June was a relatively slow month in the area of independent contractor misclassification and compliance. But it produced what may turn out to be one of the more important judicial decisions in years affecting last-mile drivers engaged as independent contractors: a federal appellate court decision that would exclude drivers who deliver goods to a final destination from a hub or interim location from the arbitration exemption for interstate transportation workers under the Federal Arbitration Act – and subject their independent contractor misclassification claims to arbitration. However, as we have stated repeatedly in numerous blog posts, even if the arbitration exemption for interstate transportation workers under the FAA is found to apply to a class of workers, a well-drafted arbitration clause should still provide a valid basis to arbitrate – if it is also governed by a state law favoring arbitration. Drafting effective arbitration clauses is almost as important as structuring, documenting, and implementing independent contractor relationships in a manner that enhances compliance with independent contractor laws at the state and federal levels. Both are part of the IC Diagnostics (TM) process used by a number of companies in transportation and other related industries to minimize their exposure to IC misclassification liability.
In the Courts (2 cases)
LAST MILE INDEPENDENT CONTRACTOR DELIVERY DRIVERS NOT EXEMPTED FROM ARBITRATION UNDER THE FAA. Florida last-mile delivery drivers may need to arbitrate their FLSA claims according to the U.S. Court of Appeals for the 11th Circuit, which reversed a federal district court’s order denying a motion to compel under the Federal Arbitration Act (FAA). Plaintiff, a Florida resident suing on behalf of himself and those similarly situated, is a driver/courier for U.S. Pack and, in that capacity, he used his personal vehicle to pick up from the company’s Florida warehouses car parts manufactured in and shipped from other states and countries. He then delivered the car parts to local retailers. Plaintiff sued the company and its related entities for overtime violations under the FLSA due to alleged misclassification of the last-mile drivers as independent contractors and not employees. The independent contractor agreement in question contained an arbitration clause, prompting the company to make a motion to compel arbitration under the FAA and Florida’s arbitration law.
The district court denied the motion, concluding the drivers satisfied the interstate transportation worker exemption to the FAA because they “transported goods that had traveled in interstate commerce and the transportation of goods in interstate commerce was not incidental to their job….” On appeal, the drivers argued that the term “‘class of workers engaged in foreign or interstate commerce’ means that even if the class isn’t actually engaged in foreign or interstate commercial transportation itself, it is still exempt from arbitration so long as the goods and materials it delivers traveled in foreign or interstate commerce.” The 11th Circuit rejected that argument and reversed, concluding that the district court had misapplied the law because it focused on the movement of the goods and not the class of workers. The appeals court remanded the case for the district court to apply the proper test and determine whether the drivers are in a class of workers employed in the interstate transportation industry and whether the class actually engages in interstate commerce. Additionally, the court dismissed for lack of appellate jurisdiction the company’s appeal of the district court’s order denying the motion to compel arbitration under the Florida state arbitration law. Hamrick v. Partsfleet, LLC, No. 19-cv-13339 (11th Cir. June 22, 2021).
ON-LINE MARKETING AND INTERNET SALES ASSOCIATES GRANTED COLLECTIVE CERTIFICATION. An Arizona federal court has granted a motion for conditional certification of a collective action brought by and on behalf of inside sales associates who provided business-to-business sales transactions for an online marketing company, VMS Data, LLC. The sales associates’ services included cold calling and emailing businesses in an attempt to sell products such as websites and search engine optimization. In the collective action complaint brought under the Fair Labor Standards Act, the plaintiff claimed that the company failed to pay overtime compensation as a result of misclassifying inside sales associates as independent contractors. The complaint alleges that the sales associates used the company’s equipment and wore company uniforms; were provided with sales scripts to use when attempting to sell company products; were economically dependent on the company; could not create their own schedules; were supervised by the company and subjected to company rules; had no financial investment in a business; had no opportunity for profit or loss; were integral to the company’s business; and were hired on a permanent basis. In the motion seeking collective certification, the plaintiff stated that the company instituted a company-wide misclassification practice to pay associates a specified amount per day, no matter how many hours they worked. The company chose not to file a response to the plaintiff’s motion. Rojas v. VMS Data, LLC, No. 21-cv-00110 (D. Ariz. June 29, 2021).
Administrative and Regulatory Developments (1 item)
PRESIDENT FOLLOWING SIMILAR PATH AS OBAMA TO COMBAT IC MISCLASSIFICATION. President Biden has nominated Dr. David Weil as his Wage and Hour Administrator, the same person who served in that capacity during the Obama presidency. As discussed in our blog post of June 3, 2021, Dr. Weil had returned to academia and published a book addressing the classification of workers in the U.S. as independent contractors. He is well known for issuing an Administrator’s Interpretation in July 2015 setting forth the test that the Obama Administration’s Labor Department used to determine if a worker had been misclassified as an independent contractor. The nomination of Dr. Weil comes within a week after the Biden Administration issued its Fiscal Year 2022 Budget, including an increase of $30 million for the Wage and Hour Division, which Labor Secretary Marty Walsh explained will “allow the division to aggressively combat worker misclassification” by adding 175 enforcement personnel. This focus on increased enforcement, together with the nomination of Dr. Weil, sends a clear message to companies using independent contractors: the pressure is on to enhance their compliance with applicable IC laws.
In January 2015, during his prior service as Wage and Hour Administrator, Dr. Weil stated that business models that “attempt to change . . . the employment relationship through the use of independent contractors are not inherently illegal, . . . [and] legitimate independent contractors are an important part of our economy . . . .” The July 2015 Administrator’s Interpretation likewise indicated that while some businesses have “intentionally misclassified [workers] as a means to cut costs and avoid compliance with labor laws,” legitimate independent contractor relationships “can be advantageous for workers and businesses.” Presumably, during his confirmation hearing, Dr. Weil will be asked whether his focus as the new Wage and Hour Administrator will be on cracking down on intentional misclassification, not on unintentional misclassification, where the bulk of misclassification occurs, as we noted in our blog post.
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