Most class action lawsuits alleging that workers have been misclassified as independent contractors (ICs) end up being settled for seven figure amounts – but not all.  Last month, a large mattress retailer with showrooms in 13 states won summary judgment in a class action misclassification case brought under the federal Employee Retirement Income Security Act (ERISA) for health and 401(k) benefits, the federal Family and Medical Leave Act (FMLA) for unpaid medical leave, as well as state wage laws requiring payment of overtime pay to employees.

In Hargrove v. Sleepy’s LLC, a federal district court judge in New Jersey ruled that the common law factors for determining the status of a worker, as set forth in 1992 by the U.S. Supreme Court in Nationwide Mutual v. Darden, “overwhelmingly show that the plaintiffs were independent contractors [and not employees].” The judge found that each driver had entered into an Independent Driver Agreement; hired their own workers; purchased their own trucks; maintained their own vehicle insurance; obtained their own motor vehicle registration; paid their own expenses; set up their own business entity; and maintained a relationship with the IRS as a business.

While the judge noted that Sleepy’s monitored the delivery progress each day with electronic equipment and required background checks on all delivery drivers and their employees, these and other facts indicating employee status did not counterbalance the facts in favor of IC status. Further, the judge noted that the requirements allegedly imposed on the drivers were merely to “assure customer satisfaction and safety in a competitive business.”

Takeaway:

Unless overturned on appeal, this court decision illustrates that legitimate use of ICs is permitted under applicable laws, provided the relationship is properly structured, documented, and implemented.  Many companies that properly structure their IC relationships fail to document them properly; others that properly document such relationships have imperfectly structured or implemented them.