Last week, Chief Judge Conner in the Middle District of Pennsylvania approved a settlement in a wage theft case we brought against Vantage Foods on behalf of our client and the other workers at the Camp Hill, PA facility.
Uber, the San Francisco startup that offers a popular international ride-hailing app, will continue to use independent contractors as drivers after settling class-action lawsuits arguing that the drivers were actually employees rather than independent contractors. The lawsuits for drivers in California and Massachusetts were highly publicized disputes in the ongoing battle between employers and workers over their labor rights in the new economy.
At the end of August only a few days before Labor Day, a federal judge struck down the new rule issued by the Labor Department during the Obama administration to make more than 4 million workers eligible for time and a half overtime by setting a higher salary threshold for the overtime exemption. The Obama administration rule released in May 2016 would have doubled the threshold to exempt executive, administrative and professional employees from overtime to $47,476 from $23,660.
There are a few different wage proposals at various levels of the government which we thought we would call attention to at the conclusion of a work week of beautiful weather here in Philadelphia. Philadelphia, Pennsylvania and the Federal Governments are considering wage proposals to increase the minimum wage, stop wage theft and help unemployed workers get back to a job.
A bill passed back in December to fight wage theft in Philadelphia will go in effect today, July 1, 2016. It’s one more reason for employees to cheer Mayor Nutter’s tenure in charge of the city.
The Department of Labor has finalized regulations to require overtime pay to approximately 4.2 million salaried workers. In order for a business to claim that an employee is eligible for the overtime exemption as an executive, administrative or professional worker under the Fair Labor Standards Act (“FLSA”) past November, the individual will need to make a salary of over $47,476 a year.
Independent contractors may wish to have an employment lawyer examine the appropriateness of their company’s claim that they are not an employee in light of two recent events in California.
The California Labor Commission has ruled that a San Francisco driver for the popular on demand taxi-alternative app Uber is an employee and not an independent contractor. The company now owes the individual unpaid expenses during her two months as a driver. A state agency in Florida has previously ruled that Uber drivers are employees as well. There are lawsuits (as well as protests) over on this issue in other states.
FedEx has also settled a longstanding California lawsuit brought by its Ground and Home Delivery drivers about their misclassification as independent contractors for $228 million. The court must still approve the settlement. The settlement only deals with drivers in California, and it is still too early to say whether FedEx will settle or continue to defend that lawsuits in other states on this issue.
By labeling their work force as independent contractors, companies can shift expenses such as Social Security and tax withholding on to their workforce. This has proven especially popular among early technology startups, such as Uber, as they try to create a marketplace of on-demand service fulfillment.
This area could also be one for whistleblowers to report to the federal government as well, since misclassification can result in unpaid taxes to the Internal Revenue Service.
Over the course of the past month, there have been two important developments in labor law. The first involves the classification of independent contractors, the other involves when an unpaid intern is not an employee that must be paid the minimum wage. I wanted to take a minute to cover them today.
Department of Labor Independent Contractor Classification
The Department of Labor has issued new guidance on how to distinguish between employees and independent contractors. This issue is one of importance to both employees (who miss out on employer paid taxes and benefits) and whistleblowers (who can report unpaid taxes from misclassified workers to the IRS). The sx factor test places renewed emphasis on the economic realities test. This means that a worker who is economically dependent on an employer is an employee. If the individual can be said to truly be in business for him or herself, then they can be an independent contractor. Changing the label that is applied to these individuals (such as calling them “owners” or “members of a limited liability company” does not change the analysis.
The list of factors includes:
– whether the work is an integral part of the employer’s business.
– whether the worker’s managerial skill affects the worker’s opportunity for profit or loss.
– whether the worker is making an investment in the business compared relatively to the investment made by the employer to allow the individual to do their work
– whether the work preformed requires special skill and initiative.
– whether the relationship between the worker and the employer is permanent or indefinite.
– the nature and degree of the employer’s control.
Second Circuit on Unpaid Interns
At the beginning of the month, the Second Circuit ruled in Glatt et al. v. Fox Searchlight Pictures, Inc. et al.
The three plaintiffs were hired as unpaid interns at Fox Searchlight and have asserted a claim for compensation as employees under the Fair Labor Standards Act (FLSA) and New York Labor Law. The district court granted a partial motion for summary judgment concluding that two of the plaintiffs were improperly classified as unpaid interns rather than employees.
The FLSA requires that employees be paid a specified minimum wage and time and one-half for the hours worked in excess of forty per week (non-exempt employees). The issue of when an unpaid intern was an employee under the FLSA and entitled to compensation was one of first impression in the Second Circuit.
Both parties agreed that there are cases where an unpaid intern is an employee and should be paid under the law. Both sides also agreed that some unpaid interns are not employees under the FLSA. The court noted that some employers are looking to exploit their unpaid workers while others have developed a program that greatly benefits the interns. The Department of Labor, as amicus curiae, argued that each of the six factors in its Intern Fact Sheet were a requirement for interns to be legally unpaid.
The Court agreed with the Defendants that the question is whether the intern or the employer is the primary beneficiary of the relationship. The court proposed a non-exhaustive list of factors to aid in judicial analysis of the question. No factor is to be considered dispositive and every factor need not point in the same direction for the court to conclude an intern is not entitled to the minimum wage. The factors specified included:
1. The extent of the understanding that there is no compensation.
2. The extent to which the internship provides training similar to that provided in an educational environment.
3. The extent the internship is tied to a school’s educational program by integrated coursework or academic credit receipt.
4. The extent of accommodation to academic commitments by corresponding to the academic calendar.
5. The extent the internship is limited to a period providing beneficial learning.
6. The extent to which the intern’s work complements, rather than displaces, paid employees while providing significant educational benefit to the intern.
7. The extent to which the intern and the employer understand that there is no entitlement to a paid job at the conclusion of the internship.
Popular startups that rely on freelancers to perform on-demand services in a two-sided marketplace are having to re-examine whether their workers are in fact employees amid lawsuits across the country challenging their practices. The contractors, on the other hand, are simply standing up for the wages that they should have been paid all along under the Fair Labor Standards Act and have to this point been denied at the hands of those exploiting their need for a job.
Many startups have paid these workers via 1099s, the IRS form that companies report taxable income on their independent contractors. If a worker is a contractor, then businesses do not have to pay minimum wage, overtime or benefits to them. The company also does not have to pay employment taxes to the IRS based on their income.
The Department of Labor recently issued an interpretive memorandum that expressed the opinion that most workers are actually employees under the FLSA. The Wall Street Journal article published today essentially suggested that every startup paying workers on 1099s should expect to get sued. According to the article, many are already planning to make their freelancers into employees following the lawsuits and DOL guidance.
Venture Capitalists quoted in the WSJ article suggested that it might be tough for many of these startups to continue operating if they have to absorb increased labor costs. Housecleaning service Homejoy shut down after they were unable to raise additional funds from investors under the cloud of threatened wage and hour lawsuits. Transportation app Uber has some 200,000 contract drivers and has already been the subject of both protests and lawsuits.
These aren’t the only startups that have run afoul of the nation’s employment laws. LinkedIn paid $6 million in back overtime and damages last year following a Labor Department investigation into. According to news reports, the company’s sales force, who are non-exempt workers under the law, were working off-the-clock and the company was not paying them for that time.
There’s been a lot of news about wage theft in the media recently. An article published in Inside Energy discussed the surge in claims by workers involved in the oil industry as the price of oil has dropped. According to their report, the number of lawsuits in Colorado for wage violations in 2015 was nine times the number in 2010. The number in Texas, known for oil and gas, increased nearly ten times.