CEOs May Be Personally Liable for Independent Contractor Misclassification

From JDSupraRichard Reibstein discusses a recent case in which the court did not dismiss a claim against the CEO of a company who allegedly misclassified delivery drivers. Richard writes:

Most class action cases of independent contractor misclassification are brought against corporate entities. Yet many laws also permit plaintiffs to sue company executives or managers for personal liability in such cases. In our roundup below of last month’s legal developments in this area of the law, a court denied a motion to dismiss claims against the CEO of a company alleged to have misclassified workers as independent contractors, thereby exposing him to the potential for individual liability. Most lawsuits seeking to impose personal liability on officers and decision-makers for allegedly misclassifying workers are brought under state wage and hour laws, but the first case reported below involves a misclassification collective action under the federal Fair Labor Standards Act. That law permits nationwide class action type lawsuits and is the most common way by which plaintiffs can mount a multi-state lawsuit against companies that operate on a nationwide or regional basis. Because the FLSA exposes companies to broad exposure if their classification of independent contractors is not compliant with the test for independent contractor status, enhancing compliance with that federal law is imperative.  This objective is even more important because courts have held that the FLSA permits plaintiffs to sue executive decision-makers who play a role in their companies’ designation of a group of workers as independent contractors. Many businesses operating throughout the U.S. have therefore used a process such as IC Diagnostics (TM) to restructure, re-document, and re-implement their independent contractor relationships that minimizes misclassification liability consistent with the company’s business model and does so in a customized and sustainable manner.

In the Courts (5 cases)

CEO UNABLE TO GAIN DISMISSAL OF INDEPENDENT CONTRACTOR MISCLASSIFICATION COLLECTIVE ACTION.  Delivery drivers engaged by an automobile parts supply company sued not only the auto parts company for allegedly misclassifying them as independent contractors but also staffing companies that supplied the ICs and the CEO of one of the staffing companies.  The lawsuit was brought in federal court for allegedly unpaid overtime and minimum wage violations under the FLSA and a number of state wage and hour laws.  The companies made a motion to dismiss the complaint and the CEO moved to dismiss the claim against him personally.

The court denied the CEO’s motion to dismiss.  It concluded that the complaint alleged sufficient facts, if proven, that the CEO was the drivers’ employer based on the allegation that the CEO negotiated the contract and employee code of conduct that dictated the terms and conditions of the drivers’ work, approved electronic devices used by the drivers, and maintained ultimate authority over the operations of the staffing companies. The court reasoned that such allegations, if proven, would lead to the conclusion that the CEO maintained management, supervision, and oversight of the related staffing agencies and that he controlled working conditions and could influence the drivers’ rates of pay.  Henao v. Parts Authority, LLC, No. 19-cv-10720 (S.D.N.Y. July 2, 2021).

Source: CEOs May Be Personally Liable for Independent Contractor Misclassification: July 2021 Update | Locke Lord LLP – JDSupra

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