Since the inception of this blog in 2010, we have reported on independent contractor misclassification class actions filed against hundreds of companies in scores of industries. Yet some industries seem to have been targeted in particular. As we stated in a guest blog published in Fortune in June 2015 and entitled “Is Your Company on the Independent Contractor Hit List,” we provided a short hit list of industries that were under attack in these types of cases, including janitorial; staffing; transportation, courier, and trucking; cable installation; oil and gas; landscaping; and ride sharing. Only a few industries have been immune from these types of legal challenges in lawsuits or workforce and tax agency audits and proceedings, as can be seen in our monthly review of legal developments in this area of the law over the past decade. For that reason, businesses in a vast array of industries have utilized a process such as IC Diagnostics (TM) to enhance their compliance with federal, state, and local independent contractor laws.
In the Courts (4 cases)
PARTIAL SUMMARY JUDGMENT ENTERED AGAINST NATIONWIDE COMMERCIAL JANITORIAL COMPANY IN LAWSUIT BY FRANCHISEES. A California federal district court has partially granted a motion seeking certification of a class of over 100 commercial cleaning franchisees and then partially granted their motion for summary judgment on certain wage and hour claims against an international janitorial cleaning business. The franchisees claim the company misclassified them as independent contractors instead of employees. The court’s tentative order finds that the janitors are employees and not independent contractors and applies to the franchisees’ claims for failure to pay minimum wage for travel time and mandatory training, failure to reimburse them for expenses incurred in purchasing required uniforms and necessary cleaning supplies and equipment, and for deductions for franchise fee and cleaning revenue royalties. The order denies class certification as to remaining wage and hour claims, including alleged violations regarding overtime compensation and minimum wage payments for cleaning work. Depianti v. Jan-Pro Franchising Int’l, Inc., No. 3:16-cv-05961 (May 13, 2022).
OHIO CABLE INSTALLERS FOUND TO BE MISCLASSIFIED AS INDEPENDENT CONTRACTORS. The Ohio Supreme Court has affirmed a determination of the state’s Bureau of Workers’ Compensation that cable installers are not independent contractors under the state’s workers’ compensation laws. Defendant Ugicom performs underground cable installations as a subcontractor for a nationwide cable provider, which uses its website to dispatch jobs to Ugicom. That company then retrieves the job orders through its web-based system and assigns the engagements to cable installers. Following an audit of workers’ compensation premiums paid by Ugicom, the Bureau found that certain workers had been misclassified as independent contractors instead of employees for workers’ compensation purposes, and sought $346,800 in unpaid premiums by Ugicom. Applying a multi-factor right-to-control test, the state’s high court concluded that the work performed by installers was part of the regular business of Ugicom; the installers were not engaged in an independent business of their own; the installers’ contracts with Ugicom contained terms that demonstrated control by Ugicom; and no special skill was needed to perform the installers’ jobs. While two other factors – installers supply their own tools for the job and they are free to accept and reject opportunities – supported independent contractor status, the Ohio Supreme Court concluded that, overall, there was no abuse of discretion by the Bureau in its determination that the installers were employees “because most of the bureau’s conclusions under the factors were rooted in some evidence in the record.” Ugicom Enterprises, Inc. v. Morrison, No. 2022-Ohio-1689 (Sup. Ct. Ohio May 24, 2022).
HOME ENERGY COMPANY SETTLES IC MISCLASSIFICATION CLASS ACTION WITH DOOR-TO-DOOR SALES PERSONS. Court approval has been sought to settle a class and collective action between Pennsylvania door-to-door sales agents and two related companies selling home energy contracts. The sales agents alleged that the companies violated the federal Fair Labor Standards Act and state wage and hour laws arising from the alleged misclassification of the agents as independent contractors. According to the complaint, the sales agents contend they were paid entirely on a commission basis regardless of how many hours per week they worked, without overtime compensation, resulting in compensation below the minimum wage. The agents also claimed that they were routinely required to work a certain number of hours; had to wear a company uniform; had to follow a script provided by the companies; were told in what areas to target sales each day; were provided with necessary tools and equipment; did not possess any specialized skills to perform the job; were not permitted to hire or subcontract other qualified individuals to provide additional sales work to enhance their profitability; had a minor relative investment compared to the companies; and were an integral part of the companies’ business. The settlement, which releases only the FLSA claims, provides a gross settlement amount of $500,000 for a limited number of class members with each of the two companies contributing $250,000. McWilliams v. Platinum Advertising LLC, No. 2:21-cv-00607 (W.D. Pa. May 4, 2022).
TEXAS DIRECTIONAL DRILLERS FOUND TO BE INDEPENDENT CONTRACTORS. The U.S. Court for Appeals for the Fifth Circuit has affirmed a Texas district court’s grant of summary judgment in favor of a drilling company accused of misclassifying a directional driller as an independent contractor. Directional drillers guide the path of drilling and provide advice on how to most effectively implement the well plan provided by the company’s clients. The company provides oil and gas directional drilling, horizontal and mud-motor drilling, and measurement while drilling services and tools to clients. The plaintiff alleged that the company violated the FLSA and the New Mexico Minimum Wage Act by improperly classifying him as an independent contractor and failing to pay him overtime compensation. The company moved for summary judgment, which was granted, and plaintiff appealed the decision relating to the FLSA claims only. In affirming the district court’s decision, the Fifth Circuit concluded that only minimal control was exercised over plaintiff because he was not told how to complete drilling calculations or how to make the pre-designed well-plan work, and was free to accept or reject gigs from the company; plaintiff had sufficient opportunity for profit and loss; plaintiff was highly skilled; and plaintiff’s relationship with the company was not permanent and was project-based. The only factor weighing in favor of employee status, according to the Fifth Circuit, involved the relative investments of the company as compared to plaintiff. The Court afforded that last factor little weight in light of the nature of the industry and the work involved. Hargrave v. AIM Directional Services, LLC, No. 21-40496 (5th Cir. May 11, 2022).
Legislative Developments (2 items)
GEORGIA AMENDS ITS INDEPENDENT CONTRACTOR TEST FOR UNEMPLOYMENT PURPOSES. On May 2, the Georgia Legislature passed a law, effective July 1, 2022, that amends the definition of employment for unemployment insurance purposes under the Georgia Employment Security Law. Later last month, Governor Brian Kemp signed into law HB 389, which changes the definition of employment to presume that an individual is an employee if providing services for wages, unless the company can establish (a) that the individual has been and will continue to be free from control or direction over the performance of their services, and (b) that the individual is customarily engaged in an independently established trade, occupation, profession or business. Under the new law, freedom from control or direction is to be determined “as demonstrated by whether the individual” (i) may provide services to other companies (including contemporaneously), (ii) is free to accept or reject engagements without consequence, (iii) is required to meet a minimum number of hours or orders to be obtained, (iv) may set his/her own schedule, (v) receives minimal instructions and no direct supervision, (vi) has no territorial or geographic restrictions, and (vii) is not required to perform, or behave or act in a particular manner to perform, the services at issue. The law provides further that a determination by the Georgia Department of Labor shall take into account the “totality of circumstances.” The law provides for two industry exceptions to the definition of employment: services provided by a music industry professional, and those services performed by or facilitated through a network company such as ride-share companies and delivery services, provided specific factors are satisfied for each exception.
SEATTLE CITY COUNCIL PASSES ORDINANCE AIMED AT APP-BASED DELIVERY DRIVERS. The Seattle City Council unanimously passed “PayUp” legislation on May 31, 2022 that will guarantee app-based delivery drivers certain wage protections including at least a minimum wage plus expenses and tips. According to the Council’s official website posting on that date, this law would, among other things, make Seattle the first city in the nation to provide such a guarantee. In addition to securing a minimum wage, the law seeks to increase transparency in how payments are split between workers and app-based companies, and to protect flexibility in work arrangements. One of the bill’s sponsors, Lisa Herbold, stated in a press release: “We live in an expensive city; many delivery workers earn below the minimum wage after expenses and tips are accounted for. App-based work is one of the fastest growing sectors of our economy with more workers turning to this type of work. The passage of this legislation will help tens of thousands of delivery workers make ends meet while maintaining their flexibility.”