Judges Increase Scrutiny of the “Independent Contractor” Business Model

Over the years, this Newsletter has spilled considerable ink discussing corporate abuse of the “independent contractor” business model. Unfortunately, too many workers are misclassified as independent contractors – rather than employees – even though their day-to-day work conditions are indistinguishable from the conditions encountered by full-fledged employees. Indeed, we often find independent contractors and employees working side-by-side performing the same work for the benefit of the same company.

Independent contractor misclassification can be extremely unfair to workers. Independent contractors, after all, are not entitled to basic workplace benefits such as: (i) matching FICA contributions; (ii) workers compensation and unemployment insurance; (iii) coverage under federal/state laws barring workplace discrimination, retaliation, and harassment; (iv) the right to unionization; and (v) the right to be paid a minimum wage and overtime compensation.

By classifying workers as independent contractors, corporations are able to shift the most basic business costs onto the backs of workers. For example, package delivery companies can require the worker to purchase or lease the delivery truck bearing the company’s logo. It sure seems unfair to require workers, rather than the companies’ owners, to bear such basic business risks and expenses.

Make no mistake: taxpayers, competing businesses, and working families are left holding the tab for independent contractor misclassification.

In recent years, the media has focused increased attention on the unfairness and societal costs of the independent contractor business model. And it appears that judges – like the general public – are growing more skeptical of the business model.

The increasing judicial skepticism is reflected in two recent developments:

New Jersey Supreme Court Adopts the “ABC Test”

In Hargrove v. Sleepy’s, Inc., 106 A.2d 449 (N.J. 2015), the New Jersey Supreme Court addressed the proper legal test for determining whether a plaintiff is an employee or an independent contractor under the state’s Wage and Hour Law and Wage Payment Law. See id. at 453. The workers’ cause was argued by Boston attorney Harold Lichten, who – as many readers of this Newsletter know – has had great success representing misclassified contractors.

On January 15, the Hargrove Court issued a unanimous opinion adopting the “ABC test.” See id. at 463-65. Under the ABC test, a worker is presumed to be an employee unless the company can satisfy each of the following three requirements:

(A) the worker “has been and will continue to be free from control or direction over the performance of” the services provided”; and (B) the worker’s services fall either “outside the usual course of” the company’s business or are “performed outside of all the [company’s] places of business;” and (C) the worker “is customarily engaged in an independently established trade, occupation, profession or business.”

Id. at 458.

The ABC test adopted in Hargrove will be difficult for many companies to satisfy. That’s why several groups representing corporate interests filed briefs opposing the ABC test. But, in the Court’s view, these arguments could not overcome the fundamental fact that the ABC test “fosters the provision of greater income security for workers, which is the express purpose of both the [Wage Payment Law] and [Wage and Hour Law].” Id. at 315.

Going forward, New Jersey is likely to be a major battleground in the effort to eliminate independent contractor abuse.

FedEx Under Attack

Over the past ten years, numerous cases have been filed against FedEx Ground Package System (“FedEx”) challenging the company’s business model of classifying thousands of package delivery drivers as non-employee independent contractors. Our firm has handled a few of these cases, and, in the process, we’ve been privileged to work with some really great Trial Lawyers.

The FedEx cases are working their way through the appellate courts, and, so far, the results generally have been very good for working families.

The most recent decision came from the Atlanta-based Eleventh Circuit Court of Appeals in a case entitled Carlson v. FedEx Ground Packaging System, Inc., 2015 U.S. App. LEXIS 8810 (11th Cir. May 28, 2015). There, the Circuit unanimously reversed the trial judge’s summary judgment finding that the drivers were independent contractors. The Circuit’s opening paragraph is worth repeating:

For customers who are regularly visited by the ubiquitous white trucks of FedEx Ground, with their familiar purple and green logos, the usual concern is whether packages are picked up on schedule and delivered on time. If asked, a good number of those customers would probably say that they believe (or reasonably assume) that the drivers of those white trucks are employed by FedEx. The law, however, sometimes has a funny way of making hard what would otherwise seem intuitively simple, and that is the case with the legal status of FedEx’s ‘drivers. The drivers who work for FedEx in Florida say they are employees, while FedEx maintains that they are independent contractors, and the resolution of that dispute is critical to a class action lawsuit filed by those Florida drivers against FedEx. Applying Florida law, we conclude that, on this record, the issue is one for a jury to resolve.

Id. at *2.

Carlson came on the heels of Craig v. FedEx Ground Packaging Systems, Inc., 335 P.3d 66 (Kan. 2014), the highly-anticipated decision in which the Kansas Supreme Court unanimously held that FedEx delivery workers are employees under the state’s wage laws. After an extensive opinion, the Craig Court summarized that “FedEx has established an employment relationship with its delivery drivers but dressed that relationship in independent contractor clothing.” Id. at 92.

Finally, in Slayman v. FedEx Ground Packaging System, Inc., 765 F.3d 1033 (9th Cir. 2014), and Alexander v. FedEx Ground Packaging System, Inc., 765 F.3d 981 (9th Cir. 2014), the San Francisco-based Ninth Circuit Court of Appeals held that FedEx delivery drivers are employees under Oregon and California law. The Alexander Court summarized:

As a central part of its business, [FedEx] contracts with drivers to deliver packages to its customers. The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx’s appearance standards. FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx’s consent. FedEx contends its drivers are independent contractors under California law. Plaintiffs, a class of FedEx drivers in California, contend they are employees. We agree with plaintiffs.

Id. at 984.

In sum, the tide finally appears to be turning in favor of workers’ who challenge independent contractor abuses. The next several years are going to be filled with many important court battles defining the legal limits of the independent contractor model.

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