January 2018 Independent Contractor Misclassification and Compliance News Update

Locke Lord LLP

There were six noteworthy cases in the area of independent contractor misclassification and compliance in January 2018 involving drivers of trucking companies, behavioral therapists, ride-sharing drivers, insurance agents, furniture delivery drivers, and construction workers. Each of those types of workers can be legitimate independent contractors under the various tests for IC status under federal laws and almost all state laws, when their IC relationships are properly structured, documented, and implemented. Many companies that make use of ICs have sought to minimize their likelihood of becoming a defendant in one of these types of IC misclassification lawsuits by using a process, such as IC Diagnostics™, to enhance their compliance with such laws, as more fully described in the White Paper, “Independent Contractor Misclassification: How Companies Can Minimize the Risk.”

At the end of this post, we refer our readers to a two-part article published by BNA Bloomberg Daily Labor Report addressing the five top legal developments in independent contractor misclassification and compliance in 2017, and what to expect in 2018 in this area of the law.

In the Courts (6 cases)

THE CITY OF LOS ANGELES FILES IC MISCLASSIFICATION LAWSUITS AGAINST PORT TRUCKING COMPANIES. Three trucking and drayage companies owned by NFI Industries Inc. have been sued by the City of Los Angeles in three separate actions for alleged misclassification of truck drivers as independent contractors. The companies operate in and around the Ports of Los Angeles and Long Beach, California, as well as throughout the U.S. and Mexico.  The lawsuits allege violations of federal truck leasing regulations and the California Unfair Competition Law. The complaint alleges that the misclassification of the drivers as independent contractors is a “scheme” to increase the companies’ profits by trying to avoid their obligations to provide benefits, pay relevant taxes, and absorb various operating costs. The City alleges that the companies regularly discharge drivers at any time with or without cause; retain absolute discretion to prohibit drivers from working for competitors; require the drivers to create a fictitious company name although they do not have distinct, independent businesses; control the drivers’ work assignments; set the piece rates paid to the drivers; and monitor the drivers’ work through a GPS system. The People of the State of California v. CMI Transportation LLC; The People of the State of California v. K&R Transportation California LLC; and The People of the State of California v. Cal Cartage Transportation Express LLC (Super. Ct. Los Angeles County Jan. 8, 2018).

BEHAVIORAL THERAPIST FILES PROPOSED CLASS ACTION IN PENNSYLVANIA FOR IC MISCLASSIFICATION. A school-based outpatient therapist has filed a collective and class action complaint in Pennsylvania federal court against Progressions Behavioral Health Services, Inc. and Progressions Companies, Inc., alleging that she and similarly situated behavioral therapists have been misclassified as ICs.  The plaintiff seeks allegedly unpaid overtime compensation under the Fair Labor Standards Act and the Pennsylvania Minimum Wage Act.  The complaint also seeks recovery under the Pennsylvania Wage Payment and Collection Law for alleged failure of Progressions to track and compensate the therapists for all time spent performing compensable work that is allegedly designated by the companies as “non-billable.” According to the complaint, the therapists’ schedule were determined by Progressions; they were allegedly required to perform their services in accordance with certain specific guidelines, protocols, and trainings provided by the companies; they received annual performance evaluations from the companies, as well as feedback, coaching, and discipline for failure to perform in accordance with the companies’ expectations; and were required to spend several hours filling out paperwork, completing reports, and entering information into the companies’ client management software. The complaint alleges that “[u]pon information and belief, Defendants reclassified its Outpatient Therapists from independent contractors to employees on different dates depending on their office location between July 2014 and April 2016.” However, for the first several years of the named therapist’s relationship with the companies, the plaintiff, currently an employee of the companies, alleges that she and others similarly situated to her were misclassified as independent contractors. Thompson v. Progressions Behavioral Health Services, Inc. and Progressions Companies Inc., case no. 5:18-cv-00058 (E.D. Pa. Jan. 8, 2018).

APPELLATE BRIEFS OF INSURANCE COMPANY AND “FRIENDS OF THE COURT” FILED IN KEY INDEPENDENT CONTRACTOR CASE.  American Family Insurance filed its appellate brief, as did three amicus curiae, seeking reversal of a July 31, 2017 decision by a federal judge in the U.S. District Court for the Northern District of Ohio.  The decision being appealed held that the company’s insurance agents were employees for purposes of ERISA and not independent contractors. The appeal is to the U.S. Court of Appeals for the Sixth Circuit.  The three “friends of the court” briefs were filed by the U.S. Chamber of Commerce, the American Council of Life Insurers, and the Property Casualty Insurers Association of America, all supporting reversal of the district court’s decision.

As the appellate briefs point out, prior to the issuance of this decision, almost all federal courts have held that insurance agents are independent contractors. The briefs argue that the federal judge in Ohio failed to properly apply the so-called “Darden” test for IC status under ERISA. They focus on a number of alleged errors by the district court, including not giving sufficient weight to: (1) the terms of the agreements between American Family and its insurance agents stating that the parties are entering into an IC relationship and providing the agents with the right to determine the details regarding the manner and means of performing their services; (2) the financial relationship between the parties and their tax treatment, including the agents’ declaration to the IRS that they were self-employed and thus able to deduct their own business expenses; (3) the agents’ investment in and management of their own offices including their right to hire assistants; (4) the agents’ opportunity for profit by growing their own businesses; and (5) the level of skill required of insurance agents operating in a highly regulated and specialized field. The briefs also argue that the U.S. Supreme Court has favored predictability in ERISA cases so that the parties to an independent contractor agreement can proceed with some degree of confidence that their contractual preference for IC status will be honored by the courts.  The appellate brief by the plaintiffs is due next month. Jammal v. American Family Insurance Company, No. 17-4125 (6th Cir.).

DRIVERS AND UBER SEEK FINAL COURT APPROVAL OF $7.5 MILLION SETTLEMENT OF CRIMINAL BACKGROUND CHECK CASE. Both Uber Technologies and the drivers who filed a class action against it under the Fair Credit Reporting Act have each filed court papers asking a federal district court to approve the parties’ proposed $7.5 million settlement of a lawsuit alleging that the ride-sharing technology company failed to comply with the FCRA and Massachusetts state law when conducting criminal background checks of prospective drivers.  Over one million class members were sent notices of the proposed settlement, and just under 100,000 valid claims forms were returned after the court gave preliminary approval to the settlement.  One objection was filed to the settlement by a law firm purportedly representing hundreds of drivers who wish to opt out of the settlement.

Uber noted in its brief that the settlement amount is reasonable in view of its several defenses: the FCRA does not apply to the drivers because they are allegedly independent contractors; the drivers’ claims may be dismissed for lack of “standing”; the drivers may not be able to prove any FCRA violations at all; if any violation can be proven, the drivers cannot prove it was “willful”; and class certification is uncertain. The drivers concurred in their brief that the settlement amount was reasonable, noting that  a significant number of participating class members could be forced into individual arbitrations; the drivers faced significant risks on the merits of their claims, including the defenses noted by Uber in its brief; and the drivers face significant risks on their damages theory.  A “fairness” hearing on the proposed settlement is scheduled for February 8, 2018.  It is expected that the court will give final approval to the proposed settlement. In Re Uber FCRA Litigation, No. 14-cv-05200-EMC (N.D. Cal. Jan. 25, 2018).

DRIVERS MAKING DELIVERIES FOR MATTRESS AND HOME FURNISHINGS STORES DENIED SUMMARY JUDGMENT IN THEIR IC MISCLASSIFICATION CLASS ACTION CLAIMS. A Florida federal court has denied a motion for summary judgment by a driver, on behalf of himself and other drivers, who claim that Callahan’s Express Delivery, Inc. – a company that enters into contracts to make local deliveries of mattresses, furniture, and other goods on behalf of retail customers such as Mattress Firm and Ikea – misclassified him and other drivers as ICs. The driver alleged that the company violated the overtime provisions of the Fair Labor Standards Act. The court, in determining whether there were any genuine issues of material fact regarding the status of the drivers that a jury would have  to resolve, applied the six-factor economic realities test utilized by the 11th Circuit requiring the court to “look past the labels the parties apply to their relationship, and to examine both whether Plaintiff’s relationship to Defendant is that of a traditional employee and to what extent Plaintiff is economically dependent upon Defendant.” The court found that there were genuine disputes over the following facts: the nature and degree of control by the company over the drivers; their  opportunity for profit and loss; whether they could hire helpers; and whether the drivers possessed any special skills required to perform their job. Maldonado v. Callahan’s Express Delivery, Inc., No. 13-cv-292 (M.D. Fla. Jan. 12, 2018).

LOUISIANA COURT CONDITIONALLY CERTIFIES CLASS OF CONSTRUCTION WORKERS IN IC MISCLASSIFICATION CASE. A Louisiana federal court has granted a motion to conditionally certify the collective claims of construction workers against a construction company, Tasch, LLC, alleging overtime violations under the FLSA based on Tasch’s alleged misclassification of the workers as independent contractors. The plaintiffs alleged that the company classified them as independent contractors, yet directed, monitored, supervised, and evaluated the laborers’ work and set their schedules, work hours, and rates of pay.  In determining whether other construction workers are similarly situated to the proposed class, the court granted the workers’ motion, concluding that the plaintiffs had presented substantial allegations that they and the other putative class members were victims of the company’s alleged policy of improperly classifying construction workers as independent contractors and not paying them any overtime compensation. Lemons v. Tasch, LLC, No. 17-7212 (E.D. La. Jan. 24, 2018).

Other Noteworthy News

THE TOP LEGAL DEVELOPMENTS IN 2017 – AND WHAT TO EXPECT IN 2018 IN THE AREA OF IC MISCLASSIFICATION AND COMPLIANCE. What were the top  developments in the area of independent contractor law in 2017? What should those interested in this niche area of the law expect in 2018?  Those were the subjects of a two-part article, co-authored by the Publisher and the Managing Editor of this legal blog, in the  January 4 and 5, 2018 editions of BNA Bloomberg’s Daily Labor Reporter.  Click for Part 1 and Part 2 of that article.

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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