Independent Contractor Class Actions on the Rise

As the saying goes, when it rains, it pours. Workers across the country may be thinking something along those lines given the recent wave of high-profile class action settlements for employees misclassified as independent contractors.

Most recently, the Uber driver case may be coming to a lucrative end for individual class members. Uber recently agreed to pay a hefty sum of up to $100 million in a proposed class action settlement. The settlement will give 385,000 Uber drivers in multiple states a chance to stake their claim, with some drivers potentially receiving $8,000 or more. It remains to be seen whether this settlement will reshape the employment practices in the so-called “on demand” economy, but it sure seems like a good start.

In more of an old-school industry, professional cheerleader class actions are shedding light on industry practices simply accepted for many years. In one instance, the Oakland Raiderettes brought a lawsuit alleging they were never paid minimum wage or overtime wages, and were subjected to illegal wage deductions for being late to practice or wearing the wrong nail polish color, among other unfair practices. As a result of the class action, the Raiderette contract was changed and the case ultimately settled for $1.2 million – up to $8,500 per cheerleader.

Similarly, exotic dancers brought a class action a few years back for minimum wage violations and unlawful wage deductions stemming from their misclassification as independent contracts. In this industry, the clubs tend to control when dancers work, what they do at work, what they can wear, and other aspects of their jobs, yet the clubs force the dancers to sign independent contractor agreements that authorized deductions from their pay for the club’s business costs. These deductions include stage fees, charges to use the bathroom, charges to use the dressing room, tip splitting with managers, fines for being late, and fines for not selling enough drinks – all of which would amount to illegal deductions from employee wages under California law. On top of essentially paying the club’s overhead costs, the dancers ultimately foot the bill for taxes and benefits. These cases are cropping up all over the county, with one particular case resulting in a $12.9 million settlement fund for dancers in multiple states.

Finally, after a decisive victory in the Ninth Circuit Court of Appeals, over two thousand FedEx drivers now have a chance to participate in a whopping $226 million settlement. The Ninth Circuit found the drivers were misclassified as independent contractors under the “control” test. Specifically, FedEx controlled the appearance of drivers and their vehicles, times the drivers worked, what packages drivers delivered, how and when drivers delivered packages, and what geographical areas drivers serviced. This case, which extends back to the year 2000, is one of many cases against FedEx where courts have found its drivers were misclassified as independent contractors.

So why do employers take the risk of misclassifying workers when they potentially face such staggering payouts? From one perspective, employers can avoid many business costs by misclassifying workers as independent contractors. California employment law requires employers to pay their non-exempt employees wages for each hour worked (including overtime and double time when applicable), provide meal periods and rest breaks, reimburse business expenses (like uniforms and tools), pay unemployment, disability, and social security insurance, among other requirements. Avoiding these expenses has obvious benefits to a company’s bottom line. However, California law recognizes the potential windfall for employers, and has amped up the punishment in response. In addition to owing unpaid minimum wages, overtime, meal break penalties, rest break penalties, expense reimbursements, interest, and a slew of penalties available in most wage and hour cases, Labor Code section 226.8 gives the State the power to levy a $25,000 fine (among other fines) to deter and punish independent contractor misclassification. Under the Private Attorneys General Act or PAGA, employees can enforce this Labor Code section without waiting for the government to pursue their claims.

As California law and the recent settlements suggest, we may be in the midst of a new trend where companies that sacrificed legal compliance to save a quick buck will feel the long-term consequences. It’s decision time: who will cower under the industry standard and who will buck the trend?

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