We have had the opportunity, in the course of our independent contractor practice, to represent clients in over 75 diverse industries including some in rather esoteric businesses. These clients have included musical bands, hail repair companies, meditation centers, adult entertainment clubs, amusement parks, dog walking services, cultural exchange programs, museums, libraries, athletic teams, and song writing. We never have been called upon to serve a client in the clown industry or a business providing children’s party entertainment – the lead case of this month’s update of legal developments in December 2023. This case underscores that virtually every industry these days uses independent contractors, even companies with service providers who wear costumes and paint their noses and cheeks red. While companies in offbeat industries typically have a limited number of workers, an adverse determination of independent contractor misclassification by a workforce or tax agency can have disastrous financial implications, and a class action lawsuit typically entails expensive defense costs. For that reason, many companies, both large and small, that wish to minimize the likelihood of an independent contractor audit or lawsuit, have chosen to use a process such as IC Diagostics (TM) to structure, document, and implement their independent contractor relationships to enhance compliance in a customized and sustained manner, consistent with their business models. As we have written previously in a blog post, even strip clubs can comply with applicable IC laws. Clown companies can, too.

In the Courts (5 items)

CLOWN COMPANY FACES IC MISCLASSIFICATION CLASS ACTION IN NEW YORK. A children’s entertainment company, Clowns.com, has been sued by clowns and other children’s entertainers in a proposed class and collective action in a New York federal court. The plaintiffs allege wage and hour violations of the Fair Labor Standards Act and New York Labor Law due to their alleged misclassification as independent contractors and not employees. Clowns.com utilizes the services of clowns, magicians, and superhero characters for children’s parties. According to the complaint, the company paid the clowns and other entertainers less than the minimum wage, failed to pay them overtime compensation for hours worked over forty in a workweek, did not pay them for travel time from the company’s headquarters to children’s parties and between parties or for the time spent traveling back to the company’s warehouse to return cars and equipment, and made unauthorized deductions from their wages. The clowns claim that the company required them to be trained on the Clowns.com Package Show, as well as how to perform certain magic tricks, handle rabbits, paint faces, and make balloon animals; required them to shadow other clowns; set their schedules and assigned them specific workdays and parties; set their pay; provided them with all of the equipment needed to perform their services; required them to drive or ride with another clown in a Clowns.com vehicle to their assigned parties; failed to pay additional fees if the parties ran longer than scheduled; and deducted fees for the use of the company’s equipment, including clown shoes. Angulo v. Clowns.com Inc., No. 1:23-cv-10983 (S.D.N.Y. Dec. 19, 2023).

NEW ENFORCEMENT WEAPON IN NEW JERSEY AGAINST INDEPENDENT CONTRACTOR MISCLASSIFICATION – SUIT BY NEW JERSEY LABOR COMMISSIONER AGAINST LOGISTICS COMPANY. In 2021, New Jersey enacted a law permitting the State to file a lawsuit against companies who have allegedly misclassified logistics workers as independent contractors. The Attorney General of New Jersey, on behalf of the Commissioner of the New Jersey Department of Labor and Workforce Development, filed the first lawsuit under that law on December 11, 2023 against STG Logistics Inc. and related companies. The lawsuit claims the defendant companies violated New Jersey wage and hour laws due to the companies’ alleged misclassification of 300 truck drivers as independent contractors instead of employees, based on the state’s employee-friendly ABC test for determining independent contractor status. The Labor Commissioner alleges the defendants unlawfully made prohibited deductions from the drivers’ pay, failed to pay them minimum wage and overtime compensation, did not provide sick time, and failed to provide workers’ compensation coverage or make unemployment or disability benefit contributions to the State. The lawsuit seeks to enjoin the defendant companies from continuing to misclassify the drivers and otherwise violate state laws, and to recover damages, including liquidated damages for certain violations up to 200%, plus fines and penalties.

According to the complaint, the companies exercise substantial control over the drivers’ work performance, delivery procedures, and their vehicles. The complaint further asserts that while the companies claim that they plan to “restructure” their business operations, they “will apparently continue to classify [their] drivers as independent contractors and [have] failed to demonstrate that the purported restructuring will comply with the Relevant Labor and Benefits Laws.” Asaro-Angelo v. STG Logistics Inc., No. ESX-C-000202-23 (Super. Ct. N.J. Chancery Division, Essex County Dec. 11, 2023).

OWNERS OF TEXAS CLEANING COMPANY FAIL IN EFFORT TO DISMISS IC MISCLASSIFICATION LAWSUIT SEEKING PERSONAL LIABILITY. A Texas federal district court judge has adopted the report and recommendation of a federal magistrate judge to deny a motion to dismiss an IC misclassification case filed by owners of a janitorial business. Four former housekeepers brought the lawsuit alleging the cleaning company, Maids in the USA, and its owners failed to pay overtime compensation in accordance with the Fair Labor Standards Act (FLSA). According to their amended complaint, the housekeepers regularly performed janitorial and commercial cleaning services in buildings such as apartment complex units, beach house rentals and other short-term rental establishments that serviced out-of-state customers and clientele for local petrochemical industries and related businesses. The housekeepers claim that the company and its owners controlled the details of the housekeepers’ employment duties, the housekeepers’ work assignments, work schedules, and rates of pay. They further alleged that, because the two owners had a significant ownership interest with operational control of significant aspects of the company’s business dealings and financial affairs, they are individually liable under the FLSA. In recommending denial of the two owners’ motion to dismiss, the magistrate judge concluded that the amended complaint plausibly asserted that the owners exercised sufficient control over the housekeepers by dictating their schedules and assignments. The district court judge found no plain error and adopted the magistrate judge’s report and recommendation. Steen v. Maids in the USA, No. 3:23-cv-00072 (S.D. Tx. Dec. 15, 2023).‎

TRUCKING COMPANY FACING ILLINOIS IC MISCLASSIFICATION CLASS ACTION. A delivery driver has filed in an Illinois federal court a proposed class action complaint on behalf of himself and other drivers against an intermodal, road, rail, and drayage company alleging violations of the Illinois Wage Payment and Collection Act due to the drivers’ alleged misclassification as independent contractors. The complaint alleges that Direct Trucking Corp., d/b/a Sparc Transport, made unauthorized deductions from the drivers’ wages for truck payments, insurance, tolls, and fuel, and failed to reimburse the drivers for cell phone payments, truck maintenance, and repair costs. The plaintiff claims that he and the other drivers were misclassified under the Illinois ABC test for IC status because, among other things, the company exercises extensive control by determining the number of hours they work, the distances they drive, and the deliveries they perform; requires the drivers to receive and follow directions from company dispatchers regarding their deliveries; mandates that drivers comply with instructions set forth in written and unwritten policies and procedures; prohibits the drivers from having their own customers; and requires them to follow set delivery routes. Baez v. Direct Trucking Corp., No. 1:23-cv-16888 (N.D. Ill. Dec. 19, 2023).

INSURANCE COMPANY SUCCEEDS IN OBTAINING DISMISSAL OF ERISA CLAIMS IN IC MISCLASSIFICATION CLASS ACTION. A federal district court judge in Ohio has dismissed an ERISA claim by insurance agents who sell insurance for a single insurance carrier. The agents claimed that they are entitled to benefits under the company’s profit-sharing plan providing savings and retirement benefits and its welfare plans, including those providing disability and life insurance benefits. The court granted the motion to dismiss the agents’ claims, reasoning that they could not show that they were eligible for benefits under the language of the plans in question because they were specifically excluded from coverage under those plans by virtue of language in their individual agreements with the company. The plaintiff agents argued they should be considered participants in the savings, retirement, disability, and life insurance plans because they are participants under the medical, dental, and vision plan. The district court rejected that argument, concluding that even if the terms of the medical, dental, and vision plans provided that the agents are participants, that fact would not dictate that they are participants in other plans from which they were expressly excluded. Moyer v. Government Employees Insurance Co., No. 2:23-cv-00578 (S.D. Ohio Dec. 1, 2023).

Other Noteworthy Item

STUDY SHOWS INDEPENDENT CONTRACTORS’ FREELANCE WORK CONTINUES TO INCREASE. Upwork Research Institute’s 2023 Freelance Forward survey report issued in December finds that 38% of the workforce in the United States (64 million Americans) performed freelance work in the past year. The representative study of 3,000 professionals revealed that freelancing continues to be a significant part of the U.S. labor market and economy, and remains strong among professional service providers; nearly half of freelancers (30 million) provided services in the areas of computer programming, marketing, IT, and business consulting; a quarter of freelancers (nearly 15 million) created influencer-style content such as livestream services, social media videos or images, or blogs; and just over 50% of all Gen Z professionals and 44% of all Millennial professionals were the most likely to explore freelancing. Additionally, the study concluded that freelancers contributed annual earnings of $1.27 trillion to the U.S. economy. The report shows a 10-year trend of freelancing continuing to increase year after year: “When we began this seminal annual study, in 2014, 53 million Americans were freelancing. On average, every year over the past decade, an additional 1 million people in the U.S. decided to join the freelance workforce.”

Written by Richard Reibstein