With an increasing pace, the news is filled with lawsuits against companies who use independent contractors. This marked litigation trend spans the entire United States and shows no sign of letting up. Companies who use independent contractors need to carefully review their practices with their independent contractors and try to reduce their risk in using independent contractors.
The following example of the Lowe's litigation in New Jersey is fairly typical of the kinds of lawsuits that are proliferating across the U.S.
ALLEGATIONS: Lowe's Home Centers is involved in a New Jersey class action lawsuit involving over 450 installers who installed doors and windows for Lowe's customers. Mittl v. Lowe's Home Centers LLC, No. 15-cv-06886 (D.N.J. Jan. 31, 2017).
The lawsuit claimed that Lowe's had misclassified door and window installers as independent contractors. According to the complaint, the installers are really Lowe's employees because Lowe's allegedly controls all aspects of the installers' business relationships with Lowe's.
The lawsuit also argued that by Lowe's wrongly classifying installers as independent contractors, Lowe's avoided paying withholding taxes, avoided paying for workers' compensation insurance and avoided paying the installers the valuable benefits that other Lowe's employees receive. These benefits included liability insurance, temporary disability and health insurance. Also, the installers as independent contractors were not eligible for Social Security and Medicare.
LAWS ALLEGEDLY VIOLATED: Plaintiff Thomas Mittl represented the class and brought claims against Lowe's for alleged violation of the New Jersey Construction Industry Independent Contractor Act and common-law unjust enrichment, and asserted federal jurisdiction under the Employee Retirement Income Security Act and the Class Action Fairness Act.
LOWE'S DEFENSES: Lowe's strongly denied any wrongdoing in its classification of the door and window installers as independent contractors.
Lowe's fought back by asserting several legal defenses to the misclassification allegations, including that Lowe's does not control the installers, that the class cannot recover the damages they sought, and that some installation companies owned by the installers signed contracts containing arbitration clauses and class action waivers.
PROPOSED SETTLEMENT: The proposed $2.85 million settlement requires plaintiffs' attorneys to seek an award of attorney fees not to exceed one-third of the settlement funds. Expenses of up to $50,000, settlement notice and administrative fees of up to $40,000 and a class representative award of $20,000 are also to be taken from the proposed settlement. Under the settlement terms, each of the 450 class members would receive $6,333 minus costs and attorney fees.
The plaintiff moved for preliminary approval of the settlement before U.S. District Judge Brian Martinotti on January 31, 2017. The motion for preliminary approval of the settlement urges that the court should grant the "motion to approve" because the lawyers for both Lowe's and the plaintiffs are highly experienced in similar litigation.
There's of course a possibility that the Court will reject the proposed settlement. New Jersey courts have recently been critical of some class action settlements.
BOTTOM LINE FOR COMPANIES USING INDEPENDENT CONTRACTORS: All companies that use independent contractors should be hyper aware of the risks in doing so. Lawsuits about overtime, minimum wage, unemployment insurance benefits, employee benefits, workers' compensation, and other legal issues involving independent contractor status are on the rise.
Additionally, certain states like Illinois have very aggressive auditing relating to independent contractor status with regard to unemployment insurance benefits.
Any company that uses independent contractors should carefully review their independent contractor agreements, websites, and day to day practices with their independent contractors, ever trying to reduce misclassification risks.
Readers who wish to review their usage of independent contractors with the goal of reducing liability for the company should contact Nancy Joerg who can be reached at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at [email protected].