Amazon is the latest tech company to be sued in a proposed class action by drivers delivering its products – in this case, goods to be delivered within two hours of being ordered through Amazon’s “Prime Now” app. The drivers claim that they have been classified by Amazon and the companies providing services to Amazon as independent contractors and should instead be treated as employees and paid for an array of labor and employment benefits that independent contractors (who are paid on a 1099 basis) are not eligible to receive – unless they have been misclassified. If the allegations are true, then yet another large tech company using workers in the sharing or gig economy may have failed to structure, document, and implement their independent contractor relationships in a manner that complies with applicable laws – and needlessly brought upon itself costly litigation and potential exposure to misclassification liability. The steps that companies can take to maximize compliance with independent contractor laws and minimize their legal exposure are described below, following our discussion of the nature of this newest tech company misclassification lawsuit.

The Allegations in the Complaint

The 24-page complaint was filed yesterday, October 27, 2015, in Los Angeles County Superior Court against Amazon.com, Inc., Scoobeez Inc., and ABT Holdings, Inc. The complaint alleges in part that the four named plaintiffs and others similarly situated to them were hired by Scoobeez, a courier company operated by ABT Holdings, to work exclusively for Amazon.com’s Prime Now two-hour delivery service in Orange County, California. The plaintiffs allege that they deliver tens of thousands of items to Amazon’s Prime Now customers based on orders placed on Amazon’s Prime Now mobile app, which is aimed at what is referred to as the “instant gratification market.”

Plaintiffs allege that the app suggests a $5.00 tip for drivers (which they claim they have not received in whole or in part); that the drivers receive multiple days of training in making Amazon Prime Now deliveries; that they are scheduled to work fixed shifts, arrive at a designated warehouse ahead of the shift time and check in with a dispatcher; that they are sent home if there is not enough work for them; that they cannot reject work assignments or request particular geographical areas; that they must follow specific rules or instructions and are subject to discipline or termination if they do not; that they are required to deliver packages in a set sequence determined by the defendants; that the Prime Now app generates routes and directions; that they cannot deliver packages either two minutes too early or too late; that they are required to ask customers to fill out customer surveys; that the rates are unilaterally determined by the defendants, who reserve the right to change the compensation terms at any time; and that the delivery drivers are required to use their own vehicles and pay for their own vehicle and transportation expenses. Truong v. Amazon.com, Inc., No. BC598993 (Cal. Sup. Ct. Los Angeles County, Oct. 27, 2015).

The plaintiffs claim violation of an array of state laws governing employees, including those requiring the payment of minimum wages, overtime, reporting pay, expense reimbursement, and meal periods – all of which they claim entitlement to because they are allegedly employees and not actually independent contractors. Amazon and the other defendants have not yet responded.

What can companies like Amazon, Scoobeez, and ABT Holdings do to enhance their independent contractor compliance? 

Savvy companies don’t stand still – even while in the midst of lawsuits. As an example, even though FedEx Ground has suffered many legal setbacks in its decades-old defense of dozens of class action misclassification cases filed against it, the giant courier company sought to restructure its relationships with drivers during the same time the company was seeking to defend itself. It did this to change the facts that were not particularly favorable to FedEx so that it did not perpetuate the factual scenario that was effectively being used against it.

Can companies like Amazon, Scoobeez, and ABT Holdings restart with a clean slate? Obviously, no company can change the past, but it can and should make changes going forward that reduce the direction and control over the drivers’ work that allegedly has been retained by the defendants in this new case. Those types of changes can be done through restructuring, re-documenting and re-implementing the independent contractor relationship in the near future.

Some companies have used IC Diagnostics™ to accomplish this restructuring and re-documentation. IC Diagnostics is a process that takes into account the factors set forth in all relevant federal and state statutes governing independent contractors, weighs the factors according to governing court decisions, structures the business consistent with the law, and culminates with a state-of-the-art independent contractor agreement that substantially enhances the workers’ independent contractor status.

Those companies reliant on independent contractors, including many on-demand companies in the sharing or gig economy that use 1099 contractors, including Uber (who has been sued in California and other states for independent contractor misclassification), would be wise not to wait until they are sued or the subject of regulatory enforcement actions or audits. Restructuring, re-documenting, and re-implementing independent contractor relationships before becoming a defendant makes the most sense.  Although it appears that Amazon, Scoobeez, and ABT Holdings may not have taken take that approach, it is not too late for companies (including those battling these types of lawsuits) to enhance their independent contractor compliance.  The same can be said for other companies that have yet to reassess their level of compliance with independent contractor laws.