Our employment rights law firm recently filed a brief in the United States District Court for the Eastern District of Pennsylvania addressing several ‘coverage” issues arising under the Pennsylvania Wage Payment and Collection Law (“PWPCL”). The brief has been filed in a class action lawsuit brought on behalf of Pennsylvania delivery drivers/installation technicians (“delivery workers”) who allege that XPO Logistics, Inc. and its predecessor company, CPD, Inc., misclassified them as independent contractors rather than employees. XPO filed a motion seeking to narrow the class definition so that it will not include delivery workers who were “paid through” individual “business corporations, limited liability companies, [or] partnerships” that XPO required them to set-up in order to enter into Delivery Service Agreements (“DSAs”) with XPO or 3PD. Her is the text of the brief our firm filed in opposition to this motion:
Introduction
Defendant XPO Logistics, Inc. (“XPO”) has filed a “Motion for Judgment on the Pleadings” (“Motion”) before any discovery has taken place. See Doc. 16. As XPO admits, the Motion is not dispositive of this lawsuit. Even if the Court agrees with XPO’s arguments, the Pennsylvania Wage Payment and Collection Law (“PWPCL”) claims of Plaintiff Victor Reyes (“Reyes”) and 12 putative class members will survive. See XPO Br. (Doc. 16-1) at p. 4 n. 4.
XPO’s motion seeks to preliminarily narrow Reyes’ class definition so that it will not include delivery workers who were “paid through” individual “business corporations, limited liability companies, [or] partnerships” that XPO required them to set-up in order to enter into Delivery Service Agreements (“DSAs”) with XPO or its predecessor company, 3PD, Inc.[1]
XPO proposes that Reyes’ class definition is so fundamentally defective that it can be trimmed as a matter of law at the pre-discovery stage. Because class certification determinations generally require courts to “delve beyond the pleadings,” Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 167 (3d Cir. 2001), and because dismissal of class claims at the pleading stage generally is improper, see Landsman & Funk PC v. Skinder-Strauss Assoc., 640 F.3d 72, 93 (3d Cir. 2011),[2] XPO needs a “slam dunk” to prevail on its Motion at the pre-discovery stage. Slam dunks are rare in the law.[3]
As discussed below, XPO’s Motion should fail because it rests on arguments that, at worst, have no basis in the PWPCL’s text or caselaw, and, at best, can only be resolved based on a more detailed discovery record.
As a preliminary matter, many judges have rejected the notion that workers allegedly misclassified as “contractors” are prohibited from pursuing statutory wage claims just because the purported employer required them to form their own corporate entities. See Section III.A. As one judge already explained to 3PD, such a rule would make it far too easy for companies to avoid the reach of statutory wage protections. See id. (discussing Martins v. 3PD, Inc., 2013 U.S. Dist. LEXIS 45753 (D. Mass. Mar. 28, 2013)).
Secondly, XPO’s assertion that a PWPCL claim must be based on a contract between the plaintiff and defendant cannot be reconciled with the PWPCL’s statutory text, regulatory text, or existing caselaw. See Section III.C. Moreover, even if such a requirement existed, the current factual record is insufficient to establish that class members who formed corporate entities were not personally covered by the pertinent DSAs. See Section III.D.
Finally, the caselaw contradicts XPO’s assertion that a plaintiff must be “paid through” the defendant in order to state a claim under the PWPCL. See Section III.E.
Background
A. The Legal Claim Asserted by Reyes.
XPO and its predecessor, 3PD, Inc. (collectively “XPO”) provide “last mile” logistics services to retail stores such as Sears and Home Depot. See Complaint (Doc. 1) at ¶¶ 5-6. After an end-consumer purchases an appliance or similar item from the retail store, XPO delivers the item to the end-consumer’s home or business and assembles/installs the item at the end-consumer’s home or business. See id. at ¶ 5. This delivery and installation work is performed by workers such as Reyes, who worked for XPO from approximately October 2008 until approximately October 2013. See id. at ¶¶ 7-8.
During the relevant time period, XPO subjected Reyes and similar workers to wage deductions covering, inter alia, insurance premiums, damage to end-consumers’ homes and businesses, loan repayments, truck leases, service fees, settlement fees, administration fees, and driver qualification fees. See Complaint (Doc. 1) at ¶ 9. For example, for the pay period ending June 1, 2012, XPO subjected Reyes to the following deductions: $100.00 for “Broken Freight Charges;” $78.45 for “AON Auto Liability Insurance Premium;” $12.50 for “AON Cargo Insurance Premium;” $48.16 for “AON General Liability Insurance Premium;” $20.88 for “AON Umbrella Insurance Premium;” $78.86 for “AON Zurich Workers Compensation Insurance Premium;” $459.96 for “Enterprise Direct Truck Lease Payments;” and $15.00 for “Settlement and Administration Fees.” See id. at ¶ 10. XPO never sought or obtained the Pennsylvania Department of Labor & Industry’s approval for these wage deductions. See id. at ¶ 11.
Reyes asserts that the above wage deductions violate the PWPCL, which prohibits employers from making wage deductions that are not “provided by law, or authorized by regulation of the Department of Labor and Industry for the convenience of the employee.” 43 P.S. § 260.3(a). Reyes submits that none of the deductions imposed on him were authorized by the pertinent regulations. See Complaint (Doc. 1) at ¶ 24 (citing 34 Pa. Code § 9.1).
B. The Putative Class Consists of Individuals, Not Corporate Entities.
Reyes asserts his PWPCL claim on behalf of the following class: “all Pennsylvania residents who, during any time within the past three years, (i) delivered, assembled, and/or installed items at end-consumers’ homes or businesses and (ii) were paid directly by Defendant (including 3PD) in either their individual capacities or through personal corporate entities.” Complaint (Doc. 1) at ¶ 12 (emphasis supplied). At the time of filing, Reyes estimated that the class consisted of “over 50 individuals.” Id. (emphasis supplied). Importantly, and as Class Counsel unambiguously asserted during the September 9, 2015 case management conference, this class definition does not include corporate entities. Rather, the class is limited to individuals, some of whom may also have formed “corporate entities.”
C. XPO’s “Independent Contractor” Defense.
In answering the Complaint, XPO asserts that Reyes and other class members are non-employee independent contractors not covered by the PWPCL. See Answer (Doc. 10) at Tenth Affirmative Defense. Notably, because XPO’s independent contractor theory is an affirmative defense, Reyes was neither required nor expected to plead any facts relevant to the defense in his complaint. See Ceant v. Aventura Limousine & Transp. Service, Inc., 874 F. Supp. 2d 1373, 1382-83 (S.D. Fla. 2012); Roberts v. Caballero & Castellanos, 2010 U.S. Dist. LEXIS 1783, *8-9 (S.D. Fla. Jan. 11, 2010).[4
D. Reyes Names Himself “Victor’s Delivery Service” and Signs a Delivery Service Agreement.
Our employment rights law firm recently filed a brief in the United States District Court for the Eastern District of Pennsylvania addressing several ‘coverage” issues arising under the Pennsylvania Wage Payment and Collection Law (“PWPCL”). The brief has been filed in a class action lawsuit brought on behalf of Pennsylvania delivery drivers/installation technicians (“delivery workers”) who allege that XPO Logistics, Inc. and its predecessor company, CPD, Inc., misclassified them as independent contractors rather than employees. XPO filed a motion seeking to narrow the class definition so that it will not include delivery workers who were “paid through” individual “business corporations, limited liability companies, [or] partnerships” that XPO required them to set-up in order to enter into Delivery Service Agreements (“DSAs”) with XPO or 3PD. Her is the text of the brief our firm filed in opposition to this motion:
Introduction
Defendant XPO Logistics, Inc. (“XPO”) has filed a “Motion for Judgment on the Pleadings” (“Motion”) before any discovery has taken place. See Doc. 16. As XPO admits, the Motion is not dispositive of this lawsuit. Even if the Court agrees with XPO’s arguments, the Pennsylvania Wage Payment and Collection Law (“PWPCL”) claims of Plaintiff Victor Reyes (“Reyes”) and 12 putative class members will survive. See XPO Br. (Doc. 16-1) at p. 4 n. 4.
XPO’s motion seeks to preliminarily narrow Reyes’ class definition so that it will not include delivery workers who were “paid through” individual “business corporations, limited liability companies, [or] partnerships” that XPO required them to set-up in order to enter into Delivery Service Agreements (“DSAs”) with XPO or its predecessor company, 3PD, Inc.[1]
XPO proposes that Reyes’ class definition is so fundamentally defective that it can be trimmed as a matter of law at the pre-discovery stage. Because class certification determinations generally require courts to “delve beyond the pleadings,” Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 167 (3d Cir. 2001), and because dismissal of class claims at the pleading stage generally is improper, see Landsman & Funk PC v. Skinder-Strauss Assoc., 640 F.3d 72, 93 (3d Cir. 2011),[2] XPO needs a “slam dunk” to prevail on its Motion at the pre-discovery stage. Slam dunks are rare in the law.[3]
As discussed below, XPO’s Motion should fail because it rests on arguments that, at worst, have no basis in the PWPCL’s text or caselaw, and, at best, can only be resolved based on a more detailed discovery record.
As a preliminary matter, many judges have rejected the notion that workers allegedly misclassified as “contractors” are prohibited from pursuing statutory wage claims just because the purported employer required them to form their own corporate entities. See Section III.A. As one judge already explained to 3PD, such a rule would make it far too easy for companies to avoid the reach of statutory wage protections. See id. (discussing Martins v. 3PD, Inc., 2013 U.S. Dist. LEXIS 45753 (D. Mass. Mar. 28, 2013)).
Secondly, XPO’s assertion that a PWPCL claim must be based on a contract between the plaintiff and defendant cannot be reconciled with the PWPCL’s statutory text, regulatory text, or existing caselaw. See Section III.C. Moreover, even if such a requirement existed, the current factual record is insufficient to establish that class members who formed corporate entities were not personally covered by the pertinent DSAs. See Section III.D.
Finally, the caselaw contradicts XPO’s assertion that a plaintiff must be “paid through” the defendant in order to state a claim under the PWPCL. See Section III.E.
Background
A. The legal claim asserted by Reyes.
XPO and its predecessor, 3PD, Inc. (collectively “XPO”) provide “last mile” logistics services to retail stores such as Sears and Home Depot. See Complaint (Doc. 1) at ¶¶ 5-6. After an end-consumer purchases an appliance or similar item from the retail store, XPO delivers the item to the end-consumer’s home or business and assembles/installs the item at the end-consumer’s home or business. See id. at ¶ 5. This delivery and installation work is performed by workers such as Reyes, who worked for XPO from approximately October 2008 until approximately October 2013. See id. at ¶¶ 7-8.
During the relevant time period, XPO subjected Reyes and similar workers to wage deductions covering, inter alia, insurance premiums, damage to end-consumers’ homes and businesses, loan repayments, truck leases, service fees, settlement fees, administration fees, and driver qualification fees. See Complaint (Doc. 1) at ¶ 9. For example, for the pay period ending June 1, 2012, XPO subjected Reyes to the following deductions: $100.00 for “Broken Freight Charges;” $78.45 for “AON Auto Liability Insurance Premium;” $12.50 for “AON Cargo Insurance Premium;” $48.16 for “AON General Liability Insurance Premium;” $20.88 for “AON Umbrella Insurance Premium;” $78.86 for “AON Zurich Workers Compensation Insurance Premium;” $459.96 for “Enterprise Direct Truck Lease Payments;” and $15.00 for “Settlement and Administration Fees.” See id. at ¶ 10. XPO never sought or obtained the Pennsylvania Department of Labor & Industry’s approval for these wage deductions. See id. at ¶ 11.
Reyes asserts that the above wage deductions violate the PWPCL, which prohibits employers from making wage deductions that are not “provided by law, or authorized by regulation of the Department of Labor and Industry for the convenience of the employee.” 43 P.S. § 260.3(a). Reyes submits that none of the deductions imposed on him were authorized by the pertinent regulations. See Complaint (Doc. 1) at ¶ 24 (citing 34 Pa. Code § 9.1).
B. The putative class consists of individuals, not corporate entities.
Reyes asserts his PWPCL claim on behalf of the following class: “all Pennsylvania residents who, during any time within the past three years, (i) delivered, assembled, and/or installed items at end-consumers’ homes or businesses and (ii) were paid directly by Defendant (including 3PD) in either their individual capacities or through personal corporate entities.” Complaint (Doc. 1) at ¶ 12 (emphasis supplied). At the time of filing, Reyes estimated that the class consisted of “over 50 individuals.” Id. (emphasis supplied). Importantly, and as Class Counsel unambiguously asserted during the September 9, 2015 case management conference, this class definition does not include corporate entities. Rather, the class is limited to individuals, some of whom may also have formed “corporate entities.”
C. XPO’s “independent contractor” defense.
In answering the Complaint, XPO asserts that Reyes and other class members are non-employee independent contractors not covered by the PWPCL. See Answer (Doc. 10) at Tenth Affirmative Defense. Notably, because XPO’s independent contractor theory is an affirmative defense, Reyes was neither required nor expected to plead any facts relevant to the defense in his complaint. See Ceant v. Aventura Limousine & Transp. Service, Inc., 874 F. Supp. 2d 1373, 1382-83 (S.D. Fla. 2012); Roberts v. Caballero & Castellanos, 2010 U.S. Dist. LEXIS 1783, *8-9 (S.D. Fla. Jan. 11, 2010).[4
D. Reyes names himself “Victor’s Delivery Service” and signs a Delivery Service Agreement.
XPO’s independent contractor defense is based on the fact that Reyes and other workers signed DSAs with XPO. See footnote 1 supra (identifying different versions of the DSA).
As XPO admits, Reyes never formed a corporate entity. See XPO Br. (Doc. 16-1) at p. 4 n. 4. Instead, in October 2008, Reyes called himself “Victor’s Delivery Service” and signed the DSA. See Ex. C. Even though “Victor’s Delivery Service” is not a real corporate entity, Reyes would spend the next five years performing XPO delivery and installation services. XPO does not suggest that Reyes’ failure to form a corporate entity had any material impact on his relationship with XPO, the work he performed for XPO, or any other “economic realities.” On the contrary, Reyes’ five-year run seems to confirm that whether or not a worker forms a “corporate entity” is immaterial to the actual work relationship.
Argument
A. As a preliminary matter, courts often find that putative employers – including XPO – cannot escape wage laws by simply requiring workers to form personal corporations.
Workers, governmental entities, and business competitors are increasingly recognizing the adverse economic and societal consequences of independent contractor misclassification. Misclassifying workers as independent contractors unfairly punishes workers, taxpayers, and competing businesses. As the Seventh Circuit has summarized:
[T]he issue is of great importance not just to this case but to the structure of the American workplace. The number of independent contractors in this country is growing. There are several economic incentives for employers to use independent contractors and there is a potential for abuse in misclassifying employees as independent contractors. Employees misclassified as independent contractors are denied access to certain benefits and protections. Misclassification results in significant costs to government: “[B]etween 1996 and 2004, $34.7 billion of Federal tax revenues went uncollected due to the misclassification of workers and the tax loopholes that allow it.” And misclassification “puts employers who properly classify their workers at a disadvantage in the marketplace[.]”
Craig v. FedEx Ground Package System, Inc., 686 F.3d 423, 430-31 (7th Cir. 2012) (internal citations omitted).[5]
Independent contractor misclassification lawsuits come in all shapes and sizes. In some lawsuits, the putative employer requires the workers to form a personal corporation and then sign a contract purporting to create a non-employment relationship between the putative employer and the personal corporation. In such lawsuits, judges generally reject the argument that a worker’s formation of his own business or corporation prevents him from seeking employee status under federal or state wage laws. See, e.g., Ruiz v. Affinity Logistics Corp., 754 F.3d 1093; 899, 907-08 (9th Cir. 2014); DeGiovanni v. Jani-King Int’l, Inc., 262 F.R.D. 71, 86 (D. Mass. 2009); Parrilla v. Allcom Construction & Installation Services, LLC, 2009 U.S. Dist. LEXIS 77585, *15-16 (M.D. Fla. Aug. 31, 2009); Lee v. ABC Carpet & Home, 236 F.R.D. 193, 198 (S.D.N.Y. 2006); Gustafson v. Bell Atlantic Corp., 171 F. Supp. 2d 311, 325 (S.D.N.Y. 2001). Consistent with these rulings, the Wage & Hour Division of the U.S. Department of Labor recently instructed that a worker’s formation of his own corporation is not dispositive of employment status under the FLSA:
[T]he Department has seen and increasing number of instances where employees are labeled . . . “owners,” “partners,” or “members of a limited liability company.” In these instances, the determination of whether the workers are in fact FLSA covered employees is also made by applying an economic realities analysis.
Administrator’s Interpretation No. 2015-1 (Ex. H).
None of the above is surprising to XPO. Indeed, the above principles have been applied in lawsuits against 3PD. In Phelps v. 3PD, Inc., 261 F.R.D. 548 (D. Or. 2009), for example, the district court certified a class consisting of Oregon 3PD drivers. Notably, almost all of these drivers “needed to form a business entity to do business with [3PD] and execute a new [contract] with [3PD] on behalf of that business entity.” Id. at 556.
Likewise, in Martins v. 3PD, Inc., 2013 U.S. Dist. LEXIS 45753 (D. Mass. Mar. 28, 2013), the plaintiff “incorporated his delivery business . . . under the name AAR Trucking, Inc.” Id. at *4. 3PD argued that this fact prevented the plaintiff from asserting a Massachusetts wage claim. See id. at *49-51. The district court rejected this argument, holding “that an individual can bring a Massachusetts wage claim even if he has incorporated his business, and the employer’s formal relationship is with the entity and not the individual.” Id. at *50. Otherwise, “‘any employer who wanted to avoid the requirements of the Wage Act would simply require its employees to incorporate as a condition of employment.’” Id. at *51 (quoting Amero v. Townsend Oil Co., 2009 Mass. Super. LEXIS 433, *7-8 n. 4 (Mass. Super. Apr. 15, 2009)).
B. Because the class members in this case are individuals – not corporate entities – the rule that corporate entities are prohibited from asserting PWPCL claims is irrelevant.
Citing Frank Burns, Inc. v. Interdigital Communications Corp., 704 A.2d 678 (Pa. Super. 1987), XPO emphasizes that corporations cannot pursue PWPCL claims. See XPO Br. (Doc. 16-1) at 4-7. This rule is irrelevant to this lawsuit because, as discussed in Section II.B above, the proposed class definition consists entirely of individuals. As Judge Surrick recently explained, the rule prohibiting corporate entities from pursuing PWPCL claims does not apply to individuals who happen to form such entities. See Myers v. Jani-King of Philadelphia, Inc., 2015 U.S. Dist. LEXIS 29566, *23-25 (E.D. Pa. Mar. 11, 2015); see also Martins, 2013 U.S. Dist. LEXIS 45753, at *50 (fact that “company itself cannot bring a [wage] claim” does not mean individual who formed company cannot bring wage claim).
C. PWPCL wage deduction claims do not require a contract between the plaintiff and defendant.
XPO’s entire argument is predicated on the proposition that a worker cannot bring a PWPCL claim against XPO in the absence of a contract between him and XPO. As discussed below, this proposition is incorrect both as a general matter and in the context of PWPCL wage deduction cases.
First, the PWPCL’s text contains no language requiring – or even suggesting – that wages owed must be based on a formal contract. See generally 43 P.S. §§ 260.1, et seq.
Second, the PWPCL’s text actually contradicts a rule that wages owed must be based on a formal contract. In particular, the PWPCL states: “No provision of this act shall in any way be contravened or set aside by private agreement.” 43 P.S. § 260.7. As Judge Wettick has observed, this provision reaches “any contractual provisions that interfere with enforcement of the legislation” and prevent courts from enforcing written agreements “that make it more difficult for workers to enforce their statutory rights.” Watson v. Prestige Delivery Systems, Inc., 27 Pa. D. & C. 5th 449, 456 (Pa. C.C.P., Allegheny Cty. Feb. 7, 2013) (emphasis supplied). As such, this statutory provision confirms that PWPCL rights exist independently of contractual rights and cannot be reconciled with the notion that PWPCL rights are defined by private agreements.
Third, the caselaw contradicts any rule that unpaid wages must be based on a contract between the plaintiff and defendant. In Lugo v. Farmers Pride, Inc., 967 A.2d 963 (Pa. Super. 2009), the Superior Court held that a class of poultry workers could assert PWPCL claims that were predicated entirely on the employer’s violation of statutory minimum wage and overtime laws. See id. at 969. The Lugo decision contains no indication or suggestion that these at-will poultry workers had any employment contract or any contractual basis for their PWPCL claims. See id. Thus, as Judge Rufe has observed: “Lugo adopts a broader interpretation of the WPCL as a vehicle for employees to recover unpaid wages, regardless of the source of their employer’s obligation to pay the wages.” Moser v. Papadopoulos, 2011 U.S. Dist. LEXIS 64716, *12 (E.D. Pa. June 15, 2011). Other judges agree. See Galloway v. George Junior Republic, 2013 U.S. Dist. LEXIS 134014, *43-44 (W.D. Pa. Sept. 19, 2013) (Mitchell, M.J.); Hilvey v. Allis-Chalmers Energy, Inc., 2013 U.S. Dist. LEXIS 80800, *8-9 (W.D. Pa. June 10, 2013) (Fischer, J.); Turner v. Mercy Health System, 2010 Phila. Ct. Com. Pl. LEXIS 146, *13-14 (Pa. C.C.P., Phila. Cty. Mar. 10, 2010) (Fox, J.).
Fourth, the PWPCL’s wage deduction regulation – which forms the basis for Reyes’ lawsuit – contradicts any rule that PWPCL claims require a contract between the plaintiff and defendant. At almost every turn, the regulation requires particular categories of deductions to be “authorized in writing” in order to be legal. See 34 Pa. Code §§ 9.1(2)-(7), (10)-(13). Thus, with respect to these deductions, a PWPCL violation arises if the deductions are not authorized in writing, a reality that cannot be reconciled with the false notion that PWPCL claims must be predicated on the existence of contract. Indeed, the regulatory language commands the opposite: it is the absence of an agreement that triggers the PWPCL violation. See id.
The PWPCL’s wage deduction regulation contains other requirements that further contradict any notion that PWPCL claims must be defined by contract. Most significantly, even if an agreement is reached between the plaintiff and defendant regarding a particular deduction, the PWPCL is still violated if the deduction is not “for the convenience of employees.” Id. at § 9.1. This requirement exists because the regulators “would not have intended to give employers a free pass as long as the job-seeking worker would sign a piece of paper authorizing a deduction.” Watson, 27 Pa. D. & C. 5th at 465. Likewise, under the wage deduction regulation’s “catch-all” provision, see 34 Pa. Code § 9.1(13), a PWPCL violation will be found unless the employer specifically obtained the Department of Labor & Industry’s approval for the deduction. See Ressler v. Jones Motor Co., Inc., 487 A.2d 424, 427-29 (Pa. Super. 1985). This is true even if the deduction is agreed upon between the plaintiff and defendant, see id., a reality that contradicts any argument that PWPCL rights are defined by contract.
In sum, XPO’s assertion that a driver cannot bring a PWPCL claim against XPO in the absence of a contract between him and XPO cannot be reconciled with statutory text, regulatory text, or existing caselaw. For this reason, standing alone, XPO’s motion should fail.
D. Even if a PWPCL claim requires a contract between the plaintiff and defendant, discovery may establish that class members satisfy such requirement.
As discussed above, a PWPCL wage deduction claim does not require a contract between the plaintiff and defendant. But, even if such a requirement exists, this Court can easily conclude that all class members – including those who established personal “corporate entities” – may be individually covered by the DSAs they signed. XPO’s attempt to short-circuit such a finding at the pre-discovery stage is improper.
There is no validity to XPO’s conclusory assertion that, as a matter of law, class members who formed corporate entities cannot possibly be considered parties to the DSAs. In fact, individual business owners often are considered to be “parties” to lawsuits arising under contracts entered into between their corporations and the defendant. For example, in Margarite v. HRN Corp., 1993 U.S. Dist. LEXIS 10132 (E.D. Pa. Jul. 22, 1993), Judge Gawthrop held that two individuals who formed a corporation called Black Bear Systems, Inc. had standing to assert breach of contract claims arising out of a contract between Black Bear Systems, Inc. and HRN Corporation:
It is clear that the two individual plaintiffs were the parties with whom HRN contracted. It was their services which HRN wished to acquire, regardless of corporate name. Finally, it was the individual plaintiffs who were to reap the benefits of the contract. If defendants did breach the contract or commit fraud, then the individual plaintiffs were harmed. They are true parties in interest.
Id. at *7-8; accord Copelco Credit Corp. v. Fahey, 1997 U.S. Dist. LEXIS 19886, *12-14 (E.D. Pa. Dec. 8, 1997) (corporate owners could assert breach of contract entered into by their companies because they “were all central players in the underlying dispute”).
Clearly, where a contract places obligations on both the business and the individual business owner, Pennsylvania courts refuse to entertain the fiction that the individual business owner is not covered by the agreement. As “the Pennsylvania Supreme Court explained: ‘the mere signature of the appellant preceded by the word ‘by’ and following the typed name of the corporation on the corporation’s letterhead is not conclusive that he was acting in a representative capacity, if the alleged contract showed an intent to bind appellant individually.’” CDL Medical Tech, Inc. v. Malik, 2011 U.S. Dist. LEXIS 11710, *6 (W.D. Pa. Feb. 7, 2011) (quoting Viso v. Werner, 369 A.2d 1185, 1188 (Pa. 1977) (emphasis in original)).
In this regard, Judge Surrick’s opinion in a PWPCL lawsuit entitled Myers v. Jani-King of Philadelphia, Inc., 2015 U.S. Dist. LEXIS 29566, *33 (E.D. Pa. Mar. 11, 2015), is noteworthy. Myers involved the classwide PWPCL claims of janitors who alleged that Jani-King misclassified them as independent contractors. Jani-King considered the janitors to be “franchisees” and required them to perform their custodial duties pursuant to Franchise Agreements. See id. at *1-14. Jani-King also required janitors to “form a corporation or a limited liability company.” Id. at *4. A copy of the Jani-King Franchise Agreement, obtained from the Court’s ECF system, is attached as Exhibit I. As indicated, the Agreement – like the DSA attached to XPO’s Motion – was formally entered into between Jani-King and the janitor’s corporate entity, and the signature page – like the signature page of XPO’s DSA – did not require the janitor to sign as an individual. See id. at p. 29. Rather, each janitor signed the Franchise Agreement in his/her capacity as the “Owner, Partner or Authorized Officer” of the corporate entity. Id.
Based on the above, Jani-King argued that a plaintiff named Howard Brooks “is not qualified to represent the proposed class because he operates his franchise as a corporate entity, and under Pennsylvania law, a corporate entity cannot bring a claim under the WPCL.” Myers, 2015 U.S. Dist. LEXIS 29566, at *23. Judge Surrick rejected this argument, refusing to accept the fiction that Mr. Brooks was not individually covered by the Franchise Agreement. See id. at *23-25.
Here, as in Myers, this Court should reject XPO’s argument that the DSA cannot constitute an agreement between XPO and class members who formed individual corporate entities. Indeed, XPO seems to admit that Reyes is individually bound by the DSA. See Def. Br. (Doc. 16-1) at p. 4 n. 4. Yet, Reyes signed his DSA on behalf of “Victors Delivery Service,” see Ex. C. at p. 12, and his DSA is not very different from the DSAs signed by other class members, Compare Ex. C (Reyes DSA) with Ex. A-B (other DSAs) and Doc. 16-3 (DSA attached to Motion). It is likely that discovery will reveal that Reyes – who worked for XPO without forming a corporate entity – was subjected to the same work conditions as other class members who formed corporate entities. Such evidence would debunk XPO’s argument and demonstrate that the creation of a corporate entity is immaterial to the relationship – contractual and otherwise – between XPO and the workers. Reyes has a right to obtain such discovery.[6]
Also, discovery may reveal that individual workers – including those who formed corporate entities – were subjected to direct and individualized oversight and control by XPO management. Such evidence is common in PWPCL misclassification cases, see, e.g., Sherman v. American Eagle Express Inc., 2012 U.S. Dist. LEXIS 30728, *6-7 (E.D. Pa. Mar. 8, 2012), and it is hard to believe that a worker’s individual “corporation” or “LLC” created a meaningful buffer between himself and XPO management. If discovery reveals that XPO, under the auspices of the DSA, was managing workers’ activities in a direct manner, such evidence certainly would support an argument that the DSA created contractual obligations on the worker in his/her individual capacity.
It also will be interesting to see whether XPO ever sought to hold a worker individually liable under a DSA. Such evidence, which must be obtained through the discovery process, is certainly relevant to determining whether individual workers were individually covered by the DSAs. Once again, however, XPO’s Motion would prevent such discovery.
In sum, even if a PWPCL wage deduction claim requires a contract between the plaintiff and defendant, it cannot be said that class members who formed corporate entities cannot satisfy such requirement. Resolution of this issue would require discovery.
E. There is no merit to XPO’s argument that PWPCL plaintiffs must be paid directly by the defendant.
XPO asserts that class members who formed individual corporate entities cannot bring PWPCL claims against XPO because they were “paid through those corporate entities.” See XPO Motion (Doc. 16) at p. 1; XPO Br. (Doc. 16-1) at pp. 1-2. This assertion finds no support in the caselaw, which clearly establishes that defendants who do not directly pay the plaintiffs can be liable under the PWPCL.
E.1 The determination of an employer-employee relationship under the PWPCL requires the weighing of factors that generally have nothing to do with whether the purported employee was “paid through” the purported employer.
As Judge Sanchez has observed, “[i]n deciding whether an individual is an employee or an independent contractor under the PWPCL, Pennsylvania courts apply the same multi-factor test used in the context of misclassification claims under the Workers’ Compensation Act (WCA) and the Unemployment Compensation Act (UCA).” Sherman, 2012 U.S. Dist. LEXIS 30728, at *26. These factors include:
the control of the manner that work is to be done; responsibility for result only; terms of agreement between the parties; the nature of the work or occupation; the skill required for performance; whether one employed is engaged in a distinct occupation or business; which party supplies the tools; whether payment is by the time or by the job; whether the work is part of the regular business of the employer, and the right to terminate the employment at any time.
Id. at *26-27 (quoting Morin v. Brassington, 971 A.2d 844, 850 (Pa. Super. 2005)); accord Accurso v. Infra-Red Services, Inc., 2015 U.S. Dist. LEXIS 104641, *29-30 (E.D. Pa. Aug. 10, 2015); Myers, 2015 U.S. Dist. LEXIS 29566, at *33; In re FedEx Ground Package Systems Employment Practices Litig., 273 F.R.D. 424, 469 (N.D. Ind. 2008). Moreover, “control” is the most important of these factors. See Sherman, 2012 U.S. Dist. LEXIS 30728, at *27 (control is “chief” factor); Accurso, 2015 U.S. Dist. LEXIS 104641, at *31 (control is “crucial” factor); Myers, 2015 U.S. Dist. LEXIS 29566, at *33 (control is “key” factor); FedEx, 273 F.R.D. at 469 (control is “paramount” factor); Morin, 971 A.2d at 850 (same). As explained by the Superior Court,
the basic inquiry is whether such person is subject to the alleged employer’s control or right to control with respect to his physical conduct in the performance of the services for which he was engaged. The hallmark of an employee-employer relationship is that the employer not only controls the result of the work but has the right to direct the manner in which the work shall be accomplished; the hallmark of an independent contractee-contractor relationship is that the person engaged in the work has the exclusive control of the manner of performing it, being responsible only for the result.”
Valles v. Albert Einstein Medical Center, 758 A.2d 1238, 1241 (Pa. Super. 2000).
Notably lacking from the multi-factor analysis described above is any mention of whether the purported employee is paid by the purported employer. While the question “Who paid the purported employee?” is arguably relevant to one or more of the factors, it certainly is not dispositive. The whole point of the multi-factor analysis, after all, is to assess the “realities of the working relationship,” Accurso, 2015 U.S. Dist. LEXIS 104641, at *36, between the purported employee and the purported employer. No single factor is dispositive. See, e.g., id. at *30-36 (finding plaintiff to be employee even though “factors are split”).
In sum, the fundamental problem with XPO’s argument that a PWPCL plaintiff must be “paid through” the putative employer is that it creates a bright-line rule that cannot be reconciled with the multi-factor analysis actually applied by Pennsylvania courts addressing employment relationships under the PWPCL.
E.2 Under the PWPCL’s multi-factor test, a company can be deemed an employer even though the putative employee was paid through some other entity.
Because the existence of an employer-employee relationship under the PWPCL does not depend on any particular fact or characteristic, it is unsurprising that courts handling independent contractor misclassification lawsuits often find that a defendant can employ a plaintiff even though some other entity paid the plaintiff. Here are some examples:
In Myers, supra, Judge Surrick found that Mr. Brooks could bring an individual PWPCL claim even though he was paid through his incorporated franchise. See Myers, 2015 U.S. Dist. LEXIS 29566, at *1-14, 23-25.
In Feret v. First Union Corp., 1999 U.S. Dist. LEXIS 570 (E.D. Pa. Jan. 29, 1999), CoreStates Financial Corp. entered into a “long-term contract” with Andersen Consulting for the provision of “Systems and Technology Services.” See id. at *4. Upon execution of this contract “approximately 170 employees of CoreStates’ Systems and Technology Group were terminated and transferred to the payroll of Andersen.” Id. at *8 (emphasis supplied). Later, after the termination of their Andersen employment, these employees – now plaintiffs – sued CoreStates for PWPCL violations. See id. at *39-44. The plaintiffs asserted that they “were de facto employees of CoreStates during the time they were nominally employed by Andersen.” Id. at *30. In support of this assertion, the plaintiffs alleged that they “reported to both CoreState and Andersen employees . . . during their tenure at Andersen” and they “denied that Andersen actually controlled their daily activities.” Id. at ¶ 44. CoreStates sought summary judgment, based on, inter alia, the uncontroverted fact that the plaintiffs “were paid by Andersen, were reimbursed for expenses by Andersen, and received benefits from Andersen.” Id. at *43 (emphasis supplied). Judge Yohn disagreed, observing that, even under these facts, plaintiffs could prove that CoreStates employed the plaintiffs under the PWPCL. See id. at *44.
In Henderson v. UPMC, 2010 Pa. Dist. & Cnty. Dec. LEXIS 43 (Pa. C.C.P., Allegheny Cty. Feb. 24, 2010), the UPMC health system sought dismissal of a PWPCL lawsuit, arguing that it could not be liable under the PWPCL to a plaintiff directly employed by a subsidiary hospital. See id. at *5-6. The plaintiff countered that “there is no reason why there cannot be more than one employer within the meaning of the [PWPCL] where more than one entity is imposing the terms and conditions of plaintiffs employment.” Id. at *5. Judge Wettick agreed with the plaintiff, explaining: “Recovery under the [PWPCL] is not limited to recovery against the immediate corporate employer.” Id. at *7 (emphasis supplied).
In sum, XPO’s argument that a PWPCL plaintiff must be “paid through” her putative employer cannot be reconciled with the outcomes of other PWPCL cases.
Conclusion
For the above reasons, XPO’s motion should be denied.
Footnotes:
[1] XPO’s current version of the DSA is attached to the Motion. See Doc. 16-3. The March 2012 and January 2014 versions are attached hereto as Exhibits A and B respectively. Finally, a fourth version, as signed by Reyes in October 2008, is attached as Exhibit C.
[2] See also Rosario v. Penn State Fed. Credit Union, 2011 U.S. Dist. LEXIS 99668, *5 (M.D. Pa. Sept. 6, 2011); Mills v. Service First Credit Union, 2011 U.S. Dist. LEXIS 82641, *1-3 (M.D. Pa. July 28, 2011); Vlachos v. Tobyhanna Army Depot Fed. Credit Union, 2011 U.S. Dist. LEXIS 69725, *4-5 (M.D. Pa. June 29, 2011).
[3] Slam dunks also are rare in the Lawyers Basketball League, where outside shooting and arguing with the referee are paramount.
[4] Accord Perez v. Oak Grove Cinemas, Inc., 2014 U.S. Dist. LEXIS 175196, *10 (D. Or. Dec. 17, 2014); Tavares v. S-L Distrib. Co., 2014 U.S. Dist. LEXIS 146404, *23-24 (M.D. Pa. Jan. 14, 2014); Gentrup v. Renovo Servs., LLC, 2011 U.S. Dist. LEXIS 67887, *3 (S.D. Ohio June 24, 2011); Gayle v. Harry’s Nurses Registry, Inc., 2010 U.S. Dist. LEXIS 137498, *4 (E.D.N.Y. Dec. 30, 2010).
[5] See generally Economic Policy Institute, Briefing Paper: (In)Dependent Contractor Misclassification (June 8. 2015) (Ex. D); Marjorie Elizabeth Wood, “Victims of Misclassification,” New York Times (Dec. 15, 2013) (Ex. E); Vickie Elmer, “Working: U.S. and local governments crack down on employers who pay workers as contractors,” Washington Post (Oct. 9, 2011) (Ex. F); U.S. Government Accountability Office, Employment Arrangements: Improved Outreach Could Help Ensure Proper Worker Classification (July 2006) (Ex. G).
[6] Many courts have recognized that determining whether workers are employees or independent contractors requires discovery and cannot be decided at the pleadings stage. See Fernandez v. Kinray, Inc., 2014 U.S. Dist. LEXIS 17954, *29 (E.D.N.Y. Feb. 5, 2014); Scott v. Bimbo Bakeries, Inc., 2012 U.S. Dist. LEXIS 26106, *37-38 (E.D. Pa. Feb. 29, 2012); Harris v. Coastal Offshore, Inc., 2011 U.S. Dist. LEXIS 64314, *12 (S.D. Tex. June 16, 2011); Stilles v. BP Express, Inc., 2011 U.S. Dist. LEXIS 43511, *3 (E.D. Tenn. April 21, 2011); Cabrera v. 27 of Miami Corp., 2009 U.S. Dist. LEXIS 64278, *16-17 (S.D. Fla. July 13, 2009).