Last week I was in Boston, spending time with many of my favorite people at our BakerHostetler Labor and Employment Group Retreat. I always enjoy spending time with the people in our other offices. They are wonderful, kind, smart, and a joy to be around.
As part of the programing, each practice team leader gave a six-minute TED-style talk. In my session about the Contingent Workforce Practice Team, I included a slide that I wanted share here.
We sometimes hear from companies that they don’t think they’re at risk for an independent contractor misclassification claim. They sometimes say, we’ve been doing it this way forever, and we haven’t been sued.
To that I would say, you mean you haven’t been sued yet.
Here’s what can happen when companies get sued for independent contractor misclassification.
This headline does not refer to the Chinese spy ballon.
Instead, I’m thinking about 1968. Jimmy Page and John Paul Jones had joined up to form a new band after the breakup of the Yardbirds. Drummer Keith Moon of The Who supposedly said the project would go down like a lead balloon.
One of the largest balloons, of course, is the zeppelin. The zeppelin was a passenger airship used until the Hindenberg disaster in 1937. So the band named itself Led Zeppelin, dropping the ‘a’ in Lead so people wouldn’t mispronounce the name of the band.
In 1971, the band released Led Zeppelin IV, which included the song “Going to California” and this lyric:
Spent my days with a woman unkind Smoked my stuff and drank all my wine Made up my mind to make a new start Going to California with an aching in my heart
For today’s post, I’m going to California with an aching in my heart.
Cities in California have upped their game when going after companies that use independent contractors. They’re taking the lead (not led) in bringing their own lawsuits.
In January 2023, the City of San Francisco secured a $5.25 million settlement to cover 5,000 independent contractor delivery drivers. The lawsuit alleged a failure to comply with the city’s health care security and paid sick leave ordinances, which apply to employees.
In October 2022, San Diego’s city attorney settled its own independent contractor misclassification lawsuit for $46.5 million. That deal covered 300,000 independent contractor delivery drivers.
In 2021, San Francisco reached agreement on another delivery driver misclassification lawsuit, settling for $5.3 million to cover 4,500 local drivers.
The mountains and the canyons start to tremble and shake The children of the sun begin to awake (watch out)
States are following a similar playbook, as we recently saw when New Jersey obtained a $100 million settlement, alleging that a rideshare app company failed to pay into the state unemployment insurance fund for independent contractor drivers.
It seems that the wrath of the gods got a punch on the nose And it's startin' to flow, I think I might be sinkin'
Government-initiated lawsuits can be particularly dangerous because arbitration agreements and class action waivers are ineffective. The governments are fighting for funds they think are rightfully theirs.
They also have political motives driving their prosecutions. Officials facing re-election want to be able to show their constituents they’re making a difference and fighting for workers’ rights (and ignoring, as usual, the fact that most IC drivers want to remain ICs).
Throw me a line, if I reach it in time I'll meet you up there where the path runs straight and high
The trend of government-backed compliance efforts is going to continue and will likely increase. Companies making widespread use of independent contractors should be proactive in evaluating these relationships, the contracts, and the local laws to build a comprehensive defense strategy — before getting sued.
There’s an island in Quebec that’s larger in area than the lake in which it sits. René-Levasseur Island was supposedly formed by the impact of a meteorite 214 million years ago, although eyewitness accounts differ. The land mass became an island in 1970, when the Manicougan reservoir was flooded, merging two crescent shaped lakes that surrounded the area.
I like fun geography facts, and an island larger than the lake in which it sits is a fun fact. But feels a bit aggressive for the Canadians to merge two crescent shaped lakes to turn this land mass into an island. I’m sure they had their reasons. If nothing else, it looks good on a map.
The Department of Labor is also being aggressive, but they’re not flooding any reservoirs. Instead, they’re channeling their aggression toward independent contractor misclassification.
In a news release this month, the DOL announced that it had obtained a consent judgment for $5.6 million against a national auto parts distributor and an Arizona logistics firm for allegedly misclassifying 1,398 drivers as independent contractors. The award included back wages and liquidated damages.
The DOL had alleged that, by misclassifying the drivers, the companies failed to meet minimum wage requirements, failed to pay overtime rates, and failed to keep required timekeeping records. These failures each were violations of the Fair Labor Standards Act (FLSA).
The award covered an eight-year period between April 2012 and March 2020.
I see three takeaways here:
First, the DOL is being aggressive in filing lawsuits when it thinks independent contractors have been misclassified. This consent judgment shows how expensive these claims can be for companies that improperly classify workers. Companies using independent contractors needs to be proactive in evaluating their risks and taking steps to minimize those risks. There are lots of ways to reduce risk if you plan ahead, before you’ve been sued or investigated.
Second, this case is a reminder that companies who classify delivery drivers as independent contractors are at heightened risk. Federal and state agencies and the plaintiffs’ bar seem to be filing a disproportionate number of claims involving delivery drivers. If your business uses delivery drivers who are classified as independent contractors, you may be at an increased risk of an audit or lawsuit.
Third, remember the DOL’s proposed new rule for independent contractor classification under the FLSA? (Read more here, here, and here.) The DOL wants to change the current test for who is an employee under the FLSA, replacing a regulation adopted by the Trump Administration in 2020. But cases like this one show that the current regulation is not impairing the DOL’s ability to enforce what it perceives as misclassification. The DOL’s many recent successes — as posted in DOL news releases — show that the DOL is doing just fine under the current rule when it comes to misclassification enforcement. The new rule is a solution without a problem.
Large judgments like this one seem shocking, but they are a reminder of the substantial dangers of misclassification.
Learn more by joining me at the 10th Annual 2023 BakerHostetler Labor Relations and Employment Law Master Class, all virtual, one hour every Tuesday starting February 7, 2023. My program on Contingent Workforce issues will be on March 7, 2023. Registration is free.
This weekend we tried goat yoga. Highly recommended. It was a mix of basic yoga (my kind of yoga) to help get me stretched out, but held in a pen with goats who know no boundaries.
We then toured the farm, which featured llamas, long-haired pigs, guinea hens, a few obligatory dogs, and several varieties of goats, including the kind of fainting goats featured in that George Clooney movie.
Having to watch my back during yoga was something I signed up for and was part of the fun. Not so for California’s AB 5, which should be watching its back after what we saw at the Ninth Circuit last week.
The Ninth Circuit held oral argument in a case brought by Uber called Olson v State of California. Uber is arguing that AB 5 is unconstitutional.
While it’s hard to predict cases based on oral argument, the three judges on the panel seemed pretty sympathetic to Uber’s argument, which is that the statute arbitrarily picks winners and losers, i.e., the exemptions make no sense from an equal protection/due process standpoint.
Unlike the strict ABC Test in Massachusetts, the California ABC Test codified in AB 5 (and later AB 2257) contains loads of exceptions. The statute says to use the ABC Test to determine employee vs independent contractor status for all workers — except for dozens of categories of workers and various other situations.
Let’s not pretend. We all know this bill was written to target ride share and delivery app companies. The unfairness of making this law apply to everyone soon became apparent and led to the insertion of dozens of exceptions. If an exception applies, the Borello balancing test applies instead of the ABC Test.
The exceptions just about swallow the rule, and a law targeting a handful of companies presents constitutional problems. Or so the argument goes.
We can expect a decision in the next few months, and this is one to watch. Unlike me at goat yoga, imagining a decision that strikes down or severely limits AB 5 is not a big stretch.
This weekend we tried goat yoga. Highly recommended. It was a mix of basic yoga (my kind of yoga) to help get me stretched out, but held in a pen with goats who know no boundaries.
We then toured the farm, which featured llamas, long-haired pigs, guinea hens, a few obligatory dogs, and several varieties of goats, including the kind of fainting goats featured in that George Clooney movie.
Having to watch my back during yoga was something I signed up for and was part of the fun. Not so for California’s AB 5, which should be watching its back after what we saw at the Ninth Circuit last week.
The Ninth Circuit held oral argument in a case brought by Uber called Olson v State of California. Uber is arguing that AB 5 is unconstitutional.
While it’s hard to predict cases based on oral argument, the three judges on the panel seemed pretty sympathetic to Uber’s argument, which is that the statute arbitrarily picks winners and losers, i.e., the exemptions make no sense from an equal protection/due process standpoint.
Unlike the strict ABC Test in Massachusetts, the California ABC Test codified in AB 5 (and later AB 2257) contains loads of exceptions. The statute says to use the ABC Test to determine employee vs independent contractor status for all workers — except for dozens of categories of workers and other situations.
Let’s not pretend. We all know this bill was written to target ride share and delivery app companies. The unfairness of making this law apply to everyone soon became apparent and led to the insertion of dozens of exceptions. If an exception applies, the Borello balancing test applies instead of the ABC Test.
The exceptions just about swallow the rule, and a law targeting a handful of companies presents constitutional problems. Or so the argument goes.
We can expect a decision in the next few months, and this is one to watch. Unlike me at goat yoga, imagining a decision that strikes down or severely limits AB 5 is not a big stretch.
On June 4, 1923, jockey Frank Hayes rode 20-1 long shot Sweet Kiss to victory at Belmont Park. While that seems impressive, what made the win even more memorable is that at some point during the race, poor Frank died. He somehow stayed on the horse and ended up in the winner’s circle. Or six feet under it. It was his first (and last) win as a jockey.
Jockeys are in the news again, and we’ve got another surprise finish. But this one has implications far beyond the racetrack.
Click here for the rest of the story, originally posted yesterday on the BakerHostetler blog, Employment Law Spotlight.
I like long songs. For the last several weeks, I have been starting my workday with the Pink Floyd album Atom Heart Mother on my headphones. The opening track is 23 minutes, and the album ends with “Alan’s Psychedelic Breakfast,” a 13-minute journey that includes lines like “um, flakes” and “marmalade, I like marmalade.”
Long litigation, on the other hand – I’m not a fan. When I was an associate, I worked on a healthcare fraud case that lasted about 8 years. Not fun.
The legal team at Sleepy’s LLC probably doesn’t like long litigation either. Hargrove v. Sleepy’sLLC is an independent contractor misclassification case that was filed in 2010. The case has been to the Third Circuit twice already and went to the New Jersey Supreme Court on the certified question of what test should be used to determine employee status under New Jersey wage and hour law. I wrote about that 2015 ruling here in a post that also takes an admiring look at one menu option at an ice cream parlor in Dania Beach, Florida. (Partial spoiler: ABC Test. But you’ll have to read the post to see about the menu option.)
This case is back in the news after a new set of rulings.
After 12 years, the court issued a decision last week to grant class certification and to deny the defendant’s motions to dismiss. These are issues that are typically resolved in the first several months of a case.
The point here is to show you how long and complicated an independent contractor misclassification case can become. This is not straightforward litigation, and there are so many legal issues that can dominate the underlying dispute — questions, for example, about class certification, class size, jurisdiction, standing, and which legal test to use for deciding whether misclassification exists.
This case is a good reminder of the importance of getting your independent contractor arrangements reviewed and your contracts revised. Preventive steps taken now can help avoid lengthy litigation later. Lengthy litigation is no fun for anyone.
But I do like long songs, and if you pay close attention, you can appreciate the careful and elaborate construction of a track. Put on your headphones if you want to catch every subtle sound.
The term cold shoulder originated with Scottish novelist and poet Walter Scott in the early 19th century. A commonly repeated but incorrect origin story says that welcome houseguests were given a hot meal, but those who were not welcome would get a cold shoulder of mutton. But Scott’s use of the phrase had nothing to do with food. He described “shewing o’ the cauld shouther” as a physical gesture, turning the shoulder away from someone in a cold or indifferent manner.
No matter the origin, a federal judge in California recently showed some seriously cold shoulder to an independent contractor seeking ERISA benefits. The case shows the importance of a well drafted complaint in a misclassification lawsuit and highlights an important defense.
Tim Alders worked for YUM! Brands and Taco Bell for 25 years as an independent contractor. He then filed a lawsuit claiming he was misclassified.
He sued under ERISA, alleging that he should have been treated as an employee. He claimed that if he had been treated as an employee, he would have been a “participant” in YUM’s retirement plans, incentive plans, 401(k) plan, and executive income deferral program. Had he been a participant, he would have received financial benefits that he did not receive as a contractor.
Under ERISA, however, civil actions may only be brought by plan participants, beneficiaries, or the Secretary of Labor. ERISA defines a “participant” as “any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer . . . or whose beneficiaries may be eligible to receive any such benefit.”
As YUM argued in its motion to dismiss, Alder could not sue under ERISA because he was not a “participant.” Judge Phillip Gutierrez, with a wink and a nod to Joseph Heller, agreed and dismissed the case. The plaintiff never got to argue whether he was misclassified or not.
The decision relied on past rulings, including this synopsis of ERISA law by a different California federal judge: “[U]nder Ninth Circuit authority, a claim that a former employee plaintiff should have been included in a plan, but actually was not included in a plan, does not give [the] plaintiff a ‘colorable claim to vested benefits’ for ERISA standing purposes.”
That’s some serious cauld shouther.
This case is a reminder that there are a lot of ways to defend a misclassification case. The “not a participant” defense is a valuable tool and should be used when appropriate.
But don’t be fooled. This ruling does not mean that a misclassified contractor can never sue for employee benefits. Remember too that this is unpublished case by one district court. Let’s not give it too much weight as precedent. There have been many class actions, some highly publicized, in which in which misclassified contractors took home lots of cash (many millions of dollars) as a result of being denied employee benefits.
One more thing before you go. There’s one easy step that companies should take now, before facing a misclassification lawsuit. Companies should check their plans to make sure the plan eligibility language protects specifically against misclassification claims. This post, featuring a reggae cucumber, provides the magic language you should be including in your plan documents.
If you plan properly, you too can give the cauld shouther.
I grew up in Miami, but not this Miami. My weekends were Miami Jai-alai and Coconut Grove, certainly not the hip hop adult club scene.
But if I had grown up in that other world, I might have heard of the King of Diamonds, which I am now aware was the place to be seen if you are looking to spot celebrities at a famous adult entertainment venue. According to Miami newspaper archives, the original club went bankrupt in 2018 after failing to pay its mortgage and its rent. This came on the heels (high heels?) of being cited for serious safety code violations, including malfunctioning fire sprinklers.
Making matters worse, at about the same time, 27 of the club’s dancers sued, alleging wage and hour violations and that they had been illegally misclassified as independent contractors.
The case was delayed because of COVID-19, but it finally went to trial last fall, and the jury agreed that the dancers had been misclassified. Two weeks ago, the judge entered a final judgment, awarding the dancers more than $15 million. Some of the dancers’ individual awards exceeded $800,000.
The takeaway here is that independent contractor misclassification claims are big dollar claims. The defendants in this case drew more attention than usual because of the high profile of their club, but the legal risks apply to any business making widespread use of contractors.
Remember, it’s the law that decides whether a worker is an independent contractor or an employee. It doesn’t matter what the parties call the relationship or what the written contract says.
The club (or, a club with essentially the same name) reopened in 2020 with new ownership. I don’t know whether they’ve changed the classification and pay structure of their performers, but that would seem like a good idea. They’ll want to keep the place up and running in case Floyd Mayweather comes back with his infamous Money Truck to drop $100,000 on an evening’s entertainment.
For some other wild tales at the old joint, you can read more here.
I was oblivious to that whole scene growing up, but I sure had some great times at Miami Jai Alai (video highlights from 1980s), rooting for Michelena, Benny, and Harretche, and hoping to hit on my trifecta. Good times.
When a New Zealand man was caught snooping around with a torch at a building where he didn’t belong, someone called the authorities. When the local police arrived, the man was still there but still as a stone. He was pretending to be a statue.
The ruse failed, and the man was taken into custody.
The moral of the story, I suppose, is that elaborate ruses don’t make good excuses.
The same can be said for a group of movers who claimed that a moving company had misclassified them as independent contractors and denied them a minimum wage and overtime. The federal court hearing the case, however, threw it out because the movers filed too late. Under the Fair Labor Standards Act (FLSA), the statute of limitations on federal minimum wage and overtime claims is two years — or three years, if willful. These plaintiffs filed well after the deadline had passed.
The plaintiffs didn’t go away quietly, however. Knowing they had missed the deadline, they first tried some creative arguments as to why the court should toll — or extend — their deadline to file.
First, they argued that they the moving company had tricked them into thinking they weren’t employees and had no FLSA rights, since the moving company told them they were independent contractors. Sorry, the court ruled. If that were an excuse, there would be no statute of limitations in misclassification cases. The deadline to file would get tolled every time, and that’s not gonna happen.
Second, they argued that the moving company failed to provide the required posters that notify employees of their rights. Again, no dice. Independent contractors aren’t entitled to employee notices, so if the company thought the workers were contractors, there obviously wouldn’t be notices. This too would apply in every misclassification case and cannot be grounds for tolling the filing deadline.
Finally, they argued that they were immigrants and shouldn’t be held responsible for not knowing the rights under US law. The judge wasn’t buying that one either. Ignorance of the law is not an excuse, especially when the plaintiffs were basing their lawsuit on the very law they claimed to be ignorant of.
This case dealt with statutes not statues, and despite spellcheck’s frequent failure to see the difference, there is a difference. Anyway, the excuses by the statue guy and the movers were similarly unimpressive. The movers’ case was dismissed for failure to file within the statute of limitations, and the court never even considered whether the workers were actually misclassified.
Companies facing misclassification claims need to remember to review statutes of limitation. A claim filed too late is destined to fail, so long as the company raises that defense.
And I still can’t believe the New Zealand guy thought he could go unnoticed by holding really really still. I’d love to see the body cam footage from when the officers moved in and caught him. Swatting away the pigeons on his head probably gave him away.
Who Is My Employee? 