On Friday, January 20, the First Circuit reversed the lower court's denial to hear an employment classification suit. At issue was an action brought against the state by the Massachusetts Delivery Association ("MDA"). The First Circuit ruled that although MDA is currently facing litigation in state court, this fact does not bar MDA from bringing a separate action against the state in federal court.
MDA members are facing lawsuits in state court brought by independent contractors who allege they were misclassified. After MDA filed a separate suit in federal court, the lower court refused to take up the action, stating MDA was an alter ego of the defendants appearing in state court. Therefore, pursuant to the Younger doctrine, MDA was precluded from bringing an action.
In its opinion, the First Circuit's three-judge panel ruled that the lower court misapplied the Younger doctrine. The Younger doctrine bars federal courts from hearing cases brought by parties who are simultaneously facing claims in state court. According to the First Circuit opinion, the Younger doctrine was intended to prevent interference among court proceedings, however, given that the federal suit would not interfere with the state proceeding, the First Circuit provided that the doctrine did not apply. The First Circuit also stated given the uncertainty as to whether MDA is a party to the state proceeding, it would be unfair to preclude a separate federal action.
A new study released this week by the National Employment Law Project (“NELP”), a union advocacy coalition, Change to Win, and Rutgers University charges motor carriers with misclassifying more than 110,000 port truck drivers as independent contractors, as opposed to employees. The release of this study comes on the tails of a call to action by the American Trucking Association regarding Senate Bill 3786, the Fair Playing Field Act of 2010, as an offset for the 9/11 Health and Compensation Act. The Bill targets the use of independent contractors and requires the treasury to release guidelines to help clarify the status of individuals as independent contractors or employees for the purpose of federal employment taxes.
The NELP study, based on surveys from drivers at seven major ports, including Seattle, Oakland, Los Angeles, Long Beach, New York and New Jersey, estimated that approximately 82% of port truck drivers are treated as independent contractors. The study criticizes the use of the independent contractor model, claiming, in part, drivers classified as independent contractors earned, on average, 18% less than employee drivers, are asked to use illegal and unsafe equipment, and face health problems imposed by high concentrations of diesel emissions.
The NELP study recommends that (1) policymakers adopt uniform rules requiring motor carriers to employ drivers to operate company owned equipment; (2) Congress pass the Clean Ports Act of 2010 to empower port authorities to attach misclassification; (3) the DOL, IRS, and state agencies take coordinated action to end misclassification; and (4) federal, state, and local governments create incentive funds for diesel emissions reduction contingent on proper classification.
The Fair Playing Field Act of 2010 (the “Act”) was introduced in both the U.S. House of Representatives and Senate and backed by the Whitehouse this week in an effort to end the current moratorium on Internal Revenue Service guidance addressing worker classification. The Act will require the treasury to release guidelines to help clarify the status of individuals as independent contractors or employees for the purpose of federal employment taxes.
If passed, the Act could significantly impact the ability of transportation (and other) companies to seek the protections afforded by Section 530 of the Revenue Act of 1978, as amended, reprinted at 27 U.S.C.A. § 3401 note (2008), a safe harbor provision which was intended to prevent the IRS from forcing expensive reclassifications of workers as employees when companies had, in good faith, based upon prior IRS audits, judicial precedent, or significant industry practice, treated the workers consistently as independent contractors for employment tax purposes.
Among other requirements and potential civil penalties for potential or repeated violations, the Act will compel transportation companies that engage independent contractor drivers to provide the drivers with a written statement detailing federal tax obligations imposed on and labor and employment practices denied independent contractors. The notice must further inform the contractors of the ability to request a status determination from the IRS.
A federal judge presiding over the FedEx Ground Package System Inc. (“FedEx”) multidistrict litigation (“MDL”) proceeding ruled this week that the class of Kansas drivers who originally filed an action against FedEx in a Kansas federal district court are independent contractors, not employees, under the Kansas Wage Payment Act, Kan. Stat. Ann. § 44-313 (the “Wage Act”). In re MDL-1700 FedEx Ground Package Sys. Inc., Employment Practices Litig., No. 3:05-MD-527 RM (MDL 1700) (N.D. Ind. Aug. 11, 2010). The MDL court’s 103-page decision is available here: FedEx MDL SJ Order 8 12 10. The ruling by Judge Robert L. Miller Jr. of the U.S. District Court for the Northern District of Indiana came in response to cross-motions for summary judgment on the issue of the employment status of FedEx’s Kansas drivers. The ruling does not end the FedEx MDL proceeding. Rather, the parties have been directed to file supplemental briefing explaining whether the employment classification issue should come out the same way in the other cases in which similar summary judgment motions regarding driver employment status are pending. Those briefs are due 30 days from date of the Court’s order. We will continue to follow the impact of this decision in the FedEx MDL and in the numerous other similar wage and hour cases filed by independent contractor drivers against transportation providers around the country.
Legislation recently introduced in both the House and Senate contemplates an amendment to the Fair Labor Standards Act ("FLSA") that would impose more stringent regulations regarding employee, and more specifically, driver classification. The Employee Misclassification Prevention Act seeks to deter employers from improperly classifying a driver as an independent contractor versus employee by:
- Ensuring that employers keep records that reflect the accurate status of each worker as an employee or non-employee and clarifying that employers violate the Fair Labor Standards Act when they misclassify workers.
- Increasing penalties on employers who misclassify their employees and are found to have violated employees' overtime or minimum wage rights.
- Requiring employers to notify workers of their classification as an employee or non-employee.
- Creating an "employee rights web site" to inform workers about their federal and state wage and hour rights.
- Providing protections to workers who are discriminated against because they have sought to be accurately classified.
According to proponents of the legislation, employee misclassification denies workers the benefits that they would otherwise be entitled to including minimum wage and overtime, workers' compensation, and unemployment insurance. The legislation would task the Department of Labor with monitoring the states' efforts in auditing and imposing penalties against employers that misclassify employees.
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