Six of the nine cases reported below from July 2020 involve drivers’ class action lawsuits alleging independent contractor misclassification against transportation and logistics companies. They include three settlements, the largest of which could cost the defendant trucking company as much as $28 million. The fourth and fifth cases involve conflicting decisions by key appellate courts as to whether arbitration clauses are enforceable against drivers found to be engaged in interstate commerce. The sixth case pertains to a court’s certification of yet another class action IC misclassification case by drivers brought against a transportation company.
The most important decisions of those six reported cases involve two conflicting decisions by key appellate courts as to whether arbitration agreements entered into by workers found to be engaged in interstate commerce are enforceable. While the Federal Arbitration Act (FAA) promotes arbitration, it contains an exclusion for classes of transportation workers engaged in interstate commerce. That FAA exclusion was found to be controlling in a decision by the U.S. Court of Appeals for the First Circuit involving drivers delivering packages to Amazon customers, but only because (a) the Amazon arbitration agreement specifically excluded the Washington State arbitration law that would otherwise have authorized arbitration and (b) the public policy of Massachusetts, where the drivers resided, favored judicial class actions. Thus, that decision is likely to have limited application outside of Massachusetts.
On the other hand, the second of those two cases was a profound endorsement of the availability of arbitration under New Jersey law for transportation and delivery workers. In that case, the New Jersey Supreme Court held that even if the workers involved are covered by the FAA’s arbitration exclusion for transportation workers engaged in interstate commerce, the New Jersey Arbitration Act would provide a firm statutory basis on which to enforce arbitration agreements with class action waivers, even for interstate transportation workers. Because the New Jersey law is similar to arbitration statutes in most other states, this decision is likely to be regarded by transportation and delivery companies as very favorable.
As we noted, however, in a prior article published in a Bloomberg publication entitled “How to Effectively Draft Arbitration Clauses with Class Action Waivers in Independent Contractor Agreements,” many arbitration agreements, such as the one in the Amazon case, are not drafted in a manner that can withstand a legal challenge by plaintiffs’ class action lawyers. Companies should therefore take a two-step approach to minimizing IC misclassification exposure: enhance compliance with IC laws by using a process such as IC Diagnostics™, and shore up the language used in arbitration agreements with class action waivers consistent with the latest court cases on the enforceability of such clauses.
In the Courts (9 cases)
OVER THE ROAD TRUCKING COMPANY TO PAY $28 MILLION TO SETTLE IC MISCLASSIFICATION CLASS ACTION WITH DRIVERS. New Prime Inc., an over the road transportation company that offers refrigerated, flatbed, tanker, and intermodal carrier services, has agreed to a $28 million settlement with class of 40,000 truckers in a case alleging wage and hour violations under the federal Fair Labor Standards Act (FLSA) and Missouri state wage law due to alleged independent contractor misclassification. The claims included failure to properly compensate drivers for classroom orientation and for driving. The proposed settlement was reached between the parties after more than five years of litigation, including appeals before the U.S. Court of Appeals for the First Circuit and United States Supreme Court relating to the enforceability of New Prime’s arbitration agreement to drivers classified as independent contractors as well as class and collective certification. See our prior blog posts of January 15, 2019, February 4, 2019 and January 9, 2020). The proposed settlement includes resolution of two pending cases against New Prime and provides for a settlement fund of up to $28 million, of which $14 million is non-reversionary, and the other $14 million will be distributed only to the extent claims made exceed the non-reversionary amount. The settlement also provides for up to 33% of the fund to be earmarked for attorneys’ fees (up to $9.2 million). Oliveira v. New Prime, Inc., No. 1:15-cv-10603 (D. Mass. July 20, 2020).
LARGE TRUCKING COMPANY SETTLES WITH DRIVERS IN INDEPENDENT CONTRACTOR MISCLASSIFICATION LAWSUIT FOR $6.5 MILLION. J.B. Hunt Transport, Inc. and putative class of 312 truck drivers have reached a $6.5 million settlement in an independent contractor misclassification lawsuit alleging wage and hour, business expense, and meal and rest break violations under the California Labor Code, as well as an unfair competition claim and a claim under California’s Private Attorney Generals Act (PAGA). J.B. Hunt is a transportation and logistics company that, among other things, provides regulated for-hire transportation services. According to the amended class action complaint, the plaintiff truckers alleged that J.B. Hunt misclassified the drivers who signed Intermodal Independent Contractor Operating Agreements as independent contractors and not employees “[i]n a scheme to increase profits by unlawfully evading their obligations to provide benefits, pay relevant taxes, and absorb various operating costs.” The truckers claimed that J.B. Hunt “completely controls the overall operation of its business,” set delivery times, unilaterally set the rates paid to truckers, treated other drivers performing the same duties as employees, retained the right to terminate their relationships with the drivers with or without cause, and required the drivers to adhere to rules and policies promulgated by J.B. Hunt. The gross settlement amount of $6.5 million includes payments to settlement members that are likely to be between $20,000 and $46,000 per trucker depending on their length of their relationship with the company and payment under PAGA of $150,000. Ly v. J.B. Hunt Transport Inc., No. 2:19-cv-01334 (C. D. Cal. July 6, 2020).
ANOTHER LARGE TRANSPORTATION LOGISTICS COMPANY SETTLES DRIVER IC MISCLASSIFICATION CASE FOR $5 MILLION. Ryder System, Inc. (part of MXD Group Inc. now known as Ryder Last Mile) settled an independent contractor misclassification class action covering over 900 delivery drivers and their helpers in California for over $5 million. The plaintiff driver alleged that Ryder engaged in wage and hour violations under the California Labor Code and Commissioner’s Wage Orders, as well as unfair competition and a claim under PAGA. On its website, Ryder System, Inc. describes itself as “the only fully integrated transportation and supply chain logistics provider in the industry.” The drivers performed local transport and delivery of furniture, appliances, and other retail items for customers of Ryder. The plaintiff driver also alleged that Ryder retained the right to exercise control over the way the drivers performed their deliveries, including retaining the right to control the drivers’ schedules, routes, customers, equipment, appearance, insurance, and helpers. The complaint further alleged that uniforms and attendance at meetings were required; drivers’ movements throughout the day were tracked and monitored; and no opportunity existed to negotiate drivers’ pay. The proposed settlement includes a settlement class consisting of approximately 310 Motor Carrier Class Members (those who contracted directly with Ryder as individuals or through a formal business entity) and about 640 Non-Motor Carrier Class Members (all individuals engaged by the motor carriers to help operate their commercial motor vehicles and perform delivery services for Ryder). Kimbo v. MXD Group Inc., No. 19-cv-00166 (E. D. Cal. July 1, 2020).
NEW JERSEY SUPREME COURT VALIDATES USE OF STATE ARBITRATION LAW TO COMPEL ARBITRATION OF DRIVERS’ IC MISCLASSIFICATION CLAIMS. The New Jersey Supreme Court resolved conflicting decisions from two different panels of the New Jersey Appellate Division in two cases involving drivers covered by arbitration agreements with class action waivers. As we reported in our prior blog post of July 8, 2019, two decisions by appellate courts in New Jersey reached different results as to whether drivers engaged by transportation and delivery companies can be compelled to arbitrate their claims for IC misclassification. On July 14, 2020, the New Jersey Supreme Court held that even if the arbitration agreements at issue are exempt from arbitration under the interstate transportation worker exemption in the Federal Arbitration Act (FAA), the arbitration agreement may still be enforceable against the drivers under the New Jersey Arbtration Act (NJAA), whether that state law is mentioned in the arbitration agreement or not. Colon v. Strategic Delivery Solutions, LLC, No. 083174 (Sup. Ct. N. J. July 14, 2020); Arafa v. Health Express Corp., No. 083154 (Sup. Ct. N. J. July 14, 2020).
FIRST CIRCUIT FINDS AMAZON’S ARBITRATION AGREEMENT UNENFORCEABLE AS APPLIED TO DELIVERY WORKERS IN IC MISCLASSIFICATION LAWSUIT. The First Circuit has held that Amazon last-mile delivery drivers are covered by the Federal Arbitration Act’s exemption from arbitration for interstate transportation workers, even though they do not physically cross state lines. Amazon.com sells retail products online to customers throughout the United States and its subsidiary, Amazon Logistics, provides package delivery services “through the last mile.” The last mile delivery is performed by independent contractors that sign up for delivery shifts through the Amazon Flex (AmFlex) smartphone app. A last mile driver filed a class action complaint against Amazon alleging he and other AmFlex drivers were misclassified as independent contractors instead of employees. Amazon moved to compel arbitration but the district court concluded that the delivery driver was exempt from the FAA because he was engaged in interstate commerce, and that even though Massachusetts law governed the enforceability of the arbitration provision, the class action waiver provision was unenforceable under Massachusetts public policy. On appeal, the First Circuit refused to accept what it characterized as “Amazon’s cramped construction of [the] exemption for transportation workers,” and held that “[Plaintiff] and other last-mile delivery workers who haul goods on the final legs of interstate journeys are transportation workers ‘engaged in . . . interstate commerce,’ regardless of whether the workers themselves physically cross state lines.”
Even though the court concluded that the FAA arbitration exclusion applied, it still had to determine whether Amazon’s arbitration and class action waiver provisions were enforceable under state law. Ultimately, after analyzing whether Washington or Massachusetts law applied, the court applied Massachusetts law because of an unusual provision in the Amazon arbitration agreement that specifically excluded the Washington State arbitration law, which would otherwise have authorized arbitration. The First Circuit held that under Massachusetts law, the arbitration agreement with class action waiver was unenforceable under the state’s public policy favoring judicial class actions.
The publisher of this blog was quoted in a July 17, 2020 article in Law360 by Linda Chiem that “while some industry observers will likely view the First Circuit’s decision as momentous, it really isn’t,” and that “the First Circuit decision involves only Massachusetts and doesn’t limit a company’s use of arbitration provisions with class action waivers in its contracts with independent contractors who live or work in other states.” The article also added the following remark by this blog’s publisher: “On the one hand, the decision expands the federal arbitration exclusion for interstate transportation workers by precluding arbitration for drivers who make ‘last mile’ deliveries of goods being sent across state lines – even when the ‘last mile’ drivers do not themselves cross state lines. Yet on the other hand, the First Circuit acknowledged that state arbitration laws, which typically cover all types of workers, including those in interstate commerce, still apply to those workers despite the federal exclusion.” Waithaka v. Amazon.com, Inc., No. 19-1848 (1st Cir. July 17, 2020).
CLASS CERTIFICATION GRANTED IN NEW JERSEY IC MISCLASSIFICATION CASE AGAINST ANOTHER TRUCKING AND LOGISTICS COMPANY. A New Jersey federal court has granted a motion for class certification in a proposed independent contractor misclassification case brought by truckers against logistics/transportation company, National Freight, Inc. and NFI Interactive Logistics, Inc. The plaintiffs, drivers from Pennsylvania and Rhode Island, made deliveries to Trader Joe’s stores throughout many East Coast states on behalf of NFI and claimed that NFI is liable for statutory wage/hour violations, unjust enrichment, and payment of their expenses as a result of allegedly being misclassified as ICs. Four different independent contractor agreements were used during the relevant period covered by the lawsuit: the 2009, 2010 and 2017 versions contained a New Jersey choice of law provision while the 2019 agreement contained a Texas choice of law provision. Using the New Jersey ABC test, the court concluded that all three prongs of the test could be resolved through common evidence existing among the proposed class members. For Prong A, the independent contractor agreements and company policies constituted common evidence to determine whether the drivers were free from control by NFI. For Prong B, the nature of the service, the usual course of business of the employer, and whether the service was performed at the employer’s place of business did not vary by individual. For Prong C, the court cited to common evidence that could demonstrate the drivers were precluded from operating as independent businesses such as the drivers worked full-time, worked exclusively for NFI, displayed NFI’s logo and DOT number on their trucks, and pulled trailers owned by NFI. Portillo v. National Freight Inc., No. 15-cv-7908 (D.N.J. July 1, 2020).
DRIVING FOR RIDE-SHARING COMPANY WHILE UNEMPLOYED DID NOT DISQUALIFY CLAIMANT FROM UNEMPLOYMENT BENEFITS. The Pennsylvania Supreme Court has held that an unemployed behavioral health specialist is entitled to unemployment compensation benefits even though he took gig as Uber driver while unemployed. His Uber earnings were reported to the local unemployment Service Center and a Determination was rendered that he was ineligible for continued benefits because he was “self-employed.” The Determination was affirmed on administrative appeals by the claimant, who next sought review by the state Commonwealth Court. That court rejected the Unemployment Board of Review’s ruling that the claimant was self-employed and therefore ineligible for benefits. That decision was in turn appealed to the Pennsylvania Supreme Court, which concluded that claimant was not engaged in self-employment (and was therefore eligible for unemployment compensation benefits) because he was not free from control or direction over the performance of his driving services, and was not shown to have an “independently established business.” In ruling in favor of the claimant, the Court found that the claimant did not have the right to use a substitute to provide services; Uber set the pay structure; and Uber provided the tools and equipment to the claimant. Lowman v. Unemployment Compensation Board of Review, No. J-73-2019 (July 24, 2020).
SALES ASSOCIATES CLASSIFIED AS INDEPENDENT CONTRACTORS SUE LARGE BAKING COMPANY FOR IC MISCLASSIFICATION. A sales development associate has filed a proposed class and collective action on behalf of himself and other sales associates against baked goods manufacturer and distributor, Pepperidge Farm Inc. The plaintiff claims that the company violated the overtime compensation provisions of the Fair Labor Standards Act and the Ohio wage and hour law due to Pepperidge Farm’s alleged misclassification of sales associates as ICs instead of employees. According to the complaint, the sales development associates, who execute Consignment Agreements with Pepperidge Farm, were responsible for stocking product displays, delivering product to stores, and merchandising and promoting Pepperidge Farm products at grocery and convenience stores as well as locations like military bases. The complaint alleges that the company exerts a high degree of control over the manner in which the sales associates perform their responsibilities, including requiring sales associates to meet sales and distribution goals, follow retailers’ plan-o-grams, and adhere to company pricing guidelines, policies, and procedures. The complaint also alleges that sales associates cannot modify their commission percentage amount in order to maximize profit, cannot renegotiate compensation, are economically dependent upon the company, are not in business for themselves, and perform work that is integral to the company’s business. Paugstat v. Pepperidge Farm, Inc., No. 20-cv-00508 (S. D. Ohio July 1, 2020).
CAR-WASH COMPANY IN CALIFORNIA SUED BY LABOR COMMISSIONER FOR MISCLASSIFYING CAR WASHERS AS INDEPENDENT CONTRACTORS. The California Labor Commissioner’s Office filed a lawsuit against gig-economy car wash company, Mobile Wash, Inc., claiming it violated wage and hour provisions of the California Labor Code and applicable wage orders due to the alleged misclassification of about 100 car washers as independent contractors and not employees. The Commissioner’s Office also is seeking to enjoin the company, which allegedly regards itself as the “Uber of car washing,” from misclassifying the car washers and failing to provide them with protections afforded to employees, and seeking to halt its operations until the company meets the state’s car wash registration and bond requirements.
According to a July 13, 2020 News Release by the California Department of Industrial Relations, this is the first lawsuit filed by the Labor Commissioner’s Office to enforce Assembly Bill 5 (AB5), the 2019 law that requires application of a strict version of the ABC test to determine if a worker in California is an employee or independent contractor. With regard to Prong A of the ABC test, the complaint alleges that the company requires the car washers to follow the instructions they are given by the company on the techniques and methods to be used in washing the cars. The News Release also states that Mobile Wash requires the washers to use their own cars and buy their own uniforms, insurance, cleaning equipment, supplies, and gas. The workers were not entitled to reimbursement for such business expenses or paid for the travel time involved. Regarding Prong B, the complaint alleged that “the work performed by these car washers – car washing – constitutes the very core of Mobile Wash’s business.” Also named in the lawsuit is Mobile Wash’s president and CEO, who faces liability under provisions in the California Labor Code that hold business owners, directors, officers, and managing agents jointly liable, along with the business entity, for unlawful misclassification. Garcia-Brower v. Mobile Wash Inc., No. 20STCV24800 (Cal. Super. Ct. L.A. County June 30, 2020).
Other Noteworthy Matters
SHOULD YOUR BUSINESS REQUIRE INDEPENDENT CONTRACTORS TO SIGN CORONAVIRUS WAIVERS AND RELEASES OF LIABILITY? In an article published by Bloomberg and re-published in our blog post dated July 21, 2020, we noted that although most commentators have urged companies to refrain from requiring employees to sign COVID-19 waivers and releases, there is little reason not to require independent contractors to sign well-drafted COVID-19 liability waivers. Unlike employees, who may be covered by workers’ compensation and other laws that prohibit employers from using employee waivers for work-related injuries and illnesses, independent contractors are typically not covered by such laws. The article notes that businesses may wish to consider including some or all of the following provisions in a COVID-19 release:
- language whereby the contractor acknowledges the inherent risk of contracting COVID-19 in providing services on an in-person basis to a company or its customers;
- a provision whereby independent contractors represent and warrant that they agree to follow guidelines issued by the Centers for Disease Control and Prevention (CDC) and any state or local COVID-19 laws, including those regarding the use of masks and social distancing; and
- an agreement by the contractor not to engage in in-person activities with employees or customers of the company if the independent contractor has a fever or any COVID-19 symptoms, recently has been in contact with another individual who has been diagnosed with COVID-19 or has exhibited such symptoms, or not long ago traveled to a state or country that is on a list of jurisdictions requiring the individual to self-quarantine upon return.
Additionally, when a business contracts with independent contractors to provide services to its customers, the company may wish to create a three-party waiver and release agreement between it, the customer, and the contractor. In such an agreement, all parties would waive and release claims against the other parties from specific acts of negligence that may lead to one of the parties contracting COVID-19. Companies may wish to include a provision in such three-party agreements that all signatories should follow CDC guidelines to the extent feasible as well as all state and local COVID-19 laws.