Who’s the Boss? Can Companies be Sued for Wage and Hour Violations Even If They Don’t Actually Pay Workers?

Last updated April 21, 2018.

In June 2016, a New Jersey Uber driver has filed a class action in federal court, claiming the ride-service company owes its New Jersey drivers for overtime and vehicle costs. The lawsuit is undoubtedly prompted by Uber’s April 2016 multi-million dollar settlement of claims filed by California and Massachusetts drivers on similar grounds.

The looming legal issue facing the New Jersey Uber plaintiffs is whether they are “employees” for purposes of the state’s Wage and Hour Law and the federal Fair Labor Standards Act. After all, Uber maintains its drivers are “independent contractors” and thus exempt from overtime, since drivers use their own vehicles and gas, schedule their own hours and — perhaps most importantly — are paid directly by their passenger customers.  

How can these New Jersey drivers sue Uber, when the company never even issues them a paycheck? Can workers be legally considered “employees” of companies whose business is to simply schedule, assign, or connect these workers to paying customers?

The Case of MXD Logistics and Williams Sonoma

Recently, a New Jersey federal district court judge indicated that, under the right circumstances, the answer is “yes.”  In Camillo Echavarria et al. v. Williams Sonoma, Inc., et al., 2016 WL 1047225 (March 2016), the Williams Sonoma store used a “logistics” company called MXD, Inc. to facilitate deliveries of its furniture. MXD, Inc. did not have its own fleet of delivery trucks and drivers. Instead, it contracted with various transportation companies to provide trucks and drivers for the deliveries MXD scheduled.

A group of these drivers sued MXD under state and federal wage and hour laws, claiming that they were MXD employees and denied overtime pay. MXD attempted to dispose of the drivers’ lawsuit before trial on a summary judgment motion. In doing so, MXD argued that it was not the drivers’ “employer” and so could not be held liable under the NJ Wage and Hour Law. Key to MXD’s argument was that it didn’t hire or fire the drivers, or even pay them — rather, their respective transportation companies did.

Joint Employer or Enterprise Test

The court, however, applied the “Joint Employer” or “Enterprise” test to determine that a jury could find that the drivers were MDX employees, clearing the way for the case to proceed to trial.  Under the Enterprise test, a court considers:

1. The authority to hire and fire employees. Again, MDX pointed out that it did not hire or fire the drivers. However, the court reasoned that MDX “exercised some authority” over hiring when it required the drivers to fill out paperwork for its corporate office, and to pass background checks.
2. The authority to promulgate work rules and assignments, and set conditions of employment, including compensation, benefits and hours. Under this factor, MDX argued that it was the transportation companies that “set the conditions of employment” by deciding which drivers were to work on what days. The court, on the other hand, found that MDX controlled the drivers’ employment by generating their daily delivery routes and requiring them to check in from the road.
3. Day-to-day supervision, including employee discipline. Here, MDX argued that it did not manage or discipline the drivers. However, the court noted that MDX held regular meetings on how the drivers should do their jobs, supervised the drivers’ morning load, and required them to obtain permission before changing routes.
4. Control of employee records, including payroll, insurance, taxes and the like. The court admitted that this factor mitigated against finding MDX an employer, since the drivers’ payroll and benefits were administered by their respective transportation companies.

The court found in the drivers’ favor based upon the totality of the foregoing factors. Moreover, while MDX argued that an employment relationship “only exists when an employer provides remuneration,” the court flatly disagreed, stating “The Enterprise test does not require direct remuneration. Neither does the NJ Wage and Hour Law . . .  Therefore, a jury could find that MXD had an employment relationship with Plaintiffs, even absent direct remuneration.”

How to Know If You are an ‘Employee’

The upshot of the Echavarria case is that whether a company’s name appears on your paycheck is simply a factor in deciding whether that company is your “employer” under the wage and hour laws — a very persuasive factor, to be sure, but just one of many a judge or jury has to consider in determining your employment status and right to sue. As Echavarria shows, under the right circumstances, even companies who simply connect or assign workers to jobs may be held liable for overtime as joint employers.

Figuring out whether you are an “employee” or an “independent contractor” for purposes of wage and hour laws can be tricky business. Call our offices today for a free consultation on the issue.