misclassification liability

Subscribe to misclassification liability via RSS

Yesterday a federal court in Manhattan granted a motion for class action certification to a group of  adult dancers who have worked at the Penthouse Executive Club in New York City.  They alleged, among other things, that the Club violated the federal Fair Labor Standards Act (FLSA) by failing to…

The New York Construction Industry Fair Play Act goes into effect today, as previously noted in a detailed posting on this site  and in an article published in the New York Law Journal by a publisher of this blog.  From this point forward in the construction industry, companies and their…

Commentary:

As noted previously in prior articles and postings on this blog, Congress is poised to pass a labor and a tax bill that will discourage businesses from misclassifying employees as independent contractors and end the issuance of Form 1099s to workers who are not legitimate independent contractors.  Both bills…

Almost one year to the day following the joint statement by the Attorneys General of New York, New Jersey, and Montana that they intended to sue FedEx Ground for misclassifying drivers as independent contractors instead of employees, New York Attorney General Andrew Cuomo has commenced a lawsuit against FedEx Ground on behalf of the State of New York.  (New York State v. FedEx Ground Package System, Inc.)

The lawsuit was filed the same week as the Attorney General of the Montana, Steve Bullock, announced that his office settled its driver misclassification claims against FedEx Ground for $2.3 million.  The New York lawsuit also follows by two months the filing of a similar misclassification lawsuit by the Attorney General of Kentucky, Jack Conway, and comes three months after the Attorney General of Massachusetts, Martha Coakley, settled its driver misclassification claims against FedEx Ground for $3 million.

Cuomo’s lawsuit was filed in the New York Supreme Court for New York County. It alleges that, by classifying its drivers as independent contractors, FedEx’s Home Delivery unit fails to provide its drivers the rights afforded to “employees” under New York’s labor laws, which includes the Unemployment Insurance, Workers Compensation, Wage Payment, and Overtime laws.  According to the complaint filed in court, Cuomo alleges that “FedEx has the power to control, and does in fact control, almost all aspects of its drivers’ work” including “hours, job duties, routes, and even clothing.”  There are reportedly over 700 drivers in the Home Delivery unit.  (Click “More” for “Takeaway” below)

Less than three months after settling independent contractor misclassification charges with the Massachusetts Attorney General for $3 million, FedEx Ground has agreed to pay Montana $2.3 million to settle that State’s misclassification claims against the worldwide courier.

According to the Attorney General of Montana Steve Bullock, FedEx Ground is paying the State for its failure to pay unemployment insurance taxes for its drivers, whom the Attorney General claims were employees that FedEx Ground has been misclassifying as independent contractors. The $2.3 million includes interest and penalties for misrepresenting employee information in its quarterly unemployment insurance reports to the State.  (Click “More” for “Takeaway” below)

On October 13, 2010, Pennsylvania Governor Ed Rendell signed into law the Construction Workplace Misclassification Act, joining a growing number of states that have targeted an industry where misclassification of employees as independent contractors is believed to be most prevalent.

The law, which takes effect in 120 days following enactment, creates a strict definition of “independent contractor.”  No individual can be classified as an independent contractor unless he/she meets a three-part test where the individual:

(A)  has a written contract to perform services with the construction industry business;

(B)  is free from control or direction over the performance of such services under the contract and in fact; and

(C)  is customarily engaged in an independently established trade, occupation, profession or business.

This type of three-part standard is commonly called an “ABC” test – but the Pennsylvania standard is less onerous than the “ABC” laws governing independent contractors in the construction industry in New Jersey and New York, for example.   (Click “More” for link to “Steps to Ensure Compliance” below.)

Last week, a federal district court judge assigned to an independent contractor misclassification case granted class certification to workers who were treated as independent contractors but allegedly were misclassified as employees.  In Norris-Wilson v Delta-T Group, Inc., the U.S. District Court for the Southern District of California, applying California’s common law test for independent contractor status, found that the plaintiffs’ claims for overtime compensation against a healthcare “referral agency for independent contractor services,” which the plaintiffs called a “temporary staffing agency,” met the requirements for class action certification.  (Click “More” for two “Takeaways” below)

In the absence of federal legislation addressing the issue of misclassification of employees as independent contractors, no less than 16 states have passed their own laws seeking to curtail misclassification of employees as independent contractors, including five states so far in 2010: Connecticut, Nebraska, New York, Vermont, and Wisconsin.

As noted in the preceding blog post on this site (see below), Congress has now introduced in this session of Congress two bills seeking to crack down on misclassification of employees as independent contractors: the Employee Misclassification Prevention Act (EMPA) and the Fair Playing Field Act of 2010.  Although those  two bills, if enacted, would dramatically change the landscape of federal IC legislation, neither should end the use of legitimate independent contractors.  Rather, businesses would be able to continue to use ICs provided that the legal tests are satisfied for independent contractor status under federal and state laws.  This blog post discusses the ways  by which businesses can enhance their compliance with existing and proposed IC laws, including two alternatives to the costly and often unacceptable alternative of reclassifying independent contractors as employees.