United States: May 2013 Monthly Independent Contractor Compliance And Misclassification Update

In the Courts

  • New York federal district court grants approval of $600,000 settlement in favor of a class of luxury suite attendants who worked at Arthur Ashe Stadium during the U.S. Open between 2004 and 2009. The defendants were three companies that provided catering and concession services at the tennis event. The suit alleged, among other things, violations under the Fair Labor Standards Act and the New York Labor Law for alleged failure to pay all wages due, including overtime, unlawful retention of gratuities, and improper recordkeeping. Yahraes et al. v. Restaurants Associates Events Corp., 10-CV-935 (MKB)(SMG) (E.D.N.Y. May 2013).
  • Highest court in Massachusetts allows extraterritorial application of Massachusetts stringent independent contractor and wage/hour laws to independent couriers that lived and provided services outside of Massachusetts for a Massachusetts company. The couriers alleged that they were misclassified as independent contractors and not employees and that the company also violated Massachusetts wage laws by failing to pay overtime and other wages. The Supreme Judicial Court concluded that the written contracts between the parties contained an enforceable forum selection clause requiring both that actions be brought in Massachusetts and requiring that the contract and all rights and obligations of the parties be determined under Massachusetts law, even though the individuals lived and worked in New York. Taylor v. Eastern Connection Operating, Inc., SJC 11222 (Mass. Supreme Judicial Court May 17, 2013).
  • Kentucky cable company pays $1.075 million to settle misclassification case with U.S. Department of Labor for cable, telephone, and internet installers. Under the consent judgment, the payments will be made to 77 cable installers whom Bowlin Group LLC allegedly misclassified as independent contractors and then failed to pay overtime compensation to the installers as well as other similarly situated installers whom Bowlin designated as employees. Bowlin Group and related parties also consented to a permanent injunction barring them from failing to pay overtime and minimum wages and keeping and preserving employment records in violation of the Fair Labor Standards Act. See our prior blog post dated May 14, 2013, entitled, "Cable Company Pays $1.075 Million to Settle Misclassification Case with U.S. Department of Labor for Cable, Telephone, and Internet Installers." Harris v. Bowlin Group, LLC, Case 2:12-cv-00076 (E. D. Ky. April 30, 2013).
  • The U.S. Court of Appeals for the Third Circuit certifies a question relating to the test to be used for IC classification for resolution by the New Jersey Supreme Court in a proposed class action by delivery drivers against Sleepy's alleging violations by the bedding giant of wage/hour and other employment statutes. Finding that "there are at least four distinct employment tests that have been applied under New Jersey law in other contexts (including unemployment, whistleblowing and tort claims) to determine independent contractor/employee status," the Third Circuit certified the following question: "Under New Jersey law, which test should a court apply to determine a plaintiff's employment status for purposes of the New Jersey Wage Payment Law...and the New Jersey Wage and Hour Law?" Hargrove v. Sleepy's, LLC, Nos. 12-2540 & 12-2541 (3d Cir. May 2013).
  • California truck drivers file suit in Los Angeles County Superior Court against Harbor Express, Inc., a trucking company serving the ports of Los Angeles and Long Beach, seeking class action status and alleging that as many as 400 truckers were misclassified as independent contractors rather than as employees and, as a result, the company improperly sought to avoid paying overtime, rest breaks, other wages and benefits under the applicable labor laws. The drivers claim that they are employees, driving company-owned trucks exclusively for Harbor Express. Estrada v. Harbor Express, Inc. (Los Angeles County Superior Court May 13, 2013).
  • California federal district court revisits certification decision involving San Diego-area newspaper being sued by a proposed class of home delivery carriers. The carriers allege that the company misclassified them as independent contractors and failed to pay minimum wage, hourly wages and overtime wages; failed to provide rest breaks and reimburse reasonable business expenses; and engaged in unfair business practices. The court upheld the certification of the class as to the question of whether the company improperly characterized the carriers as independent contractors and not employees. It also reaffirmed class certification regarding the claims of unreimbursed expenses and unfair business practices; but, decertified the class as to the claims of overtime, minimum wage, and rest breaks due to the differences in hours worked by each delivery carrier and the fact that an undetermined amount of carriers hired substitutes or helpers to perform the services. Dalton v. Lee Publications, Case No. 08-cv-1072-GPC-NLS (2013 U.S. Dist. LEXIS 71291) (S.D. Cal. May 20, 2013).

On the Legislative Front

  • Connecticut bill (HB 6151) exempting certain truck drivers from coverage under the state's unemployment law passes the House on May 16, 2013 and now awaits a Senate vote. Under the proposed bill, independent contractor truck drivers who transport property pursuant to an agreement with a contracting party will be exempt from the unemployment laws if all of the following conditions are met: the vehicle has a gross weight of over 10,000 pounds; the driver owns the vehicle or leases it from an entity other than the contracting party (or any related entity); the driver's pay is based on factors that include mileage-based rates, a percentage of any rate schedules, or flat fee; the driver is free to reject work without consequence and has a non-exclusive relationship with the contracting party; and the driver is not considered an employee under the unemployment law's three-part ABC test. In addition, the bill would enable a trucker to satisfy Element C of the ABC test even if he or she provides services to only one company. Currently, a driver can fail Element C of the test if he or she limits services to only one company.
  • Tennessee Governor signs bill (SB 833) on May 16, 2013 addressing construction industry providers who misclassify employees as independent contractors resulting in workers' compensation fraud and non-compliance. The new law provides civil and criminal penalties for such misclassification.
  • New Jersey passes employee misclassification bill (A1578, S1450), the Truck Operator Independent Contractor Act, creating a presumption that parcel (small package) delivery and drayage truck drivers are employees and not independent contractors unless they can satisfy a three-part ABC test. The bill also provides substantial civil and criminal penalties for the misclassification of such drivers. Although the bill passed in the Assembly and Senate in May, the votes were along party lines, with Democrats favoring the bill and Republicans opposed. Due to strong opposition from those who fear that the bill will discourage small business ownership and hamper the New Jersey economy, many expect that Governor Christie will veto the bill.

Regulatory and Enforcement Initiatives

  • IRS to pursue more cases involving independent contractor misclassification through its Questionable Employment Tax Practices (QETP) program. According to the Chief of the IRS's Employment Tax Policy section, the IRS and 37 participating workforce agencies that have signed a Memorandum of Understanding (MOU) will coordinate enforcement methods and exchange employment tax information for civil cases where the government believes the intent was to evade or inappropriately reduce tax responsibilities. This resurgence is expected to begin in the next 8-10 months. The QETP program was first announced in 2007, but was overshadowed by later information-sharing arrangements between the IRS and the U.S. Department of Labor, which has itself entered into MOUs with an increasing number of workforce agencies. See prior blog post dated May 16, 2013, entitled, "IRS to Reinvigorate its QETP Program in Effort to Crack Down Harder on Independent Contractor Misclassification."

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Authors
Lisa B. Petkun
Andrew J. Rudolph
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