December 2018 Independent Contractor Misclassification and Compliance News Update

Locke Lord LLP

There were only a handful of independent contractor misclassification cases of significance in December, but each of those matters relate to the subject of prior comprehensive posts on this blog.

The first involves FedEx Ground, which has paid hundreds of millions of dollars to settle dozens of class action lawsuits across the country and to resolve misclassification claims brought against the company by various state Attorney Generals. In the case reported below involving FedEx, the company settled an IC misclassification case brought by the New York Attorney General for a seven-figure amount, with the proceeds being disbursed principally to the drivers.

As we have previously reported, FedEx has been prompted to settle such lawsuits as a result of a holding by the U.S. Court of Appeals for the Ninth Circuit concluding that, as a matter of law, the company had misclassified its Ground Division drivers as independent contractors. The Ninth Circuit decision was followed soon thereafter by a similar decision of the U.S. Court of Appeals for the Seventh Circuit, finding that FedEx’s “control and micromanaging” of the drivers emanated in large part from the IC agreement it drafted for the drivers to sign.  In those blog posts on FedEx, we noted that the FedEx IC agreements were drafted in a manner that closely resembles the way in which good corporate and employment agreements are drafted – but that type of drafting can be a company’s worst enemy in the counter-intuitive world of IC compliance, which is one of the lessons that other companies can learn from FedEx’s experience.

Another one of the cases we report about below involves the subject of a prior blog post entitled, “Oil & Gas Industry Is Next Target for Independent Contractor Misclassification Lawsuits.”  Since we wrote that blog post in May 2018, we have reported on a number of additional class action cases affecting this industry, and we summarize below yet another oilfield case involving a costly settlement of an IC misclassification class action.

Two of the cases reported below relate to a third subject we have discussed in prior blog posts:  the increasingly important strategy of using arbitration agreements with class action waivers for independent contractors. As we noted only last month in a blog post entitled, “How to Effectively Draft Arbitration Clauses with Class Action Waivers in Independent Contractor Agreements,” companies that utilize these types of contractual provisions can minimize class and collective actions against them for IC misclassification – provided the agreements are drafted in a state-of-the-art fashion.

In the Courts (4 cases)

FED EX TO PAY $2.1 MILLION TO NEW YORK AND GROUND DIVISION DRIVERS IN IC MISCLASSIFICATION ENFORCEMENT PROCEEDING. The New York Attorney General and FedEx Ground Package System, Inc. have reached a  $2.1 million settlement of an eight-year long lawsuit by the Attorney General claiming that FedEx’s alleged misclassification of hundreds of package delivery drivers in New York as independent contractors violated various New York labor and wage and hour laws. The Attorney General’s complaint alleged that as a result of the drivers’ misclassification by FedEx, the company made improper deductions from wages earned by the drivers; failed to provide “spread of hours” pay to the drivers; failed to comply with recordkeeping and wage statement requirements; failed to pay overtime compensation to certain drivers; and engaged in fraudulent business activity. The settlement amount is $2.1 million payable to drivers.  State of New York v. FedEx Ground Package Inc., No. 402960/2010 (Sup. Ct. N.Y. County Dec. 19, 2018).

OIL AND NATURAL GAS COMPANY AGREES TO PAY OILFIELD WORKERS $2.9 MILLION IN SETTLEMENT OF IC MISCLASSIFICATION CLASS ACTION.   A Pennsylvania federal court has granted final approval of a $2.9 million settlement of a class and collective action brought by oilfield workers against Rice Energy, Inc., an oil and natural gas company. The plaintiff, a drilling fluid engineer, asserted that Rice Energy engaged in violations of federal and state wage and laws as a result of its alleged misclassification of plaintiff and other oilfield workers as independent contractors and not employees. According to the complaint, the plaintiff’s primary job duties included monitoring fluid activities at jobsites, operating oilfield equipment, coordinating transfer of fluids between rigs, controlling fluid within defined specifications, and building and maintaining various fluid systems associated with drilling and completion of wells. In support of the misclassification claims, the complaint alleged that: Rice Energy directed the hours and locations where the plaintiff worked, the tools used, and the rates of pay received; the plaintiff did not provide his own equipment or incur operating expenses like rent, payroll, marketing, and insurance; no real investment was required of the plaintiff; the plaintiff was economically dependent on the company and was prohibited from working other jobs while working on jobs for the defendant; Rice Energy directly determined the plaintiff’s opportunity for profit and loss; and that very little skill, training, or initiative was required of plaintiff to perform his work.

The defendant’s answer denied the above allegations and focused on the fact that the plaintiff  “independently contracted with Patriot Drilling Fluids, a company with which [Rice Energy] contracted to perform services at well sites.”  The answer also contained over a dozen defenses, including : the plaintiff and proposed class and collective members were properly classified as independent contractors; they were engaged by a third party, Patriot Drilling Fluids, and not by the defendant; and any alleged damages were the sole responsibility of the third party and not the defendant. The court’s order approving the settlement expressly stated that it “makes no finding or judgment as to the validity of any claims released under the Settlement or whether Rice Energy is liable under the Fair Labor Standards Act or any other applicable law.” Williford  v. Rice Energy, Inc., No. 2:17-cv-00945-DSC (W. D. Pa. Dec. 19, 2018).

“CLICKWRAP” AGREEMENTS CONTAINING ARBITRATION PROVISIONS UPHELD IN TWO INDEPENDENT CONTRACTOR MISCLASSIFICATION LAWSUITS.  Federal courts in California and Massachusetts have compelled arbitration in two independent contractor misclassification lawsuits, holding that the company’s use of online “clickwrap” or “click-through”  arbitration agreements was binding and enforceable. Such online agreements may appear in various formats and typically require a user to click either “Agree” or “Dismiss” or whatever options are available for selection before the user may proceed to another screen.

In California, a proposed class action alleging misclassification and state wage/hour violations was brought against Postmates Inc., an on-demand delivery service that offers clients delivery from restaurants and stores by couriers engaged by Postmates to make the requested deliveries.   Postmates uses a “click-through process” in which prospective couriers are presented with a link to the Agreement during the process of signing up to make deliveries for Postmates; then they click on the link to proceed, at which point the text of the agreement is displayed; and then they click either “Agree” or “Dismiss” before moving to the next step. Postmates made a motion to compel arbitration of the plaintiff’s claims, arguing that the plaintiff clicked “Agree.” The plaintiff argued that the arbitration provision was not reasonably conspicuous because it was allegedly “buried deep within the contract,” and that the transportation worker exception to the Federal Arbitration Act applied and thereby precluded arbitration because the meals and goods delivered originated across state lines.

The court granted the motion to compel arbitration, holding that the plaintiff  had assented to Postmates’ independent contractor agreement and its arbitration clause by executing Postmates’ “click-through” agreement. In rejecting the plaintiff’s arguments and compelling arbitration, the court concluded that the plaintiff was presented with the text of the arbitration agreement before clicking “Agree;” that she had the opportunity to opt out but did not choose to do so, and that contrary to plaintiff’s assertion that the arbitration clause was not conspicuous, the arbitration provision was actually referred to on the first page of the agreement and Postmates encouraged viewers to review that section carefully. The court also rejected the plaintiff’s argument that the transportation worker exception applied, finding that Postmates’ couriers did not engage in interstate commerce. Lee v. Postmates Inc., No. 18-cv-03421 (N. D. Cal. Dec. 18, 2018).

A Massachusetts federal court faced a similar issue in a proposed independent contractor  misclassification class action brought against on-demand ride-sharing platform, Lyft, Inc., by a driver seeking unpaid minimum wage and overtime compensation.  Lyft made a motion to compel arbitration based on the driver having clicked a checkbox when he enrolled as a driver with Lyft that stated,  “I agree to Lyft’s [September 30, 2016] terms of services.” The words “Lyft’s terms of services’ were highlighted in pink and hyperlinked to the written terms. Among other provisions, the terms provided in capital letters that drivers must “SUBMIT CLAIMS…AGAINST LYFT TO BINDING AND FINAL ARBITRATION ON AN INDIVIDUAL BASIS, NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY CLASS, GROUP OR REPRESENTATIVE ACTION OR PROCEEDING.” He reaffirmed acceptance of a nearly identical arbitration provision in early May 2018 and a few weeks later sought to opt out of the arbitration clause. The driver argued that the agreement to arbitrate was invalid because the terms were not reasonably communicated.  He claimed that the terms appeared three-quarters of the way down on a computer screen that offers no contextual clue that the driver is entering a binding contract.  He also argued that the terms were buried amid a multi-screen sign-up process; the terms were written in the smallest font on the page; and the hyperlinked text was not italicized, bolded, underlined or in classic blue coloring to indicate that it is a hyperlink.

The court rejected the driver’s arguments and stated: “These online agreements – where a user selects “I agree” without necessarily reviewing the contract – are typically called “clickwrap” agreements, and are generally held enforceable.” The court explained that Lyft’s screen required the driver to click that he agreed to the terms of services before he could continue with the registration process and that although the terms were towards the bottom of the page in small font, the operative phrase was in pink and distinguishable on the computer screen. Regarding the driver’s claim that he opted out of the arbitration agreement in late May, the court disagreed and held that his opt out was only effective as to the revisions made to the September 30, 2016 arbitration terms that the court viewed as “immaterial.”  Wickberg v. Lyft, Inc., No. 1:18-cv-12094-RGS (D. Mass. Dec. 19, 2018) .

Regulatory Initiatives (1 case)

RADIO TALK SHOW HOSTS FOUND TO BE MISCLASSIFIED AS INDEPENDENT CONTRACTORS BY OREGON LABOR AGENCY.  The Oregon Bureau of Labor and Industries (BOLI) announced in a News Release that Pamplin Broadcasting-Oregon, a local media group, must pay more than $55,000 to two radio talk show hosts for violations of the overtime pay and recordkeeping requirements under Oregon law. BOLI found  that all content that went on the air was discussed and agreed upon by the show’s producer as well as the hosts; the hosts were required to attend staff meetings and were told to be evenhanded when discussing political issues; the company made the vast majority of investments (studio equipment, office supplies) needed for the hosts to provide radio show hosting services; the amount that the hosts were paid per show was non-negotiable; the company created the show’s logo and the “opening” for the show that was played at the beginning of each show; the hosts had an exclusive relationship with the company; the hosts’ initiative could not be used to generate more wage income for themselves from the company; and the hosts believed they would be permanently replacing a previous radio show hosted by others. BOLI applied a six-part economic realities test to determine the independent contractor/employee status of the two hosts, concluding that the facts “lean in favor of an employment relationship due to the structure, framework and guidance provided by Pamplin management.”

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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