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

Last Updated: October 8 2013
Article by Richard J. Reibstein, Lisa B. Petkun and Andrew J. Rudolph

In the Courts

  • Oregon Court of Appeals concludes that some musicians performing with the Portland Columbia Symphony were independent contractors under the state's unemployment law. In applying the state statute, the Court disagreed with the Administrative Law Judge's decision that all of the musicians were employees. Although all of the musicians played a particular instrument, played only the music selected by the conductor, and had to appear at the work location in concert attire, the Court did not view those factors as evidencing direction and control over the manner and means of the services performed. However, the Court found that only some of the musicians satisfied the statute's requirement that the person be "customarily engaged in an independently established business" because not all of the musicians provided services to two or more different organizations within a 12-month period or routinely advertised, solicited, or marketed their businesses. Portland Columbia Symphony v. Employment Department, 258 Or. App. 411 (September 5, 2013).
  • Class action lawsuit filed in California state court against Prometheus Global Media, LLC, an entertainment publishing company that publishes Billboard, Adweek, and Backstage, alleging that the company willfully misclassified "freelancers" as independent contractors and thereby denied them wage and hour rights and protections under the California labor laws. The claim, filed by an Assistant Editor Social Media and Video Coordinator, seeks allegedly unpaid overtime, pay for rest and meal breaks that were not provided, reimbursement of expenses, and penalties for failing to issue itemized wage statements and failing to make timely wage payments. The complaint alleges that the "freelancers" were treated the same as employees in that they were expected to work Monday through Friday from 9 a.m. to 5 p.m.; were provided with their own work space, computer, company e-mail address, and direct dial phone number; and were required to attend meetings; were directed by a supervisor and manager; and were subject to discipline. Simpson v. Prometheus Global Media, LLC, Case No. BC522638 (Super. Ct. Cal. September 27, 2013).
  • New York intermediate appeals court rules that musicians who performed on tour at musical productions arranged by an international talent music management company, Columbia Artists Management LLC, were employees subject to the direction and control of the company and not independent contractors. This case involved an appeal of an unemployment insurance appeal board determination finding that the musicians had been misclassified as independent contractors. The Appellate Division, Third Department, found that, despite some indicia of independent contractor status (the musicians were managed by a musical director who was independent of Columbia; they were responsible for finding their own replacements if unable to perform; they were not provided with fringe benefits; and they were designated as independent contractors in their written agreements with Columbia), there were sufficient indicia of employee status for the unemployment appeal board to find that the musicians had been misclassified: they were paid a flat fee per week for the duration of the tour; their transportation, lodging, and other expenses were paid for or reimbursed by the management company; they were supplied with sheet music; they were prohibited from taking on engagements that conflicted with the tour; they were subject to dismissal for drug or alcohol abuse; and the management company retained the right in their contracts to ensure the artistic quality of the show. The appellate court reached the opposite result regarding the "loaders" who unloaded instruments and equipment from truck to sidewalk; the court found that the management company did not exercise direction and control over those unionized workers. Columbia Artists Management, LLC v. Commissioner of Labor, No. 515768 (3rd Dep't, Sept. 26, 2013).
  • Car service drivers file proposed nationwide class action lawsuit against Lyft, Inc. in California federal district court seeking a minimum of $6.5 million in damages for allegedly misclassifying them as independent contractors, taking 20% of the gratuities given to each driver by a rider, failing to provide the drivers with complete wage statements, and failing to reimburse them for mileage costs in violation of the state labor laws. The proposed class action covers drivers in California, Washington, Illinois, Massachusetts, Indiana, Minnesota, Georgia, and the District of Columbia. Cotter et al., v. Lyft, Inc. et al., 3:13-cv-04065-EDL (N.D. Cal. September 3, 2013).
  • Satellite television equipment installers for Dish Country, Inc. files a class action/collective action complaint in New York federal district court alleging that the company misclassified its installers as independent contractors in violation of the wage deduction and overtime provisions of the Fair Labor Standards Act and the New York Labor Law and that the installers were deprived of employee benefits under ERISA as a result of their misclassification. Harold Oliver, et al. v. Dish Country, Inc. et al., 5:13-CV-1143 (MAD/DEP) (N.D.N.Y. September 13, 2013).
  • Massachusetts federal district court denies the motion for summary judgment filed by the Massachusetts Delivery Association seeking a holding that the state's independent contractor misclassification statute was preempted by the Federal Aviation Administration Authorization Act. The Association alleged, among other things, that the state's independent contractor misclassification law should be preempted by the federal law because it requires delivery companies operating in Massachusetts to classify their drivers as employees instead of independent contractors, the effect of which causes delivery companies to increase the price of deliveries to consumers. The court rejected the Association's argument, holding that the state statute has no effect on prices, routes, or services of the delivery company. See our prior blog post dated January 31, 2012 describing the pre-emption claims and procedural history in more detail. Massachusetts Delivery Ass'n v. Coakley, No. 1:10-cv-11521 (D. Mass September 26, 2013).
  • Federal district court in New York finds that Rick's Cabaret misclassified a class of 1,900 exotic dancers as independent contractors under the economic realities test for purposes of the Fair Labor Standards Act and under the common law test of the New York Labor Law, and required the defendant to pay the class members back wages, including minimum wages, overtime, and tips. Under the economic realities test, the court found that a weighing of the factors favored employee status: the Club exerted significant control over the dancers' behavior; the Club had the dominant opportunity for profit; dancers had no specialized skills and a limited investment; and the dancers were integral to the Club's business. The non-exclusive nature of dancers' engagements did not change the balance of factors, according to the court. The evidence weighed in favor of employee status under the common law test as well, where the Court found that the Club exerted more than incidental control, including requiring that dancers abide by written guidelines; the assessment of fines to non-compliant dancers; detailed standards of dancer conduct, dress, and performance style; and control by the Club of prices charged to customers. Hart et al. v. Rick's Cabaret International, Inc. et al., 09 Civ. 3043 (PAE) (S.D.N.Y. September 10, 2013).
  • Cascom, a contractor for Time Warner Cable Inc., was ordered by federal court in Ohio to pay $1.5 million (half for back wages and half for liquidated damages) to class of 250 former cable installers who had been misclassified as independent contractors in violation of the Fair Labor Standards Act. On September 11, 2011, the Court held that the installers working for Cascom were employees covered by the FLSA and, consequently, were entitled to overtime compensation under the FLSA. Although the company is now defunct, the Department of Labor, which brought the action, has stated that it will attempt to collect the money from the former owner of Cascom. Solis v. Cascom, Case No. 3:09-cv-257 (TMR) (S. D. Ohio August 27, 2013).

On the Legislative Front

  • New Jersey Governor Christie vetoes on September 9, 2103 the Truck Operator Independent Contractor Act, which had been passed along party lines in both houses of the New Jersey legislature. As noted in our prior blog post on September 9, 2013, the bill (A1578) would have created a presumption that parcel delivery and drayage truck drivers in New Jersey are employees and not independent contractors unless they can satisfy a three-pronged statutory test for independent contractor status. The Governor noted at least two areas of concern regarding the bill: (1) the bill would undo the independent contractor model currently in use by trucking businesses in New Jersey by establishing a presumption of employment; and (2) criminal penalties could be imposed even if the misclassification was not willful, thereby creating the potential that prudent trucking businesses using the independent contractor model would move their companies outside of New Jersey.

Regulatory and Enforcement Initiatives

  • According to a September 5, 2013 report of the Massachusetts' Joint Enforcement Task Force on the Underground Economy and Employee Misclassification, a group of multiple state agencies and the Attorney General's Office, reports that it has collected $21.4 million in back wages, taxes, fines and penalties related to employer fraud and worker misclassification from July 2011 through December 2012. Created by Governor Deval in 2008, the Task Force also collaborates with the U.S. Department of Labor. The Task Force report states that 237 referrals were received by the Task Force members through its complaint line and 24,000 compliance checks were undertaken over an 18-month period. Massachusetts Attorney General Martha Coakley stated: "The money recovered this year demonstrates both the scope of the problem and our aggressive response to combat fraud and abuse."
  • United States Department of Labor's Wage and Hour Division (WHD) determines that Midwest Lodging, a hotel management company based in Cincinnati, Ohio, along with the three staffing agencies that it used to obtain workers for its hotels, are joint employers, and that 67 housekeepers, laundry workers, and front desk clerks were misclassified as independent contractors in violation of the Fair Labor Standards Act's minimum wage, overtime, and recordkeeping provisions. Midwest Lodging agreed to comply with a WHD compliance agreement that includes the obligation to pay back wages to the workers that were referred to it by the staffing agencies, which have since gone out of business. The WHD stated in its press release that "employment agencies serve valuable and legitimate business needs in today's economy, but employers may not use such services to escape their responsibility to pay their workers the minimum wage and overtime pay they are entitle to under the law."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Lisa B. Petkun
Andrew J. Rudolph
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