Federal Government Study Shows Independent Contractor Working Arrangement Steadily ‎Increasing: November 2024 IC Legal News Update

The most compelling news involving independent contractor compliance and misclassification last month was not a class action lawsuit or a government investigation but rather a government study released by the Bureau of Labor Statistics of the U.S. Department of Labor. The study, discussed in more depth below, covers the period from 2017 to 2023. It confirms that IC working arrangements have increased over those six years by more than 12%, with nearly 12 million American workers characterizing their primary work arrangements as independent contractors. It is hardly surprising that class action lawsuits alleging that companies have misclassified employees as ICs instead of employees have become commonplace during that time period, with few if any industries immune from these sorts of legal challenges. As we have reported in this blog each month, IC misclassification lawsuits regularly settle for 7-figure dollar amounts, and some settlements reach 8- and 9-figures. To avoid that exposure, many companies using an IC business model have made use of a process such as IC Diagnostics (TM) to enhance compliance with applicable IC laws by structuring, documenting, and implementing their IC relationships in a manner than minimizes such legal challenges yet is consistent with their business model. The court cases on which we report below from November highlight some of the industries that are among the many that are frequently targeted by class action lawyers and government investigators: health care, transportation, and food distribution. Companies in those and other industries that seek to maximize compliance with IC laws by using a process such as IC Diagnostics tend to avoid these types of lawsuits or, if sued, tend to prevail or to settle their cases on favorable terms.

In the Courts (6 cases)

HEALTHCARE STAFFING COMPANIES TO PAY $2.4 MILLION TO SETTLE IC MISCLASSIFICATION CASE BY DIETARY STAFF AND OTHER WORKERS. A Massachusetts federal district court judge has entered a consent judgment against two healthcare staffing companies in a lawsuit brought by the U.S. Department of Labor providing for $2.4 million in back wages and liquidated damages to be paid to dietary, housekeeping, and laundry staff. The DOL alleged that those health care staffing workers were misclassified by the two companies as independent contractors instead of employees. The complaint asserted that the two companies, as joint employers, unlawfully paid the workers straight time for hours worked over 40 in a workweek and failed to keep accurate employment-related records, all in violation of the Fair Labor Standards Act (FLSA). The companies, Gate Solutions Systems and Healthcare Services Group, which refer such workers to health care facilities in Maine, Massachusetts, New Hampshire and Vermont, ‎agreed to pay $2,425,576 to cover back wages and liquidated damages. Su v. Gate Solution Systems Inc., No. 1:24-cv-12803 (D. Mass. Nov. 21, 2024)

ANOTHER HOSPITAL SYSTEM SUED FOR IC MISCLASSIFICATION BY NURSES. A Wisconsin healthcare system faces a proposed class and collective action brought by a registered nurse on behalf of herself and other similarly situated health care workers for the system’s alleged failure to pay overtime compensation due to its alleged misclassification of RNs as independent contractors. According to the nurse’s complaint, while working for Froedtert ThedaCare Health, Inc., the RN and others similarly situated received only straight time pay (and not time and a half) for all hours worked over 40 in a workweek, in violation of the FLSA and Wisconsin state law. The RN claims that the company controls the workers’ rate and method of pay, schedules and assignments, and patient care work; requires the workers to follow its policies, procedures, plans, protocols, and specifications, and adhere to the quality and safety standards it has implemented; and predetermines tools and equipment, which are provided by the company. The plaintiff nurse also claims that the workers have little opportunity for profit or loss; rely on the company for work and compensation; and cannot subcontract their work to others. As we noted in a blog post earlier this month, there are ways by which health care systems can guard against these types of IC misclassification lawsuits. Goston v. Froedtert ThedaCare Health, Inc., No. 2:24-cv-01482 (E.D. Wisc. Nov. 15, 2024).

FREIGHT TRANSPORTATION COMPANIES SETTLE IC MISCLASSIFICATION CLASS ACTION FOR $1.1 MILLION. An Illinois federal district court has given final approval to a $1.1 million settlement between a class of delivery drivers and two freight transportation companies, resolving an independent contractor misclassification class action. The drivers claimed in their amended class action complaint that transportation companies, DVL Express, Inc. and Altex Logistics, Inc., allegedly misclassified the drivers as independent contractors in violation of the Illinois Wage Payment and Collection Act. ‎The drivers claimed they suffered unlawful deductions from their pay and were required to pay for business expenses, which they contend should have been borne by the companies if the drivers had classified them as employees instead of ICs. They also alleged that the two companies are joint employers because each is involved in the operations of the other, including sharing dispatchers, ‎recruiters, and safety managers, and using identical forms for dealing with the drivers. According to the amended complaint, the companies exert full control over the drivers’ workdays and working conditions, and dictate the wages paid, hours worked, tasks to be completed, and all related employee compensation policies and practices. Tsybikov v. Dovgal, No. 1:19-cv-03334 (N.D. Ill. Nov. 21, 2024).

ANOTHER TRANSPORTATION COMPANY SUED IN ILLINOIS FOR ALLEGED IC MISCLASSIFICATION OF DRIVERS. A delivery driver filed a class and collective action complaint alleging IC misclassification against a trucking company and its owner, claiming that the company failed to pay the drivers at least the minimum wage under the FLSA and Illinois Minimum Wage Act and unlawfully made deductions from the drivers’ wages and required them to bear expenses in violation of the Illinois Wage Payment and Collection Act. According to the complaint, the company controlled every aspect of the drivers’ work, requiring them to comply with instructions and directions set forth in company policies, procedures and directives; to use vehicles bearing company insignias and markings; and to check in regularly with company dispatchers to take instruction as to which loads to haul and where and when to pick up and drop off loads. The complaint also alleges that the company prohibited drivers from having their own customers and from choosing their own routes, and determined unilaterally the fees paid to them by the company. It was further alleged that the company made deductions from the drivers’ pay for escrow, truck and trailer payments, and fuel and tolls, which often amounted to hundreds of dollars per week. Akkoyun v. US EXP Trucking, Inc.‎, No. 24-cv-11598 (N.D. Ill. Nov. 11, 2024).

BAKED FOODS COMPANY CANNOT COMPEL ARBITRATION OF IC DISTRIBUTORS’ MISCLASSIFICATION CLAIMS UNDER THE FAA. The U.S. Court of Appeals for the Tenth Circuit affirmed a federal district court’s denial of a nationwide baking company’s motion to compel distributors in Colorado to arbitrate their IC misclassification claims. The company, Flowers Baking Co. of Denver, LLC, a subsidiary of Flowers Foods, Inc., uses a “direct-store-delivery” (DSD) model by which the company enters into agreements with distributors to buy Flowers’ baked food products and sell them to customers in local territories. The plaintiff, who entered into a distributor agreement that included arbitration provisions, alleged that Flowers violated the FLSA and Colorado state labor law by misclassifying the distributors as independent contractors and then failing to pay them minimum wage and overtime compensation and reimburse their expenses.

The company moved to compel arbitration of the plaintiff’s claims, but the district court denied the motion. It concluded that the distributor fell within the interstate transportation workers exemption under section 1 of the Federal Arbitration Act (FAA) and the language of the arbitration provisions excluded arbitration under Colorado’s arbitration statute. On appeal, the Tenth Circuit affirmed the district court’s decision, concluding that the distributor was covered by the transportation worker exemption by delivering Flowers’ baked goods manufactured in other states to stores retailing such products, even though the distributor himself did not “physically cross state borders when delivering Flowers products from the warehouse to his customers.” Based on a detailed factual record regarding the specific characteristics of Flowers Foods’ distribution model, the Tenth Circuit reasoned that the company exercised significant control over the distributor’s operations and, by virtue of such control, the distributor was “an integral part of a single, unbroken stream of interstate commerce” where the distributor’s “delivery route forms the last leg of an interstate route.” The Tenth Circuit did not address the potential enforceability of the arbitration agreement under Colorado law, concluding that it did not have appellate jurisdiction to consider whether the district court erred in deciding that the language in Flowers’ arbitration clause had the effect of excluding Colorado state arbitration law as an alternative source of arbitral authority. While on its face this Tenth Circuit decision appears unfavorable to the DSD industry, it is likely to have limited application to the industry generally due to the unusual language in the arbitration clause at issue and because the unique features of Flowers’ distribution model are not widespread in the DSD industry. Brock v. Flowers Foods, No. 23-1182 (10th Cir. Nov. 12, 2024).

SNACK FOODS COMPANY IS SUED BY DSD DISTRIBUTOR IN CLASS ACTION FOR IC MISCLASSIFICATION. A DSD distributor filed a class and collective action complaint against Campbell’s Soup Company and its snack division, Snyder’s-Lance, claiming the companies violated of the FLSA, the Illinois Minimum Wage Law, the Illinois Employee Classification Act, and the Illinois Wage Payment and Collection Act as a result of their misclassification of DSD distributors as independent contractors and not employees. The complaint claims that the companies allegedly set the route or territory within which the distributors deliver product; maintain control over which products will be available to distribute, which products distributors may deliver (for which distributors receive commissions), and which products will directly ship to retailers from its warehouse (for which distributors receive no commissions); dictate shelf space, displays, and promotions; hire management and sales employees to supervise and instruct the distributors; and establish the terms and prices for the snack-food products, delivery windows, schedules, and product inspection requirements. The complaint also alleges that the companies issue Operating Guidelines that regulate distributor conduct. It is likely that the companies will make a motion to compel arbitration under any applicable arbitration provisions between the parties. Two similar lawsuits by distributors were filed against Campbell’s Soup and Snyder’s-Lance in the last five months, as we have reported most recently in a September 2024 blog post. Cole v. Campbell’s Soup Co., No. 1:24-cv-11784 (N.D. Ill. Nov. 15, 2024).

Other Noteworthy News

NUMBER OF INDEPENDENT CONTRACTORS GROWS IN THE U.S. AS PER BUREAU OF LABOR STATISTICS. Independent contractor business models are becoming far more prevalent. In a study released in November 2024 by the Bureau of Labor Statistics of the U.S. Department of Labor, individuals in the U.S. workforce who identified their primary working relationship as “independent contractor” increased in the past six years from 10.6 million in 2017 to 11.9 million in 2023 – a jump of over 12%.

The information used in the study was obtained from a supplement to the July 2023 Current Population Survey (CPS), a monthly sample survey of about 60,000 households that provides data on employment and unemployment in the United States. Some of the other findings of the study are: an overwhelming percentage of such individuals (80.3%) preferred their status as ICs to a traditional employment arrangement; the likelihood of being an independent contractor increases with age; men were more likely to be independent contractors than women (8.7% and 5.8%, respectively); white workers (7.9%) and Hispanic or Latino workers (7.4%) were more likely to be independent contractors than Black workers (5.4%) and Asian workers (5.4%); part-time workers were about two times more likely than full-time workers to be working as independent contractors (13.1% and 6.2%, respectively).; and over seven out of ten independent contractors (70.7%) worked full time.

By Richard Reibstein

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