Broad Reach Of North Carolina Employee Misclassification Case

Broad Reach Of North Carolina Employee Misclassification Case

A federal judge’s ruling on a motion for summary judgment this week will have broader implications for North Carolina employers. In one of the many “misclassification” of independent contractor suits popping up around the country, a class action suit was filed against national bakery company, Flower Foods, Inc. A class of drivers across several states filed suit in September 2012, claiming that they should be classified as employees, rather than independent contractors. If classified as employees, these workers would be entitled to the benefits of that status, such as overtime. Flower Foods is now being sued in more than a dozen states by similarly classified drivers, with the most recent suit filed in Texas in January 2016.

Flower Foods is a Georgia-based company whose products include Wonder Bread and Tastykake treats. Flower Foods’ “distributors” deliver its bakery and snack food to their customers, including grocery stores, retailers, and fast food chains. The distributors are classified as independent contractors operating their own businesses. This approach is similar to others in the baking and other industries.

Specifically, the class of Flower Foods’ drivers in North Carolina claim they were denied protections under the Fair Labor Standards Act and the North Carolina Wage and Hour Act because of their improper classification. Flower Foods has about 900 employees and 430 independent contractors in North Carolina. Flower Foods filed a motion for summary judgment, arguing that the case should not be allowed to proceed as a matter of law because, among other things, the drivers had signed general releases that waived their claims. It has been established under federal law that employees cannot sign agreements waiving their right to receive overtime pay or make at least minimum wage. That standard had not, until now, been established on the state level.

On February 23, 2016, the judge denied the motion for summary judgment, allowing the case to proceed to trial, and ruled, “Just as the FLSA prohibits unsupervised settlement or waiver of claims, the court here finds that the NCWHA prohibits such waivers.” The court thus also invalidated the drivers’ signed waivers. Notably, the Court came to this ruling after the parties agreed to reserve arguments and ruling on the issue of whether the drivers’ were properly classified as independent contractors. In other words, for purposes of this ruling, the court assumed that the drivers were employees, entitled to the benefits and protections of FLSA and NCWHA.

This ruling will have broad implications – reaching beyond its impact on Flower Foods and its employees to North Carolina workers and employers. The issue of whether North Carolina employees could waive their right to various benefits afforded them under the NCWHA, including overtime, minimum wage, and other business requirements, had never been decided under state law until this ruling. This ruling can ultimately be appealed and ruled upon by a higher court – but not until trial in the Flower Foods case has concluded.

Takeaway for North Carolina Employers

North Carolina employers would be wise to review any employee waivers they may have in place, and evaluate whether they will be considered binding in light of this recent ruling. If North Carolina employers have employees sign waivers of rights protected under NCWHA, including overtime and minimum wage requirements, they should consult with counsel and consider whether those employees are, in fact, entitled to overtime and minimum wage.

Side Note on Independent Contractor vs. Employee Classifications

Employers throughout the nation should take heed of this case as further evidence of the growing trend of “misclassification” lawsuits. Employers of drivers, of various types, seem to be particularly susceptible to these class action lawsuits, as drivers across the country have been successfully challenging their independent contractor status. For example, FedEx recently paid a $228 million settlement to a class of drivers, after the Ninth Circuit ruled they had been misclassified as independent contractors. Uber and Lyft have faced similar claims. Several trucking companies are engaged in similar litigation with independent-operator drivers.

Last July, the United States Department of Labor provided some guidance in this area. An analysis of whether a worker is properly classified as an independent contractor will focus on whether the worker is “economically dependent on the employer or truly in business for him or herself.” Factors to be considered include:

  • Is the work an integral part of the employer’s business?
  • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  • How does the worker’s relative investment compare to the employer’s investment?
  • Does the work performed require special skill and initiative?
  • Is the relationship between the worker and the employer permanent or indefinite?
  • What is the nature and degree of the employer’s control?

Because this is a hot topic, and a complicated one, employers who work with independent contractors, especially drivers, would be wise to preemptively consult with counsel and review their policies and agreements with those contractors – before getting caught up in lengthy and expensive class action litigation.

Contributor:  Melissa M. Whitehead, Attorney at Law  |  Weintraub Tobin