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

The leading development this month in the area of independent contractor compliance and misclassification is an Arizona case that deals with a commonplace event – but one that carries with it the potential for unanticipated independent contractor misclassification liability – where a company outsources a function to a subcontractor, who uses ICs to render the service. If the ICs claim that they are employees who have been misclassified, they may also allege that the company that outsourced the work and is indirectly receiving the benefit of the work is a "joint employer" with the subcontractor. This type of claim is most likely to arise where the ICs are indirectly providing a service to a single client or customer of the subcontractor, or to a select few clients or customers. The case below finds that the outsourcing company was not a joint employer under the facts in that matter, but if some of the facts were changed in any material respect, the court may have concluded that the outsourcing company could be exposed to IC misclassification liability. The "Takeaway" below explains how outsourcing companies can minimize this potential exposure.

In the Courts (5 cases)

  • ARIZONA COURT FINDS HOME DEPOT IS NOT A JOINT EMPLOYER WITH 3PD DELIVERY, WHICH RETAINED DRIVERS TO DELIVER HOME DEPOT GOODS. As detailed in prior blog posts, drivers who provide delivery services to 3PD customers have succeeded in a number of IC misclassification cases against 3PD; in some cases, they have already collected millions of dollars in class action settlements. This class action case, brought in an Arizona federal district court seeking relief under state and federal wage and hour laws, sought to hold Home Depot liable as a joint employer with 3PD for allegedly misclassifying the drivers as ICs. The court disagreed with the drivers, however, and found that Home Depot, whose products were being delivered by the drivers who had contracted with 3PD, was not a joint employer of the drivers. In reaching its conclusion, the court concluded that Home Depot (1) did not have the power to hire and fire the drivers; (2) did not supervise and control driver work schedules or conditions of employment; (3) did not control the rate and method of pay; and (4) did not maintain employment records of the drivers. The court also took into account additional factors such as Home Depot's lack of ownership of the trucks; that uniforms were provided by 3PD and the driver (not by Home Depot); and the driver's profits were determined based on his own managerial skill – each of which, the court concluded, militated against a finding of Home Depot as a joint employer. Montoya v. 3DP, Inc., No. CV-13-8068-PCT-SMM (D. Ariz. July 9, 2014).

    Takeaway: Where independent contractors provide services to a single client of the business that retains them, or to only a few customers, the client itself may be a secondary target of plaintiff class action lawyers, especially if the client has "deeper pockets" than the contracting business. Home Depot was able in this case to deflect the joint employer claim by the drivers providing services to 3PD. However, other clients or customers that direct or control the manner in which the services are performed or otherwise play a role in the performance of the workers' services may unwittingly be exposed to IC misclassification liability that they never anticipated. Prudent customers require their vendors who provide services to them through individuals classified as ICs to satisfy the applicable tests for proper IC classification. This can be accomplished through the use of IC Diagnostics", a proprietary process that minimizes IC misclassification exposure.
  • CALIFORNIA APPELLATE COURT UPHOLDS ARBITRATION AGREEMENT IN LAWSUIT ALLEGING IC MISCLASSIFICATION. A field agent for a Washington State real estate company who had filed a class action lawsuit in California alleging that the firm had misclassified him and other similarly situated workers was ordered by a California appellate court to arbitrate his claims instead of pursuing them in court. The class action lawsuit sought to adjudicate claims for unpaid overtime, missed meal and rest breaks, and unreimbursed expense claims against the real estate firm, Redfin Corporation, under the California Labor Code and the state Unfair Competition Laws. The plaintiff had signed a Field Agent Independent Contractor Agreement that contained an arbitration clause covering all disputes arising under the Agreement and requiring arbitration in Washington State. Although the plaintiffs argued that a number of the claims were pleaded under California statutes and therefore did not arise under the Agreement, the appellate court rejected that argument, finding instead that because the "Agreement is the instrument that classified him as [an independent contractor] and that governed his relationship with defendant, including the services he was to provide and the method by which those services would be compensated," the claims therefore "arose out of" the Agreement. Galen v. Redfin, No. A138642 (Cal. Ct. App. 1st Dist. July 21, 2014).
  • GO-GO DANCERS AT GAY NIGHT CLUB GAIN CLASS CERTIFICATION IN IC MISCLASSIFICATION CASE IN GEORGIA. A federal district court in Georgia granted class certification to group of male go-go dancers at a gay night club, BJ Roosters, in an IC misclassification lawsuit alleging violations of the FLSA and retaliation. The court based its decision to grant class certification for a proposed class of hundreds of dancers because it determined that the dancers had similar responsibilities; were all subject to the club's policies; set the dancers' schedules; had the authority to approve or ban dancers' stage names; retained control of the clothing the dancers could wear at the club; retained strict control over which dancers could perform in different areas of the club; and had controlled which dancers would be permitted to entertain guests in VIP rooms and the compensation dancers could receive from customers in those rooms. Allen v. Jobo's, Inc. d/b/a BJ Roosters, No. 1:13-CV-3768-RWS (N.D. Ga. July 3, 2014).
  • TUTORING COMPANY FOUND TO HAVE MISCLASSIFIED TUTORS AS INDEPENDENT CONTRACTORS IN NEW YORK. A New York appellate court determined that a tutoring referral and billing company, Ivy League Tutoring Connection, misclassified tutors as ICs where the tutors provided in-home tutoring sessions to clients seeking assistance with school work and test preparation. The Court based its decision, which upheld an administrative determination by the Unemployment Insurance Appeal Board, on the following factors: the company screened, interviewed and conducted criminal background checks on prospective tutors; it paid the tutors a set hourly rate; it matched clients with the tutor it deemed best suited for each client's needs; and it restricted the tutor's solicitation of the company's clients both during the relationship and for three years after the relationship ended. Matter of Ivy League Tutoring Connection, Inc. v. Commissioner of Labor, No. 517901 (N.Y. App. Div. 3d Dep't July 24, 2014)
  • TRANSPORTATION COMPANY IN CALIFORNIA CANNOT USE FEDERAL LAW TO PREEMPT STATE CLAIMS FOR IC MISCLASSIFICATION. The California Supreme Court held that IC misclassification claims against a trucking company, Pac Anchor Transportation, Inc., alleging violations of the California Unfair Competition Law (UCL), are not preempted by the Federal Aviation Administration Authorization Act (FAAAA). The complaint was brought by the State of California against Pac Anchor, alleging that the company misclassified drivers as independent contractors and thereby illegally lowered their costs of doing business by engaging in acts of unfair competition, including but not limited to, failing to pay unemployment insurance taxes, provide workers' compensation coverage, withhold state disability taxes, and paying the minimum wage. The FAAAA provides that a state "may not enact or enforce a law, regulation, or other provision having the force and effect of a law related to a price, route or service of any motor carrier...with respect to the transportation of property." In rejecting the preemption argument, he California Supreme Court held: "The sections of the California Labor Code and Unemployment Insurance Code ... make no reference to motor carriers or the transportation of property. Rather, they are laws that regulate employer practices in all fields and simply require motor carriers to comply with labor laws that apply to the classification of their employees. In fact, the [trucking company] conceded 'that those state employment laws...are laws of general application whose effects on the carriers' prices, routes, and services is remote.'" People ex rel. Harris v. Pac Anchor Transportation, Inc., No. S194388 (Sup. Ct. Cal. July 28, 2014).

Regulatory and Enforcement Initiatives (2 Matters)

  • MASSACHUSETTS COLLECTED $15.6 MILLION IN IC MISCLASSIFICATION LIABILITIES IN 2013. Massachusetts Labor and Workforce Development Secretary Rachel Kaprielian announced on July 23, 2014 that the Joint Enforcement Task Force on the Underground Economy and Employee Misclassification, comprised of multiple state agencies and the Attorney General's Office, collected $15.6 million in 2013 in unpaid wages, back taxes, unemployment insurance premiums, and fines and penalties related to employer fraud and worker misclassification. According to the press release, the Massachusetts Misclassification Task Force has recovered since its inception "nearly $56 million from unlawful businesses by enforcing labor, licensing and tax laws." Massachusetts Attorney General Martha Coakley stated: "This ongoing effort ensures that we are protecting workers by combatting fraud and abuse, returning significant funds to the Commonwealth, and leveling the playing field for all businesses that play by the rules."
  • MISSOURI LABOR DEPARTMENT EXPLAINS IC MISCLASSIFICATION TEST IN THAT STATE. Officials from Missouri Department of Labor and Industrial Relations, participating in the Mid-America Labor Management Conference on July 8, 2014, explain that the most important factor in determining whether an individual is an independent contractor or employee under Missouri law is whether the business retaining the worker exercises control over the manner in which the work is performed. Thomas Pudlowski, contribution field manager in the Missouri Division of Employment Security (DES), said the DES uses the IRS 20-factor test and "looks at the substance of the relationship rather than the label." He also advised: "There is not just one factor that can be relied upon for determining whether you have a business-independent contractor relationship or an employer-employee relationship. You've got to look at all the factors as a whole.

On the Legislative Front

  • VIRGINIA LAW INCREASES IC MISCLASSIFICATION PENALTIES UNDER ITS WORKERS' COMPENSATION LAW. Effective July 1, 2014, a new law takes effect with respect to penalties for Virginia businesses that fail to provide workers' compensation coverage to those who have been misclassified as independent contractors. According to the Virginia Workers' Compensation Commission website, the new state law provides that an employer shall be assessed a civil penalty of up to $250 per day of noncompliance, subject to a maximum penalty of $50,000, plus collection costs. The Commission advises businesses that "the facts of the work circumstances will determine if the individual is covered for workers' compensation, regardless of payment on a 1099 designation."

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Lisa B. Petkun
Andrew J. Rudolph
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions