Company Asserts Novel Defense In Fighting FLSA Independent Contractor Misclassification Action

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When people are employees, the deductions that may be made from their wages are limited and many items that would be classified as employer business expenses cannot be deducted from worker pay.  When individuals are independent contractors, these otherwise forbidden deductions may be effected because of this supposed non-employee status.  When those two worlds collide, there is litigation, as evidenced by the refusal of a New Jersey federal judge to dismiss a proposed class action, finding that the workers supported their assertions that they were not true independent contractors, making the deductions possibly unlawful.  The case is entitled Ortiz et al. v. Goya Foods Inc. et al., and was filed in federal court in the District of New Jersey.

The Judge concluded that the sales representatives “have pled sufficient factual allegations that plausibly state that plaintiffs are employees of defendants, that the sales commissions under the broker agreement constituted plaintiffs’ wages, and that the wages earned were not paid in full, as required by the PWPCL.”  The workers alleged that they were misclassified, alleging that the Company placed significant control on the manner in which they performed their services.  Thus, the commissions the workers were paid were actually “wages,” they claim and thus the deductions, such as when a customer did not pay an invoice, were unlawful.

The Company argued that there were no “employment contracts” under which the Company was obligated to pay “wages” to the workers.  The Company also contended that the contracts also explicitly disclaimed “any employment relationship, and thus, make clear that they are not employment contracts to pay wages.”  The Judge rejected this argument because he found that the mere disavowal of an employment relationship was not determinative.  Neither was the fact that the contracts provided for payment of commissions, as opposed to “wages.”

The Judge also rejected the Company’s contention that the deductions were allowed by the broker agreements.  The Judge found that, “taken as true, the allegations of the amended complaint suffice to establish that defendants violated the PWPCL by reducing wages earned by plaintiffs.”  The Judge did not credit that these workers only earned the alleged wages after deductions were made from their gross commissions.

The Takeaway

I think the Company has interposed, an interesting, if not novel defense to this action, which may have (or will get) traction.  I know that proving a worker is an independent contractor is often a challenge for the putative employer and the traditional arguments often fail.  This new defense may provide a vehicle to short-cut those traditional defenses and inject something brand new, something, which if successful, would be the “magic bullet” for the employer that all defense-side practitioners are looking for.  The Company has filed a motion for re-consideration on this case.

Let’s see what happens…

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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