Employment Misclassification Prosecutions
Employment Misclassification: Overview
Misclassification cases usually involve claims under:
Fair Labor Standards Act (FLSA) – unpaid wages/overtime.
Internal Revenue Code – tax evasion related to payroll taxes.
State labor laws – wage, benefits, and unemployment insurance violations.
Employee Retirement Income Security Act (ERISA) – benefits denial.
Courts apply various tests (e.g., economic realities test, ABC test) to decide if a worker is an employee or independent contractor.
Case 1: United States v. FedEx Ground Package System, Inc. (2007-2015)
Facts:
FedEx was accused of misclassifying delivery drivers as independent contractors to avoid paying employment taxes and benefits.
Legal Issues:
Violation of tax laws and labor standards.
Drivers claimed employee status for wage and benefit protections.
Outcome:
Multiple lawsuits and IRS enforcement actions led FedEx to settle for over $240 million in misclassification-related claims.
Courts found that FedEx exerted significant control over drivers, supporting employee classification.
Significance:
Highlighted the blurred lines in gig economy and contract work.
Reinforced use of economic realities test focusing on employer control.
Case 2: New York v. Uber Technologies, Inc. (2015-2018)
Facts:
New York’s Department of Labor investigated Uber for classifying drivers as independent contractors instead of employees.
Legal Issues:
Wage theft claims under state labor law.
Misclassification impacting minimum wage, overtime, and benefits.
Outcome:
Uber agreed to improve worker protections and pay millions in back wages and benefits.
New York passed laws strengthening the definition of employees in the gig economy.
Significance:
First major government pushback against gig economy misclassification.
Sparked broader legislative and regulatory reforms.
Case 3: Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018)
Facts:
California’s Dynamex company misclassified workers providing delivery services as independent contractors.
Legal Issue:
Whether workers should be classified as employees under California’s wage orders.
Outcome:
The California Supreme Court established the ABC test for employment classification, requiring the employer to prove:
(A) Worker is free from control,
(B) Performs work outside usual business, and
(C) Is engaged in independent trade.
Significance:
Landmark ruling making it harder for companies to classify workers as contractors.
Influenced other states’ legislation and enforcement.
Case 4: United States v. Manhattan Management Group (2021)
Facts:
Manhattan Management was prosecuted for misclassifying building maintenance workers as independent contractors to avoid paying payroll taxes.
Charges:
Tax evasion.
Violations of FLSA for unpaid overtime and benefits.
Outcome:
The company agreed to pay over $2 million in back wages, taxes, and penalties.
Management faced fines and probation.
Significance:
Demonstrated federal willingness to prosecute tax-related misclassification.
Reinforced employer responsibility for proper classification and tax compliance.
Case 5: Massachusetts v. FedEx Ground (2020)
Facts:
Massachusetts Attorney General sued FedEx Ground for misclassifying package delivery drivers.
Legal Issue:
Violation of state wage laws and unemployment insurance requirements.
Outcome:
FedEx agreed to pay $15 million in restitution and change classification practices.
Court ordered better worker protections under state law.
Significance:
State-level enforcement complements federal efforts.
Encouraged other states to pursue aggressive action against misclassification.
Case 6: Perez v. Postmates Inc. (2019-2021)
Facts:
Delivery drivers sued Postmates for wage theft due to misclassification as independent contractors.
Legal Issue:
Claims under California labor law and FLSA for unpaid minimum wage and overtime.
Outcome:
Postmates settled for $10 million and agreed to change worker policies.
Case influenced California’s passage of AB5, codifying the ABC test from Dynamex.
Significance:
Showcased power of class actions in gig economy worker protection.
Increased pressure on tech platforms to classify workers properly.
Summary Table
| Case | Charges/Issues | Outcome | Significance |
|---|---|---|---|
| U.S. v. FedEx Ground | Misclassification, tax evasion | $240M settlement | Control as key factor, gig economy focus |
| NY v. Uber Technologies | Wage theft, misclassification | Multi-million settlement | First big gig economy govt enforcement |
| Dynamex v. Superior Court (CA) | Employment classification standard | Established ABC test | Landmark rule hardening contractor status |
| U.S. v. Manhattan Management | Tax evasion, unpaid wages | $2M+ fines and restitution | Federal prosecution of tax-related fraud |
| Massachusetts v. FedEx Ground | Wage and tax violations | $15M settlement | State-level enforcement synergy |
| Perez v. Postmates | Wage theft, misclassification | $10M settlement | Class action influence, AB5 legislation |
Key Takeaways
Misclassification prosecutions involve complex evaluation of worker control and economic dependence.
Courts use tests like the economic realities and ABC test to clarify employee status.
Gig economy platforms (Uber, Postmates) are often targets due to mass misclassification risks.
Both federal and state authorities actively pursue cases, with significant financial penalties and orders to change business practices.
Class action lawsuits are a critical enforcement tool alongside government actions.
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