State Of Turmoil

More Misclassification Cases Hit the Courts

JuneWaynesPicWell, guess what is back in the news again? Once again, California is the State of Turmoil. But they are not the only ones! April was a red-hot month for independent contractor (IC) misclassification cases. My sources report that eleven cases are in the courts and two are before administrative agencies. Following is just a quick rundown of some of these misclassification cases.

PostMates, an on-demand delivery company in New York and California, reached a $8.75 million settlement with couriers providing services in 28 states…

The courts approved not only a $227 million settlement between FedEx and its drivers in 19 states, but also a $5 million settlement between a group of San Francisco adult entertainment clubs and their exotic dancers…

A California judge has refused to grant approval of a $5 million settlement between on-demand restaurant food delivery service DoorDash and its delivery workers…

A California judge has delayed an approval of a proposed $4.8 million settlement against an Internet-based on-demand grocery delivery service called Instacart…

A jury verdict found thousands of insurance agents with American Family Insurance Company to have been misclassified as independent contractors…

A recent court decision in Texas will allow litigation support workers to proceed with their class action lawsuit alleging IC misclassification…

A new class action lawsuit was filed against an on-demand food delivery service in Florida…

A decision by the California Labor Commissioner that four drivers for XPO Logistics, a subsidiary of XPO Cartage, operating in the ports of Los Angeles and Long Beach, are each collectively entitled to over $200,000 as a result of being misclassified as independent contractors…

And, to end this list on a positive note, a court decided that Uber Black car drivers in New York City and drivers for Risinger Bros. Transfer in Illinois are valid independent contractors!

Motor carriers, especially in California, should pay attention to the following mistakes XPO made. The Labor Commissioner concluded that each of the four drivers was an employee and not an IC because XPO retained pervasive control over the drayage operation as a whole. For example, XPO obtained the clients; clients paid XPO directly; XPO determined rates to be paid to the workers with no rights for negotiation; XPO controlled work assignments and workers’ schedules; GPS was used by XPO to monitor the workers’ locations; workers were required to follow XPO guidelines and rules; and workers could not use their trucks to perform services for other companies.

The Labor Commissioner also noted that the workers did not hold themselves out as having a separate and distinct business or have their own customers. XPO supplied the trucks by arranging for the leases; the workers made no investment in the equipment or materials needed to transport the freight; the workers had no opportunity for profit or loss; and permanency of the relationship existed. The awards included, reportedly for the very first time, compensation for “non-productive time” like time spent inspecting the truck, waiting for dispatch and scanning in paperwork at days’ end. They also received compensation for unpaid hours, liquidated damages, expenses, deductions, and meal and rest breaks.

Since 2011, port truckers have filed over 800 claims with the California Division of Labor Standards Enforcement, with about 300 resulting in determinations by the Labor Commissioner that the drivers were employees and not independent contractors. About 200 are still awaiting hearings, and 300 were either settled or transferred to the courts. To date, approximately $36 million has been awarded as a result of employee misclassification (in the L.A. and Long Beach Ports alone).

As you can see, these cases can go for or against companies classifying individuals as independent contractors, demonstrating that when done right, certain workers can legitimately be classified as ICs, but when done wrong, the costs can be dramatic – $227 million in settlements by just one company using independent contractors in 19 states, and a jury verdict which, if adopted by the court, may impose misclassification liability against an insurance carrier in the hundreds of millions of dollars.

In the Risinger Bros. Transfer case previously mentioned, where the court found their drivers to be properly classified as ICs, motor carriers should pay attention on how to do it right. In concluding that the freight haulers were not misclassified, the court found the balance of factors weighed in favor of IC status, based on 1) the contracts and leases between the parties afforded the haulers vast control over the ways in which they performed their work, such as the right to hire their own drivers and not engage in the work themselves, the ability to select, purchase, lease, or finance their own equipment, and the right to use their equipment to haul freight for other carriers; 2) the haulers had the opportunity for profit or loss depending on their skill; 3) the haulers made an investment in equipment, materials, and/or employees of their own; 4) they possessed business judgments, diligence, and managerial skills, as well as the special skill of driving commercial trucks; 5) there were fixed termination dates for the leases of the trucks to operate; and 6) the haulers were not economically dependent on Risinger Bros. Transfer, as they could provide services to other carriers. The court stated that “they were responsible for their own profitability in a way that suggested that they were entrepreneurs, not simply hired truck drivers.”

While most companies do not face this type of extraordinary exposure in the event of misclassification, seven- and eight-figure exposure is becoming commonplace for large and medium-size businesses. For this reason, companies that wish to continue to use ICs can and should take certain steps in a state-of-the-art manner to avoid or minimize misclassification exposure. Companies utilizing independent contractors should join the NorthAmerican Transportation Association (NTA) to gain the knowledge they need to overcome, outwit and outlast these progressive zealots until the current administration can turn things around. For more details, visit www.ntassoc.com or call NTA at (562) 279-0557. Let us help you. Until next month, “Drive Safe – Drive Smart!”

About Wayne Schooling

Wayne Schooling has been in the transportation business since 1962. Starting out as a driver, Wayne later made the switch to management. Over the years, he has accumulated 22 various awards and honors, been involved with 6 professional affiliations, has spoken at several lectures, and earned 3 professional diplomas. Wayne, who has written for 10-4 Magazine since 1994, is currently President Emeritus of the NorthAmerican Transportation Association (NTA).