April was a red-hot month for independent contractor misclassification cases. We report below on 11 cases in the courts and two before administrative agencies involving:
seven-figure proposed class action settlements with couriers providing services to three on-demand delivery companies (PostMates, DoorDash, and InstaCart);
court approvals of a nine-figure settlement between drivers in 19 states and one of the largest overnight courier companies (FedEx) and a seven-figure settlement between a group of San Francisco adult entertainment clubs and their exotic dancers;
a jury verdict finding thousands of insurance agents to have been misclassified as independent contractors;
court decisions that black car drivers in New York City and freight haulers in Illinois are valid independent contractors;
a court decision in Texas that litigation support workers may proceed with their class action alleging IC misclassification;
a decision striking down an IC misclassification claim against UberEats for insufficient pleading;
a new class action lawsuit filed against an on-demand food delivery service in Florida;
an NLRB decision that distributors for a baking company are valid independent contractors; and
a decision by the California Labor Commissioner that four drivers for a cartage company operating in the ports of Los Angeles and Long Beach are each collectively entitled to over $200,000 as a result of being misclassified as independent contractors.
These cases cut both for and against companies classifying individuals as independent contractors, demonstrating that when done right, certain workers can legitimately be classified as ICs, but when done wrong, the costs can be rather dramatic: $227 million in settlements by one company using independent contractors in 19 states, and a jury verdict which, if adopted by the court, may impose IC misclassification liability against an insurance carrier in the hundreds of millions of dollars. While most companies do not face this type of extraordinary exposure in the event of IC misclassification, seven- and eight-figure exposure is becoming commonplace for large and medium-size businesses. For this reason, companies that wish to continue to use ICs can and should take certain prescribed steps in a state-of-the-art manner to avoid or minimize misclassification exposure, as fully discussed in our White Paper.
In the Courts (11 cases)
POSTMATES REACHES AGREEMENT WITH ITS COURIERS TO SETTLE IC MISCLASSIFICATION CASE FOR $8.75 MILLION. Couriers who deliver food, merchandise, and other consumer goods for Postmates, an on-demand delivery service based in metropolitan areas within 28 states, have reached a proposed $8.75 million settlement with the company in their nationwide IC misclassification class action. The lawsuit alleged violations of the federal Fair Labor Standards Act as well as wage and hour laws for those couriers who made deliveries in New York, California, and Massachusetts. The proposed settlement includes an allocation of $100,000 for claims under the California Private Attorneys General Act (75% of which will be paid to the state) and attorneys’ fees of up to 25% of the settlement fund. In addition to the monetary terms, Postmates agreed to the following non-monetary provisions: the couriers’ IC agreements can only be terminated for specified material breaches, those terminated will have a right to appeal their terminations to an arbitrator, the company will arrange for third-party occupational accident insurance for bicycle couriers at the courier’s expense, and Postmates will accept and consider feedback received through a dedicated email address. Singer v. PostMates, Inc., No. 15-cv-01284-JSW (N.D. Cal. Apr. 28, 2017).
FED EX’S $227 MILLION DOLLAR IC MISCLASSIFICATION SETTLEMENT WITH THOUSANDS OF GROUND DIVISION DRIVERS IS APPROVED BY COURT. As we reported in our blog post of June 16, 2016, FedEx Ground reached a proposed settlement agreement with its Ground Division drivers in 19 states to resolve their independent contractor misclassification claims, and on April 28 and May 1, 2017, U.S. District Court Judge Robert L. Miller approved the settlements. Several dozen lawsuits had been consolidated in a multidistrict proceeding assigned to Judge Miller in the U.S. District Court for the Northern District of Indiana. In December 2010, Judge Miller granted summary judgment in favor of FedEx Ground in 42 IC misclassification lawsuits brought by drivers across the country. His decision, however, was overturned in two appeals heard by the U.S. Court of Appeals for the Ninth Circuit and the Seventh Circuit, as reported in this blog. Following the Ninth Circuit decision, FedEx entered into a settlement agreement for $228 million with drivers in California and following the Seventh Circuit decision, FedEx entered into a settlement initially reported at $240 million for 20 states. That is the group of cases that Judge Miller just approved the settlement covering 19 states for $227 million. FedEx reached a separate settlement with drivers from Oregon for $15 million. These settlements are in addition to separate settlements that FedEx reached with several Attorneys General including those in Maine, New York, Montana, and Massachusetts. The agreed upon settlements covered drivers in Alabama ($3.2 million), Arizona ($4.95 million), Georgia ($4.94 million), Indiana ($33.95 million), Kansas ($20 million), Louisiana ($5.25 million), Maryland ($9.4 million), Minnesota ($8.3 million), New Jersey ($25.5 million), New York ($42.9 million), Ohio ($8.35 million), Pennsylvania ($23 million), Rhode Island ($1.6 million), South Carolina ($3.1 million), Tennessee ($12.25 million), Texas ($8.9 million), Utah ($2.4 million), West Virginia ($3.575 million), and Wisconsin ($5.55 million). Attorneys’ fees and legal expenses of $67.4 million are included in the above amounts. FedEx Ground Package System, Inc. Employment Practices Litigation, No. 05-MD-527-RM (N.D. Ind. Apr. 28 and May 1, 2017).
FedEx now uses a different business model based on Independent Service Providers (ISPs). The company has refined that stratagem since we first reported on the ISP program, where Ground Division drivers must become incorporated under state law instead of being organized as sole proprietorships, partnerships, or other unincorporated entities, deliver packages on their own and with their own employees on several different routes, and treat their personnel including themselves as employees. Both the Ninth and Seventh Circuit applied their decisions, however, to single and multi-route drivers, and a requirement that drivers become incorporated in order to avoid independent contractor laws has not met with universal acceptance by the courts.
COURT APPROVES $5 MILLION SETTLEMENT IN IC MISCLASSIFICATION CLASS ACTION BY EXOTIC DANCERS. A $5 million settlement in an IC misclassification case was preliminarily approved by a California federal court in a class and collective action alleging IC misclassification by class of approximately 4,700 exotic dancers against nine San Francisco nightclubs. Under the terms of the $5 million settlement agreement, dancers may elect to receive cash payments ranging from $350 and $800 depending upon their length of service. The remainder will be allocated as attorneys’ fees and expenses, payments under the California Private Attorneys General Act, and enhancement payments for named plaintiffs. The nightclubs also agreed to make changes to their business practices that will result in a direct financial benefit in excess of $1 million to class members. Although objectors to the proposed settlement argued, among other things, that the recovery is inadequate in comparison to settlements reached in similar cases and that the non-monetary relief of changing the clubs’ business practices was “inconsequential,” the court disagreed and found that the recoveries were adequate to justify preliminary approval given other comparable settlements and the “litigation risk in wage-and-hour cases.” The court further stated that “the changed business practices – which locally are almost industry-wide (this settlement covers 10 out of the apparently 12 such nightclubs in San Francisco) – will allow an alternative business model for the industry, providing employees with a guaranteed hourly rate, commissions, and benefits, among other changed practices. And preliminarily, there is an economic value that attaches to this portion of the settlement.” Roe v. SFBSC Management, LLC, No. 14-cv-03616 (N.D. Cal. Apr. 14, 2017).
“LEGAL GOBBLEDYGOOK” CAUSES COURT TO REJECT DOOR DASH’S $5 MILLION SETTLEMENT OF IC MISCLASSIFICATION CLASS ACTION. A California judge has refused to grant preliminary approval to a $5 million proposed settlement reached between DoorDash, an on-demand food delivery service, and almost 40,000 delivery drivers known as “dashers” in a class action lawsuit alleging violations of state wage and hour laws as well as the California Private Attorneys General Act. In reviewing the terms of the proposed settlement, the judge reportedly stated, “This looks like legal gobbledygook that no rational DoorDash [courier] could understand.” Under the proposed settlement, the class members would share $3.5 million plus an additional $1.5 million in four years or when DoorDash goes public, is profitable for a full year, or is bought by another company at double its current valuation. The judge reportedly stated that the language of the proposed release evidently included 25 labor law statutes and the agreement did not contain detailed explanations as to how certain calculations were made. He also advised the parties that he needed more information regarding how this settlement would impact pending litigations against DoorDash in other jurisdictions. Marciano v. DoorDash Inc., No. CGC15548101 (Super. Court, County of San Francisco Apr. 10, 2017).
INSTACART’S $4.6 MILLION SETTLEMENT OF IC MISCLASSIFICATION CLASS ACTION BY DRIVERS IS DELAYED BY COURT. A California judge has delayed its preliminary approval of a proposed $4.6 million settlement of an IC misclassification class action brought against on-demand grocery delivery company, Instacart, by class of 31,000 “shoppers” who shop, purchase, and deliver groceries from grocery stores to customers at their homes and businesses through Instacart’s mobile phone app. As discussed in our April 3, 2017 blog post, the shoppers alleged that because of their misclassification as independent contractors, they were denied minimum wage and overtime compensation, were not reimbursed for work-related expenses, did not receive proper meal and rest breaks, and did not receive all of the tips left them by customers, as required by federal law and the laws of Colorado, New York, and California. The settlement seeks to cover shoppers who have performed work for Instacart in California, New York, Pennsylvania, Colorado, Illinois, Washington, Indiana, Texas, Georgia, Oregon, Massachusetts, Minnesota, Florida, North Carolina, Virginia, Maryland and New Jersey. At the preliminary approval hearing on April 19, 2017, the court reportedly advised the parties that it needed additional clarifying information, including the estimated average settlement payout. The court reportedly also required Instacart to inform those individuals seeking to become “shoppers” that they will be required to obtain commercial automobile insurance and directed the parties to “remove language stating [Private Attorneys General Act] claims will be released even by class members who opt out.” Camp v. MapleBear, Inc., d/b/a Instacart, No. BC652216 (Super. Ct. Los Angeles County Apr. 19, 2017).
OHIO JURY FINDS INSURANCE AGENTS WERE MISCLASSIFIED AS IC’S IN ERISA CLASS ACTION. Nearly 7,000 insurance agents were misclassified as independent contractors according to an Ohio jury, which rendered an advisory verdict against Wisconsin-based American Family Insurance Company in a class action seeking employee retirement benefits under ERISA. Judge Donald Nugent, who presided over the advisory jury trial, has yet to adopt the jury’s decision and issue a formal ruling. If the judge accepts the jury’s finding in a follow-up decision that is expected in 2-3 months, American Family could be required to fund retirement packages in compliance with ERISA for 6,978 current and former agents nationwide. A lawyer representing the class reportedly stated that the cost to American Family Insurance could approach $1 billion. Companies can typically avoid this type of ERISA exposure for pension benefits when steps that have been approved by the courts are taken by a business in advance of a lawsuit under ERISA. Jammal v. American Family Insurance Co., No. 13-cv-00437 (N.D. Ohio Apr. 18, 2017).
ILLINOIS FREIGHT HAULERS HELD TO BE INDEPENDENT CONTRACTORS, NOT EMPLOYEES. An Illinois federal district court has dismissed a proposed class action by freight haulers seeking damages for allegedly being misclassified as ICs by Risinger Bros. Transfer, Inc., a trucking company. The amended complaint alleged, among other things, that Risinger failed to pay the statutorily-required minimum wages and made unlawful deductions and withholdings from their wages, in violation of the federal Fair Labor Standards Act. The freight haulers also alleged violations of the Truth in Leasing Act and the Internal Revenue Code by purposefully misclassifying Plaintiffs as independent contractors and willfully filing fraudulent information returns. In concluding that the freight haulers were not misclassified as ICs, the court found the balance of factors weighed in favor of IC status, including (1) the contracts and leases between the parties afforded the haulers vast control over the ways in which they performed their work, such as the right to hire their own drivers and not engage in the work themselves, the ability to select, purchase, lease, or finance their own equipment, and the right to use their equipment to haul freight for other carriers; (2) the haulers had the opportunity for profit or loss depending on their skill; (3) the haulers made an investment in equipment, materials, and/or employees of their own; (4) they possessed business acumen, diligence, and managerial skills, as well as the special skill of driving commercial trucks; (5) there were fixed termination dates for the leases of the trucks to operate; and (6) the haulers were not economically dependent on Risinger as they could provide services to other carriers. The court stated that “[t]hey were responsible for their own profitability in a way that suggested that they were entrepreneurs, not simply truck drivers.” Derolf v. Risinger Bros. Transfer, Inc., No. 16-cv-1298 (C.D. Ill. Apr. 21, 2017).
BLACK CAR DRIVERS FOR NEW YORK CAR SERVICE COMPANY ARE FOUND TO BE VALID INDEPENDENT CONTRACTORS. The U.S. Court of Appeals for the Second Circuit has held that black car drivers who drive customers for a New York City car service firm are independent contractors and not employees under federal and state wage and hour laws. As discussed more fully in our blog post dated April 13, 2017, the Second Circuit affirmed a district court’s grant of summary judgment in favor of Corporate Transportation Group (“CTG”), the owner of a black car company and its related affiliates, where the drivers claimed they had been misclassified as ICs and were due unpaid overtime and other damages. On appeal, the Second Circuit addressed the “economic reality” of the drivers’ relationship with CTG. The Second Circuit noted that some of the drivers elected to purchase a franchise, either directly from CTG or on the secondary market, while others opted to rent a franchise; there were wide variations in the price of franchises and associated fees; the terms of the franchise agreements were for substantial durations, some even indefinite duration, subject to termination only for breach of the terms of the agreement; the drivers were free to drive and, in many circumstances, drove for competitors or for personal clients, and in some cases chose not to drive at all or permitted other individuals to drive for them; the drivers “invested heavily” in their driving businesses; the drivers could choose how much to work and when, where, and how often to work (if at all); CTG did not require drivers to notify it when they intended to not work; the drivers were free to accept or reject “job offers” when they registered with the CTG dispatcher and they reached the front of the queue; and the drivers’ fees from income from fares reflected wide disparities due to the frequency that they provided services and duration they chose to work each day.
The drivers argued that CTG negotiated rates with clients and charged a per-ride fee to drivers; that CTG maintained a roll of corporate clients seeking transportation services; and that CTG exerted influence over the drivers by enforcing the CTG Rulebook (which CTG was required to do by virtue of the rules of the NYC Taxi and Limousine Commission). The court concluded: “In short, the economic reality was that Plaintiffs, with the assistance of CTG and as a ‘subscriber to [its] services,’ operated like small businesses; they decided to affiliate with [CTG] based on their perceived economic interests, and not those of CTG.” Saleem v. Corporate Transportation Group, Ltd., No. 15-88 (2d Cir. April 12, 2017).
ON DEMAND FOOD DELIVERY SERVICE SUED BY DRIVERS IN IC MISCLASSIFICATION CLASS ACTION. Doorstep Delivery, an on-demand food delivery service conducting business in 117 cities nationwide, has been sued in a proposed IC misclassification class and collective action in a Florida federal district court on behalf of drivers alleging minimum wage and overtime violations under federal and state laws. According to the company’s website, “With Doorstep Delivery, you can now order food from your favorite restaurant with a few swipes of your finger on our app or mobile website, a few clicks on your computer, or a quick call to our professionally trained call center.” The drivers then fulfill these food delivery orders. The complaint alleges that Doorstep directs the delivery drivers’ work in detail, instructing drivers where to report for their shifts and how to dress; imposes requirements regarding handling of food and timeliness of deliveries; retains the right to terminate the drivers at will; does not allow the drivers the opportunity to reject jobs; requires drivers to bear the expense of renting equipment including insulated bags, a Doorstep car topper to display on their cars, a pizza bag, and soda trays; deducts fees from drivers for occupational accident insurance, administrative fees, and Doorstep delivery marketing fees; and does not reimburse the drivers for the costs of fuel, owning or leasing a car, maintenance of the vehicle, and cellular data costs. The lawsuit alleges that, as a result of the costs incurred by the drivers and the deductions made by Doorstep, the drivers’ weekly compensation falls below the federal minimum wage. Additionally, drivers allegedly have regularly worked more than 40 hours per week, yet did not receive overtime compensation. Roberson v. Restaurant Delivery Developers, LLC, No. 17-cv-00769 (M.D. Fla.).
UBER EATS IC MISCLASSIFICATION LAWSUIT NOT PLEADED SUFFICIENTLY BY DRIVER SEEKING CLASS ACTION STATUS. A Florida federal judge has struck down a second amended complaint filed against UberEATS, an on-demand food delivery service, by a driver seeking to represent 1,000 drivers in a proposed IC misclassification class action lawsuit under the FLSA. The judge found that plaintiff’s allegations were “not obviously connected to any particular cause of action” and characterized the amended complaint as a “shotgun pleading.” Accordingly, the judge ordered that the plaintiff file a third amended complaint that identifies which allegations support which claims for relief by April 24th or his case will be dismissed. Crespo v. Uber Technologies Inc., No. 17-cv-00187 (M.D. Fla. Apr. 10, 2017).
LITIGATION SUPPORT WORKERS CERTIFIED AS CLASS IN TEXAS IC MISCLASSIFICATION CASE. A Texas federal district court conditionally certified a class of litigation support workers who were classified as ICs by The Document Group, Inc. (TDG) and allegedly denied overtime compensation for hours worked over forty in a workweek in violation of the FLSA. The workers provide copying, scanning, organizing, and storing of records for law firm clients of TDG. The class members not only claim that TDG determines where, when, and how the workers perform their work, they also allege that they rely on TDG for their work, are not permitted to hire other workers to help them, have no opportunity for profit or risk of loss, do not provide any material portion of their required equipment or any of the necessary products to perform their work, do not incur operating expenses for rent, payroll, marketing, or insurance, work exclusively for TDG because they work up to 14 hours per day for the company, and do not maintain independent places of business. Vaughn v. Document Grp. Inc., No. 16-CV-3578 (S.D. Tex. Apr. 20, 2017).
Regulatory and Administrative (2 cases)
NLRB FINDS DISTRIBUTORS FOR BAKING COMPANY TO BE IC’S AND THEREFORE MAY NOT BE UNIONIZED. The Regional Director for the Boston Region of the National Labor Relations Board has denied the petition of a Teamsters local union seeking to represent a unit of 48 distributors/drivers who contract with Bimbo Foods Bakeries Distribution, LLC to distribute bakery products out of a depot in Massachusetts. In denying the petition, the Regional Director concluded that the distributors are independent contractors and not employees under the National Labor Relations Act. In the decision, the Regional Director noted that under Bimbo’s contractual relationships with the distributors, Bimbo provides them with the distribution rights to sell Bimbo products in a specific designated area; and the distributors operate their own businesses in which they purchase bakery products from Bimbo and distribute those products to customers within the surrounding area. The Regional Director also noted that the following factors supported IC status: Bimbo does not exert sufficient control over the distributors given that the distributors themselves determine how much product to order, how often to order it, how much to sell and deliver to customers, what days and hours to work, whether to hire helpers, and whether to attend meetings or orientations. The Regional Director further noted that the distributors are prohibited from identifying themselves with Bimbo or its products, except as provided in an advertising agreement; the distributors are engaged in their own separate businesses; there is no supervisory or disciplinary system for distributors; there are no mandatory trainings, personnel policies, handbooks, sales quotas, or requirements for sales reports; the distributors provide their own vehicles and are responsible for all related costs such as maintenance, fuel and insurance; they are compensated based on the success or failure of their efforts and the value of their routes; they intended the relationship with Bimbo Foods to be that of an independent contractor; and they have significant entrepreneurial opportunity with regard to the operation of their business including the right and ability to work for other entities, have a proprietary interest in the work, and exert control over important business decisions involving their independent businesses. According to the Regional Director, these factors outweighed those that the union asserted were indicative of employee status: there is no special skill required to be a distributor; the contracts were for ten-year or indefinite terms; the distributors’ work is part of the regular business of Bimbo Foods; and the distributors and Bimbo Foods are in the same business. Bimbo Foods Bakeries Distribution, LLC and Teamsters Local Union No. 633 of New Hampshire, No. 01-RC-193669 (NLRB Region 1 Mar. 31, 2017).
FOUR PORT AND RAIL DRIVERS TO RECEIVE $855,000 FOR IC MISCLASSIFICATION BY XPO. The California Labor Commissioner issued on April 14, 2017 a monetary award of $855,000 to four port and rail drivers working for XPO Logistics, a subsidiary of XPO Cartage, for their misclassification as ICs. XPO specializes in moving goods to and from the ports of Los Angeles and Long Beach. The Labor Commissioner concluded that each of the four drivers was an employee and not an IC because XPO retained pervasive control over the drayage operation as a whole. For example, XPO obtained clients, clients paid XPO directly, XPO determined rates to be paid to the workers with no rights for negotiation, XPO controlled work assignments and workers’ schedules, GPS was used by XPO to monitor the workers’ locations, workers were required to follow XPO guidelines and rules, and workers could not use their trucks to perform services for other companies. The Labor Commissioner also noted that the workers did not hold themselves out as having a separate and distinct business or have their own customers; XPO supplied the trucks by arranging for the truck leases; the workers made no investment in the equipment or materials needed to transport goods; the workers had no opportunity for profit or loss; and permanency of the relationship existed. The awards included, reportedly for the first time, compensation for “non-productive time,” such as time spent inspecting the truck, waiting for dispatch and scanning in paperwork at days’ end. They also received compensation for unpaid hours, liquidated damages, expenses, deductions, and meal and rest breaks. Since 2011, port truckers have filed over 800 claims with the California Division of Labor Standards Enforcement, with about 300 resulting in determinations by the Labor Commissioner that the drivers were employees and not ICs. Approximately 200 are still awaiting hearings and 300 were either settled or transferred to the courts. To date, approximately $36 million has been awarded as a result of employee misclassification. Gaitan v. XPO Cartage, Inc., Nos. 05-66467 KR, 05-66468 KR, 05-66595 KR, 05-66694 KR (Cal. Labor Comm’r Apr. 14, 2017).