Attorney - Forester Haynie
FALL 2020 ISSUE:
Millions of Americans are staying home to minimize the spread of COVID-19. As a result, “gig economy” workers1have become a crucial lifeline, delivering food and other supplies to people living in quarantine.2
Many employers label delivery and transportation workers “independent contractors,” as opposed to employees, to circumvent federal and state laws. When labeled as such, these workers are not only minimally protected but often incur additional burdens, such as relying on their personal vehicles in order to earn a paycheck.
In addition to denying many “gig economy” workers basic protections, companies have also lobbied to deny these workers their day in court. For years, businesses have increasingly pressured workers to sign arbitration agreements and thus waive their right to class and collective actions. This has effectively required gig employees to recoup unpaid wages and reimbursements through private arbitration. Businesses have embraced arbitration because it helps them avoid costly litigation and the unpredictability of a judge or jury determining whether the company neglected to fairly pay hundreds, or in some cases thousands, of workers.
Fortunately, recent court decisions offer delivery drivers and others employed in the gig economy hope for increased protection from wage theft. Two federal courts of appeal have determined delivery drivers can pursue wage-and-hour claims in court on a collective or “class-wide” basis. Accordingly, businesses can no longer rely on agreements mandating arbitration and prohibiting class actions with providers of transportation or delivery services.
This article overviews legal protections afforded to gig employees who are victims of wage theft and argues why courts should increase these protections.
I. What Laws Protect Employees from Wage Theft?
The overarching federal legislation that employees rely on by setting the minimum wage and the maximum hour requirement for hardworking Americans is known as the Federal Fair Labor Standards Act (FLSA). Since 2009, the federal minimum wage has remained at just $7.25 per hour.3Many states also have minimum wage laws. In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage.4
In addition to establishing the minimum wage, the FLSA also regulates overtime pay. Federal law (and often state law) mandates employers to pay their employees one and one-half times the regular rate of pay for any hours worked in excess of 40 hours each workweek.5
II. Common Wage Theft Schemes Affecting Gig Economy Workers.
Though the FLSA is designed to protect workers, it contains certain loopholes, exposing delivery drivers and other gig economy workers to wage theft. For example, the FLSA’s protections only extend to “employees,” but not to “independent contractors.”6 Consequently, large companies often mislabel employees as independent contractors to avoid fairly compensating them pursuant to the FLSA. Additionally, gig workers are susceptible to “tipped-credit” and reimbursement violations, discussed in turn below.
Misclassification of Employees as “Independent Contractors.” The FLSA’s minimum wage and overtime provisions only apply to employees. But, even if your employer calls you an independent contract, the FLSA requires factfinders (i.e., judges, juries, and arbitrators) to balance a variety of factors when making this determination, including:
- The extent to which the services rendered are an integral part of the principal's business.
- The permanency of the relationship.
- The amount of the alleged contractor’s investment in facilities and equipment.
- The nature and degree of control by the principal.
- The alleged contractor's opportunities for profit and loss.
- The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
- The degree of independent business organization and operation.7
When challenged, workers cast as independent contractors are often relabeled as “employees,” and are thus guaranteed minimum wage and overtime pay pursuant to the FLSA.
“Tip Credit” Violations. The minimum wage for tipped employees is $2.13, and this is even higher in some states.8 For a business to pay a tipped employee a cash wage lower than the standard federal minimum wage of $7.25, several qualifications must be met. Common “tipped credit” violations include:
- Tip credit claimed by the employer exceeds the actual amount of tips received
- Tips are retained by the employer instead of the employee
- The inclusion of non-tipped workers in a tip pool
- Paying an employee a tip wage when over 20 percent of his or her job involves tasks that do not normally receive tips.
If an employer fails to meet just one of these requirements, the employee is entitled to the federal minimum wage, in addition to tips they might receive.
Reimbursement Violations. Another example of wage theft affecting gig economy workers occurs when companies employ drivers who use their own automobiles to transport or deliver items to customers. In this situation, drivers are not reasonably reimbursed for the approximate costs of the business use of their vehicles. Under the FLSA and many state laws, if an employee incurs expenses on the employer’s behalf for the convenience of the employer, the employee is entitled to reimbursement to the extent their earnings would otherwise fall below the federal minimum wage.9Many companies use a flawed method to determine reimbursement rates that provides such an unreasonably low rate beneath any reasonable approximation of the expenses they incur that the drivers’ unreimbursed expenses cause their wages to fall below the federal minimum wage during some or all workweeks.
III. What legal options are available to victims of wage theft in the gig economy?
For years, businesses in the gig economy have implemented pay schemes to systematically undercompensate employees. Thus, if one employee is underpaid, there are likely hundreds, or thousands, similarly situated. When wage theft occurs on a companywide basis, employees can join together and file one lawsuit before one judge to efficiently recoup their lost wages and work-related expenses.
Option #1: Bring a class and/or collective action.The most effective method for holding companies accountable and requiring them to change their pay practices is when workers are able to file one collective lawsuit, referred to as a class or collective action10 Using this collective mechanism, one or two employees step forward as plaintiffs to initiate a lawsuit on behalf of themselves and others similarly injured. For decades—years before Amazon, Uber, Lyft, GrubHub, Postmates, and other megacompanies entered the gig economy scene—pizza delivery workers nationwide have joined together and brought collective and class actions to hold employers accountable for wage theft.
According to Matthew Haynie, a founding partner at Forester Haynie, a law firm in Dallas, Texas, pizza delivery drivers are among the most underpaid workers in the United States, as they are required to pay for their own vehicles, car insurance, and gas in order to earn a paycheck. Pizza delivery drivers have joined together and sued operators of major franchises—including Pizza Hut, Domino’s, and Papa John’s—for reimbursing them at such low rates that their compensation falls well below the minimum wage.
For example, in 2018, two Pizza Hut delivery drivers in Chicago, Illinois, brought a collective action on behalf of themselves and other delivery drivers subject to wage theft.11 The drivers alleged the franchise paid its drivers as little as $5.00 per hour, relying on “tip credit” to comply with minimum wage obligations, and reimbursed them as low as $.24 per mile.12 The lawsuit stated that the tips delivery drivers received were not enough to compensate them at the $7.25 minimum wage required by law, and the company failed to adequately reimburse them for driving and maintaining their own automobiles.13 The judge determined the workers had met their burden to show there were likely hundreds of other delivery drivers affected by Pizza Hut’s unfair pay practices. Accordingly, court-authorized notice was sent to other Pizza Hut drivers, allowing them to join the lawsuit and recover unpaid wages and reimbursements.14
Option #2: Submit to individual arbitration. Unfortunately, companies have lobbied hard to restrict employees’ ability to bring class and collective actions. In recent years, many businesses in the gig economy have required employees to sign mandatory arbitration agreements and class action waivers.
Bound by fine-print contract terms, to which many have not provided informed consent, workers often find the courtroom doors are closed to their job-related disputes. By signing their employment contracts, or sometimes simply accepting their paychecks, employees have unknowingly waived their right to sue a company collectively in court. Pursuant to the Federal Arbitration Act (FAA), courts generally uphold private agreements to resolve employment disputes out of court, unless the dispute involves employment contracts of “transportation workers.”15
Compelling employees into arbitration and restricting their right to litigate collectively is problematic because, as discussed, wage theft often occurs on a companywide basis, affecting hundreds or thousands of employees. If the Chicago Pizza Hut drivers in the above example had signed binding arbitration agreements and waived their right to sue the franchise collectively, they would have been forced to recuperate unpaid wages and expenses in arbitration on an individual basis. Instead of bringing one lawsuit before one judge in court, workers would have been forced to pursue hundreds of lawsuits, before hundreds of arbitrators in private arbitration.
Studies have repeatedly shown employers fare better in private arbitration than employees for a variety of reasons. For starters, private arbitration lacks important legal safeguards such as the right to appeal the arbitrator’s decision, public access to arbitration proceedings that expose patterns of employer misconduct, and other guarantees ensuring a fair process exists in court. The National Employment Law Project estimated in 2019 alone that employers stole $12.6 billion from workers who made less than $13/hour by subjecting them to forced arbitration.16
IV. Recent court decisions have re-opened courtroom doors for delivery and transportation workers.
Though courts continue to enforce arbitration agreements, pursuant to the FAA, some workers’ cases are drawing attention because courts have held they are exempt from the FAA's purview. If employees fall outside the FAA’s coverage, they are better positioned to successfully argue that their arbitration agreement is unenforceable. One category of workers the U.S. Supreme Court has explicitly held is exempt from the FAA is “transportation workers.”17
But, as is often the case in law, the U.S. Supreme Court has not definitively specified who counts as a transportation worker. For example, is the Pizza Hut employee who drove a few blocks and used his own vehicle to deliver a pizza at your doorstep a “transportation worker?” What if, instead, your pizza was delivered by an Uber Eats worker, who spends 45 hours a week in her car picking up, driving, and dropping off customers’ orders? Does she qualify as a “transportation worker?”
Recently, two federal appellate courts have provided some guidance on this question by determining Amazon delivery drivers hired as “independent contractors” to transport goods locally through the last mile of a customer’s order fall within the FAA’s “transportation worker” exemption.18 Both courts gave Amazon drivers “the greenlight” to collectively litigate against the company for wage theft despite signing binding arbitration agreements and class action waivers as part of their employment contracts.
Importantly, the courts held drivers did not have to cross state lines and that transporting traditional goods as well as passengers could trigger the FAA’s “transportation worker” exemption.19
V. Courts should deliver more protections to gig economy workers.
Amazon workers have paved the road back to the courtroom for other delivery drivers and gig economy employees at large. Several high-profile employment lawsuits are pending in courts throughout the country against Uber, Lyft, GrubHub, and other megacompanies to determine whether their workers will be categorized as “transportation workers” exempt from binding arbitration agreements and class action waivers. If courts continue on a similar route, delivery drivers and gig economy employees may find a path back to their ability to pursue claims of wage theft in court as opposed to private arbitration.
The recent pandemic has demonstrated our reliance on gig economy workers, who have delivered necessities to Americans around the country and enabled many to remain at home and quarantine safely. In some cases, those who have lost their jobs were able to join the gig economic system to remain afloat. Though this new role may allow for a small reprieve, workers still suffer added expense, such as utilizing their personal vehicles to transport goods and customers to their employer’s benefit.
These employers have relied on and benefited tremendously from the use of gig economy workers—workers which they continue to label “independent contractors” to preclude them from receiving employee benefits under the FLSA, in addition to requiring signed arbitrations agreements and class action waivers as part of employment contracts. The CEOs of businesses that rely on gig workers amassed tremendous wealth during the first six months of the pandemic. In fact, Jeff Bezos, the CEO and founder of Amazon, increased his wealth from $73.2 billion to $113 billion.20
Explosive gains for CEOs like Bezos remain steady despite, as of September 2020, more than 13.5 million Americans still being out of work.21 The station of gig economy workers has always been precarious but now, more than ever, courts should deliver increased legal protections to these employees, who many Americans have relied on for food, medicine and the safety of their families. This critical piece of our economic infrastructure deserves to be protected to ensure gig economy workers can continue their work for months, and years, to come.
1 “Gig economy” (“gig”) workers are those with temporary, flexible jobs often labeled by companies as independent contractors or freelancers instead of full-time employees. See https://www.investopedia.com/terms/g/gig-economy.asp.
2 Jennifer Liu, How Coronavirus is Impacting Gig Workers, CNBC (Mar. 24, 2020), https://www.cnbc.com/2020/03/24/coronavirus-pandemic-impact-on-gig-workers-on-demand-gig-economy.html.
3 29 U.S.C. § 206
4 Wages and the Fair Labor Standards Act, U.S. Department of Labor, https://www.dol.gov/agencies/whd/flsa.
5 Fact Sheet #13: Employment Relationship Under the Fair Labor Standards Act (FLSA), U.S. Department of Labor (July 2008), https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship.
8 Tips, U.S. Department of Labor, https://www.dol.gov/general/topic/wages/wagestips.
9 29 C.F.R. § 531.35.
10 Often, gig employees will assert wage theft claims pursuant to the FLSA and state wage and hour laws. Claims asserted under the FLSA are considered “collective actions;” claims asserted under most state laws are considered “class actions.” Collective and class actions similarly allow one or two employees–—also known as named plaintiffs or class representatives—to step forward and file a lawsuit on behalf of themselves and other similarly situated employees. The key difference between collective and class actions is employees must “opt-in” to collective actions in order to join in the lawsuit. The outcome of a collective action does not impact future claims brought by employees who did not affirmatively join the lawsuit. In contrast, when a court “certifies” a class action pursuant to state law, employees are often presumed to be part of the lawsuit unless they affirmatively “opt out.” Employees must notify the court they do not want to be part of the lawsuit, otherwise they will lose the opportunity to bring wage theft violations of state law alleged in the class action.
11 See Colon v. EYM Pizza of Ill., LLC, Case No. 18-cv-5743, 2019 U.S. Dist. LEXIS 178056 (Order granting Plaintiff’s motion for step-one notice of her FLSA collective action) (decided October 15, 2019).
14 This collective action is still pending before U.S. District Judge Mary M. Rowland in the U.S. District Court for the Northern District of Illinois, Eastern Division. The employees are represented by Jesse Hamilton (“Jay”) Forester of Forester Haynie in Dallas, TX, and Douglas M. Werman of Werman Salas P.C. in Chicago, IL.
15 See 9 U.S.C. § 1; Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).
16 Forced Arbitration Enabled Employers to Steal $12.6 Billion from Workers in Low-Paid Jobs in 2019, National Employment Law Project (Feb. 13, 2020) https://www.nelp.org/news-releases/report-forced-arbitration-cost-workers-low-paid-jobs-12-6-billion-stolen-wages-2019/.
17 See 9 U.S.C. § 1; Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).
18 See Waithaka v. Amazon.com, Inc. et al., 4:18-cv-40150 (U.S. Court of Appeals for the First Circuit) (decided July 20, 2020); Rittmann et al. v. Amazon.com Inc. et al., case number 19-35381 (U.S. Court of Appeals for the Ninth Circuit) (decided September 25, 2020).
20 Saloni Sardana, US Billionaires’ Wealth Grew by $845 Billion During the First Six Months of the Pandemic, Business Insider (Sep. 17, 2020), https://markets.businessinsider.com/news/stocks/us-billionaires-wealth-net-worth-pandemic-covid-billion-2020-9-1029599756#.