November 2020 was a superb month for ride-sharing and app-based delivery companies and for President-Elect Biden, but was far less favorable to professional sports leagues, interpreting and translation companies, oilfield businesses, and the trucking industry. We comment below on the success enjoyed in a California voter referendum for selected gig economy industries and the Biden Plan for addressing independent contractor misclassification. But unfavorable class action litigation experiences in other industries, including high-profile cases involving the NFL and the trucking industry, send a message to businesses using independent contractors that they need to enhance considerably compliance with federal and state independent contractor laws.
Many businesses have resorted to restructuring, re-documenting, and/or re-implementing their independent contractor relationships to minimize exposure to IC misclassification liability through a process such as IC DiagnosticsTM. Indeed, each of the businesses that are the subject of our discussion below could have benefitted from utilizing an approach of that sort, which often can reduce the likelihood of being sued or, if sued, reduce the amount of a class or collective action settlement. Companies also can substantially lessen or eliminate the possibility of such lawsuits with an effective arbitration clause including a class action waiver in their independent contractor agreements.
In the Courts (5 cases)
NFL SETTLES IC MISCLASSIFICATION CLAIMS OF SECURITY REPRESENTATIVES. The National Football League agreed to settle unpaid overtime compensation claims brought by nine former security representatives. The plaintiffs alleged that under the Fair Labor Standards Act as well as New York, Michigan, Pennsylvania and Nevada state wage and hour laws, the NFL misclassified the security representatives as independent contractors. According to the amended complaint, the NFL hires and assigns to football teams a security representative classified by the NFL as an independent contractor to provide game day services, stadium inspections, prescription drug audits, background checks, and investigative services. The overtime claims of the security representatives primarily were limited to time spent providing services at special events such as the Super Bowl, Pro Bowl, and international games. They alleged they were required to follow the NFL Best Practices for Stadium Security with regard to how to conduct stadium security inspections, prescription drug audits, and ball inflation inspections and were required to participate in training sessions, comply with NFL general policies, pass a background check, wear specific apparel, and use identification cards bearing the NFL logo. The NFL denied all of the misclassification allegations and asserted that many of the security representatives had their own businesses through which they provided services, could delegate their services to others, and were contractually bound to have their own place of business and use their own equipment. Buckley v. National Football League, No. 1:18-cv-03309 (S.D.N.Y. Nov. 23, 2020).
LANGUAGE SERVICES COMPANY MISCLASSIFIED INTERPRETERS ACCORDING TO PENNSYLVANIA APPELLATE COURT. In affirming a final administrative decision of the Pennsylvania Department of Labor and Industry, a Pennsylvania intermediate appellate court ruled that the 95 interpreters of Professional Interpreters of Erie were misclassified as independent contractors. The Company provides language services including interpretation, translation, and transcription services to medical facilities and other entities. The Court applied the two-prong test for determining independent contractor status under the Pennsylvania Unemployment Law: (1) the worker is free from direction and control by the hiring party; and (2) the individual is actually involved in an independent trade, occupation, profession, or business. The court found the company failed to satisfy prong 1 based on evidence that the company issued policies and procedures governing the conduct of the interpreters; established their rates of pay; provided them with name badges; trained them; controlled their assignments; mandated that they sign non-compete agreements; required their services to be rendered exclusively to the company; and monitored and conducted formal evaluations of their performance. The company was found to have failed to satisfy prong 2 because it limited the interpreters’ ability to work for competitors; any changes in interpreters’ availability had to submitted in writing two weeks before such engagement; and the interpreters generally were not free to refuse engagements. Ingrid L. Vega, d/b/a Professional Interpreters of Erie v. Commonwealth of Pennsylvania, Department of Labor and Industry, Office of Unemployment Compensation Tax Services, No. 1787 C.D. 2019 (Commw. Ct. Pa. Nov. 12, 2020).
ENERGY COMPANY SETTLES OILFIELD WORKERS’ IC MISCLASSIFICATION OVERTIME CASE FOR $1.2 MILLION. A Pennsylvania federal court has granted final approval of a $1.2 million settlement between 50 oilfield workers and Edgemarc Energy Holdings, Inc., an oil and natural gas company, in a proposed class and collective action alleging violations of the Fair Labor Standards Act and Pennsylvania and Ohio state wage and hour laws. The named plaintiff alleged that the company misclassified him and other oilfield workers because the company controlled all significant aspects of the job duties he performed; afforded him no opportunity for profit or risk of loss; did not require him to incur a substantial investment or to possess or use a specialized skillset; determined the hours and locations worked, tools used, and rates of pay received; and restricted his ability to work for other companies. He further asserted that the daily and weekly activities of the proposed class members were routine and largely governed by standardized plans, procedures, and checklists created by the company or its clients, that virtually every job function was pre-determined by the company or its clients, including the tools to use at job sites, the data to compile, the schedule of work, and related work duties, and that the company constricted the proposed class members to job duties outside of pre-determined parameters. Larsen v. Edgemarc Energy Holdings, LLC, No. 2:18-cv-1221 (W.D. Pa. Nov. 3, 2020).
CALIFORNIA INTERMEDIATE APPELLATE COURT REJECTS PREEMPTION ARGUMENT BY TRANSPORTATION COMPANY. The California Court of Appeal has held that the Federal Aviation Administration Authorization Act of 1994 (FAAAA) does not preempt application of California’s ABC test (initially codified in AB5 and now codified in AB 2257) in determining whether a federally licensed interstate motor carrier, Cal Cartage Transportation Express, LLC, has correctly classified its truckers as independent contractors. Cal Cartage operates trucking and drayage companies in and around the ports of Los Angeles and Long Beach using the services of independent owner-operator truck drivers to transport cargo to and from the ports. The Los Angeles City Attorney, acting on behalf of the People of the State of California, filed complaints against the company alleging wage and hour violations under California’s Unfair Competition Law due to the company’s alleged misclassification of the truckers as independent contractors and not employees. Under the FAAAA, no state may enact or enforce a law related to a price, route, or service of any motor carrier with respect to the transportation of property. The trial court that found that the B prong of the ABC test was preempted by the FAAAA. See our blog post addressing that decision. On appeal, however, the California Court of Appeal reversed.
The company had argued that Prong B of the ABC test makes it impossible for a motor carrier to contract with an owner-operator as an independent contractor and, consequently, the ABC test is preempted by the FAAAA because this interpretation would prevent the use of independent contractors, thereby affecting prices and services. The City Attorney countered that the ABC test is not preempted because it is a generally applicable employment law that does not prohibit the use of independent contractors and therefore does not have an impermissible effect on prices, routes, or services. The appellate court agreed with the City Attorney and concluded: “The ABC test does not mandate the use of employees for any business or hiring entity. Instead, the ABC test is a worker-classification test that states a general and rebuttable presumption that a worker is an employee unless the hiring entity demonstrates certain conditions. That independent owner-operator truck drivers, as defendants currently use them, may be incorrectly classified, does not mean the ABC test prohibits motor carriers from using independent contractors. The ABC test, therefore, is not the type of law Congress intended to preempt.” An appeal to the California Supreme Court is likely. Notably, this opinion contradicts a decision by the United States Court of Appeals for the First Circuit and a decision by the Supreme Judicial Court of Massachusetts applying a virtually identical ABC test. People v. Cal Cartage Transportation Express LLP, No. B304240 (Cal. Ct. App. Nov. 19, 2020).
TRUCKING COMPANY UNABLE TO FORESTALL CLASS CERTIFICATION BY OWNER-OPERATORS IN IC MISCLASSIFICATION MINIMUM WAGE CASE. A Nebraska federal court has granted conditional certification to owner-operator truckers in a class and collective action brought under the FLSA and the Nebraska Wage Payment and Collection Act. The truckers sued transportation and logistics company, Werner Enterprises, Inc., alleging minimum wage violations due to the truckers’ alleged misclassification as independent contractors and not employees. The plaintiff, who seeks to represent all similarly situated drivers, initially was a W-2 employee of the company, but later joined the owner-operator program of the company and was then reclassified as an independent contractor. He claimed he purchased a used truck from the company; was not free to use the truck as he pleased; and was only permitted to carry loads that suited the company’s business interests. According to the plaintiff, the company also passed on “its overhead costs to its workers, to deprive Plaintiff and numerous other drivers of their minimum wages, and to offload its aging fleet of trucks onto its unsuspecting employees.” The “overhead costs” included fees for insurance, workers’ compensation, gas, repairs, and maintenance of the vehicles purchased from the company. A Magistrate Judge conditionally certified the driver’s FLSA collective action and the company objected, arguing that the Magistrate Judge failed to recognize the individualized nature of the class. Following a de novo review, the Nebraska federal court agreed with the Magistrate Judge’s recommendation because “there is evidence that the putative class members were victims of a single decision, policy or plan, and that a common policy or practice exists regarding the classification of owner-operator drivers as independent contractors.” [Publisher’s comment: It is unclear whether the company submitted evidence in the form of declarations from other owner-operators that such truckers never received less than the minimum wage in any pay period.] Midgett v. Werner Enterprises Inc., No. 8:18-cv-00238 (D. Neb. Nov. 18, 2020).
Other Noteworthy Matters (2 items)
PROPOSITION 22 VOTER INITIATIVE RE-MAKES IC LANDSCAPE IN CALIFORNIA FOR RIDESHARE AND APP-BASED DELIVERY COMPANIES. California voters overwhelmingly passed Proposition 22, bringing relief to rideshare and app-based delivery services although legal challenges undoubtedly will continue. As discussed in our blog post of November 4, 2020, companies in the ride-share and app-delivery gig economy space, unlike all other businesses in California required to meet the strict Dynamex ABC test or the more flexible multi-factor Borello test if they are covered by an exemption, now have a safe harbor provided they confer specific benefits on the independent drivers and couriers. The benefits to be provided are an earnings minimum (companies must pay 120% of the local minimum wage for each driving hour); a health insurance stipend; payment of medical costs and replacement of some lost income when a driver is injured while driving or waiting; a rest policy prohibiting drivers from working more than twelve hours in a 24-hour period for a single ride-share or delivery company; a prohibition on workplace discrimination; coverage under sexual harassment policies; and background checking and mandated safety training. Companies in these industries still are governed by federal law tests for independent contractor status as well as varying state law misclassification tests outside of California.
PRESIDENT-ELECT BIDEN’S INDEPENDENT CONTRACTOR PLAN IS INTERNALLY INCONSISTENT. In an article by the publisher of this legal blog that appeared in Law360 on November 10, 2020 and was republished on this site on November 13, 2020, we commented that President-elect Joe Biden’s plan for independent contractor misclassification sent a confusing message. The President-Elect had issued a comprehensive labor plan seemingly focused on empowering unions. But while the title of his campaign platform was “The Biden Plan for Strengthening Worker Organizing, Collective Bargaining and Unions,” buried inside it was an internally inconsistent proposal addressing the misclassification of independent contractors. The first reference to independent contractors in the Biden plan reflects the bipartisan position the new administration should vigorously enforce existing laws against employers that intentionally misclassify employees as independent contractors. Yet later on in the proposal, the plan specifically endorses the recent California law establishing a new test for independent contractor status. This recent enactment changed decades of settled law in that state and instantly turned hundreds of thousands, if not millions, of previously legitimate freelancers and the companies into law breakers because most will not be able to satisfy the new test for IC status. The Biden Plan seems to have disregarded the views of one of the principal stakeholders: the freelancers themselves, who have registered their overwhelming support for retaining their independent contractor status in a number of government surveys and polls.