May 2017 Independent Contractor Misclassification and Compliance News Update

by Pepper Hamilton LLP

This update of May 2017 developments in the area of independent contractor misclassification and compliance highlights three key legislative developments: the enactment of two new laws (one in New York City and the other in Florida) and the introduction of a bill in Congress.  As discussed below, these legislative initiatives (unlike many prior bills that have been enacted by state legislatures over the past ten years) are not efforts to crack down on companies that misclassify employees as ICs, but rather legislative acknowledgements that legitimate independent contractors play an important role in the U.S. economy and should be protected under the law.  How? These legislative initiatives seek to guarantee ICs a right to collect their fees, provide funding for studies to determine how ICs can enjoy workplace benefits they can carry from one gig to another, and simplify the test for IC status in one industry that has been the subject of dozens of IC misclassification lawsuits.

These legislative developments, of course, do not mean that plaintiffs’ class action lawyers and state workplace agencies have lessened their efforts to challenge companies alleged to have misclassified employees as independent contractors. Indeed, this May update includes court cases and regulatory enforcement actions against companies that allegedly mistreated workers by classifying them as ICs in violation of state or federal law.  For businesses that use workers whom they classify as ICs, the need for compliance with existing independent contractor laws has not diminished.  Many companies using ICs that wish to enhance their compliance with IC laws have chosen to take steps to minimize the likelihood of legal challenges by using the processes more fully described in our White Paper.

In the Courts (3 cases)

PRO FOOTBALL CHEERLEADERS WIN PARTIAL SUMMARY JUDGMENT THAT THEY WERE MISCLASSIFIED AS IC’S BY TWO COMPANIES FOUND TO BE THEIR JOINT EMPLOYER.  In 2014, the Buffalo Jills cheerleaders sued the National Football League, the Buffalo Bills professional football franchise, and other companies alleging that the defendants had misclassified them as independent contractors in violation of the state labor laws, including the minimum wage law. The cheerleaders claimed that they were not paid for all hours worked for each season, were not reimbursed for business expenses in a timely fashion, and had unlawful deductions taken from their pay. In addition, they alleged that the Bills football team and others exercised direction and control over the cheerleaders by requiring them to attend all pre-season, regular, and post-season home football games; attend and participate in all practices, rehearsals, photo sessions, and meetings; participate in a youth cheerleading program; follow a Buffalo Jills handbook; and be subject to monitoring of their activities and behavior, with disciplinary consequences for noncompliance. A New York State court last month granted partial summary judgment in favor of former members of the Jills, concluding that, as a matter of law, Cumulus Radio Company and Stejon Productions Corporation, which reportedly managed the Buffalo Jills under an agreement with the Buffalo Bills, were joint employers of the cheerleaders. The court, however, denied summary judgment as to whether the Buffalo Bills football team was also a joint employer, concluding that there were questions of material fact that remained to be tried regarding the role of the football team in relation to the services provided by the Jills.  Jaclyn S. v. National Football League, No. 804088/2014 (Sup. Ct. Erie County N.Y. May 18, 2017).

FEDERAL COURT AFFIRMS AUTHORITY OF CALIFORNIA LABOR COMMISSIONER TO AWARD OVER $950,000 AGAINST CARTAGE COMPANIES.  A California federal court has upheld the authority of the California Labor Commissioner to issue a decision and award of $958,000 to five port and rail truck drivers due to their misclassification as independent contractors by XPO Cartage Inc.  The amounts for each driver ranged from just under $100,00 to nearly $300,000 as reimbursement for expenses and unlawful deductions, as well as attorneys’ fees and costs. According to a News Release issued by the California Department of Industrial Relations on May 23, 2017, the federal judge ruled that the cases were not pre-empted by the Federal Aviation Administration Authorization Act and that all five drivers were entitled to reimbursements described above. California Labor Commissioner Julie A. Su stated: “The United States District Court’s decision in this case vindicates the rights of five employees who have sought for years to recoup the deductions unlawfully withheld from their wages due to being misclassified as independent contractors. My office is dedicated to ensuring workers are paid what they are due under the law and ensuring workers are properly classified.” Alba v. XPO Cartage, Inc., No. 15-cv-6059 (May 16, 2017).

UBER DRIVERS DENIED RIGHT TO CONSOLIDATE THEIR NORTH CAROLINA, TENNESSEE, AND FLORIDA IC MISCLASSIFICATION SUITS.  Drivers for Uber in Florida who had opted out of their arbitration agreements with the ride-sharing company were dealt a setback by a federal multidistrict litigation panel, which refused to grant their request to consolidate two other IC misclassification lawsuits in North Carolina and Tennessee with their IC lawsuit in Florida.  Uber and the plaintiffs in the two other states opposed the motion to consolidate the cases, each of which included claims under state laws. In denying the motion to centralize the three cases in Florida, the panel held that state-specific issues and the fact that the cases were in different procedural stages militated against consolidation in a single multidistrict litigation.  The panel suggested instead that voluntary coordination by the plaintiffs was preferable to a multidistrict consolidated proceeding. The decision last month was similar to the panel’s decision in 2016 to consolidate IC misclassification lawsuits in 17 other federal courts. Rojas v. Uber Technologies Inc., No. 16-cv-23670 (S.D. Fla.), MDL No. 2784 (May 30, 2017).

Regulatory Initiatives and Administrative Matters (1 matter)

IDAHO REPORTS IC MISCLASSIFICATION FINES OF $240,000 IN 2016.  The Idaho Department of Labor assessed fines in 2016 of $240,000 against employers found to have misclassified workers as independent contractors. As reported in a May 9, 2017 article published by the Idaho Business Review, a total of 2,489 ICs were reclassified as employees by 524 Idaho employers. Ryan Linnarz of the Idaho Industrial Commission reportedly stated that, “Courts tend to favor employee/employer relationships when there is a dispute over a classification, so it is important to make sure you know what to look for when you want to hire an independent contractor.”

Legislative Initiatives (3 matters)

FLORIDA ENACTS RIDE-SHARING LAW WITH RELAXED TEST FOR IC STATUS.  On May 9, 2017, Florida governor Rick Scott signed the Transportation Network Companies Act (HB221), which designates drivers for ride-sharing companies in the on-demand or gig economy as “independent contractors” as long as the “transportation network company” (“TNC”) meets four criteria that are currently met by Uber, Lyft, and other similar companies.  As discussed more fully in our blog post of May 11, 2017, this law essentially creates a safe-harbor for ride-sharing companies from liability due to misclassification of employees as independent contractors under the labor and employment laws in Florida, including laws governing minimum wages, unemployment, workers’ compensation, and workplace discrimination. The law creates a four-pronged test for IC status in this industry: first, the TNC may not unilaterally prescribe specific hours during which the driver must be logged on to the TNC’s digital network; second, the TNC may not prohibit the driver from using digital networks from other TNCs; third, the TNC may not restrict the driver from engaging in any other occupation or business; and fourth, the TNC and driver must agree in writing that the driver is an independent contractor with respect to the TNC.

NEW YORK CITY LAW PROTECTING INDEPENDENT CONTRACTOR FEE PAYMENTS GOES INTO EFFECT WITH DOUBLE DAMAGES PROVISIONS.  NYC’s Freelance Isn’t Free Act went into effect on May 15, 2017.  It is the first law in the nation regulating the relationship between independent contractors and those who retain their services and protecting ICs from non-payment of their fees. The new law gives independent contractors a right to sue for double damages if they are not provided with a written contract containing specified terms and are not paid by the date provided in the agreement or, if not so specified, within 30 days after completion of services under the contract. The law covers any contract between a freelance worker and a “hiring party” that has a value of $800 or more, by itself or when aggregated with all contracts between the parties over the prior 120 days. The parties’ contract is to be “reduced to writing” and the “written contract” must include at least the following five terms: the parties’ names and mailing addresses, an itemization of services to be provided, the value of services to be provided pursuant to the contract, the rate and method of compensation, and the date when the “hiring party” must pay the contracted compensation or the “mechanism by which such date will be determined.” As we commented in our blog posts of November 16, 2016 and May 9, 2017, while the new law has laudable objectives and many positive attributes, it is unclear as to precisely whom it covers and whom it regulates. Further, as described in those blog posts, the new law may well have unintended yet serious consequences for some New York City-based independent contractors and for businesses that retain them. We also noted in those blog posts that businesses would be well served to include certain contractual provisions in their written IC agreements that, while not required by the new law, would better protect companies from the law’s double damages penalty.

PORTABLE BENEFITS BILL FOR IC’S INTRODUCED IN CONGRESS.  On May 25, 2017, two identical bills were introduced in Congress to better serve individuals who earn a living as independent contractors.  The bill, called the “Portable Benefits for Independent Workers Pilot Program Act,” which was introduced by Senator Mark Warner (D-Va.) and Representative Suzan DelBene (D-Wash.), would create a $20 million fund for states, local governments, and non-profit organizations to study “broad innovation and experimentation with respect to portable benefits” for independent workers.  The term “portable benefits” is defined to mean work-related benefits “that allow a[n independent] worker to maintain the benefits upon changing jobs,” and includes contributions made by the eligible independent worker and/or by an entity (or multiple entities) for whom the independent worker is performing services. These benefits would be those “commonly provided to traditional full-time employees, such as workers’ compensation, skills training, disability coverage, health insurance coverage, retirement saving, income security, and short-term saving.” Under the bill, two types of grants would be available: $5 million to evaluate and improve the design and implementation of existing models or approaches for providing portable benefits; and $15 million to study the design, implementation, and evaluation of new models or approaches for providing such benefits. Grants will be awarded by the Secretary of Labor, who is directed by the bill to focus on proposed models or approaches that can be “replicated on a large scale or at the national level.” As we noted in our May 25, 2017 blog post, instead of focusing on sponsoring legislation to curtail the use of independent contractors and crack down on companies that misclassify them, the thrust of this proposed legislation by the two Democratic members of Congress is to recognize that legitimate independent contractors serve an important place in the U.S. economy and should be eligible for benefits and be able to carry those benefits from one gig to the next.

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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