How Employers Can Reduce Risk of Being Targeted in ATE Misclassification Suits
Wage-and-hour class litigation tends to come in waves. In 2019, we are seeing another wave gather on the horizon: misclassification collective actions alleging that companies have improperly classified at-the-elbow (“ATE”) support workers as contractors and thus denied them the overtime required under the federal Fair Labor Standards Act (“FLSA”) and parallel state laws.
Every lawsuit presents its own challenges, but there are some precautions companies can take to minimize the risk of these new claims and enhance the defensibility of any claims that do arise. These include:
- Do not assume that a given position is appropriately staffed by a contractor. Analyze whether the position meets the applicable state and federal test for contractor status. Not only will this reduce the risk of misclassification, but it will help limit the size of any class, since the company can then argue that each position was individually assessed and should be considered on its own.
- Do not incorporate noncompete provisions into contractor agreements; instead, memorialize the fact that the contractors are free to work for other employers. Noncompete agreements have been identified by some courts and indicative of an employment relationship.
- Strongly encourage the contractors to form LLCs and contract with those entities, instead of with the contractors as individuals.
- Do not subject the contractors to the same policies as employees. Some policies are necessary; for example, harassment is inappropriate by a contractor as well as by an employee. But an individualized assessment should be made and a separate set of policies used for the contractors.
- Consider incorporating arbitration provisions with class action waivers into contractor agreements.
- If a third party engages the contractors, be sure that the contract with that third party has a robust indemnification provision and representations and warranties requiring the third party to safeguard compliance with all applicable employment laws, including those related to wage and hour.
- Periodically audit the contractor relationships to ensure they remain appropriate under applicable federal and state laws and regulations.
These precautions can assist in avoiding contractor misclassification class action claims and make it easier to defend those that do arise.