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.
It has been a good week for consumers and employees as the Supreme Court protected the right to proceed with a class action and the Labor Department opened up new options for victims of wage theft.
Settlements in all types of workplace class actions in 2015 reached an all-time high of $2.48 billion according to the 12th Annual Workplace Class Action Litigation Report published by Seyfarth Shaw, a law firm representing employers in the defense of workplace lawsuits. The report identifies and analyzes key trends and settlements from 2015 in workplace litigation, including lawsuits under the FLSA, ADEA, ERISA, Title VII and various other laws.
The number of filings for wage and hour lawsuits in federal court has risen more than 300 percent over the past 15 years to a record of 8,871 filings in Fiscal Year 2015. In 2000, there were less than 2,000 of these lawsuits filed in federal court.
Near our office in Center City Philadelphia today, workers met to protest the low wages paid by their employers and urge city and state government officials to adopt a minimum wage of $15 an hour. The demonstration was part of a coordinated, nationwide rally led by fast food workers in 270 cities and supported by many politicians and other workers’ organizations.
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.
A report published by Temple Law School this week detailed the pervasive problem of wage theft here in Pennsylvania and, specifically, Philadelphia. The executive summary details the grim facts for workers in the state in any given workweek:
- Almost 400,000 Pennsylvanians experience a minimum wage violation.
- Over 300,000 Pennsylvanians experience an overtime violation.
- Pennsylvania workers lose a total of $19 million to $32 million in wages.
In the Philadelphia metropolitan region alone, more than 100,000 workers can be expected to have a minimum wage or overtime violation each week with 75,000 employees working off-the-clock without pay from area businesses.
The statistics are extrapolated from a 2009 investigation of thousands of workers in low-wage industries in Los Angeles, New York and Chicago and then applied to Pennsylvania using Bureau of Labor Statistics employment data.
Here in Philadelphia, the occupations most likely to experience these problems are in the restaurant industry: waiters, bartenders, cafeteria workers, cooks, dishwashers and food preparers. Other jobs seeing a significant problem were office clerks, retail salespersons, home health aides and cashiers. In the metropolitan region, the list of occupations where wage theft is experienced also includes individuals working in factory and packaging; general construction; building services and grounds workers; and drivers, parking lot attendants and car wash workers.
The report recommends Pennsylvania impose criminal penalties against employers, increase monetary penalties, create a wage lien law and impose other non-monetary penalties. It also suggests additional outreach and education, a confidential or anonymous process for complaints and internal adjudication of claims within the Department of Labor and Industry.
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.
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.
Democratic Senators sent a letter to the Chairman of the Senate Rules Committee urging the adoption of a requirement that Senate Office building contractors pay their employees a living wage. The letter does not call for a specific amount but does object to the low wages paid food and restaurant workers that must be subsidized by taxpayer-funded benefits. The letter sent by the Senators is available on Senator Sherrod Brown’s website.
Last week, federal contract workers engaged in a one-day strike to urge President Obama to allow workers to unionize and give preference to contractors that pay $15 an hour.
The living wage movement has spread around the country and has successfully changed practices in several areas, including Seattle. Implementation of Seattle’s $15 minimum wage started this month. The law will incrementally increase the minimum wage in the city over a period of years determined by the businesses number of employees. Large employers were given three to four years and small employers (less than 500 employees) were given five to seven years.
Last year, President Obama issued Executive Order 13658 establishing a minimum wage of $10.10 for workers on Federal construction and service contracts. The order applied to new contracts and replacements for expiring contracts resulting from solicitations issued on or after Jan. 1, 2015 or contracts awarded outside this process from that date as well. The order covers four major categories of agreements, including construction contracts covered by the Davis-Bacon Act, service contracts covered by the Service Contract Act, concessions contracts, and contracts in connection with Federal property or land relating to services offer to government employees and the general public.
Last week, we discussed the possibility that living wage measures such as the one called for by the Senators and the President’s Executive Order could be the subject of qui tam lawsuits under the False Claims Act in addition to the standard case by employees for wage and hour violations. This story reinforces that belief. We expect to see more employers may decide to circumvent wage and hour laws as the minimum wage increases and that there will be more lawsuits brought by employees as well as whistleblowers.