We highlight in this past month’s news update two class action settlements entered into by bakery companies alleged to have misclassified product distributors as independent contractors. One of those baked goods companies has now incurred over $47 million settling IC misclassification cases brought by distributors. We also comment below on a new class action lawsuit filed against one of those bakery product companies.
Selected companies in this industry have been targeted by class action lawyers representing independent distributors who claim that they are employees entitled to overtime and/or expense reimbursement. Calling themselves “delivery drivers,” the distributors’ allegations tend to minimize their entrepreneurial independence and focus on alleged direction and control by the defendant companies.
There are ways by which companies in this and most other industries can minimize these types of lawsuits and maximize their compliance with independent contractor laws. Some food manufacturers that contract with distributors as well as a host of other companies that utilize independent contractors have used a process such as IC Diagnostics™ to structure, document, and implement their IC relationships in a manner that should satisfy independent contractor laws in virtually all states as well as under federal law. Many companies that have not taken effective steps to meaningfully enhance their level of compliance have incurred considerable resources to defend cases they could have avoided or paid large amounts to settle such cases.
In the Courts (7 cases)
BAKERY GIANT SUED BY DISTRIBUTORS / DRIVERS IN IC MISCLASSIFICATION CLASS ACTION. A distributor of baked goods produced by Bimbo Bakeries has commenced a proposed class and collective action on behalf of himself and all other similarly situated drivers, claiming wage and hour violations under the Fair Labor Standards Act and Vermont state law due to alleged misclassification as independent contractors and not employees. Bimbo Bakeries’ brands include Entenmann’s, Nature’s Harvest, Thomas’s, and Sara Lee. According to the complaint, the company requires most distributors to form corporations as a condition of working for them, and allegedly exercises “virtually unlimited control” over the drivers, including dictating all prices, requiring the drivers to deliver to stores that are not profitable, employing supervisors who travel to stores in the drivers’ territories to review their work, and threatening to terminate distributors whose work does not meet the company’s standards. In addition, the complaint alleges that the company makes deductions from the drivers’ fees for items such as route loan repayments, their use of the company’s electronic equipment, lost or stolen product, insurance coverage, supplies, and truck lease payments, and directly employs delivery drivers who perform the same work for the company as the plaintiff and the putative class but are treated as W-2 employees. Harrington v. Bimbo Bakeries USA, Inc., No. 5:20-cv-84 (D. Vt. June 3, 2020).
FLOWERS FOODS SETTLES VERMONT CLASS ACTION IC MISCLASSIFICATION CASE FOR $7.6 MILLION. A Vermont federal district court has granted preliminary approval to a $7.6 million settlement reached between leading baked goods producer, Flowers Foods Inc., and class of food product distributors in an IC misclassification class and collective action under the FLSA and Vermont state law. Flowers Foods is the second-largest commercial bakery in the United States whose brands include Wonder Bread, Tastykake, Sunbeam, and Nature’s Own. The company acquired Lepage, a wholly-owned subsidiary that bakes and produces various baked products; Lepage then contracted with independent distributors who purchased distribution rights to sell and distribute products to customers in defined territories.
In December 2015, the distributors filed a class and collective action complaint against Flowers Foods and Lepage claiming defendants misclassified them as independent contractors and not employees. In their complaint, the distributors alleged that they were required to arrive at specified warehouses at specified times to stock their delivery vehicles with product; were responsible for delivering products to customers at times and locations specified by the company; and had no entrepreneurial influence over their day-to-day activities, including sale prices, shelf space within stores, orders, product selection, schedules, and delivery locations. After three years of discovery, the parties agreed to settle the lawsuit for $7.6 million and a number of non-monetary terms, including a Buy Back Option where Settlement Class Members who are current distributors are eligible to have their territories repurchased by Lepage, and creation and implementation of a Distributor Advocate position and Distributor Review Panel to oversee an alternate dispute resolution process and for resolution of contract-related disputes for independent distributors. Neff v. Flowers Foods Inc., No. 5:15-cv-00254 (D. Vt. June 4, 2020).
In the prior two months, the same company settled two IC misclassification cases for a combined total of $21.6 million. One of those settlements was for $8.3 million covering distributors in North Carolina, and the other was for $13.3 million for distributors in Pennsylvania, Maryland, and New Jersey. That same company settled similar lawsuits in the past for another $18 million: $9 million covering distributors in Alabama, Kentucky, Texas, Mississippi, Tennessee, Virginia, and Missouri, and before that for $9 million in yet another case involving North Carolina distributors.
FLOWERS FOODS ALSO FACES NEW CLASS ACTION FOR IC MISCLASSIFICATION IN CALIFORNIA. Less than a week after it settled the Vermont case, Flowers Foods was sued by distributors in California in another class and collective action lawsuit filed in federal court alleging violations under the FLSA and state Unfair Competition Law due to their alleged misclassification as independent contractors. The allegations in the California case are similar to those in the Vermont case with regard to claims that Flowers exercises control and direction over the distributors. The plaintiff alleges: “In short, Flowers sells the notion that these ‘independent contractors’ will run and control their own sales-related business for their own profit and gain. But Flowers never actually operates its business under these terms, despite Deliver Employees’ heavy investment and reliance on the promises Flowers makes.” Maciel v. Flowers Foods Inc., No. 3:20-cv-03814 (N. D. Cal. June 10, 2020).
DOORDASH SUED BY LOCAL DISTRICT ATTORNEY FOR ALLEGED IC MISCLASSIFICATION. The San Francisco District Attorney has filed a misclassification lawsuit on behalf of the People of the State of California against DoorDash, Inc. alleging violations of the state Unfair Competition Law due to alleged misclassification of delivery persons as independent contractors and not employees. The complaint alleges that DoorDash, Inc., a technology company that facilitates food delivery through its on-line platform that connects customers, local restaurants/stores, and delivery drivers who are called “Dashers,” cannot satisfy the newly-enacted three-pronged ABC test now in use in California to establish independent contractor status.
According to the complaint, DoorDash fails to meet Prong A requiring that the Dashers are free from control and direction by DoorDash because DoorDash allegedly requires usage of its App and compliance with its company policies; determines the eligibility requirements before a Dasher may begin making deliveries; dictates when and whether any Dasher is assigned to pick up and deliver a customer order; decides when, whether, and how many deliveries it will route to the Dashers; tracks and collects significant amounts of data regarding each Dasher’s deliveries, including number of acceptances and rejections of engagements, the amount of time each delivery takes, tip amounts, customer ratings, and number of deliveries per shift; and sets forth instructions as to how to handle food pick-ups, how long to wait at a customer location, and how to communicate with customers. The complaint also alleges that DoorDash cannot meet Prong B requiring that the work performed by Dashers is outside of DoorDash’s usual course of business because the Dashers and DoorDash are in the same business, which the complaint alleges is providing deliveries. Finally, the complaint also alleges that DoorDash cannot satify Prong C, which requires a showing that Dashers are engaged in an independently established trade or business because the Dashers are not customarily engaged in their own business, do not typically operate their own independent delivery companies while working for DoorDash, do not market themselves as professional delivery persons, and are not considered to be performing skilled work. People of the State of California v. DoorDash, Inc., No. CGC-20-584789 (Super. Ct. San Francisco County June 16, 2020).
U.S. DEPARTMENT OF LABOR SUES AUTO TRANSPORT COMPANY FOR IC MISCLASSIFICATION. The United States Department of Labor has filed an FLSA suit against a transport company, ProCorp, LLC, in Michigan federal court seeking an injunction and unpaid overtime compensation and liquidated damages for 700 drivers due to alleged misclassification as independent contractors. In a News Release issued June 16, 2020 by the Labor Department, its Wage and Hour Division conducted an investigation determining that ProCorp violated the FLSA by misclassifying drivers, who move new vehicles throughout the metro-Detroit area, as independent contractors and not employees. In support of its misclassification claim, the DOL alleges that the drivers were economically dependent on ProCorp because ProCorp controlled the drivers’ work, set the rates of pay without negotiation, and required them to sign broad non-compete agreements, and the drivers performed work integral to ProCorp’s business, had limited investment in the business, lacked the opportunity for profit or loss, and performed work requiring limited skill and initiative. Scalia v. ProCorp, LLC, No. 2:20-cv-11447 (E.D. Mich. June 3, 2020).
BOB’S DISCOUNT FURNITURE SUED BY DELIVERY DRIVERS IN CLASS ACTION ALLEGING INDEPENDENT CONTRACTOR MISCLASSIFICATION. Delivery drivers have commenced a class action in Connecticut federal court against Bob’s Discount Furniture, LLC and a logistics company, NEHDS Logistics, LLC, claiming defendants, as joint employers, violated the minimum wage and overtime provisions under the FLSA and Connecticut wage and hour law due to the misclassification of the delivery drivers as independent contractors and not employees. According to the complaint, the delivery drivers delivered Bob’s furniture to Bob’s customers, wearing Bob’s apparel and sometimes using Bob’s trucks. NEHDS Logistics is a provider of delivery and logistics services for Bob’s and other companies, and is alleged to maintain a warehouse where it stored its own vehicles, Bob’s vehicles and vehicles belonging to another entity, all of which were used interchangeably to deliver Bob’s furniture by delivery drivers who claim they were jointly employed by the defendants. The delivery drivers further claim that they received their delivery instructions from Bob’s and NEHDS employees, were expected to report each morning at the NEHDS facility, communicated with Bob’s and NEHDS employees throughout the workday, handled paperwork and invoices with Bob’s customers and NEHDS, and were subject to reprimand and termination by Bob’s and NEHDS. The complaint also alleges that the three-pronged ABC test applied under Connecticut law to determine independent contractor/employee status does not establish IC status. However, it appears that plaintiff’s counsel used the test for independent contractor status under the state’s unemployment insurance law. A motion to dismiss presumably will be filed by defendants, although plaintiffs will likely be able to amend the complaint to plead the correct legal standard. Mendez v. Bob’s Discount Furniture, LLC, No. 3:20-cv-00849 (D. Conn. June 19, 2020).
IC MISCLASSIFICATION CLASS ACTION CERTIFIED IN NEW YORK AGAINST LOGISTICS COMPANY. A federal district court in New York has certified as a class action an independent contractor misclassification claim brought by drivers against logistics provider, HomeDeliveryLink, Inc. (HDL). The plaintiffs brought claims for illegal wage deductions and recordkeeping violations under the New York Labor Law (NYLL) due to alleged misclassification as independent contractors. According to court papers filed by the plaintiffs, HDL is a third-party logistics company that operates as a “freight-forward broker” for Innovel Solutions, Inc., a company that warehouses merchandise for retailers. The drivers, through their own business entities, enter independent contractor agreements with HDL and deliver merchandise from the Innovel warehouses to customers’ homes throughout New York State. Among the allegations supporting the IC misclassification claim, HDL allegedly required all drivers to create a business entity; deducted from the drivers’ pay certain expenses such as the cost of truck rental, fuel, workers’ compensation, and liability insurance; provided training during an orientation period; supervised and directed the drivers; observed the drivers loading their trucks; monitored the drivers’ appearance; performed ride-alongs to evaluate the drivers’ performance; determined which drivers would work each day; prepared the routes; and required the drivers to download an app allowing customers to acknowledge receipt of delivery and provide a means for HDL to monitor driver status. Kloppel v. HomeDeliveryLink, Inc., No. 6:17-cv-06296 (W.D.N.Y. June 3, 2020).
Legislative Initiatives (1 item)
IOWA LAW PROTECTS INDEPENDENT CONTRACTOR OWNER-OPERATOR TRUCKERS. Iowa Governor Kim Reynolds signed into law on June 18, 2020 a bill (SF2296) that protects the independent contractor status of owner-operator truckers by defining the meaning of the term “owns” to include those with the right to purchase their truck. Iowa State Representative Gary Worthan (R-Storm Lake), who has a family trucking business, sponsored the bill and stated: “It will include anyone who owns their truck, truck tractor, or tractor-tractor combination. It will also include those who are in a purchase agreement, or a lease-to-purchase agreement….” The passage of this bill is seen by many as a backlash against what has transpired in California following the enactment of AB5, where owner-operator truckers and scores of other workers in other industries are now required to meet a test that could eliminate the ability of truckers to maintain an independent business.
Other Noteworthy Developments (1 item)
CALIFORNIA EARMARKS $20 MILLION TO ENFORCE AB5 LAW. On June 29, 2020, California Governor Newsom signed the 2020 Budget Act earmarking $20 million for enforcement of AB5 in the 2020-2021 budget year. AB5 took effect January 1, 2020 and established a strict statutory test for determining independent contractor status, as we have commented in several of our blog posts. The Budget provides resources to implement AB5, including $17.5 million to the Department of Industrial Relations, $3.4 million for the Employment Development Department, and $780,000 for the Department of Justice. According to the Budget summary, “These resources will allow these state entities to train employees on the application of the ABC test and to conduct more hearings, investigations, and litigation related to AB5.” Despite the views by many that AB5 essentially eliminates all independent contractors in the state except for a select few who were carved out with exemptions, we commented in our blog post of September 11, 2019 that many companies using ICs may be able to comply with the law without a change in their business model.