Is the U.S. Supreme Court About to Dive Into the Independent Contractor Misclassification Field? November 2021 IC Law Update

Independent Contractor Misclassification & Compliance Blog
December 7, 2021

The highlights of independent contractor legal developments in November 2021 focus on interstate transportation workers.  Questions addressed by the courts last month included whether ride-sharing workers classified as independent contractors are considered interstate transportation workers and therefore exempted from the arbitration provisions of the Federal Arbitration Act, and whether the strict test in California for IC status, when applied to interstate truck drivers, is preempted by the federal law deregulating the airline and transportation industry.

Most, but not all, courts have ruled in favor of ride-sharing companies seeking to compel arbitration of drivers’ IC misclassification class actions.  That result occurred again last month in two related class actions involving New Jersey ride-sharing workers, as reported below.  In contrast, two federal appellate courts issued widely divergent opinions on the question of whether the strict ABC test for IC status under the nearly identical Massachusetts and California laws is preempted by the federal aviation and interstate transportation deregulation law.

As discussed below, the U.S. Supreme Court last month indicated that it is seriously considering whether to accept the preemption case, asking the U.S. Solicitor General to weigh in on this matter and provide the justices with the federal government’s position on the preemption issue in this hotly contested area involving the classification of independent contractors.  Given the current composition of the Supreme Court, there is a reasonable likelihood that if the Court accepts the case, it will side with trucking companies and drivers that have asked the Court to unshackle them from a California law that severely restricts the use of otherwise legitimate ICs in the trucking industry.

These two issues, arbitration and preemption, can tend to obscure the most pressing issue facing companies using ICs: enhancing their compliance with applicable federal and state laws governing ICs, especially in states other than Massachusetts and California.  Many companies have done so using a process such as IC Diagnostics (TM), which focuses on restructuring, re-documenting, and/or re-implementing IC relationships in a customized and sustainable manner to minimize exposure to IC misclassification liability.

In the Courts (4 cases)

UBER SUCCEEDS IN COMPELLING ARBITRATION OF DRIVERS’ IC MISCLASSIFICATION CLASS ACTION.  New Jersey ride-sharing drivers must individually arbitrate their wage and hour claims against their ride-sharing company and cannot proceed with their proposed class action lawsuit in court because they do not fall within the arbitration exemption under the Federal Arbitration Act (FAA) for transportation workers engaged in interstate commerce. The drivers claim that because the ride-sharing company has allegedly misclassified them as independent contractors instead of employees, it must reimburse certain business expenses such as car maintenance, gas, insurance and phone/data charges; comply with guaranteed minimum wage laws; and pay overtime compensation under the appropriate state laws. The company moved to compel arbitration of the drivers’ claims under the FAA pursuant to the arbitration clause in the drivers’ independent contractor agreements. The drivers argued that they engage in interstate transportation of riders, satisfying the transportation worker exemption under the FAA. In support of their argument, the drivers claimed that they have “crossed state lines 140 million times in 10 years and because 10% of trips begin or end at an airport.” The federal trial court disagreed. It concluded that such data was not dispositive because the rides only constituted 2% of all rides and that “Interstate trips, albeit numerically many, do not constitute a central part of what Uber does when placed in context of its drivers’ overall work activities.”  The court viewed Uber drivers nationwide as being in the general business of giving local rides, “unlike railroad workers and seamen, whose jobs revolve around interstate travel/movement.” The decision is consistent with the majority of district courts as well as the U.S. Courts of Appeal for the First and Ninth Circuits.  Singh v. Uber Technologies Inc., No. 3:16-cv-03044 (D.N.J. Nov. 23, 2021); Calabrese v. Uber Technologies Inc., No. 3:19-cv-18371 (D.N.J. Nov. 23, 2021).

SUPREME COURT APPEARS POISED TO REVIEW WHETHER CALIFORNIA IC TEST IS PREEMPTED BY FEDERAL TRANSPORTATION ACT.  The United States Supreme Court has invited the Solicitor General of the United States to file briefs expressing the federal government’s views of an independent contractor misclassification case involving the California Trucking Association (CTA) and a number of drivers challenging the enforceability of California’s law creating a strict “ABC” test for IC status. The position of the CTA and drivers is that Assembly Bill 5 (AB5), and its successor AB2257, is preempted at least in part by the Federal Aviation Administration Authorization Act (FAAAA, also referred to as F4A) covering airline and other interstate transportation workers.  The CTA and drivers argue that AB5, as interpreted by the U.S. Court of Appeals for the Ninth Circuit in their pending case with the California Attorney General, will effectively destroy the trucking industry’s ability to continue using the independent owner-operator business model. A petition for certiorari was filed with the Court by the CTA and drivers this summer.

The CTA and drivers have argued to the Supreme Court that the Ninth Circuit’s ruling conflicts with decisions of the U.S. Court of Appeals for the First Circuit and the Massachusetts Supreme Judicial Court, both of which concluded that the FAAAA preempts a Massachusetts law that is identical to AB5 to the extent the law is applied to transportation workers covered by the FAAAA.  The publisher of this blog has been quoted in an article discussing this case in a Law360 article authored by Linda Chiem, stating: “[T]he dissent[ing opinion in the Ninth Circuit] pointed out that the Ninth Circuit majority’s decision deviates from the First Circuit’s 2016 decision in Schwann v. FedEx, which found that Prong B of Massachusetts’ ABC test was preempted by the FAAAA. The Massachusetts ABC test is virtually identical to the ABC test in California.”  While it would not be surprising if the Solicitor General supported the Ninth Circuit’s interpretation, the federal government may try to steer a neutral course on this highly charged issue affecting the entire trucking industry.  California Trucking Association Inc. v. Bonta, No. 21-194 (U.S. Sup. Ct. Nov. 15, 2021). ‎

DOORDASH TO PAY $5.3 MILLION TO SETTLE SAN FRANCISCO CLAIM FOR IC MISCLASSIFICATION.  DoorDash has agreed to pay $5.3 million in a settlement reached with the San Francisco Office of Labor Standards Enforcement (OLSE) ending a two-year investigation into alleged misclassification of delivery drivers as independent contractors and not employees. According to a news release issued by City Attorney David Chiu on November 22, 2021, the investigation into DoorDash’s practices was initiated by a complaint filed with OLSE after media reports of DoorDash allegedly using customer tips to subsidize the base pay of workers. Ultimately, a settlement was reached benefitting nearly 4,500 DoorDash workers who made deliveries in San Francisco between 2016 and 2020. The news release also stated that the bulk of the settlement, $5.13 million, will go directly to those DoorDash workers, with only $187,046 to be paid to the City of San Francisco to cover OLSE’s enforcement costs and enhance future enforcement efforts. DoorDash did not admit any wrongdoing and reportedly acknowledged that the settlement was a fair compromise.

FOOD COMPANY’S DISTRIBUTION AFFILIATE TO PAY $6 MILLION IN SETTLEMENT OF IC MISCLASSIFICATION CASE.  Independent distributors have sued a number of food companies for independent contractor misclassifications over the years, sometimes losing on the merits, and at other times settling their cases.  In November, Snyder’s-Lance’s distribution affiliate settled an IC misclassification class action with 300 distributors ending a class and collective action brought in North Carolina federal court under the Fair Labor Standards Act and state wage and hour laws. The named plaintiff sought recovery of minimum wage and overtime compensation, expense reimbursement, and other wage deduction damages. The company did not admit liability, but appeared not to have elevated its level of compliance with independent contractor laws to the same extent as the companies that have succeeded in or avoided such lawsuits. When independent contractor relationships with distributors are structured, documented, and implemented in a manner that maximizes compliance with IC laws, particularly when using a compliance process such as IC Diagnostics (TM), legal challenges alleging IC misclassification are less likely to be brought and, if brought, less likely to succeed.  Mode v. S-L Distribution Company LLC, No. 3:18-cv-00150 (W.D.N.C. Nov. 5, 2021).

Legislative Developments

EIGHT STATES REPORTED TO HAVE PASSED OR ARE SEEKING TO PASS LEGISLATION WITH LESS RESTRICTIVE TESTS FOR IC STATUS.  In an article published on November 10, 2021 in Law360’s Employment Authority, reporter Max Kutner identified eight states that in 2021 have passed, or are considering, legislation creating less stringent tests than the restrictive ABC test used in California for determining independent contractor / employee status.  States that have passed such laws are Louisiana, Utah, and West Virginia; those states considering such legislation are Georgia, Missouri, North Carolina, Oklahoma, and Texas. Kutner noted that, “While a growing number of states and President Joe Biden have looked to follow California in passing laws that raise the bar for independent contractor classification, a parallel but opposite push is happening in several states for legislation that attorneys said lowers the bar.” Kutner’s article also mentioned that the rationale of lawmakers sponsoring these bills is to allow workers an opportunity to earn a living with the flexibility of providing services as independent contractors.

Other Newsworthy Items

U.S. DEPARTMENT OF LABOR TARGETS IC MISCLASSIFICATION AS ENFORCEMENT AREA.  As part of its 2021 Fall Conference Discussion Series, the HR Policy Association’s Future Workplace Policy Council hosted a webinar on November 3, 2021 entitled, “A New Era in Labor Policy,” featuring U.S. Solicitor of Labor Seema Nanda.  Nanda highlighted worker misclassification, as well as retaliation, as an area targeted for enforcement by the Biden administration’s labor law and policy agenda. She described the increased financial resources earmarked for the Department of Labor in the President Biden’s Fiscal Year 2022 budget and budget reconciliation bill as “long overdue.”

By Richard Reibstein

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