The legal developments in the area of independent contractor misclassification and compliance last month include cases against a record label company, an Islamic Center, and a waste recycling company. Lawsuits for IC misclassification come from a diverse array of workers because companies in an endless number of industries have adopted business models that treat workers as ICs. Businesses can minimize, if not avoid, many of these lawsuits by taking steps to structure, document, and implement their IC relationships in a manner that enhances compliance with laws governing ICs. Some types of workers, however, may never fit comfortably into an IC relationship, and one or both of the first two cases that we discuss below may fall into that category. Nonetheless, bona fide arguments can be made to support the IC status of the overwhelming number of workers treated by companies as ICs, provided their compliance with IC laws has been enhanced. Many companies use a process such as IC Diagnostics (TM) to do so, thereby minimizing their exposure to IC misclassification liability under applicable federal and state IC laws.
In the Courts (6 cases)
RECORD LABEL COMPANY SUED FOR IC MISCLASSIFICATION BY VIDEO MUSIC PERFORMING ARTISTS. Rapper DaBaby’s record label produces music videos using dancers, models, actors, and background talent. Billion Dollar Baby Entertainment LLC, which operates the record label, now faces a proposed class action lawsuit in California state court by a music video performer seeking to represent herself and others similarly situated for alleged wage and hour violations under the California Labor Code and Wage Orders due to their classification by the record label as independent contractors. According to the class action complaint in this case, the company casts the performing artists for music videos that the label produces and distributes. The complaint seeks lost wages for the record company’s alleged failure to pay overtime compensation and minimum wage as well as penalties for failure to provide uninterrupted meal and rest periods. The complaint claims that the company exercises substantial control over the performers’ work during production, including their breaks, contact with family and friends outside of production activities, their wardrobes, the times performers begin and stop performing, and movements to make on set including the specific manner in which the performers danced. Lien v. Billion Dollar Baby Entertainment LLC, case number not yet assigned (Super. Ct. Cal., County of Los Angeles Aug. 26, 2024).
WASTE MANAGEMENT COMPANY SETTLES IC MISCLASSIFICATION CLASS AND COLLECTIVE ACTION WITH GARBAGE AND RECYCLING SORTERS. A solid waste management company has reached a proposed class and collective action settlement with 117 garbage and recyclables sorters in lawsuit alleging violations of the federal Fair Labor Standards Act and Maryland wage and hours laws due to the alleged misclassification of the sorters. According to the class and collective complaint, the company “hires employees to work the sorting line on a purported ‘temporary’ basis and treats them as independent contractors, despite the fact that [the company] controls all aspects of the work they do, including but not limited to setting their schedules, assigning their tasks, and requiring them to follow policies established by [the company].” The complaint also alleged that the company paid the “temporary” employees a “daily rate” far below the applicable minimum wage rate, regardless of how many hours worked in a workweek, and that after being treated as independent contractors for months, the company promoted the “temporary” workers to regular “full-time” employees although there was no change in their job duties. The proposed settlement would require the company to pay $670,000 to the eligible sorters, including the class action lawyers’ fees and expenses. Blanco Lopez v. WB Waste Solutions LLC, No. 8:23-cv-00963 (D. Md. Aug. 16, 2024).
KENTUCKY IMAM IS FOUND TO BE INDEPENDENT CONTRACTOR. An Islamic religious leader has been found to be an independent contractor by a Kentucky appeals court, which affirmed a state trial court’s decision. The Imam signed an independent contractor agreement that listed services to be provided by him including assisting board members to implement policies and community members with special questions and fatwas. In reaching its unanimous decision to affirm the circuit court’s decision that the Imam was an independent contractor and not an employee, the three-judge panel concluded that although he had certain tasks assigned to him, the Imam was “not controlled in the details of his work beyond those imposed by his own views of his work as a Imam,” that he worked part-time, and was reportedly still seeking full-time work elsewhere while he served at the mosque. Islamic Center of Northern Kentucky Inc. v. Hemaya, No. 2023-CA-0802 (Ct. App. Ky. Aug. 16, 2024).
RIDE-SHARING COMPANY CAN BE LIABLE FOR FATALITY OF DRIVER KILLED BY PASSENGERS, DESPITE IC STATUS OF DRIVER. The estate of a ride-sharing driver, found to have been murdered by two of his passengers, is entitled to proceed with its case against the ride-sharing company that connected the driver to the passengers that killed him. The driver in this case was slain by two riders in a failed carjacking attempt. The driver’s estate sued the ride-sharing company for negligence and wrongful death, and a federal district court granted summary judgment in favor of the company. On appeal, the U.S. Court of Appeals for Ninth Circuit reversed the district court’s decision and remanded the case to the district court. It concluded that there existed between the ride-sharing company and the driver a special relationship involving vulnerability, entrustment, and traits of dependence and control that gave rise to a duty of care, and the specific harms were legally foreseeable to the company. The Ninth Circuit reasoned that the company “did not disclose to [the driver]—nor give him any opportunity to discover—which riders had suspicious profiles or were using anonymous forms of payment.” It further concluded that “[g]iven [the company’s] knowledge of assaults at the time, this incident “was not so highly extraordinary or improbable as to be unforeseeable as a matter of law.”
This decision is noteworthy as it involves an independent contractor. Typically, the law does not extend liability to third parties for the negligence or intentional acts of an IC. Here, however, the facts were flipped, as it was not the actions of the IC that were sought by an injured party to be imputed to the company, but rather the acts of third parties who injured the IC. To that end, the court concluded that the estate presented sufficient undisputed evidence for it to find that the company “maintained a requisite level of control in matching drivers with riders, such that [the driver] entrusted and was dependent upon [the company] for his safety.” The court added, the company “alone controlled the verification methods of drivers and riders, what information to make available to each respective party, and consistently represented to drivers that it took their safety into consideration.” Drammeh v. Uber Technologies Inc., No. 22-36038 (9th Cir. Aug. 30, 2024).
NEW IC MISCLASSIFICATION LAWSUITS FILED BY DRIVERS AGAINST FEDEX ALLEGING THE COMPANY IS A JOINT EMPLOYER. After FedEx Ground succeeded in decertifying two collective actions filed by drivers in Massachusetts and Pennsylvania, 12,000 package delivery drivers have filed new lawsuits in the federal courts of those states under the Fair Labor Standards Act. The drivers claim that FedEx is a joint employer of the drivers, who are seeking allegedly unpaid overtime. The complaints contend that FedEx Ground instituted a new business model in July 2010 when, after dozens of lawsuits against the company asserting independent contractor misclassification, it began to change its business model: instead of contracting with single-route drivers to deliver packages, FedEx started to contract only with drivers in business entities that acquired the rights to three or more routes under a Independent Service Provider (“ISP”). The complaints further allege that drivers only could continue to provide services if they (1) became a multi-route ISP by incorporating as a business, purchasing from FedEx Ground three or more work areas in the same geographic area, and entering into an agreement with FedEx that included an approved ISP arrangement for the work areas; or (2) became an employee driver of an approved FedEx Ground ISP (that is, become a driver for another driver that has set up a business as an ISP). In support of their claims that FedEx Ground and the ISPs are joint employers of the drivers, the complaints allege among other things that drivers working under ISPs typically work full-time and exclusively as drivers for the ISPs and FedEx; deliver packages to FedEx customers while wearing FedEx uniforms and driving vehicles bearing FedEx’s logos; have schedules that are based on the volume of packages that FedEx allegedly requires to be delivered each day on their routes; and can be terminated by the ISPs at the direction of FedEx. Well before the filing of these new lawsuits, FedEx announced that it was consolidating its Ground Division with its Express Division, whereby all drivers will become employees of FedEx. Atwood v. FedEx Group Package System Inc., No. 24-cv-01127 (W.D. Pa. Aug. 6, 2024); Abner v. FedEx Ground Package System Inc., No. 24-cv-01129 (W.D. Pa. Aug. 6, 2024), Brannon v. FedEx Ground Package System Inc., No. 24-cv-01128 (W.D. Pa. Aug. 6, 2024), Alleyne v. FedEx Ground Package System Inc., No. 24-cv-12031 (D. Mass. Aug. 6, 2024), and Doyle v. FedEx Ground Package System Inc., No. 24-cv-12030 (D. Mass. Aug. 6, 2024).
SNACK FOOD COMPANY SUED IN ANOTHER STATE FOR MISCLASSIFICATION BY DISTRIBUTORS. A food company’s snack food division has been sued in yet another class and collective action lawsuit by distributors alleging that it violated the overtime compensation provisions of the federal Fair Labor Standards Act and the New York Labor Law. The lawsuit also alleges that the company made unlawful deductions from the distributors’ wages and failed to provide adequate wage notices and wage statements under state law due to the alleged misclassification of distributors as independent contractors. The distributors contend that they pick up snack food products from local warehouses and deliver them to the company’s retail customers, including major grocery chains and convenience stores via the direct-store-door (DSD) delivery method, requiring them to shelve the products at the customers’ locations. The complaint adds that the company controls the price, shelf space, displays, and promotions of the products; supervises and instructs the distributors; determines which products and brands will be sold within each territory; establishes the piece rate wages paid for the distributors’ services; and regulates the distributors’ ability to hire helpers. As we detailed in our blog post of August 6, 2024, this case is but one of a number of DSD distributor lawsuits and administrative proceedings that have been brought over the years, some of which have resulted in determinations that distributors have been properly classified as independent contractors. Regel v. Campbell Soup Co., No. 7:24-cv-06541 (S.D.N.Y. Aug. 29, 2024).
Legislative Developments
NEW YORK’S FREELANCE ISN’T FREE ACT BECAME EFFECTIVE ON AUGUST 28, 2024. Two weeks before the New York State Freelance Isn’t Free Act (FIFA) became effective, we published a comprehensive blog post on the new law. We described the unusual history of FIFA in New York, which had been vetoed in 2022 by the Governor and then signed into law in 2023 when the legislature passed it yet again, only to be repealed in 2024 and replaced with a similar law that changed the governmental unit enforcing it from the state Labor Commissioner to the state Attorney General. As we noted in detail in our blog post, the FIFA law is particularly troublesome for companies that engage New York-based independent contractors due to:
the ambiguity over which freelancers are covered and which are not, as well as which companies are governed by the law and which are not;
the lack of clarity over one of the key terms that must be included in all contracts with freelancers;
the uncertainty as to when payment is due and double damages begins if payments to freelances are late;
the absence of a good faith defense to double damages for non-payment;
the crushing statutory damages penalty for any violation of the FIFA law; and
the problematic provisions in the FIFA law making retaliation claims far more likely to be asserted by freelancers whose past services do not justify future work.
Our blog post also offered companies nine suggested provisions for their written agreements with independent contractors who live or work in New York State. In an August 28, 2024 article published in Law360 Employment Authority by reporter Max Kutner entitled “4 Tips For Complying With NY Freelancer Law,” the publisher of this blog was quoted as follows: “As the requirements go statewide in New York, businesses should not think a freelance contract shields them from independent contractor misclassification claims… It gives companies a false sense of assurance that they are in compliance with the law, rather than making sure that their contract contains all of the appropriate clauses that establish an independent contractor relationship.”
Other Noteworthy News
DEMOCRATIC PARTY PLATFORM SUPPORTS USE OF ABC TEST FOR IC STATUS. The Democratic Party Platform approved on August 18, 2024 briefly addressed the issue of independent contractor misclassification, stating on page 15 of its 91-page document as follows: “Democrats believe employees who are being misclassified, including gig and platform workers, deserve wage and workplace protections including minimum wage and overtime pay, and we support using the ABC test to determine employee status.” Notably, that passage does not refer to the type of ABC test the Democratic Party supports: the standard one that is used in about 20 states, mostly in unemployment and workers’ compensation statutes, or the so-called AB5 version in California that is far stricter than almost all other states’ ABC test for IC status. However, on page 14 of the Platform, it states, “Democrats will prioritize passing the PRO Act and restoring workers’ rights, including the right to launch secondary boycotts.” The PRO Act includes a version of the ABC test that is akin to the AB5 test in California and Massachusetts, without any of the about 75 exemptions that California included in its version of the ABC test. Thus, if Democrats sweep both houses of Congress and the White House, there is a chance that the PRO Act’s strict ABC test for IC status could become law. In that event, litigation asserting that workers have been misclassified is likely to increase dramatically, prompting even more companies to use an IC compliance enhancement process such as IC Diagnostics (TM) in an effort to increase their chances of prevailing in an IC misclassification legal challenge.
