United States: January 2014 Monthly Independent Contractor Compliance And Misclassification Update

In the Courts

  • NEWSPAPER THAT MISCLASSIFIED PAPER CARRIERS HIT WITH $11 MILLION JUDGMENT IN CALIFORNIA.  California state court orders San Diego Union Tribune, owned by Copley Press Inc., to pay $6.1 million in legal fees to the attorneys for a class of over 1,200 paper carriers who had earlier been awarded $3.2 million in damages for misclassification as independent contractors and another $1.75 million in interest. As noted in our blog post of January 24, 2014, despite the fact that each paper carrier had entered into an independent contractor agreement and "fully understood they were independent contractors," the court found an overwhelming number of factors that supported employee status.  Such factors included the pay rates paid to the paper carriers were not subject to negotiation; the contracts were presented on a "take it or leave it basis"; carriers were obliged to follow specifications given by the newspaper; the newspaper's personnel trained, mentored, coached, and supervised the carriers, the newspaper unilaterally altered the routes of the carriers; and the publisher employed paper carriers on its payroll who performed the same function as did the paper carriers classified as independent contractors . Espejo v. The Copley Press, Inc., No. 37-2009-00082322-CV-OE-CTL (Sup. Ct. San Diego County, Dec. 20, 2013).
  • BANK CONSULTANT FOUND TO BE INDEPENDENT CONTRACTOR.  A New York federal district court found that a banking consultant for Royal Bank of Canada to be independent contractor under the federal Fair Labor Standards Act, New York Labor Law, and anti-discrimination laws. The court considered multiple factors, including that the bank had low degree of control over consultant; consultant worked at his own convenience and was free to and did provide services to other entities simultaneously; consultant had high degree of skill and independent initiative; there was no promise of permanence despite several three-month renewals of contract; and consultant operated his own limited liability corporation. Sellers v. Royal Bank of Canada, No. 12 Civ. 1577 (KBF)(S.D.N.Y. Jan. 8, 2014).
  • ANOTHER GROUP OF EXOTIC DANCERS PREVAIL IN MISCLASSIFICATION CLASS ACTION.  A Georgia federal court granted summary judgment motion in favor of class of exotic dancers, concluding that they were misclassified by The Great American Dream (d/b/a/ Pin Ups) as independent contractors and not as employees under the Fair Labor Standards Act. Using the economic realities test, the Court determined that five out of six key factors supported its ultimate finding of employee status: (1) Pin Ups exercised significant control over the dancers, including standards of dress and how to conduct themselves on stage; (2) Pin Ups had a much larger risk of loss and opportunity for profit than the dancers; (3) Pin Ups invested far more than the dancers on necessary personnel and equipment; (4) little skill was required of the dancers; and (5)  the dancers' services were an integral part of Pin Ups' business. Only the sixth factor, duration of the relationship, supported independent contractor status in that there was no indication that all of the dancers performed services for an extended period of time.  Stevenson v. The Great American Dream, Inc. ,d/b/a Pin Ups,  No. 1:12-cv-03359-TWT(D. Ga. Dec. 31, 2013).

On the Legislative Front

  • NEW YORK ENACTS TOUGH INDEPENDENT CONTRACTOR LAW GOVERNING COMMERCIAL GOODS TRANSPORTATION INDUSTRY.  Governor Cuomo signed into law the New York Commercial Goods Transportation Industry Fair Play Act on January 10, 2014.  As described extensively in our January 14, 2014 blog post, this new law targets transportation and delivery companies in New York that classify as independent contractors certain drivers that deliver commercial goods in the state.  Proposed Chapter Amendments are currently being considered that will make slight but important adjustments to some of the terms of the new law, including extending the effective date from 90 days after enactment instead of 60 and clarifying that the law will only apply to drivers operating a commercial motor vehicle with a gross vehicle weight rating (GVWR) of more than 10,000 pounds. The Act contains stringent new tests that must be met to overcome the presumption of an employment relationship.  It also contains heavy penalties and liabilities for those who violate the new law; imposes personal liability on principals of companies violating the law, and provides for notices to be posted by businesses in the industry in order to comply with the law. The blog post issued earlier this month offers "takeaways" to commercial goods transportation companies about the need to restructure, re-document, and re-implement their independent contractor relationships to comply with the law.
  • VERMONT BILL WOULD NEUTRALIZE STRICT "ABC" TEST FOR INDEPENDENT CONTRACTORS.   A bill (S. 220) was introduced in Vermont Senate on January 7, 2014 that would seek to, among other things, amend the workers' compensation law to substitute a multi-factor statutory test for determining independent contractor status instead of the strict ABC test currently in use.  The purpose of the bill is to create jobs and increase investment in Vermont through encouraging entrepreneurs, fostering the growth of new small businesses, and facilitating the recruitment and expansion of existing businesses in the state.

h3>Regulatory and Enforcement Initiatives

  • NOMINEE FOR U.S. WAGE AND HOUR ADMINISTRATOR ONE STEP CLOSER TO CONFIRMATION.   On January 29, 2014, the U.S. Senate's Health, Education, Labor and Pensions ("HELP") Committee approved the nomination of David Weil for the vacant position of Wage and Hour Administrator of the United States Department of Labor's Wage and Hour Division. Dr. Weil is an economics professor at Boston University School of Management.  The Wage and Hour position has been vacant during President Obama's presidency despite two previous nominations of other candidates. The first nominee withdrew her name amid opposition from Republicans in 2009, and the second candidate was withdrawn by the President in 2011 in response to anticipated Republican opposition. Dr. Weil testified that if confirmed, he intends to undertake studies to understand the use of legitimate independent contractors and determine where misclassification occurs. Dr. Weil now awaits possible confirmation by the full Senate.

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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