Federal Courts Rule that Two Bay Area Companies Misclassified Employees as Independent Contractors and Must Pay $8 Million in Back Wages and Damages

Wednesday, August 19, 2015

The federal courts have ruled against two Bay Area companies and sided with their employees after investigations revealed that the companies deliberately misclassified the workers as independent contractors.  Misclassification is a practice used by some employers to cut costs by declaring their workers to be independent contractors. 

National Consolidated Couriers Inc., based in San Leandro but with clients across the country, has agreed to a court judgment requiring it to pay $5 million in back wages and damages to more than 600 drivers it misclassified as independent contractors. The judgment reveals that, during the course of the Labor Department's investigation, the employer tried to destroy records showing an employment relationship with its drivers, and had been misclassifying the workers over at least five-year period. 

In another major win for workers, a federal judge ruled that drivers for Mountain View-based Stanford Yellow Taxi Cab, Inc. were also misclassified. On its website, Stanford touts it strong relationships with corporate account holders such as Google, and the Four Seasons and Rosewood hotels. In this case, the department had to file suit to stop Stanford Cab from threatening and intimidating its drivers who were cooperating with investigators, including an instance where Stanford fired a worker just days before trial to discourage his witness testimony. The court's decision allows the department to continue with litigation forcing the company to pay nearly $3 million in back wages and damages to dozens of drivers.

In both the NCCI and Stanford Cab cases, the courts rejected arguments that the drivers were independent contractors in business for themselves as their employers alleged. 

In the case of Stanford Cab, the company required drivers to be on the job six days per week for 12-hour shifts but did not compensate them for all of those hours. Stanford also did not allow drivers to change their schedules or operate independently by reaching out directly to passengers. Drivers also had to abide by a dress code. They were and are employees under every reasonable interpretation of the law.

Typically, the Wage and Hour Division finds misclassification in low-wage industries. And while the misclassification of an employee as an independent contractor is not in and of itself illegal under the laws the department enforces, it typically leads to violations of the minimum wage and overtime provisions under the Fair Labor Standards Act which it does enforce. 

In Fiscal Year 2014, Wage and Hour Division investigations resulted in more than $79 million in back wages for more than 109,000 workers in low-wage industries such as janitorial, food service, construction, day care, hospitality and garment. 

The Fair Labor Standards Act requires that covered, nonexempt workers be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus one and one-half times their regular rate of pay for all hours worked beyond 40 per week. Employers also must maintain accurate time and payroll records.

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