In the Courts (2 cases)

TELECOM SALES AND MARKETING AGENTS GAIN CERTIFICATION IN IC MISCLASSIFICATION CLASS ACTION. A New York federal district court grants conditional certification of a proposed FLSA nationwide collective action brought against Credico (USA) LLC and its subcontractors, which provide face-to-face sales and marketing services, by agents who provided such services to Credico’s clients. The agents claim they were misclassified as independent contractors in violation of the FLSA and the New York and Arizona state minimum wage and overtime laws. Credico, whose clients include Comcast, Verizon and Sprint, serves its clients through a global network of independent sales offices (ISOs). Each ISO engages agents to gather applications from consumers seeking to enroll in programs offered by Credico’s clients. The agents allege that although ISOs are designated as “subcontractors,” Credico exercises “centralized control” over all ISOs in the network. They allege that the ISOs require them to train their workers according to Credico’s “Management Training Program”; use a centralized accounting service and pay agents a fixed commission; require all agents to complete the “agent on-boarding process”; retain authority to terminate the ISOs’ agents; and have the power to close ISOs that fail to meet targets. Plaintiffs also claim that given the degree of control exercised by Credico and the ISOs, the agents were “jointly employed” by both the company and its subcontractors. Vasto v. Credico (USA) LLC, No. 15 Civ. 9298 (S.D.N.Y. May 5, 2016).

VIDEO GAME MANUFACTURER SUED FOR IC MISCLASSIFICATION AND TRANSGENDER DISCRIMINATION. A Washington State video game company, Valve Corporation, has been sued in California by a former Washington State employee who was converted by the company into an independent contractor as an accommodation to allow her to relocate to California to undergo and recover from sexual reassignment surgery. The plaintiff alleged that as a condition of such accommodation, Valve officials “required that Plaintiff be classified as an ‘independent contractor’ although she was still performing the same duties as when she was classified as an ‘employee.’” In addition to seeking damages for retaliation and discrimination on the basis of her transgender status, she claims that she was willfully misclassified as an independent contractor and that she is entitled to overtime compensation and employee benefits. As explained in our blog post of May 31, 2016, while nothing in the law prohibits companies engaging both employees and independent contractors to perform similar services for the same company, there must be definitive, clear differences in the relationship maintained between the company and its employees, on the one hand, and the company and the independent contractors, on the other. Without meaningful distinctions between the two, a company, like Valve, may be exposing itself to liability for IC misclassification of part of its workforce. A.M. v. Valve Corp., No. 16-cv-03595 (C.D. Cal. May 24, 2016).

On the Legislative Front (2 items)

CONGRESSIONAL BILL COVERING IC MISCLASSIFICATION IN THE CONSTRUCTION INDUSTRY INTRODUCED IN THE HOUSE. Representative Thomas MacArthur (R-NJ) introduced in April a bill (HR 5008), which was published in May, entitled “Clarify Workers Misclassification in the Construction Industry Act.” The bill, which has 11 co-sponsors from both political parties, seeks to direct the Secretary of the Treasury to improve tax compliance in the construction industry, including clarifying the employments status of service providers in that industry. The bill is based on the legislative understand that while IC misclassification takes place at construction projects involving military bases, hospitals, universities, convention centers, and major hotels in order to avoid tax withholding and other employer responsibilities, the IRS is barred from issuing rules or guidance to reclassify these workers by virtue of the “safe harbor” provisions in section 530 of the Revenue Act of 1978. The bill states that its legislative purpose would be to increase efforts to identify and reduce misclassification, to prosecute tax evasion in the construction industry, and provide the Secretary of the Treasury the resources necessary to accomplish these objectives. The ultimate goal would be to ensure that legitimate construction contractors would no longer be unable to compete with contractors who avoid employment and income taxes through IC misclassification, which purportedly creates competitive pressure on other contractors to misclassify employees as well to remain competitive. The bill recites that, according to the Internal Revenue Service, a dollar spent on tax enforcement typically yields an additional six dollars in revenue to the Treasury.

NEW FEDERAL TRADE SECRETS LAW APPLIES TO INDEPENDENT CONTRACTORS AND REQUIRES A WHISTLEBLOWER NOTICE TO IC’S. As discussed more fully in our blog post of May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (“DTSA”) on that day in an effort to curtail trade secret theft by foreign and domestic interests in the form of economic espionage. DTSA protection covers trade secrets that are related to a product or service used or intended to be used in interstate or foreign commerce. Prior to passage of the DTSA, U.S. companies could seek relief under state laws for theft of trade secret and confidential information by employees or ICs; now this new law provides a federal remedy for trade secret misappropriation, including exemplary (double) and attorneys’ fees. However, those two remedies are only available when certain whistleblower notice requirements are communicated in writing to ICs and employees. Specifically, employers must include a special form of whistleblower notice in a new or updated employment or IC agreement or employee manual if the employer wishes to retain the right to recover its legal fees and exemplary damages against ICs or employees who allegedly misappropriated the company’s trade secrets.

Administrative and Regulatory Initiatives (1 item)

SOUTH DAKOTA BECOMES 30TH STATE TO SIGN MEMO OF UNDERSTANDING WITH U.S. DEPARTMENT OF LABOR. On May 24, 2016, the U.S. Department of Labor entered into a Memorandum of Understanding with the South Dakota Department of Labor and Regulation with the goal of providing clear, accurate, and easy-to-access compliance information to employers, employees, and other stakeholders, and of sharing resources and enhancing enforcement by conducting coordinated enforcement actions and sharing information consistent with applicable law. David Weil, the Wage and Hour Administrator of the U.S. Labor Department, stated in a press release: “The Wage and Hour Division continues to attack this problem head-on through a combination of a robust education and outreach campaign, and nationwide, data-driven strategic enforcement across industries.” He continued: “Our goal is always to strive toward workplaces with decreased misclassification, increased compliance, and more workers receiving a fair day’s pay for a fair day’s work.”