This past month, new independent contractor misclassification lawsuits were filed in Illinois, Maryland, New Jersey, and Washington by EMTs, cellular service “drive testers,” home health aides, and app-based couriers making deliveries for a big box store. In addition, last month the U.S. Department of Labor recovered a sizeable amount of damages from a local Alabama health care company, while a court in California approved a $30 million settlement between a nationwide cleaning franchisor and its franchisees. These lawsuits show that IC misclassification lawsuits arise in every region of the country and cover an endless array of industries. Why? Because the use of independent contractors has become ubiquitous in the U.S. While states and cities have enacted laws over the past decade to curtail the misclassification of workers as independent contractors, they have now begun to pass laws to protect independent contractors that have been properly classified as such. The most recent state to do so is New York, which last month passed an independent contractor payment protection law, as we report below, affording ICs double damages if they have not been paid all their fees in a timely manner. Now, when advising businesses how to enhance their compliance with laws affecting independent contractors, we not only use a process such as IC Diagnostics (TM) to minimize misclassification exposure, but also provide suggestions for ensuring that those companies don’t expose themselves to liability under these new IC pay protection laws.
In the Courts (5 cases)
CELLULAR TELEPHONE COMPANY SUED BY ILLINOIS DRIVE TESTERS IN CLASS ACTION LAWSUIT FOR IC MISCLASSIFICATION. “Drive testers” that test cellular telephone tower signals for a cellular telephone company have filed a new independent contractor misclassification class and collective action in Illinois federal court. In their complaint, the drive testers alleged that AmeriCloud Solutions failed to pay them for all hours worked and overtime compensation for all hours worked over forty in a workweek in violation of the federal Fair Labor Standards Act, Illinois Minimum Wage Law, and the Chicago Minimum Wage Ordinance. According to the complaint, the company allegedly “brings” the drive testers to an area (often far from home), provides hotel rooms, and provides them with specialized vehicles and computer equipment with which they drive through particular areas checking cell tower signals, but does not always pay them for their travel time or expenses. The drive testers claim that they are employees under the applicable legal tests because the work is done using the company’s equipment in the company’s vehicles on the company’s schedule. The drive testers claim that despite working nine to ten-hour shifts six days per week, they are only paid straight time and not the half time premium for hours over forty in a workweek. Ahmed v. AmeriCloud Solutions LLC, No. 1:23-cv-15569 (N.D. Ill. Nov. 1, 2023).
NEW JERSEY IC MISCLASSIFICATION COLLECTIVE LAWSUIT BY EMT. An EMT engaged by related companies that staff EMTs, security agents, and emergency medical responders for the companies’ customers in New Jersey or Massachusetts has filed a collective action complaint in New Jersey federal court. The lawsuit seeks overtime compensation under the Fair Labor Standards Act as a result of the EMTs’ alleged misclassification as independent contractors. According to the complaint, the companies hired, staffed, directed, managed, and employed the EMTs with unlimited power, authority, and the right to discipline, suspend, fine, and/or terminate the EMTs at will. The plaintiff also alleges that EMTs are required to perform their services in accord with the companies’ practices, policies, and rules. Kemerer v. First Responder Security Services LLC, No. 23-cv-22587 (D.N.J. Nov. 21, 2023).
MARYLAND HOME CARE SERVICES COMPANY SUED IN IC MISCLASSIFICATION CLASS ACTION. A home care aide providing services to individuals with special needs has filed a class and collective action complaint in Maryland federal district court against a home health care agency alleging wage and hour violations under the Fair Labor Standards Act and Maryland state labor laws due to the aides’ alleged misclassification as independent contractors and not employees. The aide claims that FinePoints Private Duty Healthcare LLC denied her and similarly situated aides overtime compensation for hours worked over 40 in a workweek and compensation for time spent traveling between clients’ homes, which was typically 7-10 hours per week. According to the complaint, the health care company allegedly devised detailed individualized treatment plans controlling the manner in which aides were to perform tasks associated with a client’s care; set policies concerning the aides’ pay rates and methods of payment; controlled the aides’ work schedules; maintained the aides’ work records; exercised the power to hire and fire the aides; subjected the aides to monitoring and tracking by the agency; required the aides to wear a company ID badge when in the homes of clients; and prohibited aides from accepting work from agency competitors during the time of their engagement with the agency and for a period of 12 months thereafter. Bobb v. FinePoints Private Duty Healthcare LLC, No. 23-cv-03129 (D. Md. Nov. 16, 2023).
APP-BASED DELIVERY DRIVER SUES WAL-MART IN CLASS ACTION IC MISCLASSIFICATION LAWSUIT. Walmart and two other defendants have been sued by app-based delivery drivers in a proposed independent contractor misclassification class action in Washington, allegedly violating the Washington Industrial Welfare Act, Minimum Wage Act, Wage Payment Act, and Wage Rebate Act. The driver alleges that the defendants failed to pay the drivers minimum wages, tips, and overtime wages, provide rest and meal periods, and allow for accrual and use of paid sick leave due to the misclassification. In the complaint, which was removed to a Washington federal court, the driver claims that Walmart contracts with thousands of delivery drivers who use Walmart’s Spark Driver mobile application to deliver its products. According to the class action complaint, the drivers allegedly were required to undergo unpaid training to learn how to make deliveries using the Spark app; were offered engagements at flat rate fees based on an algorithm and had to respond to the offer within 30 seconds to three minutes; were prohibited from loading the orders into their own personal vehicles in an unsupervised manner and had to follow a specific Walmart methodology for placement of orders in the vehicle; were subject to direction, control, and supervision; were limited in how many deliveries they could reject before being terminated; had to agree that they would not subcontract their services to others; were required to follow instructions for deliveries as specified in the Spark app; and were subject to deactivation from the Spark app if the they did not meet the conditions set out in Walmart’s agreement. Walz v. Walmart Inc., No. 3:23-cv-06083 (W.D. Wash. Nov. 27, 2023).
COURT APPROVES CLEANING FRANCHISOR’S $30 MILLION IC MISCLASSIFICATION CLASS ACTION SETTLEMENT. A California federal court has granted preliminary approval of a $30 million settlement between a commercial janitorial company, Jan-Pro Franchising International, Inc., and class of about 2,650 cleaning franchisees in California, after 15 years of litigating the issue of whether they had been misclassified as independent contractors and not employees. In addition, the company has agreed that beginning with its 2024 template Franchise Disclosure Document, Jan-Pro will endeavor to clarity what amount franchisees will actually net in monthly income from their franchise, after various deductions and expenses. The company also agrees to recommend the creation of an Advisory Council that will “discuss and develop fairer pricing of cleaning accounts and will take up issues of concern to unit franchisees.” The case was initially filed in 2008 in federal court in Massachusetts by four plaintiffs (three from California and one from Massachusetts) as a putative class action covering franchisees in a number of states. Although the plaintiff franchisees claimed they were employees, the company claimed that it sells cleaning franchises to regional master franchisees, who in turn sell unit franchises to individuals and entities responsible for performing the cleaning work on company cleaning accounts. Over the next six years, the Massachusetts court addressed the claims of the Massachusetts plaintiff, ultimately concluding that he was not an employee of the company. The California plaintiffs’ claims were severed and transferred in 2016 to a California federal court, where a circuitous route of litigation continued until this settlement was reached. Depianti v. Jan-Pro Franchising International Inc., No. 3:16-cv-05961 (N.D. Cal. Nov. 30, 2023).
Regulatory and Administrative Initiatives (1 matter)
LABOR DEPARTMENT RECOVERS $500,000 AGAINST ALABAMA HOME CARE COMPANY FOR MISCLASSIFYING HOME HEALTH WORKERS AS IC’S. The U.S. Department of Labor’s Wage and Hour Division in Alabama announced that its investigators recovered $532,000 in back wages and liquidated damages for 67 misclassified home health care workers that provided services to clients of Jennings Professional Services, an in-home, day and overnight healthcare provider. Investigators concluded that the company paid the workers straight-time rates for all hours worked and denied them an additional half-time rate for overtime as required by the Fair Labor Standards Act. In a November 14, 2023 news release, Wage and Hour Division District Director Kenneth Stripling in Alabama stated, “Misclassifying employees as independent contractors is a serious problem that deprives employees of their rightful wages and benefits. The Department of Labor is determined to protect the rights of the nation’s care workers … and make sure they receive lawful wages and benefits in return for the hard work they do.”
Legislative Developments (1 matter)
NEW YORK ENACTS INDEPENDENT CONTRACTOR PAYMENT PROTECTION LAW. The New York Freelance Isn’t Free Act (S 5026), a new independent contractor pay protection law, was signed by New York Governor Kathy Hochul on November 22, 2023, although it is plagued with ambiguities and other critical defects. As we detailed more fully in our blog post of November 22, 2023, perhaps one of the most glaring flaws is an unreasonable double damages provision for late payment or nonpayment by a company even if it had a good faith belief the freelancer’s work was unsatisfactory or did not meet contract specifications. This new law was modeled after the 2017 New York City freelancer pay protection law, and is similar to the Los Angeles freelancer ordinance that went into effect in July 2023 and the Illinois law recently signed into law on August 4, 2023. Other jurisdictions that have passed such laws include Minneapolis, Seattle, and Columbus, Ohio. These laws in other jurisdictions likewise include provisions that create potential perils for businesses using independent contractors.
The new law requires the parties’ contract to be “reduced to writing” and the written contract to include at least the following terms: the parties’ names and mailing addresses, an itemization of services to be provided, the “value of services to be provided pursuant to the contract,” the rate and method of compensation, the date when the “hiring party” must pay the contracted compensation or the “mechanism by which such date will be determined,” and the date “by which the freelance worker must submit a list of services rendered under such contract to the hiring party in order to meet any internal processing deadlines of such hiring party for the purposes of compensation being timely rendered by the agreed-upon date.”
Among the many uncertainties in the new law are its payment obligations. The new law provides that the contracted compensation shall be paid to the freelance worker either by the date such payment is due under the terms of the contract, or “if the contract does not specify when the hiring party must pay the contracted compensation or the mechanism by which such date will be determined, no later than thirty days after the completion of the freelance worker’s services under the contract.” However, the date when services are “complete” can be unclear where, for example, the service recipient regards some of the services to be unsatisfactory or additional services are requested. Perhaps the most problematic aspect of the new law is a provision whereby a freelance worker who prevails on a claim for late payment or non-payment “is entitled to an award of double damages ….” Under the New York Labor Law (which covers employees), a good faith belief that payment was not due negates any right to double damages. But that defense was inexplicably omitted from the new freelancer law. Suggested ways to comply with the new law are discussed in our blog post on the new law.
Written by Richard Reibstein