http://www.truckinginfo.com/channel/fleet-management/article/story/2013/05/five-trends-affecting-today-s-owner-operators.aspx

1.    More owner operators are going independent;
2.    CSA disproportionately affects the owner operator;
3.    Hours of service changes shortchanged teams;
4.    Equipment prices mean more used trucks; And
5.    Sleep disorder regulations could drive truckers out of the industry.

As part of the article Truckinginfo.com quotes Todd Spencer, vice president of the Owner-Operator Independent Drivers Association who states the following about owner operators who strive to be independent:

“Currently half of the new people that are getting their operating authority from FMCSA are one-truck carriers.  That’s a trend we’ve been watching for quite a while now. The traditional lease arrangements have become less attractive to entrepreneurs, so they often go their own with their own operating authority and deal directly with carries, with shippers, with brokers. There will be many more of them going forward.”

This article speaks to the fact that drivers are leaning towards following their entrepreneurial spirit and joining the world of small business ownership.  However, we all need to work together to make sure success is the common goal and the ability for a single driver to start and grow their own business does not go away.  Independent Contractors can leverage services offered by companies who will help them to properly set up and successfully run their small businesses so they can continue to offer valuable solutions in the transportation industry.

This type of action usually arises in a State that either continually interprets the current worker classification laws liberally or a State where there is unprecedented change in these laws.  Consequently, what happens is plaintiff’s counsel will take on cases, usually without doing much investigation into the facts, on a contingency fee basis which means the claimant does not have to put forth any monies up front for a suit to be filed. Next, plaintiff’s counsel will try to certify a class action which becomes extraordinarily costly to defend and, if successful, could put a company out of business.  However, there are some things a company can do to reduce the risk of a class action lawsuit.

Recently, Littler Mendelson, the largest U.S.-based law firm exclusively devoted to representing management in every aspect of labor and employment law, published an article titled Alternative Dispute Resolution which gives insight into how companies can develop contractual ways to avoid the very costly and potentially deadly streets of class actions.

http://www.littler.com/practice-areas/alternative-dispute-resolution

However, navigating the streets of alternative dispute resolution (ADR) can be difficult at best.  Companies need to pay close attention to very specific State and Federal laws that allow for this method of resolving contractual disagreements.

If your company uses the services of Independent Contractors you should consider the option of ADR in your contractual relationships.  In addition, search for counsel that is well versed in how to properly structure class action waivers and ADR language.

http://www.njleg.state.nj.us/bills/BillView.asp

The Bill was set up to affect both the Trucking and Parcel Delivery Industries and was targeted at the misclassification of employees as Independent Contractors.  It has a mirrored Bill in the Senate (S1578).  Bill A1578 may surface again in the General Assembly session on May 20, 2013.

If your company uses the services of Independent Contractors, in or around the State of New Jersey, you should contact your local representatives in either the House or Senate to let them know the negative impact of this legislation on small businesses and tax payers.  Below is a link to the contact information for all of the members of the General Assembly:

http://www.njleg.state.nj.us/members/legsearch.asp

Whether you are in the Small Package or Trucking Industry this Bill will affect your Independent Contractor business model. Take action now!

http://assembly.state.ny.us/leg/?default_fld=&bn=S04589&term=2013&Summary=Y&Actions=Y&Votes=Y&Memo=Y&Text=Y

http://assembly.state.ny.us/leg/?default_fld=&bn=A05237&term=&Summary=Y&Actions=Y&Votes=Y&Memo=Y&Text=Y

The two Bills mirror one another and concentrate on a number of issues with the following highlights:

1. They set a presumption of employment in the commercial goods transportation industry;
2. Require notice to the person(s) receiving remuneration from the commercial goods transportation contractors and commercial goods transportation subcontractors of their rights as an employee as well as their tax burden as an Independent Contractor;
3. Alter the existing traditional ABC Test by modifying the “B Prong” to mirror that used in Massachusetts Wage & Hour Laws.  The modified “B Prong” drops the “or” portion which reads “…or operates outside of all the companies facilities”;
4. Defines a “Business Entity”;
5. Adds “willful” misclassification language;
6. Increase penalties for both misclassification and “willful” misclassification;
7. Forces communication between the unemployment (tax and benefits) and workers compensation departments; and
8. Protects workers from retaliation by the alleged employer.

If you use the services of Independent Contractors in and/or around the State of New York you should be actively watching both Bills and speaking with local representatives about their impact on your company.  Both Bills have been referred to the Labor Committees and are not planned for movement at this time.  However, it is never too soon to communicate with the legislature to help them understand the negative impact this legislation would have on taxpayers.

http://www.gpo.gov/fdsys/pkg/BUDGET-2013-BUD/pdf/BUDGET-2013-BUD-17.pdf

The Budget specifically addresses funding to the Department of Labor with two areas that are targeted at the country’s use of Independent Contractors:

“Increase Enforcement of Worker Protection Laws. The Budget provides an increase of $6 million for the Wage and Hour Division for increased enforcement of the Fair Labor Standards Act and the Family and Medical Leave Act, which ensure that workers receive appropriate wages, overtime pay, and the right to take job-protected leave for family and medical purposes.”

“Detect and Deter the Misclassification of Workers as Independent Contractors. When employees are misclassified as independent contractors, they are deprived of benefits and protections to which they are legally entitled, such as overtime and unemployment benefits. Misclassification also costs taxpayers money in lost funds for the Treasury and in the Social Security, Medicare, and Unemployment Insurance Trust Funds. The Budget includes $14 million to combat misclassification, including $10 million for grants to States to identify misclassification and recover unpaid taxes and $4 million for personnel at the Wage and Hour Division to investigate misclassification.”

Based on the budget, it is clear the Federal Government will continue to pursue what it views as protection of the American workers though the Department of Labor.  Additionally, they will be funding State Departments of Labor to follow the same plan.  If your company uses the services of Independent Contractors it is important to regularly review your contracts, documents, operations and culture to ensure you are properly using the model and can withstand an agency investigation for misclassification.

“Freeman & Associates Contracting Corp. of Raleigh has agreed to pay $20,088 in back wages to four construction employees following an investigation by the U.S. Department of Labor’s Wage and Hour Division that found employees were misclassified as independent contractors and, consequently, were denied overtime compensation under the Fair Labor Standards Act.”

http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=Southeast/20130422.xml

In this case they stated:

“The department’s investigation determined that the employer misclassified employees as independent contractors and paid them straight-time rates for hours worked over 40 in a workweek, in violation of the FLSA’s overtime requirement to pay time and one-half their regular rates of pay for those hours. The employer also failed to maintain accurate records of employees’ work hours and wages, as required by the FLSA. These employees had worked for the contractor and had been considered employees until the employer changed their status to independent contractors and illegally stopped paying overtime.”

According to the press release the company made a decision to switch from paying individuals as employees to Independent Contractors.  Though there may have been a legitimate reason for the transition, if companies do not pay close attention to the State and Federal laws there are penalties that can, and will, be assessed by the agencies.

If your company is considering a transition from one business model to another, you should include licensed counsel to assist in planning and documenting a proper change in your operating structure.  The consequences are real and high so you can’t afford to miss a single detail.  The USDOL continues to actively search for companies that improperly handle workers through misclassification.

“H&W Printing Inc. in Marietta, Ga., pays more than $39,000 in back wages and penalties following US Department of Labor investigation.  Employer misclassified employees as independent contractors during probationary period, denied overtime.”

http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=Southeast/20130319_1.xml

According to the press release the Department claims:

“Far too often, employers misclassify their employees as independent contractors to avoid paying them in compliance with the FLSA, as well as other federal, state and local statutes,” said Caryl Stribling, acting director of the Wage and Hour Division’s Atlanta District Office. “Misclassification costs taxpayers enormous sums of money each year in uncollected employment taxes, and gives unscrupulous employers an unfair advantage. The Wage and Hour Division is vigorously pursuing corrective action in those situations when workers are, in fact, employees, to ensure that they are paid required wages and to level the playing field for employers who play by the rules.”

In addition to the comments made by Caryl Stribling the Department also reveals their position on misclassification in general by stating the following in the press release:

“The misclassification of employees as independent contractors presents a serious problem as these employees often are denied access to critical benefits and protections—such as family and medical leave, overtime compensation, minimum wage, and unemployment insurance—to which they are entitled. Additionally, misclassification can create economic pressure for law-abiding business owners, who often find it difficult to compete with those who are skirting the law. Employee misclassification also generates substantial losses for state Unemployment Insurance and workers’ compensation funds.”

The issue of misclassification continues to position itself at the forefront of State and Federal Agency agendas.  Companies that use the services of Independent Contractors need to pay close attention to the ever-changing laws and interpretations across the country as they give good guidance on things you should and should not do with your model.  In addition, companies should be prepared for an audit by State and Federal Agencies and ensure their relationship is properly documented in order to achieve the best results.

http://www.uscourts.gov/Multimedia/Cameras/DistrictofMassachusetts.aspx?video_uuid=l8475k95&categoryId=53017

This case makes the argument, in federal court, that motor carriers are protected by Federal Law under the Federal Aviation Administration Authorization Act (FAAAA) against the “B Prong” of an unprecedented modified ABC Test in Massachusetts.  The MDA, through their counsel David Casey at Littler Mendelson (http://www.littler.com/people/david-casey), argues that congress intended to protect the ground and air transportation industries during deregulation from state laws that would negatively impact price, route or service.  Therefore, the unusual structure of the “B Prong” of the modified ABC Test, for wage and hour purposes, in Massachusetts is preempted by the FAAAA.

The argument made by the MDA has the potential to help in the preservation of the Independent Contractor Model because it leverages Federal Law in Federal Court on behalf of the ground transportation industry.  Contractor Management Services (CMS) recognized the importance of this case 4 years ago and has donated hundreds of thousands of dollars, in time and money, to the MDA and asks all of you to reach into your pockets and contribute what you can afford.  Please visit the MDA website at http://www.madeliveryassociation.com/ today to make your donation.  This matter costs a great deal of money and needs your financial support!

http://announcements.ictherightway.com/arbitration/doc/MemorandumDecisionOOIDAvCRE.pdf

On October 24, 2008, the Court issued a Memorandum Decision and Order on Finalization of the Accounting of Escrow Accounts, Proposed Set-Offs, Actual Damages and Restitution (the “Finalization Order”).  In this matter, Defendant argued a few points to the accounting for the Finalization Order:

1. Payments Made at Final Settlement – concerns how the Magistrate Judge accounted for payments that were made to drivers at the time of final settlement.
   Judge Stewart ruled…”Defendant has not met its burden to show that the payments made at final settlement were escrow funds.  Therefore, this objection is overruled”.
2. Set-Offs for Repairs and Maintenance Charges – CRE sought to adjust the Final Accounting by including repair and maintenance charges of which it was previously unaware.
   Judge Stewart decided…”The fact remains the Final Accounting was under the Defendant’s control.  Therefore, Defendant cannot be heard to complain of errors that were of its own making.  Adjusting the Final Accounting at this late date would likely upend the entire damages analysis, undoing years of work by all parties.  Therefore, it is not in the interest of justice to revisit this issue“.
3. Lease Payments After Termination of the Independent Contractor Operating Agreement (ICOA) – CRE argued that it was entitled to a set-off for lease payments accrued by drivers after termination of the ICOA.
   Judge Stewart ruled…”The Vehicle Lease Agreement (VLA) contains much more specific language concerning lease payments after termination of the ICOA.  The general rule in contract interpretation is that “specific terms and exact terms are given greater weight than general language.  Based on the Court’s prior ruling that the Magistrate Judge exclude terms of the VLA regarding truck lease payments, the Magistrate Judge’s decision on this issue was correct“.
4. Set-Offs for Truck Recovery Expenses – CRE argued it was entitled to set-offs for truck recover costs.
   The Court decided…”Based on the language in the VLA, and for the same reasons stated with regards to truck lease payments after termination of the ICOA, the Magistrate Judge’s decision was correct“.
5. Prejudgment Interest – It was argued by CRE that the Court should have applied a de novo standard in reviewing the Magistrate Judge’s ruling on this issue and that the 18% used in certain cases overcompensates Plaintiffs.
   Judge Stewart decided…”Other courts have applied the Treasury bill rate to other cases under the same regulations at issue here.  This court has also applied the T-bill rate in a number of cases, stating that “this particular measure of the market rate for prejudgment interest is attractive because it makes the prejudgment rate consistent with the post-judgment rate.”  Based on these considerations, the Court will order the application of the Treasury bill rate as the prejudgment interest rate in this case“.
6. Detrimental Reliance – CRE argues that, before Plaintiffs may recover damages, they must show detrimental reliance.
   The Court ruled…”Defendant (CRE) has provided nothing to suggest detrimental reliance is required in this situation.  Therefore, Defendant’s objection is overruled“.

Although this case was filed almost 11 years ago, there is much that can be learned from its long journey of court decisions.  Companies that use the services of Independent Contractors must pay close attention to the regulations regarding “set-offs” and escrow accounts.  It is always a good practice for companies to engage the services of licensed counsel to regularly review their operating agreements in comparison with current regulations.

http://www.gpo.gov/fdsys/pkg/USCOURTS-ohnd-5_11-cv-01941/pdf/USCOURTS-ohnd-5_11-cv-01941-0.pdf

In this matter, Zents contends that Baylor violated Title VII of the Civil Rights Act, 42 U.S.C. §2000, et seq. (“Title VII”), and Chapter 4112 of the Ohio Revised Code, which prohibits discrimination based upon sex.  Baylor argued two points in this case:

1. Zents failed to file a timely charge with the Equal Employment Opportunity Commission (EEOC) (300 days or less from the day of discharge); and
2. Zents claim must be dismissed, as a matter of law, because she was an Independent Contractor and not covered by federal and state sex discrimination statues.

Judge Limbert determined Zent’s claim was, in fact, filed outside of the 300 day period offered by the EEOC.  Therefore, as a matter of law, Baylor’s Motion for Summary Judgment on the first was granted.

In order to determine Zents status as an Independent Contractor, the courts referenced the following test:

“In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.”

After applying the facts in this case to the test above, it was determined that Zents was an Independent Contractor and the Motion for Summary Judgment was granted on the second argument as well.

This case provides solid guidance on how companies who use the services of Independent Contractors in Ohio should structure their relationship.  Companies should read the facts in this matter and determine how their own facts compare and to what extent they are documented.

http://announcements.ictherightway.com/arbitration/doc/SCI-OnTracWCABCase.pdf

In this case the WCAB ruled the following:

Employment Relationships—Employee Status—WCAB held that applicant was employee of defendant on date of injury (3/22/2011), not independent contractor, when WCAB found that (1) applicant was driver who delivered packages for employer’s courier service beginning in 10/2009, (2) applicant gave unrebutted testimony that defendant gave her delivery route, packages to deliver, delivery schedule, and mandatory uniform (cap and shirt, both with logo), applicant provided her own vehicle (with company logo on vehicle), worked regular schedule, was prohibited from working for any other company or from refusing work with defendant, speaks little English, signed document stating she was independent contractor, and did not receive translation of signed document into Spanish, (3) defendant did not present any ; 2013 Cal. Wrk. Comp. LEXIS 33, **33 [*272] witnesses (potential defense witness was not present at trial and was not subpoenaed to appear at trial), and (4) considering factors from S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal. 3d 341, 256 Cal. Rptr. 543, 769 P.2d 399, 54 Cal. Comp. Cases 80, including right of control, applicant was presumed to be employee under Labor Code § 3357 and defendant did not present sufficient evidence to rebut presumption or prove affirmative defense that applicant was independent contractor.

Companies that use the services of Independent Contractors in California should look at the facts in this case to ensure their operations are not too similar.  In addition, the case S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) is a guide that is constantly used by the courts and agencies in California to determine a worker’s status.  Therefore, if your company uses the services of Independent Contractors you should work with licensed counsel to ensure the facts in your company properly align with the information available to classify your workers as Independent Contractors.

Both cases involved Fair Labor Standards Act (FLSA) claims.  In these situations, the courts use the “economic realities” test (is the worker economically dependent on the “employer” instead of independently established) to determine whether a worker is classified as an employee under the FLSA.  This test is made up of five factors and none of them are determinative on their own.  The courts must weigh all factors and make a decision based on the totality of the information in each matter.  The five factors are as follows:

1. The degree of control exercised by the alleged employer;
2. The extent of the relative investments of the worker and the alleged employer;
3. The degree to which the worker’s opportunity for profit or loss is determined by the alleged employer;
4. The skill and initiative required in performing the job; and
5. The permanency of the relationship.

In the matter of Gate Guard Services, LP v. Hilda L. Solis, Secretary of Labor, United States Department of Labor, Judge John D. Rainey decided the workers were properly classified as Independent Contractors after applying the facts to the economic reality test.  Below were his findings for each of the five factors:

Degree of Control

• Gate Attendants are free to accept or reject assignments without penalty.
• There is no training or instruction on how the workers are to perform their duties.
• The workers are expected to, and do, work with no day-to-day supervision.
• Though Gate Attendants must ensure their assigned gate is covered on either a 12 hour or 24 hour basis, their actual duties of signing people in and out only take a few hours a day.
• The Gate Attendants have the right to hire relief workers and can leave as long as their gate is secured.

Based on the weight of these facts Judge Rainey determined the workers to be Independent Contractors.

Relative Investments

• Gate Attendants were required to own an RV, fifth wheel or trailer for use at the oilfield site.
• The workers were required to, and did, provide their own tools.
• Deductions were taken on their tax returns for business expenses.
• Gate Guard Services (GGS) generally supplied certain tools as well.
• The oilfields or GGS provide diesel generators and fuel which the Gate Attendants use during their assignments.

After comparing the investments made by both parties (Gate Attendants and GGS) the Judge determined this factor to be neutral.

Opportunity for Profit or Loss

• The workers are paid varying rates.
• Some Gate Attendants negotiate and some do not.
• Gate Attendants take the opportunity, during down time, to generate other revenue.
• Workers take advantage of time between assignments to work for other companies in similar capacities.
• Based on the Gate Attendants use of relief workers they can realize greater profits or losses.
• Deductions were made on Gate Attendants’ tax returns for their business related expenses.

The Judge found the workers did have the opportunity for profit and loss and determined Independence.

Skill and Initiative

• Both parties agree the Gate Attendance assignment of writing down license plate numbers for vehicles that go in and out does not require a great level of skill.

Based on this, the Judge determined in favor of employee for this factor.

Permanency of the Relationship

• The workers were hired on a project-by-project basis ranging from one week to several weeks.
• Gate Attendants took significant breaks between projects, ranging from one month to nine months.
• GGS did not prohibit the Gate Attendants from working for other companies.
• There is no guaranteed continued work beyond each project for the Gate Attendants.

The Judge found that the permanency factor weighed in favor of Independent Contractor.

Other Factors

• Independent Contractor Agreements were in place between GGS and the Gate Attendants.
• It is customary for GGS’s industry to use the Independent Contractor model.

In this matter the Judge concluded that the weight of all factors pointed towards proper classification as Independent Contractors.

In a separate matter before the Houston Division, Karna v. BP Corporation North America, Inc., Judge Keith P. Ellison determined the Plaintiff to be misclassified as an Independent Contractor.  The same economic reality test was used in this case and below is a summary of how the facts lined up:

Degree of Control

• Karna could not control how much work he did for BP in a given week.
• BP expected Karna to work the hours they needed.
• The worker was not able to control any “meaningful economic aspects” of their business.

After reviewing all of the facts, the Judge determined Karna to be an employee.

Relative Investment

• BP provided Karna with many of the tools needed to provide his services.
• A secretary employed by BP assisted Karna.
• Training, out-of-state orientation and meetings were paid for by BP on behalf of Karna.
• The defendant, BP, claims Karna’s investment in his business was his expertise.

The Judge concluded that the relative investment factor weighed in favor of employment.

Opportunity for Profit and Loss

• Karna was paid on an hourly basis and the number of hours he worked was determined by external circumstances.
• The worker provided services to other entities besides BP.  However, the amount of time spent and money earned in this capacity was nominal.
• Tax deductions were taken by Karna for business expenses.

The Judge did not determine the evidence presented by BP was enough to determine the worker to be an Independent Contractor.

Skill and Initiative

• Karna did not use his skills in a manner distinct from an employee.
• The worker simply used his technical skills and expertise to complete the projects with which BP tasked him.
• BP controlled the ultimate terms of the projects Karna worked on, and the conditions of employment.
• Evidence suggested that BP did not think of Karna as independent because they created an employee position to replace his contractor role.

The Judge ruled that the mere fact that Karna possessed a unique skill set does require a finding of Independent Contractor status.

Permanency of the Relationship

• Karna worked for BP for a substantial period of time (approximately 6 years).
• A miniscule amount of work was performed for other companies.
• The Agreement between the parties allowed for a 14 day termination notice.
• Karna worked as an Independent Contractor before BP.

The facts under the Permanency of the Relationship were determined to favor employment.

The weight of all facts in this matter caused the Judge to determine Karna to be misclassified as an Independent Contractor and ruled in favor of employment.

If companies in Texas use the services of Independent Contractors they should look at these two matters to see the facts that support proper worker classification as an Independent Contractor.  While every case will be judged on its own set of unique facts, there is much to be learned by understanding the things companies do correctly and incorrectly to provide guidance.

http://announcements.ictherightway.com/Arbitration/doc/ComptonvSuperiorCourt2013CalAppLEXIS215.pdf

Typically, the courts will not allow an appeal on a decision to compel arbitration.  However, in this case the courts treated Compton’s appeal as a petition for writ of mandate and granted the writ.  As part of the analysis, the courts pointed to four elements that must be included in an employment arbitration agreement to assure it is not unconscionable:

1. the agreement may not limit statutorily available remedies;
2. the agreement must allow for adequate discovery;
3. the agreement must provide for a written award and judicial review; and
4. the employee may not be compelled to pay unreasonable costs and fees.

Though the facts in this case were related to an employee / employer relationship, and an agreement that existed between them, it has information that can help companies properly structure arbitration agreements between themselves and Independent Contractors.

In today’s environment many companies use the protection provided by arbitration agreements to reduce the risks of potential class action lawsuits filed by Independent Contractors by forcing each matter to be individually arbitrated.  If your company uses the services of Independent Contractors and has arbitration agreements built into the contractual relationship, the facts in this case may impact the strength of your agreements.  Companies should have their agreements reviewed on a regular basis by licensed counsel.

]]> http://icmpower.com/states-federal/california-court-rules-on-arbitration-agreement/feed 0 http://icmpower.com/states-federal/court-grants-motion-for-summary-judgment-based-on-federal-preemption http://icmpower.com/states-federal/court-grants-motion-for-summary-judgment-based-on-federal-preemption#comments Mon, 15 Apr 2013 16:36:36 +0000 cms http://icmpower.com/?p=651 On April 3, 2013, Judge Gerald Bruce Lee granted a Motion for Summary Judgment determining that Section 148B (the Massachusetts Independent Contractor Law) is preempted by the Federal Aviation Administration Act of 1994 (FAAAA).]]> On April 3, 2013, Judge Gerald Bruce Lee granted a Motion for Summary Judgment determining that Section 148B (the Massachusetts Independent Contractor Law) is preempted by the Federal Aviation Administration Act of 1994 (FAAAA).

http://docs.justia.com/cases/federal/district-courts/virginia/vaedce/1:2012cv00246/277797/163/0.pdf?ts=1365172560

In this case the Judge concludes that:

“Section 148B “relates to” or has a “connection with” motor carriers’ prices, routes, and services for three reasons.  First, the Court concludes that Section 148B is an unprecedented change in independent contractor law that dictates an end to independent contractor carriers in Massachusetts and imposes an anticompetitive, government-driven mandate that motor carriers change their business models to avoid liability under the statute. The effect of this material change in independent contractor law dictates the employment relationship carriers must utilize in their operations, thereby affecting carriers’ routes and services. Second, the Court concludes that Section 148B’s enforcement against motor carriers significantly increases carriers’ costs such as to have a significant effect upon carriers’ prices, routes, and services. Third, the Court concludes that, as applied to motor carriers, Section 148B materially alters the common law test for independent contractor status, leading to a patchwork of varying state laws and resulting liability under varying independent contractor regimes.”  

Although the venue for this matter was the United States District Court for the Eastern District of Virginia Alexandria Division, it could significantly change the litigation climate in Massachusetts for the transportation industry.  The decision in this case specifically speaks to the test used to determine Independent Contractor Status in Massachusetts and is based in Federal Court.  Therefore, the case can be sited in other states to make similar arguments.

In this matter Judge Lee clearly recognized that the transportation industry relies on the Independent Contractor model to service the needs of customers who do not schedule, in advance, their time-sensitive deliveries (i.e. medical supplies and financial materials).  He also noted that “the unique relationship the company has with each of its customers requires it to employ its present business model to match the needs of its customers”.

An argument was made by the Plaintiff that “Section 148B is merely a prevailing wage law and, as such, was not intended by Congress to be preempted by the FAAAA and that any impact Section 148B may have on motor carriers is far to tenuous or remote to be preempted”.  This claim forced the courts to review the Supremacy Clause of the United States Constitution which implicates the doctrine of federal preemption (U.S. Constitution, Article VI, Clause 2).  It was concluded that a federal statue may preempt state law in any of three manners: (1) expressly by its terms, (2) impliedly by Congress’s intent to occupy an entire field of regulations, or (3) by the states direct conflict with the federal statue.

The Judge in this case also stated “there are “two cornerstones” of federal preemption.  First,  “the purpose of Congress is the ultimate touchstone in every preemption case.”  Second, where Congress has legislated in a field traditionally occupied by states, there is a presumption against preemption.  Additionally, the court researched the congressional intent of the FAAAA and the purpose behind its passage.

During review the courts noted certain historical facts:

“The FAAAA provides that no state “may enact or enforce a law related to a price, route, or service of any motor carrier ….” 49 U.S.C. § 14501(c)(1) (2012).”

“At the time of the FAAAA’s enactment, forty-one states regulated, in varying degrees, intrastate motor carriers’ prices, routes, and services.  H.R. Conf. Rep. No. 103-677, at 87 (1994), reprinted in 1994 U.S.C.C.A.N. 1715, 1758. Those regulations included entry controls, price regulation, and types of commodities transported. Id. Strict entry control regulations impeded competition for certain routes while others strictly regulated trucking prices. Id. The diversity of state regulation in this field yielded a patchwork of state laws, resulting in “significant inefficiencies, increased costs, reduction of competition, inhibition of innovation and technology, and curtail[ed] the expansion of markets.” Id. at 86-88.”

After a full review of history and the text and intent of both the FAAAA and Section 148B the courts concluded:

“As an initial matter, the Court notes that Section 148B, on its face, is not expressly preempted by the FAAAA because it does not make explicit reference to motor carriers but rather generally applies to all Massachusetts employers irrespective of the industry in which they operate. Thus, Section 148B seeks to generally regulate the classification of workers as independent contractors with respect to all Massachusetts employers and therefore makes no explicit reference to the prices, routes, or services of courier delivery service providers.  Nonetheless, the Court may still find Section 148B preempted if it “relates to” or has a “connection with” motor carrier services and its enforcement affects motor carriers’ prices, routes, or services and that the effect is “significant.”

“At its core, Section 148B is an unprecedented and fundamental change in independent contractor law. Its unique “usual course of business” prong is unlike any other statute in the country, as it is the only statute that requires independent contractors to perform services outside an entity’s “usual course of business.” M.G.L. 149 § 148B(a)(2).”  As applied to motor carriers, the effect of Massachusetts’s change in independent contractor law is to bind carriers to utilize a certain type of employment relationship to carry out their operations. Specifically, Section 148B commands them to convert their independent contractors to employees because its independent contractors perform services within the company’s course of business.”

“The Court concludes that Section 148B, as applied to motor carriers, is preempted by the FAAAA because of its significant impact on carriers’ prices, routes, and services, as well as its effect of creating a patchwork of state laws that attempt to do more than merely regulate the employment relationship but directly impacts the business models of these carriers. The effect of Section 148 binds carriers to certain business models that the marketplace does not require, burdening Massachusetts carriers in the competitive marketplace, a result foreclosed by the FAAAA. Congress has spoken on such an effect and it is incumbent upon the Court to interpret the FAAAA statute and give effect to its objectives in enacting the FAAAA.”

The final decision made by the court in this case is the very reason behind the case filed by the Massachusetts Delivery Association in MDA v Martha Coakley.  This decision is monumental and could change the independent contractor climate in the Massachusetts transportation industry as well as the surrounding states and across the country.  If you use the services of independent contractors in any state you should pay close attention to the outcome of both these matters.

In the Motion Plaintiff’s counsel argues that it meets the requirements of Federal Rule of Civil Procedure 23(a) to maintain a class action:

1. The class is so numerous that joinder of all members in impractical;
2. There are questions of law or fact common to the class;
3. The claims or defenses of the representative parties are typical of the claims or defenses of the class; and
4. The representative parties will fairly and adequately protect the interests of the class.

Plaintiff’s counsel claims the facts in this case meet all four criteria to classify the matter as a class action.  The main factor which Plaintiff’s counsel argues is that all punitive class members have common questions and defenses, as a matter of law, based on the “B” Prong of the modified ABC Test used for Wage and Hour purposes in Massachusetts.  The “B” Prong of this test states:

“The service is performed outside of the usual course of the business of the employer”

The modified ABC Test used in Massachusetts is a conjunctive test.  Meaning, all three prongs have to be met in order to pass the test.  Plaintiff’s counsel argues that because all the punitive class members cannot pass the “B” Prong of the test the “A & C” Prongs, which would all have individualized facts and negate the common question and defense claims, are not relevant.  Therefore, Plaintiff’s counsel argues that the courts should certify this as a class action.

Companies that use the services of Independent Contractors in, through or around the State of Massachusetts should watch this case and its outcome.  The laws in the State of Massachusetts are confusing and companies should hire licensed counsel to consistently review their business model.  This case is also proof that just because a company has settled a previous matter with Plaintiffs does not prohibit a different case from being filed.  The line between Independent Contractor and Employee is very narrow and companies should ensure their model is looked at closely and consistently as well as documented well because the burden of proof lies with the company to show each worker is properly classified.

http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=Southwest/20130220.xml

In the press release, Cynthia Watson, regional administrator for the Wage and Hour Division in the Southwest stated:

“Employers who misclassify employees as independent contractors to reduce labor costs not only harm their employees, they harm local businesses and the whole economy”.

“Misclassification costs taxpayers millions of dollars each year in uncollected employment taxes, cheats employees out of wages they have rightfully earned and gives unscrupulous employers an unfair advantage. The Wage and Hour Division is vigorously pursuing corrective action in those situations when workers are employees to ensure that they are paid required wages and to level the playing field for employers who play by the rules.”

The USDOL also provides information to call the Wage and Hour Division’s toll-free helpline at 866-4US-WAGE (487-9243) or the division’s Albuquerque office at 505-248-6100. Information also is available at http://www.dol.gov/whd.

Misclassification is a highly visible target of the USDOL.  If your company uses the services of Independent Contractors, close attention should be paid to State and Federal laws, legislation, agency tendencies and the courts.  In addition, companies should have their Independent Contractor relationships thoroughly reviewed and well documented.  The agencies are actively auditing companies that use the services of Independent Contractors searching for misclassified workers.  Be proactive and be prepared!

Furthering CMS’ market strategy, Patrick is charged with developing and implementing a strategic plan to advance the company’s mission and objectives as the leader in ICM.  As President, he will oversee all aspects of CMS to ensure production efficiency, cost-effective management of resources and to promote revenue, profitability and growth as an organization.  Additionally, he is responsible for the acquisition and deployment of new technologies to support and grow CMS’ continuing mission to lead the industry with its highly effective ICM Power™ Solutions.

“I’m excited to continue my contributions toward the development and implementation of new technologies,” said Patrick. “As part of the constantly evolving Independent Contractor climate, I look forward to doing my part to enable CMS to equip clients with the tools to remain compliant and profitable.”

With over two decades spent working in management consulting, financial and technology operations, Patrick has experience with Customer Relationship Management, Enterprise Resource Planning, Supply Chain Management, Mergers & Acquisitions and several financial and technology systems. He previously served as President of Equity Capital Group, Fund Manager for several private-equity opportunistic funds and as the National Practice Leader for Deloitte’s CRM Practice.

“With his business background, Patrick has the experience necessary to help CMS continue on its trajectory of positive growth,” said CMS’ CEO Dennis Roccaforte. “As the leader in ICM, we value the knowledge, vision and perspective he brings to CMS.”

About Contractor Management Services (CMS)

Since 2001, Contractor Management Services has been the nation’s leading ICM provider with a proven track record of providing solutions for the inevitable challenges Companies face when rightfully embracing the use of Independent Contractors (ICs).  CMS has worked with hundreds of Contracting Companies and tens of thousands of ICs throughout North America. CMS continues to lead the industry with its highly effective ICM Power™ Solutions that allow both Contracting Companies and ICs to Stay Connected.Stay Compliant.Stay Contracted.  www.ICMpower.com.

Contact:

Kelly Dahlquist
Marketing Coordinator
kelly@icmpower.com
623-815-5890
www.ICMpower.com

http://www.morganlewis.com/news/MLCommentstoDOL_19march13

In their comments Morgan Lewis:

• “Request that the DOL reconsider its survey proposal in light of an apparent underestimation of the burden and cost it will impose on taxpayers and respondents, the significant duplication between this survey and other ongoing government studies, and the unreliability of having untrained interviewers purport to make contractor/employee classification determinations.”
• “Propose a number of ways the DOL can modify the process and content of the survey to make it more fair and balanced so the results are more likely to be representative of the national workforce. Those suggestions include enhancing the transparency of the participant selection process, fairly apprising participants of the true purpose of the survey and risks of participation, and revising many questions that are leading and suggestive of misclassification.”

In addition to the comments made by Morgan Lewis, the National Federation of Independent Business (NFIB), the leading small business association representing small and independent businesses, also commented on the Survey.

http://www.nfib.com/portals/0/PDF/AllUsers/legal/NFIBStatementonProposedDOLsurvey.pdf

In their comments the NFIB voices similar concerns as Morgan Lewis stating:

• “NFIB is deeply concerned about the significant administrative burden DOL’s ‘Right to Know’ rule would place on small businesses, who have been found to be disproportionately impacted by regulation. NFIB believes that this survey will be used to justify the need for the ‘Right to Know’ rule. As it pertains to this survey being used for such a purpose, NFIB is concerned that DOL has not sufficiently justified the need for the survey given years of data that is readily available, has provided neither sufficient access nor time to review the survey, and that it has not performed any pre-testing on the survey to see whether employees understand the type of information they will be asked.”

Companies that use the services of Independent Contractors should closely monitor this Survey process and the next course of action by the USDOL.  In addition, contact State Representatives and their State Chapter of the NFIB to give feedback on how the proposed “Right to Know” outcome would affect your business and the tax payers it supports.

 “The Connecticut Department of Labor’s Division of Wage and Workplace Standards issued Stop Work orders to 27 companies working at construction project sites in Stamford during the period of January 9 to March 14”

(http://www.ctdol.state.ct.us/communic/2013-3/Stop%20Work%20Orders%201-9-13%20to%203-14-13%20_2_.pdf)

 The release also explains the Departments stance on Stop Work orders:

 “Stop Work orders are levied against companies that misclassify workers as independent contractors with the intent of avoiding their obligations under federal and state employment laws covering such matters as workers’ compensation, unemployment taxes and payroll reporting. Stop Work orders result in the halting of all activity at a cited company’s worksite, as well as a $300 civil penalty for each day the company does not carry workers’ compensation coverage as required by law.”

 In the release, the Department boasts that it has issued a total of 898 Stop Work Orders since October of 2007 and collected $600,000 in civil penalties from companies for the misclassification of workers.  In addition, they have referred the names of these companies to the Revenue and Audit Departments within the state.  The Connecticut Department of Labor (CTDOL) is one of the States that has signed a Memorandum of Understanding (MOU) with the US Department of Labor (USDOL) to share information on companies that misclassify workers in their State with the Federal Government.

The CTDOL also publishes a list of companies that have misclassified their workers on their website (http://www.ctdol.state.ct.us/wgwkstnd/StopWork/StopWork.pdf).  Though the media release focuses on the construction industry, when reviewing the list of companies that have been issued Stop Work Orders they included restaurants, bars, cell phone and delivery businesses as well.

Companies using the services of Independent Contractors in, through, and around the State of Connecticut need to pay close attention to the way their relationship is structured.  If the CTDOL finds workers to be misclassified they could, and actively are, issue a Stop Work Order on your business.  Companies should also get involved in State Associations focused on addressing the Independent Contractor issues in Connecticut and actively speak with State Representatives about the effects of this issue on their business and tax payers.

CMS’ leadership team took interest in Rich’s expertise in risk management, marketing, trucking, and achieving tactical business objectives, and he joined CMS in June 2012. His professional achievements, extensive knowledge of the industry, and understanding of the trucking community were noteworthy additions for the CMS Team that serves this industry.

For over two decades, Rich has operated in leadership roles in several aspects of truck insurance. He was responsible for the management and oversight of systems development, processes, staff, clients, and products. These experiences developed his knowledge of the various challenges that occur with different business models. Rich has a reputation for performance and commitment. He is known for achieving results, great relationships, commitment, and expertise in his various positions.

Rich started his insurance career as sales agent in the life and health industry in 1986. In 1987, he joined Great West Casualty Company in South Sioux City, NE as an Underwriter. Rich’s 14 year career at Great West was a time of extensive growth and personal development. He advanced his career in Marketing to an officer position and served as a Director for Underwriting and Loss Control Services during his last 2 years of service. It was at this point that he applied his talents in management, marketing, and sales to a truck insurance specialty agency in Phoenix, AZ. After 8 years, the agency partnership dissolved and Rich was recruited as the Truck Program VP at Gateway Insurance Co in St Louis, MO. He was able to significantly expand this company’s contracted agency group, customer base, and geographic reach with his marketing, underwriting, and marketplace knowledge. IAT’s Raleigh, NC office was his base for the two years preceding his joining the CMS Team. As an Underwriting Vice President for Occidental Fire & Casualty Co of NC, Rich guided the improvement of underwriting tools & techniques, revision of rates & forms, changes to the Managing General Agency relationships, and leading the changes needed with the company personnel and departments associated with these duties. Rich’s leadership skills, derived from his training, experience, and personal interest, have enabled him to serve on the Arizona Trucking Association’s Board of Directors, roles with the American Trucking Associations, and the American Sleep Apnea Association. He is also known for his insurance training expertise with the CIC & AAMGA programs and has served as an Advanced Topics instructor since 2007.

Rich continues to play an integral role in the strategic planning and expanded marketing of CMS’ proprietary offering to the trucking industry. He is actively contributing to the overall positioning of CMS as a national leader in the Independent Contractor Management industry.