One of the most important legal developments last month is a new lawsuit filed by registered nurses against a leading health care system alleging that they have been misclassified as independent contractors instead of employees. The proposed class and collective action was filed late last month in a federal district court in the state of Washington by a registered nurse (RN), who alleges that the health care system in which she worked, directed, and controlled contract RNs, who perform duties similar to the RNs employed by the system. As noted in our blog post on March 7, 2024, this new case comes on the heels of another lawsuit being prosecuted by the U.S. Department of Labor asserting that an Illinois health care staffing agency misclassified RNs and other nurses who provided services to nursing homes. These lawsuits do not, however, suggest that all nurses must be classified as employees. Indeed, in July 2018, we reported in a blog post that the Labor Department issued a Field Assistance Bulletin addressing the issue of whether nurses referred by nursing registries are employees of the registries or are independent contractors. That publication concluded that there were instances where the nurses may be independent contractors under the federal Fair Labor Standards Act. To that end, in an article published in Law360 Employment Authority dated February 8, 2022, author Max Kutner discussed how the nation is facing a nurse shortage but online staffing platforms are seeking to meet that need with opportunities for nurses to provide their services as independent contractors. Regarding the specter of misclassification claims, the publisher of this blog was quoted in the article: “You can have nurses who are independent contractors legitimately, and you can have nurses who are not legitimately independent contractors, who are misclassified. You shoot yourself in the foot if you don’t have an independent contractor agreement that is state-of-the-art.” Health care entities can oftentimes structure and document their IC relationships with nurses in this fashion by use of a process such as IC Diagnostics (TM) – even when, as alleged in the new lawsuit described below, the health care entity also considers some nurses to be employees.
In the Courts (6 cases)
HEALTH CARE SYSTEM SUED IN CLASS AND COLLECTIVE ACTION BY REGISTERED NURSE ALLEGEDLY MISCLASSIFIED AS AN INDEPENDENT CONTRACTOR. Providence St. Joseph Health, an extensive health care system, has been sued in a proposed class and collective action lawsuit brought in a Washington federal district court by an Oregon-based registered nurse claiming that he and other similarly situated nurses were misclassified as independent contractors. The plaintiff nurse alleges that the health care system failed to pay him overtime compensation for hours worked over 40 in a workweek in violation of the Fair Labor Standards Act and Oregon state law. He claims that Providence St. Joseph advertises on its website that its caregivers are employees: “Together, our 122,000 caregivers (all employees) serve in 51 hospitals, 1,000 clinics and a comprehensive range of health and social services across Alaska, California, Montana, New Mexico, Oregon, Texas and Washington.” According to the class and collective action complaint, Providence St. Joseph controls and directs all aspects of the services by RNs who have been classified as ICs; employs numerous other RNs and similar patient care workers, which it classifies as employees, to perform the same or similar functions as the plaintiff and those similarly situated to him; requires adherence to company policies and procedures; and maintains control, oversight and direction of the contract RNs, including their hiring, firing, and discipline. The plaintiff also alleges that he and those similarly situated RNs are supervised by Providence personnel, have no opportunity for profit or loss, and cannot subcontract their work to others. Ward v. Providence St. Joseph Health, No. 2:24-cv-01528 (W.D. Wash. Sept. 24, 2024).
TRUCKING COMPANY TO PAY $7.5 MILLION IN SETTLEMENT OF IC MISCLASSIFICATION CLASS ACTION. A federal district court has granted final approval of a $7.5 million class action settlement between United Road Services Inc., a trucking company, and about 300 delivery drivers who had asserted violations of the California Labor Code. According to the amended class action complaint, the drivers claimed that due to the company’s misclassification of the drivers as independent contractors and not employees, the company failed to reimburse their business expenses, pay all straight time wages at the statutory minimum wage, issue proper wage statements, and pay all wages due at termination. The $7.5 million settlement includes $126,325 for PAGA payments. Sales v. United Road Services Inc., No. 4:19-cv-08404 (N.D. Cal. Sept. 11, 2024).
WAREHOUSE COMPANY CAN COMPEL ARBITRATION OF WORKERS’ IC MISCLASSIFICATION CLAIMS UNDER FAA. An Ohio federal district court has granted a motion to compel arbitration by a warehouse logistics company sued by workers who claim they were misclassified as independent contractors. A-1 Quality Logistical Solutions, LLC and its related entities provide warehouse labor solutions to corporate clients. The plaintiffs, current and former warehouse workers, including “order selectors” and “lumpers,” allege in their lawsuit that the company made unlawful deductions in their pay and failed to pay them minimum wage and overtime compensation required under the FLSA and state law as a result of their alleged misclassification as independent contractors. The company made a motion to compel arbitration under the Federal Arbitration Act (FAA), but the workers opposed the motion, claiming they are exempted from arbitration under the FAA’s interstate transportation worker arbitration exemption. The federal court applied the Supreme Court’s test for the exemption, as set forth in Southwest Airlines Co. v. Saxon, and concluded that although this was “a close question,” the warehouse laborers were not directly involved in transporting goods across state or international border and, therefore, were not eligible to the exemption. It does not appear that the company argued in the alternative that the Ohio law governing arbitration, which does not include an interstate transportation industry exemption, provided an independent ground to compel arbitration, as we have suggested in numerous blog posts including our post on May 7, 2024. London v. A-1 Quality Logistical Sols. LLC , No. 1:23-cv-00107 (S.D. Ohio Sept. 23, 2024).
7-ELEVEN FRANCHISEES ARE INDEPENDENT CONTRACTORS EVEN UNDER MASSACHUSETTS’ STRICT CLASSIFICATION TEST. The Supreme Judicial Court of Massachusetts, the highest court in that state, concluded recently that 7-Eleven franchisees are not covered by the state’s strict Independent Contractor Law where they perform no services for the franchisor but merely fulfill their contractual obligations under the parties’ franchise agreement and remit to the franchisor a percentage of the franchise’s gross profits. As we noted in our QuickStudy of September 24, 2024, 7-Eleven has been defending its position for years that individuals operating as franchisees of its retail stores in Massachusetts are ICs and not employees under that state’s ABC test for worker status and therefore are not subject to Massachusetts labor and employment laws. The Court made it clear, however, that not all franchisees are ICs under the state’s test for IC status.
Some franchisees, the Court noted, are indeed employees and not ICs under the state’s worker classification test, referring to its earlier decision in a case involving janitors that operated franchises, yet were held to be employees of Coverall who serviced Coverall’s clients. Thus, one of the key takeaways from this Massachusetts case is that if the services provided by franchisees are for their own customers (as is the case with the 7-Eleven franchisees) and not for the franchisor or its customers, the strict Massachusetts IC test is inapplicable. Companies should be mindful that the analysis of the strict IC law in Massachusetts by the Supreme Judicial Court in the 7-Eleven case may or may not be deemed applicable by courts adjudicating cases under the FLSA and other state laws, and that franchisors still may face considerable exposure to IC misclassification liability that could lead to judgments or large settlements in favor of franchisees. Patel v. 7-Eleven, Inc., No. SJC-13485 (Sept. 5, 2024) and Patel v. 7-Eleven Inc., 1st Cir., No. 23-01043, 9/27/24.
TELECOMMUNICATIONS COMPANY TO PAY DAMAGES FOR IC MISCLASSIFICATION AFTER INVESTIGATION BY LABOR DEPARTMENT. Following an investigation, the U.S. Department of Labor has recovered over $600,000 from a Michigan telecommunications installation company for its independent contractor misclassification of fiber optic installation workers. In a news release issued by the Labor Department’s Wage and Hour Division on September 16, 2024, Teracom Inc., a construction company that installs underground fiber optics for telephone and internet providers, has agreed to pay 63 installers it was found to have misclassified as ICs nearly $600,000: $297,000 in back wages and another $297,000 in liquidated damages. According to the news release, the company violated the Fair Labor Standards Act when it paid the misclassified workers a day-rate for all hours worked regardless of overtime, did not pay overtime compensation, and failed to provide final paychecks to certain workers. The Wage and Hour Division also concluded that the company committed similar violations in 2018, leading the Division to assess $44,496 in civil money penalties for repeated and willful FLSA violations.
OILFIELD SUPPORT SERVICES COMPANY SUED FOR IC MISCLASSIFICATION BY FLOWBACK OPERATOR. A flowback operator for an oilfield support services company has filed a proposed collective action in a Texas federal court on behalf of himself and other operators claiming the company violated the Fair Labor Standards Act due to its alleged misclassification of them as independent contractors. The collective action complaint asserts that the company failed to pay overtime to the flowback workers, who were paid a day rate for hours worked, even though they were scheduled for at least 12-hour shifts, seven days a week, and routinely worked several weeks without time off and without receiving overtime compensation. The flowback operator claims that the company exercised control over all aspects of his job; determined the hours and locations he worked, the tools he used, and his rate of pay; required compliance with company policies and procedures; and prohibited him from working for others while providing services to the company. Aragon v. CLEWS Energy Services LLC, No. 3:24-cv-00341 (W.D. Tex. Sept. 19, 2024).
