acted as an employee rather than an independent contractor, [defendants] [are] not entitled to summary judgment as a matter of law” on the FLSA misclassification claim. The court reached the same result under the plaintiff’s state law claim for sexual harassment, finding that while there are facts indicating that she is an independent contractor, “taken as a whole the evidence presented by [the plaintiff] raises a general issue as to whether [the owner] exercised the requisite level of control” for the company to as an “employer.” Johnson v. Mueggenborg, No. 16-CV-659 (N.D. Okla. Sept. 19, 2017).

SIX-YEAR OLD FEDEX IC MISCLASSIFICATION CASE IN MASSACHUSETTS HEADED TO TRIAL. FedEx Ground Package System, Inc. has defeated a delivery driver’s motion to summary judgment in his IC misclassification claim in a long-running misclassification lawsuit first filed in 2011.  This case was originally part of a lawsuit brought by many drivers, all of whom but one, driver Clayton Schwann, had already settled with the company. After many motions through years of litigation, the current issue before the court for this one remaining plaintiff is whether FedEx can satisfy Prong 3 of the Massachusetts Independent Contractor Law – is the individual customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.  Prong 2 of the law had previously been determined by the U.S. Court of Appeals for the First Circuit as being preempted by a federal law for companies in this industry. During the hearing of the summary judgment motion, the driver conceded that there may be disputed issues of fact that require a trial with regard to Prong 1 of the law.  That prong addresses whether the driver has been and will continue to be free from control and direction in connection with the performance of his services, both under his contract for the performance of service and in fact. Under the state’s IC test, the alleged employer must satisfy all three prongs (or in this case, two prongs) to establish that it is not the individual’s employer.

In support of his position under Prong 3 that FedEx cannot show that Schwann had an independently established trade, occupation, profession, or business, the driver argued that FedEx retained the right to audit and monitor his performance, including “ride-alongs” by company personnel in his vehicle;  that he could not control the number of packages FedEx assigned to him on any given day, which regularly required him to work 60 hours per week so he could not develop business elsewhere; and that although he could use his vehicle for non-FedEx activities provided he did not display the FedEx logo while doing so, covering up the logo was difficult and could not be re-applied if removed. In denying the driver’s motion for summary judgment, the court found questions of fact existed whether the ride-alongs were significant enough to undermine IC status, that no facts were presented suggesting the ride-alongs could or did result in termination of drivers,  that declarations from other FedEx drivers showed that it was common practice for drivers to swap packages among themselves to increase or decrease their package volume; and that conflicting evidence existed regarding how feasible it was for drivers to cover up FedEx’s logos so they could potentially engage in non-FedEx related activities. The court stated that at trial, “there must be a showing that the test under both prongs 1 and 3 of the Independent Contractor Law is satisfied for FedEx to prevail. If such showing is not made on either prong, [the driver] will be entitled to a verdict in his favor and, if shown, damages because of his misclassification as an independent contractor.” Schwann v. FedEx Ground Package System, Inc., No. 11-cv-11094 (D. Mass. Sept. 20, 2017).

Regulatory and Administrative Initiatives (1 case)

NLRB FINDS INDIANA MEDICAL LAB VIOLATED FEDERAL LABOR LAW BY MISCLASSIFYING ITS DRIVERS WHO TRANSPORT MEDICAL SAMPLES.  An Administrative Law Judge for the National Labor Relations Board has found that an Indiana medical specimen transport company, Velox Express, not only violated the National Labor Relations Act by terminating a courier driver whom the ALJ found to be an employee and not an independent contractor due to her complaints about IC misclassification, but also by classifying as independent contractors the other drivers/medical couriers who collect and deliver specimens collected from doctor’s offices, clinics, and hospitals to a laboratory for analysis. Using a multi-factor analysis, the ALJ found the following factors favored employee status: there was significant control over the way the drivers performed their jobs including submission to random drug tests, non-solicitation and non-compete clauses, mandatory pick up times of the specimens, permission needed for time off, a dress code;  the drivers were not engaged in a distinct occupation or business;  the work was done under the direction of the employer;  the level of knowledge required to be a Velox driver/courier did not rise to the level of a skill; there was more of an at-will relationship than a contractual relationship; the company set the fee for services provided by the drivers; the work is part of the regular business of the company; and the drivers did not render services as part of their own independent business.  The ALJ found that only one factor, that the drivers use their own vehicles and pay for their fuel, insurance, and maintenance of their vehicles, supported IC status.  In addition to finding that the company’s termination for complaining about misclassification violated the NLRA, the ALJ concluded that by requiring courier drivers to sign IC agreements and thereby misclassifying its drivers, Velox “restrained and interfered with their ability to engage in protected activity by effectively telling them  that they are not protected by Section 7 and thus could be disciplined or discharged for trying to form, join or assist a union or act together with other employees for their benefit and protection.”  Velox Express Inc., No. 15-CA-184006 (NLRB Sept. 25, 2017) (ALJ Arthur J. Amchan).

Legislative Initiatives (1 matter)

CONGRESSIONAL COMMITTEE HOLDS EXPLORATORY HEARING ON CHANGES TO LABOR AND TAX LAWS AFFECTING THE GIG ECONOMY. A Congressional hearing was held on September 6, 2017 by the House Education and Workforce Committee to gather viewpoints over the possible need for new federal labor and tax legislation addressing the growing gig economy. Included among the participants were Michael Beckerman, President and CEO of the Internet Association, who reportedly testified that he is concerned that “policymakers and regulators have put up roadblocks to consumer choice and competition in some communities.”  But Sharon Block, a former Labor Department official and current executive director of Harvard University Labor and Worklife Program, who also testified, reportedly stated “We have a danger here of placing the online platform economy in one category and saying that labor and employment laws don’t fit.” Rep. Virginia Foxx (R-N.C.) said at the hearing:  “ The self-employed individuals who rely on the sharing economy for work don’t fit neatly into obsolete job categories defined in another era. So, there are important questions over how we can modernize policies to meet the needs of the future.”

While members of Congress have introduced 15 bills dealing with IC classification and misclassification since mid-2007, no bills have been passed.  In the meantime, new state laws have been passed in over half the states in that time, and any new federal laws would not impact the crazy-quilt of state laws that currently exists in this area.

Written by Richard Reibstein

Compiled by Janet Barsky