United States: April/May 2014 Monthly Independent Contractor Compliance And Misclassification Update

In The Courts


Paul Johnson Drywall, Inc. agreed to pay $600,000 in back wages and liquidated damages to 445 current and former employees as result of the U.S. Department of Labor investigation into independent contractor misclassification by its construction labor subcontractor, Arizona Tract LLC. Paul Johnson Drywall had entered into an agreement in 2013 with Arizona Tract for the provision of drywall labor, but the U.S. Department of Labor concluded that the contractor misclassified the drywall workers as ICs instead of employees. While some businesses continue to believe that hiring labor through a contractor or staffing company insulates them from IC misclassification liability, the regional administrator for the Wage and Hour Division's west region stated in a press release that, "With increasing frequency, we are entering into agreements, like this one . . . ." Perez v. Paul Johnson Drywall, Inc., 2:2014-cv-01062 (D. Ariz. May 19, 2014).


Overturning prior precedent involving the classification of independent contractors, the Colorado Supreme Court held that the "totality of the circumstances" test should be used when determining if an individual is "customarily engaged in an independent trade, occupation, profession or business related to the service performed" under the Colorado Employment Security Act (CESA). Colorado, like about half of the states, has a form of the "ABC" test for purposes of unemployment benefits. Previously, Colorado courts found that an individual that provided similar services to another business at the same time was determinative of whether the individual was engaged in an independent business. Industrial Claims Appeals Office v. Softrock Geological Services, Inc., 2014 CO 30 (Sup. Ct. Colo. May 12, 2014).


Lowe's Home Centers agreed to pay $6.5 million to settle a class action lawsuit brought by home improvement contractors who allege they were misclassified as ICs instead of employees. In addition, the settlement calls for attorneys' fees of 25% of the settlement amount. This settlement, which was the subject of our blog post on May 26, 2014, is scheduled for a "fairness hearing" on June 27, 2014. The case is yet another in a long line of cases that are the subject of blog posts where it appears that the business did not structure its relationship with the ICs in a manner that enhanced compliance with state or federal IC laws. Shepard v. Lowe's HIW, Inc., No. 12-CV-03893-JSW (N.D. Cal. May 23, 2014).


A Missouri federal district court denied competing motions for summary judgment in lawsuit by cable installers suing Integrity Communications, Inc. for IC misclassification resulting in alleged violations of federal and state wage/hour laws. The cross-motions sought a determination of whether the cable installers were employees covered by the Fair Labor Standards Act or independent contractors exempt from the federal Fair Labor Standards Act. The court applied a six-part "economic realities test," considering the degree of control by the alleged employer over the manner in which the installers perform their work; whether the installers had an opportunity for profit or a risk of loss; the installers' investment in equipment or materials; whether a special skill was involved; the duration of the working relationship; and the degree of integration into the company's business. In denying the cross-motions, the Court concluded that there were genuine issues of material fact with respect to many of the six factors, thereby precluding summary judgment and requiring that the parties proceed to trial. Pennington v. Integrity Communications, Inc., No. 1:12-CV-5 SNLJ (E.D. Mo. May 20, 2014).


A New York appellate court upholds two administrative determinations that newspaper photojournalists who provided services to the New York Post were employees and not independent contractors for purposes of the New York unemployment insurance laws. Included among the factors found by the court to demonstrate an employer-employee relationship were the need for a trial photography session, the existence of a reasonably regular work schedule, the requirement that the worker adhere to the production standards set forth in a New York Post memo, and the restrictions imposed upon the photojournalist's ability to grant rights to the photos taken for the newspaper. Matter of Nance, No. 516996 (N.Y. App. Div. 3d Dep't May 22, 2014); Matter of Price, No. 516297 (N.Y. App. Div. 3d Dep't May 22, 2014).


A federal district court in New York granted a taxi company's motion for summary judgment in a class action lawsuit brought under federal and state law by cab drivers seeking damages for allegedly being misclassified as independent contractors. In dismissing the drivers' FLSA claims for alleged failure to pay overtime compensation, the court determined that the drivers operated "taxi cabs" and that they therefore fell within the FLSA's taxicab exemption to the maximum hours rule for "any driver employed by an employer engaged in the business of operating taxis." The court also dismissed the drivers' state minimum wage, overtime, and spread of hours claims, finding that the drivers were not covered by the New York labor laws because they were "drivers engaged in operating a taxi cab." However, with respect to the drivers' claims for minimum wage protection under the FLSA, the court found that the company's argument that the drivers were independent contractors not covered by the FLSA's minimum wage protections was not suitable for summary judgment because there were material factual disputes regarding the drivers' independent contractor/employee status under the "economic realities test" applicable to FLSA claims. Joseph Arena v. Plandome Taxi Inc., No. 2:12-cv-01078 (E.D.N.Y. Apr. 14, 2014).


A Colorado federal court approved a $2 millionsettlement in an independent contractor misclassification collective action brought under the FLSA by oil field workers who monitored oil and gas wells against J&A Services, LLC. As part of the settlement, 71 workers who had been treated as independent contractors will receive payments for unpaid overtime. Howard v. J &A Services, Inc., No. 1:12-cv-02987 (D. Colo. Apr. 8, 2014).


The U.S. Department of Labor was ordered by Texas federal court to pay almost $600,000 in attorneys' fees and expenses to Gate Guard Services, a limited partnership that provides services to oil field operators by contracting with gate attendants to log in vehicles entering and exiting oil field operation sites. The court found that the Labor Department's threatened prosecution of the company for independent contractor misclassification was not substantially justified and because the partnership had a net worth of under $7 million and less than 500 employees, it was entitled to legal fees under the Equal Access to Justice Act. Gate Guard Services L.P. v. Perez, No. 6:10-cv-00091 (S.D. Tex. Apr. 9, 2014)


Over 400 limousine drivers will share in a class action settlement of $3.5 million against Sunny's Limousine Services in their lawsuit alleging that the company misclassified drivers as independent contractors. See our blog post of April 21, 2014 describing this case. Munir v. Sunny's Limousine Service, Inc., No. 13-cv-1581 (VSB) (S.D.N.Y. Apr. 18, 2014).


Former members of the Buffalo Jills, the cheerleading squad for the Buffalo Bills, have sued the professional football franchise and others in New York State court alleging misclassification as independent contractors and violations of the state labor laws, including the minimum wage law. The cheerleaders claim that the Bills and others failed to pay them for all hours worked for each season, failed to reimburse them for business expenses in a timely fashion, and took unlawful deductions from their pay. In addition, they allege that the Bills and others exercised direction and control over the cheerleaders by requiring them to attend all preseason, regular and postseason 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. S., Jaclyn v. Buffalo Bills, Inc., No.804088/2014 (Sup. Ct. Erie County N.Y. Apr. 22, 2014).

Regulatory and Enforcement Initiatives


The California Labor Commissioner issued citations of over $1.5 million to two janitorial companies for allegedly engaging in multiple wage violations, including misclassification of 52 workers as independent contractors and failure to provide rest or meal breaks or pay minimum wage or overtime wages. The janitorial companies, NLP Janitorial and Coast to Coast West, provided cleaning services to hotels, resorts, theater chains, and restaurants. In a News Release (No. 2014-42) dated May 8, 2014, the Labor Commissioner stated: "There is a high cost to unfair competition, and these 52 workers bore the brunt of it when their earned wages were stolen from them. Honest janitorial employers struggling to compete against scofflaws also pay."


The New York State Department of Labor issued standards for determining whether a commercial truck driver operating in New York is an independent contractor or employee under the recently enacted New York State Commercial Goods Transportation Fair Play Act. The Labor Commissioner also issued posters required to be posted by businesses using drivers who are covered under the new law, which applies to drivers operating commercial vehicles with a Gross Vehicle Weight Rating of over 10,000 pounds. See our blog post on April 30, 2014 for further explanation of the Labor Commissioner's newly released standards, as well as our blog post dated March 18, 2014 elaborating upon the important technical amendments made to the new law and our April 2, 2014 blog post offering insights into how to comply with the new law.

On the Legislative Front


Earlier this month, Congress re-introduced a bill to address independent contractor misclassification. As noted in our prior blog post of May 20, 2014, the Payroll Fraud Prevention Act of 2014, if enacted, would expand the federal Fair Labor Standards Act (which currently addresses minimum wage, overtime and child labor laws) to cover a new category of workers – non-employees – and make it a prohibited act to "wrongly classify an employee as a non-employee." The bill would also add new recordkeeping responsibilities on all businesses and impose severe penalties for violations by businesses.

Other Newsworthy Matters


National Employment Law Project (NELP) published a report on May 7, 2014 entitled: "Who's the Boss: Restoring Accountability for Labor Standards in Outsourced Work," which condemns independent contractor misclassification. The report concluded that the increasing use of outsourcing, including agency temporary workers (temps), independent contractors, contract company workers, day laborers, and direct-hire temps, often results in lower wages and dangerous working conditions. The report contains many far-reaching objectives including extending liability "up the supply chain" to businesses that use outsourcing and staffing firms; and creating more laws at the state level that create presumptions of employee status.

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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