Independent Contractor Misclassification and Compliance News: July, 2020

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

1. Courts in Massachusetts and New Jersey Both Say Delivery Drivers Are Not Covered by the Federal Arbitration Act but Split on Enforcing the Arbitration Clause

This month, courts in New Jersey and Massachusetts were presented with requests to enforce arbitration agreements signed by delivery drivers. Courts in both states considered the arbitration agreements under the Federal Arbitration Act (FAA) and both courts determined that the arbitration agreements for the drivers were excluded from the FAA.

At this point, the similarity of the court cases ends. In Massachusetts, the court said that the arbitration agreement was excluded from the FAA but then concluded the class action waiver in the agreement was not enforceable under Massachusetts state law. Massachusetts state law favors plaintiffs having the ability to go to court and engage in class action lawsuits. The drivers in this case were allowed to continue with their claims and participate in the class action lawsuit.

The New Jersey Supreme Court said that the delivery drivers were exempt from the FAA and that the New Jersey Arbitration Act (NJAA) applied in part because the FAA did not have a specific preemption clause and that the NJAA did not conflict with the FAA. Drivers in this case were required to arbitrate their claims.

Despite similar circumstances and both courts concluding that the arbitration agreements were excluded from the FAA, the courts then applied the law of each state and arrived at very different outcomes. The court in Massachusetts concluded that the enforcement of the arbitration clause was against public policy under Massachusetts law and therefore did not enforce the arbitration agreement, while the court in New Jersey determined that the New Jersey Arbitration Act applied and the arbitration agreement should be enforced.

2. The Department of Labor is proposing a regulation for determining independent contractor status under the Fair Labor Standards Act.

On July 31, 2020, the United States Department of Labor (DOL) formally released a regulatory notice for determining independent contractor status under the Fair Labor Standards Act (FLSA). The DOL will be proposing a regulation with criteria for classifying workers as employees or independent contractors under the FLSA. Ben Penn from Bloomberg Law reports that the DOL is going to move quickly to propose and finalize a rule before the of the year in case Trump isn’t re-elected and there is a Democratic administration in 2021. This effort would significantly compress the regulatory process and could be subject to challenge if the rule is adopted in a shortened timeframe. Most observers expect the rule to be employer friendly and provide flexibility in classifying workers.

3. California and Massachusetts Continue to Fight Misclassification

Both California and Massachusetts continued their fight against misclassification this month. California passed a budget that includes $21.68 million to enforce AB5, California’s tough law requiring companies to classify worker as employees unless the company can demonstrate that:

(A) The worker is free from the control and direction of the company in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The worker performs work that is outside the usual course of the company’s business.

(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

In Massachusetts, Attorney General Maura Healey filed suit against Lyft and Uber asking the court to say that the drivers are employees and not independent contractors and for a court order requiring them to provide benefits to the drivers that are provided to employees.