Pharmacy Deliveries Remain Target for Independent Contractor Misclassification Claims: October 2021 News Update

Independent Contractor Misclassification & Compliance Blog
November 9, 2021

October was a relatively “slow” month for legal developments in the areas of independent contractor misclassification and compliance.  But for companies that engage drivers to distribute pharmaceutical products, a nearly $12 million settlement of an IC misclassification case last month may persuade even more companies in that  industry to consider  taking steps to further enhance their IC compliance. Indeed, this eight-figure settlement is one of five IC misclassification cases that we have reported on in the past two years where class action lawyers have targeted companies that use independent contractors to deliver pharmaceutical products.

As we reported in a blog post last April, a freight transportation company that brokered the transportation of pharmaceuticals including controlled substances, was unable to dismiss an IC misclassification collective and class action brought by drivers who sued it under the Fair Labor Standards Act and New York wage and hour law. In January 2021, we reported on a case in New Jersey against a pharmaceutical delivery service filed by drivers who claimed they had been misclassified as independent contractors. That company was able, however, to compel arbitration of the state wage and hour claims. A post on this blog in September 2020  reported on a $4.5 million settlement in an IC misclassification case brought by drivers against a delivery company for a pharmacy services provider.  Less than a year earlier, we reported on a $7.5 million settlement of an IC misclassification class action brought against two pharmaceutical wholesale distributors by 115 drivers.

These cases illustrate the compelling need by companies in the pharmacy services  industry to elevate their current level of compliance with state and federal independent contractor laws.  Many companies use a process such as IC Diagnostics (TM). That type of process assesses a company’s level of compliance and then identifies how the company can restructure, re-document, and re-implement its independent contractor relationships in a customized and sustained manner consistent with its current business model. Enhancing compliance by use of this sort of process minimizes the likelihood of becoming a target of class action lawyers and maximizes the likelihood of a favorable result in the event of a lawsuit for IC misclassification. One element of the IC Diagnostics process includes creating effective arbitration clauses with class action waivers that further insulate companies from class and collective action liability.

In the Courts (2 cases)

PHARMACEUTICAL PRODUCTS PROVIDER TO PAY $11.9 MILLION TO SETTLE IC MISCLASSIFICATION CLASS ACTION BY DELIVERY DRIVERS. A class of delivery drivers has entered into a proposed $11.9 million settlement with a pharmacy services provider for long-term care and post-acute facilities and assisted living and senior living communities. In a collective action brought under the federal Fair Labor Standards Act alleging that the company violated minimum wage and overtime compensation provisions under that statute by misclassifying drivers as independent contractors and not employees, the company vigorously denied the allegations and asserted the drivers were properly classified as independent contractors. However, to date, 1,231 delivery drivers nationwide have affirmatively opted-in and joined the lawsuit.

According to the complaint, the work performed by the drivers primarily consisted of driving vehicles to the company’s customers pursuant to routes and schedules mandated by the company and its affiliates and delivering the company’s products to healthcare facilities in accordance with the company’s policies and standards. The proposed settlement, which includes a non-admission of liability clause and was accompanied by a memorandum of law that articulated certain of the company’s defenses, includes nearly $8 million to be divided among the drivers on a pro rata basis dependent upon the number of weeks worked by each driver. It also calls for the payment of approximately $4 million in attorneys’ fees and costs. The average payout per driver will exceed $6,000, and more than 300 drivers will receive net payments of more than $10,000.  The proposed settlement does not, however, require the company to reclassify the drivers as employees. Hager v. Omnicare, Inc., No. 5:19-cv-00484 (S.D. W. Va. Oct. 8, 2021).

NEWSPAPER FACES SECOND TRIAL OF IC MISCLASSIFICATION CLASS ACTION CLAIMS.  Newspaper delivery carriers have won a second chance against The Fresno Bee when a California appeals court reversed a trial court’s decision in favor of the newspaper. The appeals court reasoned that the lower court used the wrong test for determining independent contractor/employee status. The carriers had brought a class action claiming that the paper had violated various California state laws due to the classification of the carriers as independent contractors. After a bench trial on the issue of whether the newspaper violated the state unfair competition law by failing to pay the carriers’ mileage expenses, the trial court concluded that the carriers were independent contractors not entitled to reimbursement. On appeal, the carriers contended that the trial court erred by failing to apply the so-called Borello test, erroneously instead relying upon regulations promulgated by the California Employment Development Department. In reversing the trial court, the appeals court concluded the EDD’s regulations were inapplicable and that the trial court failed to properly analyze the Borello test factors. The appeals court “decline[d] to resolve whether the carriers are employees or independent contractors” and chose to remand that issue to the trial court to make that determination under the correct legal test.  Becerra v. McClatchy Co., No. F074680 (Cal. Ct. App. Sept. 30, 2021)‎.

Legislative Developments (1 item)

NEW YORK WHISTLEBLOWER RETALIATION LAW EXPANDED TO PROTECT INDEPENDENT CONTRACTORS.  New York Governor Kathy Hochul signed into law on October 28, 2021 an amendment to New York’s whistleblower protection law expanding ‎protections for employees and broadening those protected by the law to include independent contractors. As we discussed in our November 1, 2021 blog post, Senate Bill S4394A not only broadens the scope of whistleblower ‎protections in New York, but also expands the definition of protected “employees” to include ‎independent contractors.  Previously, this statute was regarded as ‎rather limited in that it applied only to disclosures of matters “in ‎violation of law” that presented a “substantial danger to the public health or safety, or that which ‎constitutes health care fraud.” The new law vastly widens its contours to include ‎the disclosure, or threatened disclosure, to a supervisor or governmental body of any matter that an ‎employee or independent contractor reasonably believes is in violation of any law, rule or regulation. It also adds to the types of prohibited retaliatory acts against former employees who have “blown the whistle,” such as blacklisting or ‎threatening to contact federal immigration authorities.  The new law, which will become effective 90 days after enactment, permits the ‎recovery of punitive damages for acts of malicious or wanton retaliation and requires ‎employers to post notices informing workers about the new law.  ‎These amendments bring New York into parity with many other ‎states’ whistleblower laws, but New York has gone a step beyond by including independent ‎contractors within the ambit of those who are protected by the amended law.

Written by Richard Reibstein, co-head of Locke Lord’s Independent Contractor Misclassification and Compliance practice.

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