Independent Contractor Misclassification and Compliance News June 2024

By MBO Partners | June 28, 2024

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Key Points

Thousands of Amazon Flex drivers filed claims for arbitration alleging that they had been misclassified as independent contractors.

Arbitration claims are often filed in response to arbitration agreements that companies use to prevent class action lawsuits.

Class action lawsuits and mass arbitrations can be avoided by conducting individual evaluations of independent workers.

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 bring you the latest news stories from around the web.

15,750 Amazon Flex Drivers File Arbitration Claims: Mass Arbitrations and What to Do

In June, the law firm of Cohen Milstein announced that 15,750 Amazon Flex drivers in California, Illinois, and Massachusetts had filed claims for arbitration alleging that they had been misclassified as independent contractors. The practice of filing a large number of arbitration claims has developed in recent years in response to arbitration agreements that companies use to prevent class action lawsuits.

A class action lawsuit is a lawsuit in which one person or a small group of people sues on behalf of a larger group of people who allegedly all have the same claim. Class action lawsuits can be costly to defend and many times the class action attorneys receive considerable fees while the individual class members receive relatively small sums.

In response to costly class action lawsuits, many companies require customers or employees to agree to arbitration agreements that include waivers of their rights to participate in class action lawsuits. Arbitration agreements are always being challenged because they limit consumers’ and employees’ rights to sue. As part of making sure that a court will enforce an arbitration agreement, the arbitration agreement provides that the company pays the costs of the arbitration—the filing and other fees.

Creative plaintiffs’ attorneys have started to file hundreds to thousands of individual arbitration claims against companies to force the companies to pay the arbitration costs as a way of forcing the companies to settle claims. In recent years, DoorDash, Postmates, Intuit, and Amazon have all received thousands of claims.

In response to this approach, companies have modified their arbitration agreements. Some have selected different dispute resolution providers who have more favorable mass arbitration terms. Other companies have adopted “bellwether” provisions that provide that the company and a small group of claimants proceed with the dispute resolution process and then use the outcome to guide the resolution of the remaining claims. In addition, the American Arbitration Association and JAMS, the most popular arbitration providers, have modified their fee structures to be less onerous for mass arbitrations.

MBO has avoided class action lawsuits and mass arbitrations in part by conducting individual evaluations of each independent contractor to ensure that they meet MBO’s requirements to work independently. MBO’s process of conducting individual evaluations makes class action lawsuits and mass arbitrations unlikely. Class action lawsuits and mass arbitrations are only allowed if there are common issues of fact and the claims and defenses are typical.

Because MBO conducts individual assessments and documents the particular facts and circumstances that support a categorization of independence for each worker, there are no common issues of fact and the claims and defense are not typical but unique to each worker. MBO’s individual process makes lawsuits and arbitrations less lucrative for plaintiffs’ attorneys. Plaintiffs’ attorneys have to build and prove a separate case alleging misclassification for each worker. By working with MBO, companies can mitigate their risks of class action lawsuits involving independent contractors.

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.

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