Exotic Dance Marathon Ends with $4.5 Million Misclassification Award

Dollar independent contractor misclassification millionsThe Penthouse Club of Philadelphia was hit with a $4.5 million jury award for having misclassified its dancers as independent contractors. This case was filed in 2013, and the federal court just recently entered the judgment order.

For those of you seeking business lessons from stripper lawsuits, today is your lucky day!

The dancers had alleged that they were treated as employees but not paid as employees. For example, they alleged that the club required them to work a set number of hours and days each week, required them to comply with physical appearance guidelines, and took deductions from their tips for what we’ll call special kinds of dances.

The Club fought hard for five years but could not overcome the negative facts in the case. Remember, the determination of whether someone is an employee or a true independent contractor is not based on what the parties agree. It’s based on the facts of the relationship.

This was primarily a Fair Labor Standards Act lawsuit, and so the Economic Realities Test is used. Other laws apply a Right to Control Test. Some states use a more difficult ABC Test.

Independent contractor misclassification lawsuits can be a tremendous liability, and businesses using contractors should be proactive and set up the relationship in a way that will withstand a challenge. When a business maintains control over hours, days of work, worker appearance, location of work, and other aspects of how the work is performed, the relationship starts to resemble employment.

In this case, the Club not only is on the hook for $4.5 million. They had to pay their attorneys’ fees, they’ll continue to pay their attorneys’ fees if they appeal, and they had to slog through six years of painful, time-consuming litigation that was undoubtedly a distraction from the business of running whatever type of classy joint they have going there. [Note to wife: I did not do any onsite investigation.]

We’ve seen lots of activity lately in the field of “exotic dancing.” I mean misclassification activity, and lawsuit activity, just to be clear on what I’ve been “seeing.” See other multi-million dollar misclassification awards here and here, all of which are SFW.

Businesses that use independent contractors need to evaluate the facts of the relationship and need to be proactive in setting up the facts to support true independent contractor status. Those who fail may get an extra long high-heeled kick in the rear.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Epic Ruling Clears Path: Arbitration Agreements Can Save Millions in Independent Contractor Misclassification Claims

Arbitration agreements for independent contractorsToday in the Epic Systems case, the Supreme Court ruled 5-4 that in employer-employee relationships, mandatory arbitration agreements with class action waivers are lawful.

A class action waiver means that employees cannot file class actions. They must instead bring any claim individually to arbitration, one person at a time, even if there are a lot of others in the same situation.

The issue before the Supreme Court was whether the employers could require employees to sign these agreements.

  • The argument for allowing the agreements was that the Federal Arbitration Act (FAA) favors arbitration as a way to resolve disputes and says that most attempts to invalidate arbitration agreements are against the law. But there are narrow exceptions.
  • The argument against allowing the agreements was that the NLRA grants workers the right to engage in protected concerted activity, and filing class actions (they argue) is a type of protected concerted activity.

The court had to decide whether the NLRA’s right to engage in protected concerted activity created an exception to the FAA’s rule favoring arbitration. As expected, the conservative court held that mandatory employee arbitration agreements — including class action waivers — are lawfulIn other words, businesses may require their employees to sign away their right to bring class actions. Read that again slowly. It’s important.

What does this mean for independent contractor agreements?

The decision does not directly address independent contractor agreements, but the decision does say that the Supreme Court has rejected every other challenge to the FAA’s policy favoring arbitration.

It seems pretty safe, then, to assume that the Court would allow mandatory arbitration agreements, with class action waivers, in independent contractor agreements.

Should businesses include mandatory arbitration provisions in independent contractor agreements?

There are pros and cons to arbitration, and the answer depends largely on how reliant your business is on independent contractor relationships as part of the business model. In other words, are you at risk of a class action?

If yes you are, then yes you probably should. (But please consult counsel.)

Businesses that may be at risk of a widespread finding of independent contractor misclassification can use these agreements to prevent class actions from being filed. If contractors who claim misclassification have to bring their claims individually, there is a lot less money at stake and, strategically, the incentive for plaintiffs’ lawyers to take these cases is greatly diminished. Few lawyers will take a case that may be worth a few thousand dollars (or often less). Most lawyers would love a case that may be worth a few million dollars. The difference is in the numbers. Class action waivers can greatly reduce your company’s risk of a large misclassification verdict.

Other advantages of arbitration include:

  • The results of individual arbitrations can be kept confidential, unlike court decisions. That means a finding against you will not hit the social media feeds or trade publications;
  • The parties select the arbitrator, which means you can ensure that your fact finder is a lawyer or has a background in the industry or type of dispute involved;
  • There’s no risk of a runaway jury, populated by regular folks who might have an axe to grind and no sense of the value of money;
  • The dispute gets resolved quickly, with finality, and with no right to appeal (except in very limited circumstances)

But there are potential downsides to arbitrations too:

  • Filing fees can be expensive;
  • Arbitrators can be expensive too. They get paid by the hour, unlike a judge who is not being paid by either side (we hope);
  • The barrier for employees to bring a claim is lower. They don’t need an attorney, and they can initiate a claim with ease, which could mean that more individual claims would be filed than if employees had to go to court;
  • There is no right to appeal (except in limited circumstances). This is both an advantage and a disadvantage, depending on whether you win!

Arbitration agreements have pros and cons, but for businesses that make substantial use of independent contractors, an arbitration agreement with a class action waiver can be critically important in avoiding a large claim.

One final reminder: If you use an mandatory arbitration agreement, remember to include a class action waiver. That’s one of the main benefits of these agreements.

Please consult with your employment lawyer to decide whether arbitration agreements are right for your business.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Arbitration Agreements: Still the Hammer You Want in Your Toolbox

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If I had a hammer, I’d hammer in the morning. I’d hammer in the evening. All over this laa-aaand. That’s a lot of free labor for somebody. And noise. No one should hammer too late in the evening.

The song could describe a national network of independent contractors in the construction field. It doesn’t, but it could. (This is how I think now. Sad. Very sad.)

Thank you, Peter, Paul, and/or Mary for helping me introduce the real hammer for companies that use lots of independent contractors: Arbitration Agreements with Class Action Waivers.

The legitimacy of requiring employees to sign arbitration agreements with class action waivers is under scrutiny by the NLRB and will be the subject of an important upcoming Supreme Court ruling in the Epic Systems case. Regardless of what the Supreme Court decides for employees, however, the Epic Systems decision is not likely to limit the use of arbitration agreements with class action waivers in independent contractor agreements.

A ruling this month by the Sixth Circuit Court of Appeals showed how useful these agreements can be for businesses. In a short decision, the Court ruled that two independent contractors wishing to bring a class action alleging independent contractor miscalssification were barred from doing so because they had signed arbitration agreements with class action waivers. If they wanted to dispute their status, they had contractually agreed to do so only in arbitration, and only through an individual (not class) claim.

These agreements work. If they are well-drafted and include provisions that help make them fair to all parties, they are enforceable in most jurisdictions and can be an effective tool for keeping your business safe from independent contractor misclassification class actions.

Businesses that rely on independent contractor labor should consider using this tool in the morning and in the evening, all over this laa-aaand.

For more information on independent contractor issues and other labor and employment developments to watch in 2018, join me in Cincinnati on March 28 for the 2018 BakerHostetler Master Class on Labor Relations and Employment Law: A Time for Change. Attendance is complimentary, but advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com, and list my name in your RSVP so I can be sure to look for you.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Update: Uber’s Misclassification Cases, Arbitration, and the Supreme Court

Independent contractor vs employee Uber misclassification lawsuit arbitration agreements IMG_1111Remember the children’s game called Red Light, Green Light? One ambitious youngster is selected as the traffic cop, who randomly shouts “red light” or “green light,” requiring all the children to run and stop and start in short bursts that would cause an adult human to tear an ACL.

That’s essentially what’s happening in the big Uber misclassification case that has been pending in California since 2014. The case is called O’Connor v. Uber Technologies and is being overseen by traffic cop / federal judge Edward Chen in San Francisco. If anyone ever gets to the finish line, it will eventually be determined whether Uber drivers are properly classified as independent contractors, rather than employees.

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Drivers Rack Up Misclassification Settlements, While GrubHub Fights Back

In 1984, the Cars released a sad-sounding song called Drive. I assume it was about a guy longing for a girl, but it’s too depressing to listen to the whole thing. Throughout the song, Ric Ocasek asks “Who’s gonna drive you home tonight?” (Why the long face, Ric? Kidding.)

If you use a ride hailing service, chances are it’s an independent contractor driver who’s gonna drive you home. But in several high profile lawsuits, drivers have challenged their independent contractor status. While these suits have been in the news for years, there have been a recent flurry of high dollar settlements. Earlier this year, Lyft agreed to pay $27 million to a class of 95,000 drivers in California and Door Dash agreed to pay $5 million. Just last week, Postmates agreed to pay $8.75 million.

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Misclassification settlement strips $6 million from Club Assets

IMG_1090When I was an undergrad at Michigan, any time I would drive to the airport or to Tiger Stadium, I’d see billboards for Deja Vu, a strip club with (apparently) lots of locations. I never visited (not into that sort of thing, thanks for asking), and I never thought much of it. I certainly did not expect to be writing about Deja Vu and independent contractor misclassification 25 years later. But here goes.

When patrons of these fine establishments partake in the traditional lap dance, it’s doubtful they’re thinking about whether these often-single-mom “entertainers” who are just trying to make a living have been properly classified under wage and hour law. More likely, they’re thinking about — never mind.

But that’s an important issue, as Deja Vu recently learned, when it was sued by a class of 28,177 dancers alleging they were misclassified as independent contractors, rather than Continue reading

Franchises Continue to Fight Joint Employment Claims

IMG_1074.JPGAre franchisors responsible for the wage and hour violations of their individually owned franchisees?

This question continues to vex the courts. (Vex! Great Scrabble word!) Despite the promise of more pro-business policies from the current administration, lawsuits filed by employees against franchisors show no signs of slowing down. Here’s why.

When employees allege wage and hour violations against individually owned franchisees (your local store), such as a failure to properly pay overtime, the employees usually try to convert that lawsuit into a class action.

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