Schall and Barasch LLC

A VICTORY AGAINST FORCED ARBITRATION, a/k/a Another Kind of “Black Friday” for Best Buy

A VICTORY AGAINST FORCED ARBITRATION, a/k/a Another Kind of “Black Friday” for Best Buy
Richard Schall
December 5, 2017

Sexually harassed at work? Sorry, you can’t take your case to court and have it heard by a jury. Terminated from your job because the Company thought you “too old” to adapt to new technology? Again, too bad. You can’t take your discrimination case to court and present it to a jury for their decision.

Unfortunately, as a result of large corporations forcing “agreements” on their employees requiring their cases to be heard only in arbitration – a secret, private proceeding, heard by a single arbitrator, not a jury of peers – this is becoming the reality for more and more employees here in New Jersey and around the country.

A recent study conducted on behalf of the Employee Rights Advocacy Institute for Law and Policy, found the following:

The ability to access courts is disappearing for workers in America because arbitration clauses have permeated the majority of the leading companies in America. Personal injury claims, wage claims, civil rights claims, sexual assault claims, and other claims involving the workplace and vulnerable workers may never be heard in a public court, with broad procedural protections for employees, because of the use of arbitration clauses. Further, through the use of class waivers, it is impossible for employees to join together in a class or collective action against their more powerful and far better-resourced employers. Access to courts has become increasingly more difficult for workers, and the vast majority of America’s top companies have tried to block workers from entering the courthouse door.

The key findings of this study are as follows:

• 80% of the companies in the Fortune 100, including subsidiaries or related affiliates, have used arbitration agreements in connection with workplace-related disputes since 2010.

• Of the 80 companies with arbitration agreements in the workplace, 39 have used arbitration clauses containing class waivers.

Here at Schall & Barasch, we are happy to report our recent victory upending Best Buy’s attempt to force arbitration down the throats of its employees. In late February, 2016, Best Buy informed all of its employees that as of March 15, 2016, they would be bound to arbitrate all disputes with the Company, including claims of employment discrimination. As many companies do, Best Buy tried to sell the arbitration policy to their employees as a better way to resolve claims than by going to court as part of the Company’s commitment to creating a “welcome, inclusive environment where employees come to work every day to do what they enjoy doing.”

But the Company’s sales pitch came with a “kicker.” As an employee, you had no choice: the Company was considering you bound by the arbitration policy whether you agreed to it or not.

Three weeks after implementing its forced arbitration policy, Best Buy fired our client, Kevin Dugan, one of its store managers, after 16 years of employment. As soon as we filed suit in state court in New Jersey, the Company attempted to get the court to dismiss the case and order Mr. Dugan to arbitration. We argued that, under New Jersey law, an employer cannnot bind its employees to an arbitration policy without getting some indication from them of their agreement to be bound –a choice that Best Buy did not give its employees.

After the trial court agreed with Best Buy and ordered the case to arbitration, we appealed that decision to the Appellate Division of the New Jersey Superior Court, where a two-judge panel found Best Buy’s arbitration policy unenforceable on the ground that the Company had never obtained any agreement from its employees to be covered by the policy.

In rejecting Best Buy’s argument that by “continuing their employment” its employees had indicated their agreement to be bound by the policy, one of the Appellate Division judge’s wrote as follows:

Plaintiff, by remaining employed for three weeks after [the policy’s] effective date did not indicate his assent to the policy; employment for that brief period does not establish an unambiguous waiver of plaintiff’s right to sue. . . . The policy was offered on a take-it-or-leave-it basis. . . . Plaintiff had worked for defendant for almost sixteen years. The choice given by defendant to ‘leave it’ if an employee did not agree with the policy amounted to no choice at all. It is unreasonable to expect an established employee to walk away from a career, without any prospects, when an employer unilaterally presents a new agreement.”
The second judge on the Appellate Division panel likewise found grounds to strike down Best Buy’s arbitration policy, finding that the Company had failed to ever make clear to its employees that by continuing their employment they had “agreed” to be bound by the arbitration policy, and that the Company had instead stated only that it was “considering” their employees to be bound, whether they agreed with the policy or not.

Best Buy, unwilling to live with the decision of the Appellate Division, sought to review of the decision with the New Jersey Supreme Court. On Friday, November 17, 2016 – one week before the actual “Black Friday,” the Supreme Court turned down Best Buy’s request for review. So, Best Buy’s arbitration policy has been found void and unenforceable by the New Jersey courts, and Mr. Dugan, along with all Best Buy employees in the State, is now free to pursue his case in court and have it decided by a jury of his peers.

The full study can be downloaded at http://employeerightsadvocacy.org/publications/widespread-use-of-workplace-arbitration/.

We are pleased to announce that Richard Schall was honored last month in Best Lawyers Magazine as having been recognized as a 2018 “Lawyer of the Year” in the practice area of Employment Law-Individuals in the South Jersey area. Selection is based on peer-review surveys conducted by Best Lawyers. Only three lawyers in the state of New Jersey were so recognized this year in the field of employment law representing individuals.

Wednesday, March 29, 2017

 

“You Can’t Take It With You:” Another Lesson in the World of Non-Compete Agreements

We have cautioned before in our blogs and on our website that one of the worst mistakes an employee can make when leaving a job is to email information of any sort from a work computer to a home computer in the weeks leading up to the last day of employment.  If you do so, even if you think the information you’re sending home is purely personal, your employer will inevitably suspect that you are attempting to steal a trade secret, customer lists, product information, or some other kind of information the employer may label as “proprietary or confidential.”   And the result, particularly if you’ve signed a non-compete or confidentiality agreement, can be very ugly.

This lesson was recently highlighted in news reports about a Pfizer marketing executive against whom a Pennsylvania federal court issued a “temporary restraining order,” in the days immediately after she left her job with Pfizer.   In the legal action brought by Pfizer against this employee, it accused her of having sent “at least 42 emails containing confidential information to her personal email account and copied 600 files to a USB drive before her departure, violating an existing employee agreement she signed regarding sensitive company information,” according to a March 1, 2017 report by Law360.

Upon being presented with these accusations, presumably supported with some evidence of the electronic transmissions and downloading by the employee, a Pennsylvania federal judge, without giving the employee notice that he was doing so, entered a temporary restraining order against her, finding that, “there is a real danger that, if given advance notice, defendant will either disclose or destroy the confidential information and trade secrets at issue.”

Employees should also be forewarned that employers will often leave no stone unturned – and spend enormous amounts of money –in searching for every potential communication containing company information that a departing employee may have sent to herself or others prior to leaving employment.   In a case we recently handled for an employee, his employer undoubtedly spent far more than $100,000 in retaining attorneys, filing suit, and hiring a very expensive “forensic” computer search firm to search every email, text message, and phone message our client sent in the months preceding his leaving the company.   While it ultimately found nothing and had to dismiss its case, it was a harrowing and expensive procedure for our client who had to defend himself against the company’s legal action and turn over access to all of his personal computers, cell phones, iPads, etc. to be searched by the forensic experts in order to be vindicated.

In fact, just as this blog was about to be published, I learned, again from Law360, that this Pfizer employee’s case had been settled as a result of an agreement reached that would allow Pfizer to bring in an independent computer forensic specialist to examine all of the employee’s computer and other electronic devices.  The agreement also provides that the judge in the case will retain jurisdiction over it for the next three years to resolve any disputes that may arise.  While this Pfizer employee was able to “settle” this dispute, I am sure that she has incurred and will likely continue to incur substantial legal fees and costs in conjunction with the litigation and its ongoing resolution.

So, if you are contemplating leaving your employer and seeking alternate employment, a word to the wise: think twice before hitting that “send” key.

Written by:

Richard M. Schall, Esq.

Schall & Barasch LLC

110 Marter Ave, Ste 302

Moorestown, NJ 08057

(p) 856-914-9200

www.SchallandBarasch.com

sexual HarrassmentWe have written before about the many perils of “forced arbitration agreements” that are imposed by corporations on their employees in order to deprive them of their Constitutional right to trial by jury and to require instead that all disputes be taken to private, secret proceedings before individual arbitrators.

Everything that is wrong with forced arbitration was glaringly highlighted in a story just broken by the Washington Post on Monday, February 27, 2017.   The Post article revealed the existence of a huge class action, now covering some 69,000 female employees, alleging sexual harassment and sex discrimination, brought against Sterling Jewelers, the multibillion-dollar parent corporation of both Kay Jewelers and Jared the Galleria of Jewelry – a case that had been going on for years, hidden from public view behind the cloak of forced arbitration.

The allegations of sexual harassment, if proven, are alarming. In the sworn statements just released, women managers reported on the details of conduct occurring at the company’s annual meetings, described by one employee as a “sex fest” and by another as an event where male executives “prowled around the (resort) like dogs that were let out of their cage,” according to the Post article.   The papers filed in the arbitration proceeding also contain allegations of top executives of the company having sex with female employees and promoting women based upon how they responded to sexual demands.

Even though this case was initially filed back in 2008, the female employees’ sworn statements – many of which were written years ago — were only just brought to light as the result of an agreement reached in the arbitration proceeding to allow the employees’ lawyers to release them publicly.   How or why just an agreement was finally reached was not revealed in the Post article.

The complaints of sexual harassment provide the context for the principal allegations in the case: the disparity in pay given to female store managers compared to the higher salaries paid to men.

But whether the issues involve sexual harassment or discrimination in pay, these are issues that need to be brought to the attention of the public, not hidden in a secret arbitration proceeding.   Moreover, it is critical that employees like the ones here be afforded their Constitutional right to have the merits of their cases decided by a jury of their peers, and not by privately retained arbitrators. Unlike juries, arbitrators do not represent the “conscience of the community,” but instead decide cases based on their own individual viewpoints – ones that unfortunately often slant in favor of corporations.

Because of the threat posed by forced arbitration, we again encourage you to take whatever opportunities may be afforded you to speak out on this critical issue. For more information about forced arbitration and what can be done to oppose it, we encourage you to visit the website of the Employee Rights Advocacy Institute for Law and Policy at www.http://employeerightsadvocacy.org. Since its inception in 2008, the Institute has been working to end forced arbitration of workplace disputes, one of the most significant obstacles to the protection, enforcement, and vindication of employee rights.

 

Written By: Richard M. Schall
Schall & Barasch, LLC, New Jersey Labor and Employment Lawyers.

If a Friend Calls Your Boss a “Jerk” (or Worse) on Facebook, and You “Like” Her Post, Can The Boss Fire You Both and Get Away With It?

Well, these are really two separate questions. Your boss may well fire you just because bosses can. But, they may no longer be able to “get away with it” according to a very recent federal court decision, upholding a decision by the National Labor Relations Board.

The case breaks some new ground because it deals with what employees can and cannot say about their employers in the world of “social media” – Facebook, LinkedIn, and the like.

Here’s what happened: A number of current and former employees of the Triple Play Sports Bar and Grille, located in Watertown, Connecticut, became upset because they felt that Triple Play had failed to withhold sufficient funds for state income tax purposes, leaving them with large tax payments to make up at the end of the year.

A Facebook discussion about the issue was started by a former employee, who posted the following on her Facebook page:

“Maybe someone should do the owners of Triple Play a favor and buy it from them. They can’t even do the tax paperwork correctly!!! Now I OWE money…Wtf!!!!”

One of the current employees, Vincent Spinella, a cook at the restaurant, did not even post his own comment, but simply “liked” the comment that had been posted. A second employee, Jillian Sanzone, a waitress and bartender, then chimed in as follows:

“I owe too. Such an asshole.”

When the boss learned of the employees’ Facebook postings (his wife happened to be a “friend” of someone who got the posts), he summoned each of them to his office, accused them of being “disloyal,” and fired them. And, as Spinella was leaving the office after being fired, the boss added, “You’ll be hearing from our lawyers.” The boss was apparently particularly upset because, not only had his employees seen these posts, but some of his customers, who happened to be “friends” of the employees, had also read them and responded online.

The two fired employees then took their case to the National Labor Relations Board, where they filed a Charge alleging that their discussions about the tax withholding issue constituted “protected, concerted activity,” and that their firings were therefore illegal under the National Labor Relations Act (or “NLRA”).

Section 8(a)(1) of the NLRA guarantees employees the “right to . . . engage in . . . concerted activities for the purpose of [their] mutual aid and protection,” and it has therefore long been understood that it is illegal for an employer to fire or otherwise retaliate employees for discussing or raising concerns about workplace issues.

However, under the law that has developed under the NLRA, the right of employees to speak out or complain to each other about their employers is not unlimited. Both the National Labor Relations Board and the courts have identified two types of comments about an employer that may “cross the line” and lose the protection of the law: (1) comments that disparage an employer’s product and are therefore considered “disloyal,” and (2) comments that are “malicious” or “deliberately untrue.”

And so the issue in the Triple Play case was, by participating in this Facebook discussion, in which Ms. Sanzone had called the boss “an asshole,” and Mr. Spinella had “liked” the “wtf!!” posting by a former employee, these employees had crossed that line.

Fortunately for Mr. Spinella and Ms. Sanzone, the National Labor Relations Board, in a decision just affirmed by the United States Court of Appeal for the Second Circuit, found that the Facebook discussions in which they had participated retained their protection under the law. The Board and the Court found that the employees’ comments, since they did not touch on the restaurant’s service or food, should not be considered “disloyal.” Moreover, while the comments may have been somewhat vulgar, both the Board and the Court found that they were neither “malicious” or “deliberately untrue.”

Significantly, as to the employer’s argument that the employees’ Facebook discussion should lose the protection of the law because members of the “public” –not just other employees—had read the online obscenities directed at the Company, both the Board and the Court addressed what they referred to as the “realities of modern-day social media use” in which there is always some potential that what is posted on Facebook may be seen by the public, including the customers of a company.

I quite enjoyed the Board’s discussion in its decision of Ms. Sanzone’s posting her view that her boss was “an asshole” — a statement that the boss had claimed was defamatory. But, recognizing that to be “defamatory” a statement must assert a certain fact as true, the Board held that Sanzone’s “characterization of [her boss] as an ‘asshole’ . . . cannot reasonably be read as a statement of fact.”

Finding in favor of the two employees, the Board ordered that the Company reinstate them (which rarely actually happens in these cases, with a monetary settlement usually reached instead) and compensate them for all the backpay they had lost as a result of being fired.

The other interesting point to note about the decisions by the Board and the Court is that they found that the restaurant’s “Internet/Blogging policy” also violated the NLRA as it could unlawfully “chill” employees in exercising their right to discuss workplace concerns. The restaurant’s internet policy, contained in an employee handbook, advised employees that they could be subject to disciplinary action if they “engaged in inappropriate discussions about the company, management, or co-workers” on line. Both the Court and the Board found this policy language too broad and potentially chilling of employees’ rights under the NLRA since they might understand it as forbidding them to discuss on social media their concerns about the terms and conditions of their employment.

A couple final reminders: First, the obscenities these employees directed on line at their boss were found to be “protected conduct” only because they were made in the context of a group discussion of working conditions. Second, just to be clear, I don’t advocate directing online obscenities at your boss. There’s less risk involved if you choose your words more carefully.

Written by:  Richard Schall, Esq.

How Your Recycled Garbage Just Changed 30 Years of Labor Law: National Labor Relations Board Finds Browning-Ferris Industries a “Joint Employer” With Its Subcontractor.

As a New Jersey employment lawyer – primarily representing individual employees in non-unionized workplaces — I am generally much more focused on employment law decisions coming down from the New Jersey Supreme Court than I am on decisions by the National Labor Relations Board (NLRB), whose decisions typically affect just those employees who are represented by unions.

But of late, I’ve been finding myself paying more and more attention to NLRB decisions, as noted in some of my recent blogs, as those decisions are having an impact far beyond just the unfortunately small minority of employees in this country still represented by unions.

The most recent of those decisions was handed down on August 27, 2015 by the NLRB, which held that Browning-Ferris Industries – one of the largest waste hauling and recycling companies in the country—was the “joint employer” of the hundreds of employees working for a subcontractor at one its recycling facilities in California. The case arose after the subcontractor’s employees, who did all the “dirty work” at the recycling facility –sorting out the cans, paper, plastic and solid waste – sought to join the union representing the employees directly employed by Browning-Ferris, who received much higher pay and better benefits than those offered by the subcontractor. The subcontractor’s employees successfully argued to the NLRB that Browning-Ferris exercised enough control over the terms and conditions of their employment that both companies – Browning Ferris and the subcontractor – were actually their employer, that is, their “joint employer,” and that they should therefore be able to directly negotiate with Browning-Ferris about their pay, benefits, and working conditions.

In issuing its ruling in the Browning-Ferris case, the NLRB rolled back a 30-year adverse trend in the law –begun under the Reagan administration in 1984 — that had made it harder and harder for employees to establish the existence of “joint employer” status. During that period of time, the NLRB, which for most of those 30 years had been Republican-controlled, added two big barriers to establishing a “joint employer” relationship. The first of these barriers required that the employees seeking to establish “joint employment” show that the larger corporation to whom they had been subcontracted possessed not just the power to control their working conditions, but actually exercised that power to exert control over their working conditions. Then, even if there were evidence that the larger corporation was in fact exercising some control over the subcontracted employees, the previous NLRB decisions had added a second barrier: that the control exercised had to be “direct,” and could not merely be by “indirectly” influencing the subcontractor as to its compensation and treatment of its employees.

In its Browning-Ferris decision, the NLRB swept away both of these barriers, making it much easier for employees to establish a “joint employer” relationship, holding as follows:

We will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry. . . . Nor will we require that, to be relevant to the joint-employer inquiry, a statutory employer’s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly–such as through an intermediary–may establish joint-employer status.
Having removed from the law the barriers that had been added over the prior years and re-established a much less restrictive standard, the NLRB went on to examine whether Browning Ferris was indeed the “joint employer” of its subcontractor’s employees.
The result: Even though the subcontractor’s employees received their pay and benefits directly from the subcontractor; even though the subcontractor had its own on-site human resources department; even though it was the subcontractor’s own supervisors who supervised its employees; and even though it was the subcontractor that hired and fired its employees, the NLRB found that Browning Ferris was also a “joint employer.” In so finding, the NLRB noted that Browning-Ferris indirectly controlled some of the subcontracted employees’ working conditions, including the number of hours the plant would run, and also indirectly influenced the level of their pay and benefits because the amount the subcontractor was able to pay its employees was based in large part on how much Browning-Ferris was compensating the subcontractor for the work done at its plant.

So why is this decision such a big deal? First, as a result of the rapidly increasing reliance by large corporations on subcontractors to provide their labor supply – typically at lower wages with lesser benefits — there are now millions of employees in this country working for either subcontractors or staffing agencies, with the NLRB noting in its decision that, even as of 2005, there were more than five million individuals so employed. The Browning-Ferris decision should make it easier for such employees to unionize, and it’s worth noting that, when the ballots were finally counted (on September 4, 2015), the subcontractor’s employees at Browning-Ferris voted overwhelmingly to join the union. In my view, it is clear that a stronger union movement improves the working conditions and pay of all employees – both union and non-union – and the recent decline in the living standard of American employees, which has paralleled the weakening of the American labor movement, is conclusive proof of that.

But, regardless of any impact on the ability of employees to unionize, I anticipate that the Browning-Ferris decision will have a much broader, “ripple” effect on all areas of employment law, both here in New Jersey and around the country. The decision seems to have further heightened the growing concern by the McDonalds, Burger Kings, and other fast-food giants, that the law will soon find them to be the “joint employers” of the tens of thousands of employees who work in their franchised operations. Indeed, the Browning-Ferris decision may bolster a case the NLRB’s General Counsel is already litigating, in which he has charged both McDonalds and a number of its franchisees as “joint employers,” allegedly responsible for retaliating against employees who have tried to organize unions.

Moreover, and directly affecting my practice as an employment lawyer, the Browning-Ferris decision will make it easier for employees in New Jersey and around the country who bring suit against their employers alleging discrimination on account of their race, sex, age, religion, or disability to hold accountable not just the subcontractor by whom they are directly employed, but the larger corporation, for whom the subcontractor is supplying their services. It is very often the case that subcontractors are small employers, who can easily shift corporate identity and hide from liability – something that the larger corporations of the world cannot so easily do.

The Philly Voice recently reported that a New Jersey mother, from a Pemberton Township claims that she was fired from her job because she needed to pump breast milk for her newborn daughter.

Ariana Gossard, a 21-year-old single mother explained that she has worked at the Hampton Inn located in Bordentown for the past two years. The distraught mother took to Facebook to express her concerns and discontent. She explained that she loved the job and was upset that she was let go due to the need to breastfeed. She left for maternity leave in May of 2015 with the plan to return to work on August 24, 2015.

Before returning to work, Gossard took the time to speak with the general manager and the assistant mangers at the Hampton Inn to explain how her schedule would need to change, as she was a new mom who was breastfeeding. According to Gossard, when she requested to have two 15-minutes breaks during the day to allow her to pump breast milk, the general manager told her that she would not be allowed to take those breaks.

Even after Gossard explained the importance of being able to pump throughout the day to avoid mastitis and clogged ducts, she was denied the breaks that she needed. She went as far as to offer suggestions to make sure that her desk was always covered. A week after this conversation, she received a text saying that the hotel had not available positions that met her requirements.

Under the Affordable Car Act, businesses are required to provide breaks and a private room for mothers to pump breast milk. Richard Schall explained that is was a blatant violation of the law.

 

Gossard has reached out to a lawyer as well as speaking out on Facebook. If you have questions regarding you rights as a new mother, contact Schall & Barasch today.

Read the full story on the Philly Voice.

 

Written by:  Richard M. Schall
Schall & Barasch LLC

I had written many months ago about a case pending before the New Jersey Supreme Court, Lippman v. Ethicon, Inc., and had promised an update once the case was decided. Well, last week, the Court came down with its decision, and it’s a good one, putting to rest an evil doctrine that a number of lower courts had come up involving New Jersey’s Conscientious Employee Protection Act, more commonly known by its acronym CEPA.

CEPA is New Jersey’s “whistleblower” protection law, which provides that employers may not retaliate against their employees who decide (sometimes for noble reasons, but sometimes not) to do any of the following:

(1) report the employer’s illegal, fraudulent or criminal activity to the authorities;

(2) testify in court or before a public agency that’s looking into the employer’s alleged wrongdoing; or

(3) object to, or refuse to participate in, some employer conduct that the employee reasonably believes may be illegal, fraudulent or criminal, or “incompatible with a clear mandate of public policy concerning the public health, safety or welfare or protection of the environment.”

It’s this last provision of CEPA which gave rise to the nasty doctrine that certain employers and their lawyers were able to convince some of the lower courts of New Jersey to buy into: That employees lose the protection of CEPA if what they were objecting to was something that they discovered in the normal course of doing their job. So, for example, if an auditor caught his boss stealing and reported the theft to higher-ups but then got fired, these courts were saying that he was not protected by CEPA because he was “simply doing his job” as an auditor. This dangerous distortion of the law threatened to eliminate all “watchdog” employees, not only auditors, but quality control personnel, safety inspectors, environmental monitors, etc. from the protection under CEPA.

In the Lippman case, the plaintiff was Dr. Joel Lippman, who was Ethicon’s vice-president for medical affairs. His job at the Company required him to provide his professional opinion as to the safety (or potential danger) of the Company’s products –medical devices used in surgical procedures in hospitals around the world. Dr. Lippman had claimed in his CEPA lawsuit that, after he voiced his objections to the safety of certain of Company’s products –asking that they be recalled or not sent to market – the Company fired him.
While one would think that Dr. Lippman’s conduct – objecting to the distribution of possibly unsafe medical devices that might seriously harm the public – would make him exactly the kind of person CEPA was designed to protect, the trial court threw his case out, stating that he could not be a “whistleblower” protected under CEPA because “he was just doing his job” in raising his concerns about safety.

Eventually, thanks to a decision by an appellate court disagreeing with the trial court’s view of things, the Lippman case made its way up to the New Jersey Supreme Court. Fortunately, the New Jersey Supreme Court threw the house down on this doctrine, crushing it once and for all.

The Supreme Court held that when our Legislature enacted CEPA, it did not carve out a special exception for “watchdog employees” like Dr. Lippman, and that it wasn’t the role of the courts to change the law as written by the Legislature, particularly given the principle that employment laws like CEPA are to be given a “broad, liberal construction.”
Not only did the Supreme Court overturn the trial court’s decision, but it went further, clarifying that the burden of proof required of “watchdog” employees in establishing their cases in court should be no different than that required of all other employees.

Yes, ding, dong, this witch is dead. But, there are still a few others that need to be killed off. More on that to come.

Written By:  Richard Schall, Esq.

My First Uber Ride: Who Was Driving That Car? An Independent Contractor or an Employee?

A few weeks back, my wife and I were in Brooklyn and needed to get to a small folkie music club nowhere near any subway station. I had recently decided to download the Uber App onto my smartphone and thought this was a perfect time to give it a try.

Once I figured out how to summon a car on the App, the technology and service were amazing. I could watch on the screen of my phone an image of the car as it was approaching, with a message telling me how many more minutes (only a few) before the driver arrived. We got in, punched in the address to which we were headed on my smartphone, which sent that information to the driver’s smartphone, which then called up the directions to our destination.

When we arrived, no money had to change hands, as I had given Uber my credit card information, along with the amount of tip that it could apply. I just said, “thanks and goodbye” to the driver, and we hopped out. And it was cheap! Way cheaper than a taxi would have been. I then received a nice message on my phone from Uber confirming all the details and cost of the ride. So cool! So fast! So convenient!

During our trip, I had asked the driver how many hours he had been driving that day, and he told me he had been out for about 10 hours. He also told me he generally drove for Uber 6 days a week.
As an employment lawyer, I had read about some lawsuits being filed against Uber and also against Lyft, one of Uber’s competitors, claiming that these companies were “misclassifying” their drivers as independent contractors, when they should be treating them as employees. After my Uber ride, although I did give the issue a little more thought, I mostly just commented on what an incredibly impressive technology Uber had come up with.

I had a little time on my hands this past weekend and thought I would dig a little further into the issue. So, I called up on LEXIS one of the cases I had heard about – a class action — that had been brought against Lyft out in California, under the name, Cotter v. Lyft, Inc.

In that case, in its motion for summary judgment, Lyft tried to convince the judge that the facts proving its drivers were “independent contractors” were so strong that he should rule in its favor without even having to send the issue to the jury. At the same time, the drivers, in their cross-motion for summary judgment, argued to the judge that the facts proving that they were “employees” were so strong that he should rule in their favor, finding that Lyft had misclassified them as independent contractors and that they should have received all the benefits that employees are entitled to, including expenses (such as gas charges), as well as the minimum wage.

The judge in the case, the Honorable Vince Chhabria, of the United States District Court for the Northern District of California, ultimately granted neither side the victory it sought. Instead, because of the many factual issues in the case, he ordered that it be decided by a jury.

Nonetheless, in the course of his opinion, the Judge did an excellent job setting out the harms that both individuals and society will incur when those who should be treated as employees are instead treated as independent contractors. In his decision, he also shed a lot of light on how companies like Lyft exercise control over the working conditions and income of their drivers – treating them in many ways like employees, but without all the benefits that come with that classification.

The judge began his opinion by explaining the important consequences that result from whether a person is classified as an independent contractor or employee, writing follows:

Whether a worker is classified as an employee or an independent contractor has great consequences. California law gives many benefits and protections to employees; independent contractors get virtually none. Employees are generally entitled to, among other things, minimum wage and overtime pay, meal and rest breaks, reimbursement for work-related expenses, workers’ compensation, and employer contributions to unemployment insurance.

The judge then went on to lay out the considerations the courts have traditionally looked at in determining the difference between an “employee” and an “independent contractor,” and how those considerations played out in the case of the Lyft drivers involved in the lawsuit:

At first glance, Lyft drivers don’t seem much like employees. We generally understand an employee to be someone who works under the direction of a supervisor, for an extended or indefinite period of time, with fairly regular hours, receiving most or all his income from that one employer (or perhaps two employers). Lyft drivers can work as little or as much as they want, and can schedule their driving around their other activities. A person might treat driving for Lyft as a side activity, to be fit into his schedule when time permits and when he needs a little extra income.

But Lyft drivers don’t seem much like independent contractors either. We generally understand an independent contractor to be someone with a special skill (and with the bargaining power to negotiate a rate for the use of that skill), who serves multiple clients, performing discrete tasks for limited periods, while exercising great discretion over the way the work is actually done. . . . Lyft drivers use no special skill when they give rides. . . [and while] Lyft might not control when the drivers work, it has a great deal of power over how they actually do their work, including the power to fire them if they don’t meet Lyft’s specifications about how to give rides.

The judge also observed, as had been the case with the Uber driver who took my wife and me to the music club a few weeks back that some of these drivers are working full time for their companies, as he wrote as follows:

Some Lyft drivers no doubt treat their work as a full-time job—their livelihood may depend solely or primarily on weekly payments from Lyft, even while they lack any power to negotiate their rate of pay. Indeed, this type of Lyft driver—the driver who gives “Lyfts” 50 hours a week and relies on the income to feed his family—looks very much like the kind of worker the California Legislature has always intended to protect as an “employee.”

Since “control” over an person’s work is generally the key factor weighing in favor of finding a worker to be “an employee,” I was in fact surprised, in reading the judge’s opinion, to learn about the many ways that Lyft exercises control over its drivers. Thus, if a Lyft driver declines too many calls for service, Lyft will terminate him or her. Likewise, if a driver’s “ratings” from customers fall below a certain mark, termination results.

Moreover, there are a number of ways Lyft controls the work performed by its drivers, as pointed out by the judge in his decision:

Lyft instructed the [drivers] not to do a number of things—not to talk on the phone with a passenger present, not to pick up non-Lyft passengers, not to have anyone else in the car, not to request tips, not to smoke or to allow the car to smell like smoke, and not to ask for a passenger’s contact information. Lyft also affirmatively instructed the plaintiffs to do a number of things—to wash and vacuum the car once a week, to greet passengers with a smile and a fist-bump, to ask passengers what type of music they’d like to hear, to offer passengers a cell phone charge, and to use the route given by a GPS navigation system if the passenger does not have a preference.

Given the extensive discussion in his decision on the amount of control Lyft exercised over its drivers and the benefits and protections both the drivers and society would receive if the drivers were found to be “employees,” I felt Judge Chhabria was certainly leaning toward reaching that result. But because it is up to juries, not judges, to weigh evidence and decide factual issues, the judge has left this decision up to a jury. Trial, as far as I know, has not yet been scheduled.

Written by: Richard Schall, Esq.

Cold Hoagies: The “Chilling Effect” of the Jimmy John’s Non-Compete Agreements and Why the Judge Got it Wrong:

Since it was filed back in July, 2014, there has been a lot of attention paid by the press to the class-action lawsuit filed against sandwich-maker Jimmy John’s by two of its former employees challenging the Company’s requirement that all of its employees sign non-compete agreements. While non-compete agreements are more commonly imposed upon high-level executives or those in possession of confidential information or customer lists that could be used to the potential disadvantage of an employer, many found it shocking that the person making your hoagie or delivering it to your door would be forced to sign a non-compete agreement that would effectively bar him or her from working for any other sandwich maker anywhere in the country.

In an article prompted by this lawsuit about employers’ increasing imposition of non-competes on non-skilled workers such as the sandwich-makers at Jimmy John’s, the New York Times reported that a review of court records from around the country showed that non-compete “restrictions have also snared maids in Chicago, a nail stylist in Texas, cable TV installers in Michigan and agricultural workers in Washington . . . [and that] in October, Democrats in Congress asked the U.S. Federal Trade Commission and Department of Labor to investigate.

Well, in the Jimmy John’s case, the Illinois federal court judge handling it just ruled against the employees, deciding on April 8, 2015 that because Jimmy John’s claimed that it doesn’t enforce its non-compete agreements, there really wasn’t any problem or issue to be decided, and therefore the employees didn’t have “standing” to bring the case.

Holy salami! As pointed out by the attorneys for the two plaintiffs in the case, the very fact that Jimmy John’s has its employees sign these non-compete agreements will inevitably have a “chilling effect” on their seeking out new and better jobs with any competitor of the Company and will instead keep them tied to the low wages and failure to pay overtime they allege that Jimmy John’s forces them to endure.

Indeed, it is this “chilling effect” that is one of the biggest problems with non-compete agreements. Even if a court might ultimately find a company’s non-compete agreement unenforceable as written, or so overbroad that the court will act to substantially “rewrite” the agreement to narrow it in geographic scope or the length of time, (or a company like Jimmy John’s claims it doesn’t bother to enforce them), a non-compete agreement nonetheless looms out there, hanging over (or around) the employee’s neck.

The price paid by employees who are forced to sign non-compete agreements – even if they are ultimately not unenforceable or not enforced by an employer — can be enormous in a number of ways. To begin with, even if a non-compete agreement wouldn’t ultimately stand up in court, many prospective employers will be scared off and simply decline to hire an employee who has signed such a non-compete. Then, if the employee does summon the courage to leave his old job and find an employer willing to hire him, that employee faces the real possibility of being hauled into court by his previous employer who will try to convince a court to grant an injunction ordering the employee to give up the new job he or she has found. Even if the employee ultimately “wins” in court, the employee has still incurred very large legal fees fending off the employer’s attack. We therefore refer to non-competes as posing a “lose-lose” situation for employees.

Despite the setback the two plaintiffs have just been handed out by the federal court judge who dismissed the part of their case challenging the non-competes, they should be saluted for having the courage to bring the case and, as a result, focus the country’s attention on this issue. Moreover, while their non-compete challenge was tossed by the judge, their claims against Jimmy John’s for misclassifying them as exempt employees and failing to pay them overtime did survive and will proceed.


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