August 2015 Independent Contractor Compliance and Misclassification News Update

Pepper Hamilton LLP

August 2015 was not a vacation month for independent contractor cases. No less than seven major litigation events transpired this past month, highlighted by more of the same as well as some new developments. Several companies in different industries were subjected to judgments ranging as high as $5 million for IC misclassification, including cases involving a courier company, logging company, restaurant business, and cab company. New IC misclassification class actions were brought against another tech start-up company and a home improvement company. But the highlights of this month were the NLRB’s joint employer decision that could impact IC misclassification cases, Uber’s effort to deny drivers class action status, and FedEx Ground battling through yet another protracted litigation. Meanwhile, on the administrative initiatives front, the U.S. Department of Labor has secured the agreement of two more states’ workforce agencies to coordinate enforcement against companies that misclassify employees as ICs. What is the upshot of this month’s IC compliance and misclassification news? That enhancing IC compliance remains paramount for any company that uses ICs; only by doing so can other businesses that make use of 1099ers minimize or avoid IC misclassification liability. As noted in our White Paper on how to minimize or avoid such exposure, use of IC Diagnostics™ can serve those companies that proactively seek to avoid being the next case study in our monthly news updates.

In the Courts (8 cases)

  • NATIONWIDE COURIER COMPANY SADDLED WITH $5 MILLION JUDGMENT FOR IC MISCLASSIFICATION. The U.S. Department of Labor obtained a $5 million consent judgment against National Consolidated Couriers, Inc., a nationwide courier company headquartered in the Bay area, in an independent contractor misclassification case brought in a California federal district court. Among other things, the DOL had alleged that the drivers were subject to discipline by the company. The $5 million consent judgment consisted of $2.5 million for unpaid minimum wage and overtime compensation and an additional $2.5 million as statutorily authorized liquidated damages payable to 600 drivers nationwide. Perez v. National Consolidated Couriers, Inc., Case 3:15-cv-03224 (N.D. Cal. July 15, 2015).
  • NLRB ISSUES NEW JOINT EMPLOYER RULING AFFECTING COMPANIES THAT OUTSOURCE WORK; RULING CAN BE APPLIED IN THE IC ARENA. On August 27, 2015, the National Labor Relations Board held in a watershed decision issued that rights reserved by a company in an agreement with a third party supplier of labor services to set specific terms or conditions over workers who provide services can be sufficient control to establish a joint employer relationship with the third party labor supplier – and thereby expose the company to being swept into a union organizing campaign over the workers providing services – even if such rights are not exercised. As noted in our August 30, 2015 blog post, this new NLRB decision, which focuses not merely on the exercise of direction and control but also on the right to exercise control, may be used by unions to seek to target companies that outsource work to staffing companies that use ICs – unless the staffing company properly structures, documents, and implements the IC relationships in a manner that complies with applicable IC laws. That can oftentimes be accomplished, but only by the use of state-of-the-art IC agreements in situations where there is little practical need to retain or exercise other than minimal direction and control over the workers’ performance. Brown-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB No. 186 (2015).
  • HOME IMPROVEMENT COMPANY SUED UNDER CONSTRUCTION INDUSTRY IC MISCLASSIFICATION LAW IN NEW JERSEY BY INSTALLERS. Lowe’s Home Centers, a nationwide home improvement retailer, is sued by installers in a class action filed in New Jersey state court alleging employee misclassification under the New Jersey Construction Industry Independent Contractor Act. Lowe’s offers installation services to its customers for certain products and engages independent contractor installers to perform the services. The complaint alleges that Lowe’s retained the power to direct and control the installer’s performance by requiring them to follow Lowe’s Installer Standards of Courtesy and Professionalism, which set forth, among other things, specific instructions and rules regarding how installers are to perform their services, what to wear, the timing of the completion of installation projects, and the amounts of commercial, workers’ compensation, and employers’ liability insurance each installer had to maintain in order to perform services for customers of Lowe’s. Mittl v. Lowe’s Home Centers, LLC, No. L2142-15 (Super. Ct. N.J. August 3, 2015).
  • UBER LOSES MOTION SEEKING TO DEFEAT CLASS ACTION STATUS OF LAWSUIT AGAINST IT BY 160,000 DRIVERS. As reported in our August 6, 2015 blog post, Uber and its drivers argued on that date to a federal court judge in the Northern District of California whether the drivers’ lawsuit should be certified by the court as a class action. The publishers of this blog post predicted that Uber would have a difficult time in its effort to convince the court not to grant the drivers’ motion for conditional class action status. The court’s decision was issued in September and will be included in our September update. Readers may review our comprehensive blog post on the decision by clicking here.
  • CAB COMPANY TO PAY $3 MILLION IN DAMAGES IN IC MISCLASSFICATION SUIT FILED BY U.S. DOL. The U.S. Department of Labor announced in a news release on August 18, 2015 that a federal judge ruled in California that drivers for Stanford Yellow Taxi Cab had been misclassified as independent contractors. Stanford reportedly has business relationships with corporate account holders such as Google and the Four Seasons and Rosewood hotels. The Labor Department’s lawsuit had sought to enjoin Stanford Cab, who claimed the drivers were ICs, from threatening and intimidating its drivers who were cooperating with federal investigators, including an instance where Stanford allegedly fired a worker just days before trial to discourage his witness testimony. The judgment issued by the court requires the company to pay nearly $3 million in back wages and damages to dozens of drivers.
  • FEDEX GROUND WINS RIGHT TO RE-TRY IC MISCLASSIFICATION CASE TO A JURY. After a federal court in Missouri awarded partial summary judgment in favor of FedEx Ground drivers, the huge courier company appealed to the U.S. Court of Appeals for the Eighth Circuit. The appellate court agreed with FedEx that summary judgment was not improperly granted in favor of the drivers because it was up to a jury, not a judge, to decide as a factual matter if the drivers are ICs or employees where Missouri law provides that a worker’s employment status is an issue of fact. In this case, where FedEx introduced evidence that the drivers could hire others to do their jobs and could sell their territories, the federal appeals court determined that a genuine factual dispute existed as to whether the drivers were ICs employees, and that issue should have been submitted to a jury. Gray v. FedEx Ground Package System, No.14-3232 (8th Cir. August 21, 2015).
  • ON DEMAND TECH START UP SUED FOR IC MISCLASSICATION BY ITS “NINJA” DRIVERS. Washio Inc., an on-demand dry cleaning and laundry service, has been sued in an IC misclassification class action by drivers referred to by Washio as “ninjas.” The ninjas, who are requested through a mobile app, pick up Washio customers’ dirty laundry, bring it to the Washio cleaning facilities, and deliver the clean items back to the customers. In seeking damages for, among other things, unpaid overtime compensation, meal and rest periods, and unreimbursed work expenses under state law, the proposed class representatives allege that they were required to follow company policies, were sometimes required to work more than 8 hours in a day and/or more than 40 hours in a week; were not usually in business for themselves; and they did not have a substantial investment in the business. Luqman v. Washio Inc., No. BC592428 (Cal. Super. Ct. Los Angeles County, August 25, 2015).
  • GEORGIA RESTAURANT TO PAY $2 MILLION FOR MISCLASSIFYIING ITS RESTAURANT EMPLOYEES AS IC’S. Wang’s Partner Inc. (doing business as Hibachi Grill and Supreme Buffet) was ordered by a Georgia federal district court to pay nearly $2 million in back wages and liquidated damages to 84 restaurant employees who were misclassified as ICs. As reported in our December 2013 monthly update, a complaint had been filed in federal court for the Northern District of Georgia by the U.S. Department of Labor on December 16, 2013 alleging that by misclassifying the servers and kitchen staff as ICs, Wang’s failed to pay them at least the minimum wage, failed to pay overtime compensation, and did not maintain accurate records of hours worked and wages paid. Perez v. Wang, No. 1:13-04162 (N.D. Ga. Aug. 11, 2015).

Regulatory and Enforcement Initiatives (2 items)

  • HALF OF ALL STATES HAVE NOW SIGNED JOINT ENFORCEMENT AGREEMENTS WITH THE U.S. DEPARTMENT OF LABOR. Idaho and Alaska became 24th and 25th states to sign a Memoranda of Understanding with the U.S. Department of Labor to coordinate efforts to crack down on employee misclassification. According to a News Brief dated August 6, 2015 by Secretary Perez of the DOL, the Idaho Department of Labor entered into a three-year Memorandum of Understanding with the U.S. DOL to protect the rights of employees by preventing their misclassification as independent contractors or in other non-employee classifications. Likewise, a News Brief dated August 13, 2015 announced that the Alaska Department of Labor and Workforce Development signed a similar agreement with the U.S. DOL on that date.
  • LOGGING AND TRUCKING COMPANY FOUND TO HAVE MISCLASSIFIED DOZENS OF ITS WORKERS AS IC’S. An investigation by the U.S. Department of Labor of Fitzhugh Contracting LLC, an Alabama logging and trucking company, uncovered that the company was misclassifying workers as ICs instead of employees and had unlawfully denied overtime wages to 46 workers under the Fair Labor Standards Act (FLSA). As reported in a U.S. DOL News Release dated August 18, 2015 by Secretary of Labor Perez, the company had misclassified 70% of its workers as independent contractors and agreed to pay the workers a total of $112,735 in damages.

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