Last month’s legal news in the area of independent contractor misclassification and compliance was dominated by two key arbitration decisions by federal circuit courts: one that compelled arbitration of an IC misclassification lawsuit by drivers delivering restaurant food through the GrubHub platform, and the other where a motion to compel arbitration was denied in an IC misclassification lawsuit by drivers making last-mile deliveries of packages for Amazon.com. We commented on the Amazon case in a separate blog post last month and in a Law360 article quoting the publisher of this blog, where we noted that most companies should not be concerned about the Amazon decision because the arbitration clause used by Amazon appeared to be rather unique. Two of the other cases we report on below are meaningful for businesses in two industry sectors: blogging and pharmacies.
Most companies that are in the blogging business or engage professional bloggers to promote their products treat those providing blogging services as independent contractors. But unless such companies structure, document, and implement the bloggers’ relationship in a manner that maximizes compliance with federal and state independent contractor laws, they are likely to be targets for plaintiffs’ class action lawyers and are unlikely to escape lawsuits alleging IC misclassification without paying a sizeable multi-million dollar settlement. This was the situation in the blogger case below, resulting in a $4 million settlement. For this reason, many companies seek to enhance their IC compliance by use of a process such as IC Diagnostics™, which is designed to provide a customized and sustainable solution-based strategy consistent with the company’s existing business model.
Pharmaceutical deliveries are vital to both pharmacy stores and customers that need prescription medications delivered. Many pharmacies contract with delivery companies that, in turn, use delivery persons to fulfill the pharmacy requests for deliveries. Sometimes, those delivery persons are treated as independent contractors. When they are, plaintiffs’ class action lawyers oftentimes sue both the the company that engaged the delivery drivers as ICs and the pharmacy company, asserting that they are both joint employers of the drivers. That is what happened in the case reported below, which the pharmacy settled for $4.5 million after the delivery company declared bankruptcy. Part of the IC Diagnostics process is use of state-of-the-art arbitration clauses with class and collective action waivers. If the delivery company in the case below had included that type of contractual clause in its independent contractor agreements, the court might have denied class action certification. Therefore, a business that engages an independent delivery company may wish to insist in the future that any such company use an effectively-drafted arbitration clause – regardless of whether the delivery company treats delivery persons as employee or ICs – and that the arbitration provisions cover the business as a third party beneficiary.
In the Courts (5 cases)
MEDIA COMPANY TO PAY $4 MILLION TO BLOGGERS IN INDEPENDENT CONTRACTOR MISCLASSIFICATION CLASS ACTIONS. Vox Media has reached a $4 million settlement with hundreds of SB Nation sports bloggers in three separate class and collective actions based on allegations that they were misclassified as independent contractors in violation of California and New Jersey law as well as the FLSA. These actions were brought on behalf of the named plaintiffs and other paid content contributors for Vox Media’s sports blogging network and flagship property SB Nation. According to the complaint in one of the cases, SB Nation operates over 300 team sites dedicated to publishing written articles, videos, and other content on professional and college sports. Each team site posts daily coverage on games, statistics, player trades, and culture; the more traffic the team sites attract, the more advertising revenues Vox Media generates. The complaint specifically alleged that Vox Media misclassified the Content Contributors, including job titles such as Site Manager, Associate Editor, Managing Editor, and Contributor, by directing and controlling the performance of Content Contributors in writing and editing content for its blogs.
According to the plaintiffs, the total settlement represents 28% of the maximum estimated exposure of $14.3 million. The settlement amount was discounted in view of Vox Media’s assertions that evidence obtained through discovery showed that the Content Contributors performed work when and where they chose, had unfettered editorial control over the content they produced, and had minimal contact with Vox Media employees. Further, many of the plaintiffs viewed themselves as professional writers who wrote for multiple outlets, often on a freelance basis. Bradley v. Vox Media d/b/a SB Nation, No. 17-cv-01791(D.D.C. Aug. 17, 2020); Spruill v. Vox Media d/b/a SB Nation, No. 17-cv-01791(D.D.C. Aug. 17, 2020); and Reddington v. Vox Media d/b/a SB Nation, No. 20-cv-1793 (D.D.C. Aug. 17, 2020).
$4.5 MILLION SETTLEMENT OF PHARMACEUTICAL DELIVERY DRIVERS’ CLASS ACTION FOR IC MISCLASSIFICATION. A West Virginia federal court has approved a $4.5 million settlement of a Fair Labor Standards Act collective action between an industry-leading long-term care pharmacy services provider and a class of 220 pharmaceutical delivery drivers alleging wage and hour violations due to misclassification as independent contractors and not employees. According to the complaint, a delivery company had a business arrangement with the pharmacy services provider in which it used the delivery company’s drivers to deliver pharmaceuticals and medical products to pharmacy customers. The drivers alleged that the pharmacy services provider and the delivery company were joint employers of the drivers, misclassified them as independent contractors, and made all decisions regarding where, when, and how the drivers should perform their work. The allegations including those about joint employer status were vigorously denied. The delivery company was voluntarily dismissed from the lawsuit upon its filing for bankruptcy in 2018. The $4.5 million settlement provides for $2.25 million to be distributed to the delivery drivers and $2.25 million to be awarded as attorneys’ fees and costs. Young v. Act Fast Delivery of West Virginia Inc., et al., No. 16-09788 (S.D.W.Va. Aug. 18, 2020).
COURT DENIES AMAZON RIGHT TO ARBITRATE DRIVERS’ CLASS ACTION LAWSUIT ALLEGING INDEPENDENT CONTRACTOR MISCLASSIFICATION. The U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s decision denying Amazon’s motion to compel arbitration, holding that drivers delivering Amazon packages fall within the interstate transportation workers’ exemption to the Federal Arbitration Act (FAA). As we discussed in our blog post of June 10, 2019, a federal district court in the State of Washington had ruled that drivers that deliver Amazon packages fall within the interstate transportation workers exemption to the Federal Arbitration Act (FAA) and may therefore continue to litigate their federal Fair Labor Standards Act and Washington state wage and hour claims in court rather than be compelled to litigate their claims in arbitration. On appeal, a divided Ninth Circuit panel, in agreement with the First Circuit in its Waithaka decision (see our blog post of August 24, 2020) affirmed the district court’s decision and concluded that the drivers were exempt from the FAA’s enforcement provisions because they were transportation workers engaged in interstate commerce when they made “last mile” deliveries of goods in the stream of interstate commerce – even if the drivers did not themselves cross state lines. The panel also held that the arbitration provision, which included a choice-of-FAA clause, could not be enforced under either federal law or Washington state law.
Additionally, the court addressed Amazon’s independent contractor agreement, which contained a provision specifying that the FAA and not Washington State arbitration law will govern any disputes arising between the parties. The Court noted that Washington’s arbitration law by its own terms “does not apply to any arbitration agreement between employers and employees.” It therefore concluded, “Because there is no law that governs the arbitration provision, we agree with the district court that there is no valid arbitration agreement.”
The publisher of this blog was quoted in an article published in Law360 on April 24, 2019 that there is a “hidden lesson” from the Amazon court decision because companies can get around “arbitration-unfriendly laws” by making sure they select state arbitration laws in their independent contractor agreements that do not have the type of exemptions and exclusions found in the FAA. “By so doing, companies should generally be able to avoid [the U.S. Supreme Court’s decision in] New Prime and compel arbitration of almost all disputes with independent contractor drivers under an arbitration-friendly state arbitration law – much to the chagrin of workers classified as independent contractors, who may continue to regard New Prime and the new Amazon decision as a get-out-of-arbitration-free card.” We also were quoted on the Amazon decision in another Law360 article published August 20, 2020. In our blog post of August 24, 2020 on the case, we noted that few if any other companies have arbitration clauses that are similar to Amazon’s, and we offer 12 tips on more effectively drafting arbitration provisions with class and collective action waivers. Rittman v. Amazon.com, No. 19-35381 (9th Cir. Aug. 19, 2020).
GRUBHUB ABLE TO COMPEL INDIVIDUAL ARBITRATION OF FOOD DELIVERY DRIVERS’ INDEPENDENT CONTRACTOR MISCLASSIFICATION CLASS ACTION. Food delivery drivers for Grubhub are not exempt from the Federal Arbitration Act (FAA) as transportation workers engaged in interstate commerce and must therefore arbitrate their wage and hour claims. Grubhub, “an online and mobile food-ordering and delivery marketplace,” provides a platform for diners to order takeout from local restaurants, either online or via its mobile app. When a diner places an order through Grubhub, Grubhub transmits the order to the restaurant and dispatches a driver to deliver the food to the customer. The plaintiff drivers in the consolidated appeals had lawsuits against Grubhub alleging that Grubhub violated the overtime provisions of FLSA due to its misclassification of the drivers as independent contractors and not employees. Each of the drivers had signed a Delivery Service Provider Agreement that required them to submit to arbitration “any and all claims” arising out of their relationship with Grubhub. In both cases, Grubhub moved to compel arbitration, and in both cases, the drivers argued that their contracts with Grubhub were exempt from the FAA because they were “workers engaged in foreign or interstate commerce.” Both district courts concluded that the FAA applied and compelled arbitration.
In the consolidated appeal of both cases, the Seventh Circuit affirmed the district courts’ decisions, holding that to fall within the narrow exemption, the drivers “had to demonstrate that the interstate movement of goods is a central part of the job description of the class of workers to which they belong.” The appellate court explained that the drivers “completely ignore[d] the governing framework” because “rather than focusing on whether they belong to a class of workers actively engaged in the movement of goods across interstate lines, the plaintiffs stress that they carry goods that have moved across state and even national lines. A package of potato chips, for instance, may travel across several states before landing in a meal prepared by a local restaurant and delivered by a Grubhub driver….But to fall within the exemption, the workers must be connected not simply to the goods, but to the act of moving those goods across state or national borders.” Wallace v. Grubhub Holdings, Inc., No. 19-1564 (7th Cir. Aug. 4, 2020); and Souran v. Grubhub Holdings Inc., No. 19-2156 (7th Cir. Aug. 4, 2020).
SURGEON FOUND TO BE INDEPENDENT CONTRACTOR BY NINTH CIRCUIT. A bariatric surgeon in Hawaii cannot pursue a Title VII race discrimination and retaliation suit against Adventist Health Castle Medical Center because he is an independent contractor and not an employee of the Medical Center according to the U.S. Court of Appeals for the Ninth Circuit. In affirming the district court’s grant of summary judgment in favor of the Hospital, the Ninth Circuit applied the common law test articulated by the U.S. Supreme Court in an ERISA case called Darden to determine if the surgeon was an employee under Title VII and therefore entitled to that statute’s protections. Among the many Darden factors weighing in favor of independent contractor status were the surgeon’s fees from the Hospital only amounted to 10% of his earnings; he did not receive any employee benefits; his obligations to the Hospital were limited (five days per month of on-call emergency room service) providing him the freedom to run his own private medical practice; he leased space from the Hospital for elective surgeries on his own patients, performed general surgeries at a competing hospital, and could refer patients to any hospital of his choosing; and he was described as an independent contractor in the written agreements entered between the parties. The surgeon argued unsuccessfully that he was an employee because the Hospital provided assistants and medical equipment, and he was required to provide services consistent with the Hospital’s professional standards. The court stated that in the hospital-physician context, the location of work and source of equipment and staff “are not indicative of employee status because all hospital medical staff . . . must work inside the hospital using its equipment.” Likewise, the court added, “It is also no surprise that [the Hospital] subjected [the surgeon] to regulations, as hospitals are responsible for maintaining a certain standard of care and safety for patients.” Henry v. Adventist Health Castle Medical Center, No. 19-cv-16010 (9th Cir. Aug. 14, 2020).