Industries Counteract Class Action Independent Contractor Misclassification Claims

From JDSupra, Richard Reibstein discusses two cases in which workers were found to be independent contractors. Richard writes:

Class action independent contractor misclassification cases continue to be filed and most seem to settle, often for large sums, as we have reported in our blog posts on legal developments each month. But some industries have countered this trend in one of three ways: legislation, voter initiatives, and a choice not to settle but rather vigorously defend. Two of those approaches were on display last month. In one, the real estate industry in New Jersey effectively used the legislative approach. In the face of what it regarded as a likely industry-altering development if the strict ABC test for IC status under the New Jersey wage payment and wage and hour laws was applied to certain real estate salespersons in that state, the industry sought a legislative change. In 2022, the New Jersey legislature amended the real estate law to exempt real estate salespersons from the state’s ABC test. Last month the New Jersey Supreme Court held that the law not only overrode that strict test for IC status, but it did so retroactively. Another industry used the vigorous defense approach in a class action invoking the wage payment law in Pennsylvania. That case involved a well-known baked goods manufacturer, which successfully secured a federal court appellate ruling that it was entitled to summary judgment holding that distributors of its food products were properly classified as ICs. Although other food product manufacturers had not prevailed in similar class and collective action cases initiated by distributors, this case demonstrates that structuring, documenting, and implementing IC relationships in a manner that maximizes compliance with IC laws – the three key steps in a process such as IC Diagnostics (TM) – can lead to successful results in court, especially in situations involving well-compensated independent contractors.

In the Courts (3 cases)

REAL ESTATE AGENTS ARE INDEPENDENT CONTRACTORS UNDER NEW INDUSTRY-SPECIFIC STATE LAW. The New Jersey Supreme Court has held that agreements between a real estate brokerage company and a real estate salesperson that identified the salesperson as an independent contractor preempted any state law that may otherwise have governed the parties’ relationship in view of a 2022 amendment to the New Jersey Brokers Act. In this case, the plaintiff real estate salesperson entered written agreements with a real estate brokerage firm, Weichert Co., in which the salesperson agreed to affiliate with the company as an independent contractor. The salesperson subsequently filed a class action complaint in 2019 alleging that the company violated the New Jersey Wage Payment Law (“WPL”) due to its alleged misclassification of the salespersons as independent contractors and unlawful deduction of marketing fees and other expenses from their commissions. He argued that the salespersons should be deemed employees under the strict ABC test applicable to the WPL to determine independent contractor/employee status. While the case was being litigated, the New Jersey legislature amended the Brokers Act in 2022 to provide that an agreement to treat a real estate salesperson as an independent contractors will be honored retroactively, “notwithstanding … any other law, rule, or regulation to the contrary.” The New Jersey Supreme Court concluded that, in view of word “notwithstanding” in the legislation, the parties’ agreement to treat the plaintiff as an independent contractor is dispositive and “override[s] conflicting provisions of any other [law],” including the ABC test governing the WPL. Kennedy v. Weichert Co., N.J., No. A-48/49 (Sup. Ct. N.J. May 13, 2024).

FOOD PRODUCT DISTRIBUTORS ARE INDEPENDENT CONTRACTORS UNDER PENNSYLVANIA WAGE LAW. The U.S. Court of Appeals for the Third Circuit has affirmed a district court’s decision that three delivery drivers for Pepperidge Farm are independent contractors under the Pennsylvania Wage Payment and Collection Law. Pepperidge Farm manufactures breads, cookies, and snack products across the country including in Pennsylvania. Distributors of such products filed a proposed class action complaint alleging that they have been misclassified as independent contractors and not employees and, as such, were subject to unlawful pay deductions in violation of the state wage payment law. The distributors each own Pepperidge Farm distribution routes for which they deliver the company’s food products to retail stores. Pepperidge Farm made a motion for summary judgment, which was granted by the district court. Applying the Pennsylvania ten-factor test to determine worker status, the district court concluded that all but two of the factors supported IC status. On appeal, the Third Circuit affirmed the district court’s decision and concluded that eight of the ten factors favored independent contractor status, including, among other things, that Pepperidge Farm did not have the right to control the time, place, or manner in which the work was done, did not have the right to terminate the drivers at will, and paid the drivers on a commission basis. The Third Circuit also found that plaintiffs supplied the vast majority of their own tools, did not report to Pepperidge Farm on a regular basis, and directed their own movement and schedules. Two factors – whether the drivers’ work was part of Pepperidge Farm’s “regular business” and whether the drivers’ business was “distinct” from Pepperidge Farm’s – were viewed by the Third Circuit as either neutral or in favor an employment relationship; but, on balance, the appeals court held that the drivers were not employees under the Pennsylvania Wage Payment and Collection Law but rather ICs‎. Carpenter v. Pepperidge Farm, Inc., No. 23-2372 (3d Cir. May 10, 2024).

Source: Industries Counteract Class Action Independent Contractor Misclassification Claims: May ‎‎2024 IC Legal News Update‎ | Locke Lord LLP – JDSupra

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