Another Unemployment Setback for Gig Economy Companies Using Independent ‎Contractors: April 2023 IC Legal News Update

Independent Contractor Misclassification & Compliance Blog
May 17, 2023

We reported in our October 10, 2022 blog post that Uber had agreed to pay $100 million in back unemployment taxes to the New Jersey Department of Labor for having classified drivers as independent contractors. Another state workforce agency has now joined New Jersey in obtaining substantial tax payments from a gig economy company for unpaid unemployment taxes related to its designation of workers as ICs instead of employees. Last month, an appellate court in Wisconsin, a state which has a challenging independent contractor test for unemployment insurance purposes, affirmed the state Labor Commissioner’s assessment of unemployment taxes against Amazon with regard to drivers who deliver the company’s products. With interest, the assessment per gig worker in Wisconsin is likely to exceed the per-worker amount that Uber paid to New Jersey. What does this mean for companies using an IC business model? For those companies that have chosen to utilize a compliance process such as IC Diagnostics (TM), the typical starting point is a review of the IC relationship under federal and state wage and hour laws. That is followed by a  review of the varying IC tests under applicable state unemployment insurance, workers’ compensation, and wage payment laws – all part of a process to restructure, re-document, and/or re-implement IC relationships in a customized and sustainable manner designed to minimize liability for independent contractor misclassification.                                                                                              

In the Courts (5 cases)

APPELLATE COURT IN WISCONSIN FINDS DELIVERY WORKERS ARE AMAZON EMPLOYEES AND NOT IC’S.  A Wisconsin appeals court has upheld an assessment by that state’s Labor and Industry Review Commission against Amazon Logistics for back unemployment insurance taxes covering over 1,000 independent contractor delivery drivers whom, the court found, qualify as employees for unemployment insurance taxation purposes under Wisconsin law. Under the law governing unemployment taxes in that state, Amazon needed to rebut a statutory presumption that the workers in question were Amazon’s employees and, as employees are entitled to unemployment insurance.  To meet that test, a company has to demonstrate not only that the services provided by the drivers are free from the company’s direction and control (which is the only factor for IC status under most state unemployment compensaation laws), but also that at least six out of nine other factors are met. The Wisconsin appellate court concluded that Amazon only satisfied five of the nine factors and failed to prove four factors with respect to the drivers; namely, that (1) they had contracts with other companies; (2) they advertised or otherwise affirmatively held themselves out as being in business; (3) their services were not directly related to the company’s business; and (4) they were not economically dependent on the company. It is anticipated that the company will seek review by the Wisconsin Supreme Court. Amazon Logistics, Inc. v. Labor and Indus. Review Comm’n, No. 2022AP13 (Wisc. Ct. App. Apr. 6, 2023).

PUBLISHER TO PAY $950,000 TO SETTLE IC MISCLASSIFICATION CLASS ACTION BY NEWSPAPER DELIVERY WORKERS.  A California federal district court has granted final approval of a settlement of just under $1 million for 56 newspaper delivery workers.  The newspaper delivery workers alleged that Hearst Communications violated various provisions of the California Labor Code including not compensating the workers for all hours worked or providing rest and meal periods, failing to pay a least the minimum wage and overtime compensation, and neglecting to comply with recordkeeping requirements – all as a consequence of the company’s alleged misclassification of the delivery workers. They claimed that they had been subject to the direction and control of the company; that Hearst determined their hours of work; that the publisher supervised them; that the company could terminate their relationship at will, both with or without cause; that at least some of the delivery workers did not perform other work outside of the company’s line of business; and that the delivery workers were not customarily engaged in any independently established trade, occupation, or business of the same nature as the work they performed for the company.  The settlement amount included a payment of $30,000 for penalties under the California Private Attorneys General Act.  Sanchez v. Hearst Communications, Inc., No. 3:20-cv-05147 (N.D. Cal. Apr. 20, 2023).

NINTH CIRCUIT FINDS ARBITRATION CLAUSE DID NOT COVER PRIVACY CLAIMS BY INDEPENDENT CONTRACTOR DRIVERS.  The U.S. Court of Appeals for the Ninth Circuit affirmed a California federal district court’s order denying’s motion to compel arbitration of a proposed class action lawsuit asserting wiretapping and privacy claims.  The court ruled that such claims fell outside the scope of the arbitration clause contained in the drivers’ Terms of Service Agreements. The named plaintiff, a driver for Amazon’s delivery program known as Amazon Flex, sought to represent a class of about 800 Flex drivers claiming damages and injunctive relief for alleged privacy violations under state and federal laws. No contractual violations were alleged. Plaintiff alleged that Amazon monitored and wiretapped the drivers’ conversations when they communicated during off hours in closed Facebook groups. The court concluded that “the controversy in this case is ultimately not about any characteristics or conduct of class members, but whether Amazon is indeed liable for wiretapping and invasion of privacy….This dispute therefore does not touch on any matters related to the contract that would fall within the arbitration clause.” The court also rejected Amazon’s argument that it should apply a later version of the Flex drivers’ agreement that provided for an arbitrator to decide whether the dispute is covered by the arbitration clause. The court held that Amazon failed to provide evidence sufficient to demonstrate notice to the Flex drivers of the revised agreement and their assent to it.  Jackson v., Inc., No. 21-56107 (9th Cir. Apr. 19, 2023).

COURT DISMISSES IC MISCLASSIFICATION CLAIMS BY NEW YORK DRIVERS AGAINST RIDE-SHARING COMPANY.  A New York federal district court has dismissed a driver’s IC misclassification lawsuit because of his failure to adequately plead a minimum wage violation under the federal Fair Labor Standards Act and New York Labor Law. The plaintiff driver alleged in an amended class and collective action complaint that he and other similarly situated Uber drivers, who opted-out of an arbitration provision in an IC agreement that each had signed, were misclassified as independent contractors and were not paid at least the minimum wage after accounting for unreimbursed business expenses. The district court concluded that the complaint alleged sufficient facts to withstand a motion to dismiss on the issues of whether Uber was an “employer” and plaintiff was an “employee” under the FLSA’s economic realities test and the New York Labor Law test for independent contractor status. However, the court held that plaintiff failed to adequately plead a minimum wage violation under those statutes. Among other things, the court rejected plaintiff’s allegation that he should have been compensated for waiting time while logged into Uber’s Driver App, stating: “Plaintiff does not allege that he cannot do anything but wait in his vehicle for ride requests…nor does he state that it is Uber’s policy that he may not do other work at the same time, including driving for another rideshare company.” The court also concluded that plaintiff failed to produce the appropriate mileage information necessary for the court to calculate costs based on the standard mileage rate to determine whether the unreimbursed mileage would cause his compensation to fall below the minimum wage. The case was therefore dismissed without prejudice. It is expected that the plaintiff will seek to amend his complaint in an effort to cure the pleading inadequacies.  Aquino v. Uber Techs., Inc., No. 22-CV-4267 (S.D.N.Y. Apr. 20, 2023).

RIDE-SHARING DRIVERS MUST ARBITRATE IC MISCLASSIFICATION CLAIMS BECAUSE THEY ARE NOT INTERSTATE TRANSPORTATION WORKERS.  The U.S. Court of Appeals for the Third Circuit has held that ride-sharing drivers must arbitrate their wage and hour class action claims based on their alleged misclassification as ICs because they do not fall within the interstate transportation worker exemption from arbitration under the Federal Arbitration Act. In both of the two cases in this consolidated appeal, the plaintiffs brought proposed class actions claiming that Uber violated New Jersey wage and hour laws by allegedly misclassifying ride-share drivers as independent contractors and not employees, failing to pay them at least the minimum wage, and not reimbursing them for business expenses. In one of the cases, the plaintiff also sought to proceed with a collective action under the FLSA. Each of the plaintiffs is a current or former Uber driver from New Jersey, New York, Ohio, Pennsylvania, Missouri, or Nevada who signed a Technology Services Agreement containing an arbitration clause requiring them individually to arbitrate disputes with Uber. The federal district court granted Uber’s motions to compel arbitration. In affirming the district court’s decision, the Third Circuit concluded that, consistent with decisions by the First and Ninth Circuits, ride-share drivers do not constitute a “class of workers engaged in foreign or interstate commerce” under sec[tion] 1 of the FAA and are therefore subject to arbitration.” The court further concluded that “a class of workers comes within the [transportation workers] exception only if ‘interstate movement of goods’ or passengers is ‘a central part’ of the job description of the class.” The court added: “The work of Uber drivers is centered on local transportation. Most Uber drivers have never made a single interstate trip. When Uber drivers do cross state lines, they do so only incidentally, as part of Uber’s fundamentally local transportation business.” Singh v. Uber Techs., Inc., No. 21-cv-3234 (3d Cir. Apr. 23, 2023).

By Richard Reibstein

The post Another Unemployment Setback for Gig Economy Companies Using Independent ‎Contractors: April 2023 IC Legal News Update appeared first on Independent Contractor Compliance.

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