Lawyers representing ride share drivers have argued for years that their clients are being misclassified as independent contractors under federal and state laws. They have attained little success, however, obtaining definitive rulings in their favor, particularly in states that have adopted a multi-factor test for independent contractor status, like the federal standard under the Fair Labor Standards Act (FLSA). Two consecutive hung juries in a Pennsylvania federal district court confirm that the classification status of ride share drivers is unclear. These events serve as a rejoinder to worker advocacy groups that have repeatedly asserted that ride share companies misclassify drivers. While their arguments have led to rulings in favor of employee status in the two states with strict ABC type wage laws (California and Massachusetts), the recent hung jury results in Pennsylvania confirm that independent contractor status of ride share drivers is at best murky in state and under federal law. Nonetheless, ride share and other gig economy companies can tilt the scales in their favor. Many businesses have resorted to a process such as IC Diagnostics (TM) to enhance the structure, documentation, and implementation of IC relationships in a customized and sustainable manner, maximizing compliance with IC laws and minimizing exposure from IC misclassification claims.

In the Courts (6 cases)

RIDE-SHARE JURY TRIAL ON IC MISCLASSIFICATION AGAIN RESULTS IN HUNG JURY. Jurors have failed once again to reach a unanimous verdict in a trial where ride share drivers claim they were misclassified as independent contractors and not employees under federal and Pennsylvania state law. In 2016, three Uber Black limousine drivers initiated individual and class and collective action claims against Uber for alleged violations of the FLSA’s minimum wage and overtime requirements, the Pennsylvania Minimum Wage Act, and the Pennsylvania Wage Payment and Collection Law due to Uber’s classification of the Uber Black drivers as independent contractors. Each of the named plaintiffs owned and operated independent transportation companies and had entered into a Technology Services Agreement with Uber. After years of litigation as described more fully in our blog posts of April 12, 2018 and May 11, 2020, the case first went to trial in March 2024, but resulted in a deadlocked jury, requiring a second trial, which last month likewise ended in a hung jury. The jurors’ split verdict reportedly indicated that they leaned toward finding one of the named plaintiff drivers an employee because he did not have any special skills, a factor included in the applicable state and federal tests for worker status, yet favored independent contractor status for that driver when considering the factor that relates to the method by which he was paid for his services. For another of the named plaintiff drivers, the jurors reportedly could not agree on any of the factors under the federal law but were somewhat in favor of independent contractor status regarding the method of payment factor under state law. Razak v. Uber Technologies Inc., No. 2:16-cv-00573 (E.D. Pa. June 17, 2024).‎

IC MISCLASSIFICATION CASE BY DRIVERS AGAINST WALMART SENT TO ARBITRATION BECAUSE FAA EXEMPTION FOUND NOT APPLICABLE. A delivery driver must arbitrate claims on an individual basis according to a federal court in Washington State in a case alleging violations of the state wage and hour laws due to alleged misclassification of the drivers as independent contractors. The driver brought the proposed class action on behalf of himself and others similarly situated claiming that, due to the alleged failure of Walmart to classify the drivers as employees, Walmart had failed to pay the minimum wage for all hours worked and overtime compensation and also had neglected to provide paid sick leave, required rest and meal break periods, and compensation for compensable time. The driver had signed an independent Walmart contractor agreement, including arbitration provisions with a class action waiver, to provide delivery services with “Spark Driver.” – a Walmart-owned mobile app that enables its customers to order groceries and other merchandise from ‎Walmart stores and have those products delivered to their residences by drivers like the plaintiff. In response to Walmart’s motion to compel arbitration, the driver argued that the “Spark Driver” agreement was exempt from the Federal Arbitration Act (FAA) because he and the other drivers performed services as transportation workers engaged in interstate commerce. In rejecting that argument, the court concluded that unlike the transactions between Walmart and its suppliers, which were presumably interstate in nature, the transactions it engaged in with the drivers were intrastate as they involved local Walmart customers receiving deliveries from local Walmart stores. The Court further concluded that it was “of no consequence” that the driver delivered products that once travelled in interstate commerce, and that even though the driver “plausibly alleges” that he and some other drivers had occasionally delivered products across state lines, that factor, even if true, did not demonstrate that he belonged to a class of transportation workers engaged in interstate commerce. Walz v. Walmart Inc., No. 23-cv-06083 (W.D. Wash. June 6, 2024).

LAST MILE LOGISTICS COMPANY SETTLES MASSACHUSETTS DRIVERS’ IC MISCLASSIFICATION CLASS ACTION FOR $2.9 MILLION. A federal district court in Massachusetts preliminarily approved a $2.9 million misclassification class action settlement between 145 drivers and a last mile delivery, logistics, and transportation company. In their class action complaint filed in 2018, the drivers asserted that the company misclassified them as independent contractors instead of employees and that the deductions taken by the company from their pay, particularly deductions for customer damage claims and insurance coverage, ‎violated the Massachusetts Wage Act.‎ The company contended that the contested deductions were valid. Over the past six years, after the case transferred from state to federal court, a class was certified, and the court granted the drivers’ motion for summary judgment ‎on the issue of the company’s liability as an employer under Massachusetts’ ultra-strict ABC test, the parties reached a settlement agreement last month, just prior to the date set for a trial on damages. The settlement amounts to approximately 66% of class members’ alleged damages, net of attorney’s fees. The largest payment to a class member would exceed $50,000.00, while the average payout will be approximately $12,000. The parties agreed to attorneys’ fees and costs of administration just short of one million dollars. The settlement agreement recites that the Company continues to deny all charges of wrongdoing or liability, but has settled to avoid additional legal fees.‎ A final approval hearing is set for September 11, 2024. Muniz v. RXO Last Mile Inc., No. 4:18-cv-11905 (D. Mass. June 24, 2024).

ADULT ENTERTAINMENT CLUB SETTLES EXOTIC DANCERS’ IC MISCLASSIFICATION CLAIM. A Florida adult entertainment club has settled an independent contractor misclassification lawsuit with four dancers, who were not subject to arbitration agreements, with one of the four receiving $94,000. A federal district court in Florida approved the settlement between a group of gentlemen’s clubs and adult dancers, who had claimed they were misclassified as independent contractors and not employees. In their 2022 amended complaint, the dancers contended that BT’s on the River d/b/a Booby Trap and its related entities evaded the mandatory minimum wage and overtime provisions of the FLSA, including “illegally absconding” with the dancers’ tips by keeping a portion of tips paid to the dancers by the Clubs’ customers in the ‎form of fees, fines, mandatory charges, and other payments to management, house moms, bouncers, disc ‎jockeys, and floor men.‎ According to the amended complaint, the Clubs provided them with no compensation other than a portion of their tips from customers, exercised significant control during their shifts, set prices for all VIP performances, and controlled the music for the dancers’ performances and the means and manner in which the dancers could perform, scheduled the dancers, and had the authority to suspend, fine, fire, or otherwise discipline the dancers for non-compliance with their rules regarding dancing. Other dancers had been parties to the action, their claims were subject to arbitration. As we have noted in prior blog posts, exotic dancers have succeeded frequently with IC misclassification cases and have attained seven-figure settlements. But, as we have written on this site, even an adult entertainment club can comply with independent contractor laws and avoid or successfully defend against class actions. Dayana Aguiar v. BT’s on the River LLC, No. 1:22-cv-23111 (S.D. FL June 10, 2024).

AB5’S EXEMPTIONS FOR SOME REFERRAL AGENCIES BUT NOT FOR OTHERS IS NOT UNCONSTITUTIONAL. The U.S. Court of Appeals for the Ninth Circuit has affirmed a federal district court’s dismissal of an action brought by Postmates, Uber, and two individuals against the State of California challenging the constitutionality of California’s Assembly Bill 5 (“AB5”) addressing worker misclassification. The passage of AB5 changed the landscape in California for determining independent contractor / employee status by making the three-part ABC test (instead of the less stringent Borello test) applicable to virtually all types of worker claims in the areas of labor, employment, unemployment, and workers compensation law except those industries expressly exempted in the statute. Under AB5 and its amended versions including AB2257, arrangements between workers and referral agencies that provide delivery or transportation services, like Uber and Postmates, as well as eight other industries, are subject to the ABC test, while arrangements between workers and referral agencies that provide other types of services, such as dog walking or handyman services, are subject to the multi-factor Borello test (provided the referral agency meets eleven statutory criteria under a different section of the California Labor Code). In challenging this disparate treatment, the plaintiffs claimed that AB5 violated the Equal Protection, Due Process, and Contract Clauses of the U.S. Constitution. The Ninth Circuit rejected the plaintiffs’ arguments and concluded that under the “deferential rational basis standard,” there were plausible reasons for treating the two types of companies differently, “particularly where the legislature perceived transportation and delivery companies as the most significant perpetrators of the problem it sought to address – worker misclassification.” The court further concluded that the differentiation was rationally related to the state’s legitimate interest in protecting workers, stemming the erosion of the middle class and reducing income inequality. It stated that although AB5 might be underinclusive because it does not extend the ABC test to every industry and occupation that has contributed to misclassification in California, that aspect of the law “does not render it unconstitutionally irrational.” Olson v. California, No. 21-55757 (‎9th Cir. en banc June 10, 2024).

MASSACHUSETTS SETTLES WITH UBER AND LYFT IN THE FACE OF UPCOMING VOTER INITIATIVE. Massachusetts Attorney General Andrea Joy Campbell announced a $175 million settlement, including wage protections and other benefits, with Uber and Lyft for drivers providing services to ride share customers. The settlement resolves a state lawsuit for alleged wage and hour violations due to the app-based ride-sharing companies’ alleged misclassification of its drivers as independent contractors and not employees. According to a Press Release issued on June 27, 2024, by the Office of the Attorney General, the “historic settlement” mandates that drivers receive a future minimum of $32.50 per hour; that Uber pay $148 million and Lyft pay $27 million primarily as restitution to current and former drivers who were allegedly underpaid by the companies; that drivers receive guaranteed paid sick leave, a paid stipend to buy into the state’s paid family and medical leave program, and occupational accident insurance paid for by the companies; and that drivers may pool their driving hours for both companies to obtain access to a health insurance stipend. Notably, the settlement treats the drivers as independent contractors and not as employees, a huge victory for the ride-sharing companies, who supported a ballot initiative for an upcoming election that, if approved, would have allowed them to treat certain app-based workers as independent contractors. The ballot initiative had been approved by the Massachusetts Supreme Judicial Court just before the settlement was announced. The settlement provides that the companies will not financially support the voter initiative going forward‎.

In a July 3, 2024 article published in Law360 by reporter Max Kutner entitled “Wage Ballot Proposal Withdrawals Show Deals Are Possible,” the publisher of this blog was quoted as follows: “Where there is a meaningful likelihood that [a] ballot initiative will be passed, it has prompted state governments to take heed of voter preferences in industries that have an impact on a wide range of consumers….Many times, the parties are…going to find common ground to negate the ballot initiative and find a compromise solution.” Campbell v. Uber Tech., No. 2084CV01519 (Super. Ct. Suffolk County, Mass. June 27, 2024); El Kousa v. Campbell, No. SJC-13559 (S.J.C. Mass. June 27, 2024‎); and Craney v. Campbell, No. SJC-13567 (S.J.C. Mass. June 27, 2024‎).