We report below on four case developments during June 2023 in the area of independent contractor misclassification: two of which are centered on Illinois. That state has one of the most stringent statutory tests for independent contractor status. As construed by the courts in that state, the Illinois ABC test for IC status is similar to the tests in California and Massachusetts, creating a hotbed for IC misclassification cases. While states with ABC tests make it more challenging for companies to survive a legal challenge to their IC classifications, there are ways many companies doing business in such states can still comply with such laws. Many companies operating nationwide and in “ABC states” have used a process such as IC Diagnostics (TM) to enhance their compliance and minimize exposure to IC misclassification liability in all states in which they operate or engage the services of independent contractors.
In the Courts (4 cases)
ILLINOIS LEGAL SUPPORT COMPANY SUED BY REMOTE LEGAL INTAKE SPECIALISTS IN COLLECTIVE ACTION ALLEGING IC MISCLASSIFICATION. Bridge Legal Support Services offers support services to law firms in connection with the processing of lawsuits, such as client input services, data analysis and reporting, and consulting. The company, located in Illinois, is now itself the subject of a lawsuit brought by legal intake specialists who work remotely and claim the company misclassified them as independent contractors and failed to pay them pay for overtime hours and for all time they worked as required by the Fair Labor Standards Act. The intake specialists, who reside in Virginia, Florida, New York, Connecticut, and Illinois, allege in their complaint that, among other things, they were assigned a weekly schedule of forty or more work hours per week, required to meet strict performance and schedule adherence metrics, required to complete a comprehensive unpaid training program, assigned to an Intake Team Lead who monitored their day-to-day performance, and were not paid for time spent reading and responding to messages from their supervisors and team members outside of their scheduled shifts. Blue v. Bridge Legal Support Services LLC, No. 23-cv-03487 (N.D. Ill. June 2, 2023). .
ILLINOIS LOGISTICS COMPANY SUFFERS SETBACK IN INDEPENDENT CONTRACTOR MISCLASSIFICATION CLASS ACTION BY DELIVERY DRIVERS. An Illinois federal district court has granted summary judgment in favor of a class of delivery truck drivers in a case alleging violations of the Illinois Wage Payment and Collection Act due to the defendants’ classification of the drivers as independent contractors. The drivers claimed that as a result of their misclassification by DVL Express, Inc. and Altex Logistics, Inc., they suffered unlawful deductions from their paychecks and were compelled to pay business expenses and fines for which the defendant companies were responsible. In granting the motion, the court applied the Illinois three-prong conjunctive ABC statutory test, which has been construed by the courts in that state in a manner similar to the ABC test in California and Massachusetts. The court concluded that although there was an issue of fact regarding Prong A (dealing with control), Prongs B and C “leave no question as to Plaintiffs’ status as employees.” The court stated that “[t]he work performed by the drivers was clearly the same as the Defendants’ businesses and their trade as delivery drivers is obviously the same as that of the Defendants, i.e. delivery of cargo.”
The court rejected the companies’ argument that because almost all of the work of the named plaintiffs occurred outside Illinois, the state’s wage law should not apply extraterritorially. The court relied upon regulations issued by the state’s Labor Department that the state’s wage law encompasses work performed outside of Illinois where the work was performed for a company located in Illinois. It seems likely that this issue will be the subject of an appeal by the logistics companies. If this decision stands, it will undoubtedly create significant concerns for multi-state businesses located or operated in Illinois. Finally, the district court denied the motion for summary judgment by the owner of the companies seeking to dismiss the lawsuit against him personally, concluding that the Illinois law provides individual liability for decision-making officers of a corporation and agents of a company who knowingly allow a violation of the Illinois wage act to occur. Tsybikov v. Dovgal, No. 1:19-cv-03334 (N.D. Ill. June 15, 2023).
JURY FINDS MINNESOTA MEDICAL TRANSPORTATION COMPANY MISCLASSIFIED DRIVERS IN LABOR DEPARTMENT LAWSUIT. A non-emergency medical transportation services company must pay back wages and liquidated damages to 21 drivers after a jury in a Minnesota federal court case found that the drivers were misclassified as independent contractors. Alpha & Omega USA, Inc. d/b/a Travelon, the defendant in the lawsuit, which was initiated in 2020 by the U.S. Department of Labor during the Trump Administration, provides transportation services in the Twin Cities metropolitan area for elderly people and those with disabilities. According to a June 27, 2023 News Release issued by the U.S. Department of Labor, the lawsuit was filed after the company refused to comply with the findings of an investigation by the Wage and Hour Division that found the company’s misclassification led to minimum wage, overtime, and other violations of the Fair Labor Standards Act. The jury trial occurred after the U.S. Court of Appeals for the Eighth Circuit reversed an earlier summary judgment decision in favor of the Labor Department, remanding the case for trial. At trial, the jury found that the drivers were employees under the applicable legal test and awarded over $21,000 in back pay and liquidated damages on average to each of the 21 drivers. The Wage and Hour Regional Administrator stated in the News Release: “The court upheld that Travelon Transportation owes these 21 drivers back wages and damages for failing to pay them as the law requires. With the company setting their work hours, work conditions and pay rates and making demands on their time that prevented them from working elsewhere, the drivers are economically dependent on Travelon Transportation and, by definition, employees and not independent contractors.” Scalia v. Alpha & Omega USA, Inc., No. 20-cv-01033 (D. Minn. June 27, 2023).
LABOR DEPARTMENT SUES NATIONWIDE CUSTOMER SERVICE PROVIDER FOR ALLEGED IC MISCLASSIFICATION OF CONSULTANTS. The U.S. Department of Labor has sued a nationwide customer service provider alleging minimum wage and overtime violations of the Fair Labor Standards Act due to the alleged misclassification of 22,000 service workers as independent contractors and not employees. The defendant company provides business process outsourcing, consulting services, and customer support services, including voice, email, live chat, text, social media, and technical support. According to the complaint filed in a Florida federal district court, the company recruited, engaged, and trained a nationwide group of service workers to provide customer support to the company’s clients through its internet platform where customer care opportunities were made available. As reported in a News Release issued by the Labor Department on June 29, 2023, its Wage and Hour Division conducted an investigation of the company following complaints from several former company workers alleging wage violations. The Division concluded that, although the employer often recruited workers with promises they would “be their own bosses” and that they could generate income for themselves by providing customer support services to Fortune 500 clients, the workers allegedly had no real autonomy, were subject to the company’s stringent work scheduling policy, were expected to pay for mandatory training, and had to buy their equipment before providing the company’s clients with service and generating income. Su v. Arise Virtual Solutions Inc., No. 23-cv-61246 (S.D. Fl. June 29, 2023).
Regulatory and Administrative Initiatives (2 matters)
NLRB REVERTS TO TEST FOR IC STATUS THAT HAS TWICE BEFORE BEEN REJECTED BY A FEDERAL APPELLATE COURT. The National Labor Relations Board once again has sought to alter the test for independent contractor status. As discussed more fully in our blog post of June 14, 2023, the NLRB has issued a long-awaited decision in its Atlanta Opera case dealing with the applicable test for IC status under the National Labor Relations Act. This decision, rendered by a Democratic majority of the Board, reversed the Board’s prior test for IC status as expressed in the SuperShuttle case decided in 2019 by then-Republican-controlled NLRB. The bulk of the Board’s decision focused on its assessment of the fallacies of the SuperShuttle decision and the correctness of the NLRB’s prior FedEx decisions, which twice before had been rejected by the U.S. Court of Appeals for the District of Columbia. A vigorous dissent in the case argued that the new test continues the same fallacies as before that the D.C. Circuit court already twice rejected and will likely refuse to adopt once more.
Commentators who view the Atlanta Opera ruling as noteworthy believe that employers will, as a result, have a more difficult time establishing that workers are ICs, and they suggest the NLRB’s majority opinion will curtail the use of independent contractors and promote unionization of those workers. Yet, as we noted in our June 24, 2023 blog post, we feel this new decision is highly unlikely to have a meaningful impact on the determination of a worker’s status. Why? Because both the NLRB’s new test, based on the FedEx decisions that had been overruled by the D.C. Circuit, and the SuperShuttle test, which the Atlanta Opera majority decision overruled, likewise consider the same set of ten or so factors articulated in the Restatement (Second) of Agency for determining IC status. Indeed, when the Board majority applied the new test for IC status to the facts regarding the Atlanta Opera workers, including make-up artists and hairstylists, it concluded that they were employees and not ICs – and so did the dissent applying the old SuperShuttle test. Further, this return by the NLRB to its overruled FedEx test is unlikely to survive judicial scrutiny once the D.C. Circuit reviews the new test on its merits. Because both the majority and dissent found the workers in question to be employees regardless of the test to be applied, the D.C. Circuit may well simply state that there is no need for it to review the Board majority’s new legal standard.
The publisher of this blog was quoted in a June 13, 2023 article by Braden Campbell in Law360 that: “[The decision is] minor because the outcome under either of these similarly formulated tests will be the same in 95% of cases. It’s only a select few [cases] where the factors are so close, that a slight deviation from one test to another may make a difference.” And in an article in Bloomberg’s Daily Labor Report by Robert Iafolla, the publisher of this blog was quoted as follows: “The dueling opinions between the majority and dissent are little more than polemic exercises in anticipation of what is likely to come: a circuit court denial of enforcement [once a court reviews the new NLRB test on the merits].” The Atlantic Opera Inc., No. 10-RC-276292 (June 13, 2023).
LABOR DEPARTMENT SEEKS DELAY ON ISSUING INDEPENDENT CONTRACTOR REGULATION UNDER THE FLSA. The U.S. Department of Labor has asked the U.S. Court of Appeals for the Fifth Circuit for an additional 120 days – until some time in October – to complete its review of the 54,000 comments received during the comment review period on the proposed rule clarifying the analysis to be used in determining whether a worker is an IC or an employee under the Fair Labor Standards Act. The comment submitted by the publisher of this blog can be found in our December 13, 2022 blog post. Coalition for Workforce Innovation v. Walsh, No. 22-40316 (5th Cir. June 9, 2023).