How an Employee Misclassification Suit Cost One Company $4.6 Million
Case Summary: Independent Contractor Misclassification Claims Cost Delivery Service $4.6M.
In a class action lawsuit filed in California, Instacart delivery workers alleged that they were misclassified as independent contractors. This case continues a trend of significant settlements by companies that have been aggressive in their approach to the wage and labor laws that govern when a worker is legally considered an employee and when they may be legitimately classified as an independent contractor.
Companies involved in the “gig economy”, as well as very traditional industries such as construction, have tried to classify workers as independent contractors (a/k/a 1099 employees) to avoid the minimum wage, overtime, expense reimbursement, income tax contributions, and certain benefits required by state and federal labor laws.
Avoiding these requirements greatly reduces labor costs and provides a powerful incentive for companies to label workers as independent contractors, even when they know (or should know) that they should be classified as employees. They are knowingly violating overtime pay laws, and they must pay just like Instacart did.
In addition to paying $4,625,000 to settle the workers’ claims, the company has also agreed to make a number of changes to its policies and programs, including making it easier for customers to tip, implementing a formal dispute process for deactivations (terminations) and improve pay statements to make clear how workers are being paid.
A similar case has gone to trial recently (October 2017) against GrubHub in the U.S. District Court for the Northern District of California (San Francisco). This case is being carefully watched as a bellwether because it is the first of the gig-economy independent contractor misclassification cases to actually get to a trial. There are numerous other large high profile misclassification cases on file, including against gig-econonmy giant Uber.
Independent contractor misclassification remains an enforcement priority with both state and federal departments of labor – and the core legal issue in hundreds of wage and hour lawsuits nationwide that seek to recover unpaid back overtime wages on behalf of the misclassified workers.
As the Instacart case illustrates, the amount of back wages owed to workers can frequently be in the millions of dollars, and the amounts owed to individual workers can range from hundreds of dollars to hundreds of thousands of dollars, depending on how much overtime they worked and how long they worked while misclassified. Many are shocked at how much they are owed when they calculate how much is owed for unpaid overtime pay.
For more information on the differences in being classified as an “independent contractor” rather than an “employee”, the factors that are considered in making the determination and why the difference is very important to workers, see Overtime Pay Laws for Independent Contractors.