February 2017 Independent Contractor Misclassification and Compliance News Update

Pepper Hamilton LLP

(Post updated 3/6/17, 11:30 am)  Four of the eight court cases we report on below in our February 2017 monthly update of IC misclassification cases involve Uber, and each of those cases were victories for the ride-sharing, on-demand company. Although none of the four are legally momentous, are all somewhat helpful to its legal defense and use of its arbitration clause, especially in light of prior court and administrative decisions that have been unfavorable to Uber on the merits of its independent contractor defense.

The first case involved an arbitration award in favor of Uber that was issued by a well-regarded former judge, reportedly finding that “the preponderance of the evidence” favored Uber in a claim under California wage laws. While arbitration awards are not generally entitled to precedential value in courts, the award by the arbitrator may signal to other Uber drivers and their lawyers that arbitration may be an unrewarding undertaking, especially if that is their only recourse due to arbitration agreements signed by drivers.

The second involved a Florida administrative unemployment ruling that was affirmed by an appellate court. That case involved a driver for Uber who represented himself at the unemployment hearing and on appeal. It appears that the driver in that case did not seek to follow the roadmap used in other administrative cases involving claims for unemployment and unpaid wages, where the rulings had gone against Uber.

The third case development also related to Uber’s arbitration agreement. In a Florida federal court action seeking a proposed class action under the Fair Labor Standards Act, a federal magistrate judge recommended to the district court judge that Uber’s motion to compel arbitration be granted, concluding that the arbitration clause was enforceable particularly because it contained an opt-out clause.

The fourth case involved a class action lawsuit by drivers and a taxi alliance in New York City where the plaintiffs and the taxi organization agreed with Uber that the lawsuit should be dismissed without prejudice to being re-filed after the U.S. Supreme Court’s issues its decision in three cases pending before it. Those cases present the issue of whether class action waivers in arbitration agreements are valid or whether they otherwise violate federal labor law.

As we commented in our January 2017 update, although Supreme Court guidance will be welcome on this issue, none of these three cases involved the issue of whether an arbitration clause with a class action waiver is enforceable when it affords the party signing it an opportunity to opt-out of the arbitration clause. Thus, unless the Supreme Court does something that it rarely does (i.e., decide a matter not before it at this time), it will not address a key issue facing businesses that use independent contractors: whether an opt-out clause “saves” an arbitration clause with a class action waiver.

Additionally, a newly constituted NLRB (once new members are appointed by a Republican president) may change its view on this issue and conclude that class action waivers do not violate the NLRA. In that event, it is conceivable that the Supreme Court may choose not to decide the issue at all.

Another court case reported below includes the denial of a car service company’s motion to dismiss a class action IC misclassification case brought against a traditional car service company. That decision, however, was hardly surprising: motions to dismiss are too often used and rarely granted.

The monthly update includes yet another IC misclassification case that was conditionally certified as a class action – this time against a large oil company, Chevron. As the court noted in that decision, the burden on plaintiffs’ class action counsel to establish conditional class/collective certification is rather low. This is in contrast to the far greater burden imposed by courts on class and collective action plaintiffs to survive a motion for decertification following the completion, or substantial completion, of discovery.

Finally, the update includes an IC misclassification case where a group of adult entertainment clubs entered into a novel collective/class action settlement providing for a multi-factor assessment form that would categorize dancers who joined in the lawsuit as employees or ICs. It is unclear whether the adult entertainment clubs considered the value of a motion for decertification of the collective/class in lieu of the costly settlement.

The last three cases in particular highlight the value to companies of taking action to enhance their IC compliance before they become defendants in expensive class or collective action lawsuits. Many companies that wish to genuinely enhance their IC compliance and avoid needless legal challenges have chosen to utilize customized and sustainable compliance methodologies and processes, such as IC Diagnostics, to minimize their exposure to IC misclassification cases, as described in our White Paper.

In the Courts (8 cases)

ARBITRATION AWARD IN FAVOR OF UBER IN IC MISCLASSIFICATION CASE IS “CONFIRMED” BY COURT. A Los Angeles County Superior Court has “confirmed” an arbitrator’s award in favor of Uber in an IC misclassification arbitration. Under California and most state laws, arbitration decisions are not reviewable on the merits of the case and may be “confirmed” in court as a routine matter. The arbitration award that was confirmed in court was issued by former Judge Michael Marcus, a neutral affiliated with ADR Services, Inc. The 50-page arbitration award concluded that the “preponderance of the evidence” showed that Uber drivers have more in common with independent contractors than employees.  As reported by Matthew Blake in the Los Angeles Daily Journal on February 28, 2017, the arbitrator concluded that Uber is entitled under state law “to exercise a finite and restricted measure of control over drivers that keeps the company in the independent contractor realm,” and that under that standard, Uber did not exercise sufficient control over the driver to be deemed his employer. The article states that Uber “is expected to use Marcus’ ruling in the federal misclassification lawsuit that got the Uber litigation ball rolling.” The article also stated that “Uber instantly moved to place the arbitration award in the record of a state court case in which the company and California drivers proposed a . . . settlement regarding labor violations under the state’s Private Attorneys General Act.    The article included a comment by a California “labor expert at UC Irvine School of Law . . . that arbitration ‘has no value as precedent’ . . . [but the confirmation] of the decision lets Uber cite the matter going forward.” Uber Technologies Inc. v. Eisenberg, BS166561 (L.A. Super. Ct. Feb. 21, 2017).

UBER DRIVER FOUND TO BE AN INDEPENDENT CONTRACTOR IN APPEAL OF FLORIDA UNEMPLOYMENT DECISION. A Florida appeals court has upheld a decision of the state’s Department of Economic Opportunity (DEO) that a former Uber driver, representing himself, was an independent contractor and not an employee, thereby rendering him ineligible to receive reemployment assistance under state law. The driver had provided services to Uber’s clients until Uber revoked his access to the driver app based on alleged violations of the company’s user privacy policy. He subsequently filed for reemployment benefits; his claim was initially granted by the Department of Revenue and later reversed by the DEO, leading to this appeal, in which he proceeded on a pro se basis. In affirming the DEO’s decision, the Court made reference to Florida’s common law test for IC status and found that the following supported the determination of IC status: the parties’ independent contractor agreement unequivocally disclaimed an employer-employee relationship; the parties’ actual practice reflected adherence to the terms of the agreement; drivers supplied their own vehicles and controlled whether, when, where, with whom, and how to accept and perform trip requests; drivers could work at their own discretion and were not prohibited from working for Uber’s direct competitors; drivers received Form 1099’s; and drivers were not entitled to fringe benefits. Addressing the unique attributes of the on-demand economy, the Court concluded that, “Due in large part to the transformative nature of the internet and smartphones, Uber drivers like McGillis decide whether, when, where, with whom, and how to provide rides using Uber’s computer programs. This level of free agency is incompatible with the control to which a traditional employee is subject.” McGillis v. Dep’t of Economic Opportunity, No. 3D15-2758 (3d Dist. Ct. of App. Fla. Feb. 1, 2017).

UBER’S OPT-OUT CLAUSE RESULTS IN MAGISTRATE’S ORDER GRANTING MOTION TO COMPEL ARBITRATION IN IC MISCLASSIFICATION CASE. In a lawsuit seeking a national class action against Uber for allegedly misclassifying drivers as ICs, Uber renewed its motion to compel arbitration pursuant to the agreement to arbitrate that the plaintiff driver has signed.  Uber’s papers seeking approval of its motion to compel arbitration were submitted to the court on February 9, 2017, and less than three weeks later a federal magistrate judge issued his Report and Recommendation granting Uber’s motion. The magistrate judge quickly dismissed the driver’s argument that the arbitration clause with a class action waiver was unenforceable and violated the National Labor Relations Act, concluding that the opt-out provision in the arbitration clause added to its enforceability.  Due to the opt-out clause, the driver was not required to sign the arbitration clause. As the magistrate judge stated in his recommendation to the district court judge to grant Uber’s motion to compel arbitration: “If the agreements at issue did not contain an opt‐out clause, then the Undersigned would be evaluating the agreements with a different lens. However, the agreements here do contain opt‐out clauses. If I concluded that the opt‐out clauses here were a ruse or were purposefully ineffective and did not provide the drivers with a real and meaningful opportunity to avoid the arbitration provision, then I would be looking at the agreements under a microscope with a different legal adjustment and magnification. But there is no doubt that some Uber drivers actually took advantage of the opt‐out provisions. In fact, Plaintiff’s counsel here is simultaneously representing a collective action FLSA lawsuit against Uber on behalf of the opt‐out drivers. So we know that the opt‐out clause can be effective if the drivers take the time to read it or,af ter having reviewed the clause, choose to invoke it.” Lamour v. Uber Technologies, Inc., No. 16-Civ-21449 (S.D. Fla. Mar. 1, 2017).

UBER AND TAXI ALLIANCE AGREE TO DISMISS IC MISCLASSIFICATION CASE WITHOUT PREJUDICE PENDING SUPREME COURT REVIEW OF CLASS ACTION ARBITRATION WAIVERS. Uber drivers and the New York Taxi Workers Alliance have agreed to dismiss without prejudice their IC misclassification case while awaiting a decision from the U.S. Supreme Court on whether the National Labor Relations Act precludes enforcement of class action waivers in mandatory arbitration agreements. Uber’s position is that the drivers are bound by an enforceable arbitration agreement that requires them to arbitrate their disputes on an individual basis, while the drivers contend that in light of the class action waiver, the arbitration agreement is unenforceable and violates the NLRA. The parties had first sought an indefinite “stay” of the case, but the judge denied their request, noting that the Supreme Court “may decide the issue, they may not decide the issue.” The new stipulation, now “so ordered” by the court, provides that “in order to conserve the parties’ resources, and in the interest of judicial efficiency, the parties have agreed that this case should be dismissed without prejudice, subject to the terms of a tolling agreement …, pending issuance of the United States Supreme Court’s decision(s) in [Epic Sys. Corp. v. Lewis, No. 16-285, Ernst & Young US, LLP v. Morris, No. 16-300, and NLRB v. Murphy Oil, No. 16-307].” New York Taxi Workers Alliance v. Uber Technologies Inc., No. 16-cv-08299 (S.D.N.Y. Feb. 1, 2017).

CAR SERVICE COMPANY DRIVERS DEFEAT MOTION TO DISMISS IC MISCLASSIFICATION CLASS ACTION. A New York federal court denied a motion to dismiss a motion to dismiss by a car service company, Yellowstone Transportation, d/b/a Yes Car Services, in an independent contractor misclassification class and collective action brought by drivers alleging minimum wage and overtime violations under the Fair Labor Standards Act and the New York Labor Law.  The court examined the complaint, which included allegations that the company controlled the drivers’ work through dispatch orders; the drivers’ relationships with the Company were exclusive; drivers were subject to discipline and/or termination of the relationship if they worked for other car services; drivers’ work was monitored by the company; and as a pre-condition of employment, drivers were required to incorporate companies in their own names. Yellowstone had argued that the drivers’ “Independent Contractor Services Agreements,” purportedly signed by each of the Plaintiffs, established that they were independent contractors and not employees under the FLSA and New York Labor Law. Not surprisingly, the court concluded that in view of the allegations, “it would be premature to consider such documents at this juncture, given that the parties have not even had their initial appearance before the assigned Magistrate Judge yet and no discovery has been conducted whatsoever thus far.” The court added: “Dismissing the action on the grounds that Plaintiffs are independent contractors at this stage of the litigation would be inappropriate.” Gao v. Yellowstone Transportation, Inc., No. 15-cv-07439 (E.D.N.Y. Feb. 15, 2017).

OIL AND WELL SITE DRILLING WORKERS GRANTED CLASS ACTION STATUS IN IC MISCLASSIFICATION CASE AGAINST CHEVRON CORP. A California federal court granted conditional certification of a collective action under the Fair Labor Standards Act brought by well and drill site managers against Chevron Corporation alleging minimum wage and overtime compensation violations due to their alleged misclassification as ICs and not employees. In determining whether the managers’ claims should be conditionally certified at this initial stage, the court applied the rather lenient standard for conditional certification that “there [be] some factual basis beyond the mere averments in their complaint for the class allegations.” In concluding that the managers met that burden, the court found, “The substantial allegations, supported by the declarations submitted by Plaintiffs, indicate that the managers have similar responsibilities working for Chevron, that Chevron treats them as independent contractors, and that these managers are similarly situated with respect to many aspects of their control and employment circumstances, and they are allegedly subject to the same compensation scheme.” The case will now proceed to pre-trial discovery. McQueen v. Chevron Corp., No. 16-cv-02089 (N.D. Cal. Feb. 21, 2017).

“NOVEL” $6.5 MILLION SETTLEMENT AGREEMENT IN STRIPPERS’ IC MISCLASSIFICATION CASE. An adult entertainment firm, Déjà Vu Services, and its related companies have entered into a novel settlement with exotic dancers who had brought a class action IC misclassification case against the clubs in federal district court in Michigan.  Because some of the dancers may be employees under the Fair Labor Standards Act and others may be independent contractors, the settlement agreement, which received preliminary court approval on February 7, 2017, would create a process to determine each dancer’s status. Under the proposed settlement agreement, dancers would complete an “entertainment assessment form” that lists factors pertinent to the agreed upon test for determining independent contractor versus employee status. The settlement agreement provided for a means to resolve disputed dancer claims where the parties disagreed on their status. Doe v. Déjà Vu Services, Inc., No. 16-cv-10877 (E.D. Mich. Feb. 7, 2017).

MAIL DELIVERY COMPANY SUED FOR MISCLASSIFYING MAILROOM WORKERS AS IC’S. A Florida mail delivery management company has been sued in a proposed class action in federal court in Florida for allegedly misclassifying its mailroom workers employees as independent contractors. The plaintiff alleges that she provided services as a mailroom manager for US Postal Solutions Inc., who she claims misclassified her and other similarly situated workers as independent contractors. She seeks damages for allegedly unpaid overtime under the Fair Labor Standards Act.  The class action also seeks damages under Florida state law for the company’s failure to pay employment taxes. Caballero v. US Postal Solutions, Inc., No. 17-cv-00319 (M.D. Fla. Feb. 23, 2017).

Administrative and Regulatory Initiatives (1 item)

ALASKA WORKFORCE AGENCY ASSESSES FINES AND PENALTIES AGAINST CONSTRUCTION CONTRACTOR IN WORKERS’ COMP IC MISCLASSIFICATION CASE. The Workers’ Compensation Division of the Alaska Department of Labor and Workforce Development has reportedly assessed $280,000 in fines and penalties against construction company, North Country Services, in the death of a worker found by the workforce agency as having been misclassified as an IC. Alaska is regarded as being one of the more employee-friendly states in the nation in terms of the interpretation of its independent contractor test, both at the administrative and judicial levels, although there is no indication that the construction company had a valid basis for its classification of the deceased worker.  Deborah Kelly, director of the Department’s Labor Standards and Safety Division, stated: “One of the major issues in this case is that [the company] was hiring these young men and calling them independent contractors and not providing them any safety training at all, and not doing [its] due diligence with regard to them. These employees had no construction experience, no training, no preparation.” Labor Commissioner Heidi Drygas commented: “This tragic case illustrates the toll that misclassification can take on workers. If [the deceased worker] had been afforded the protections he deserved as an employee, he would be alive today.”

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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