Authored by Rob Whitman

Seyfarth Synopsis: Unpaid interns for Hearst magazines have been rebuffed again in their effort to be declared eligible to receive wages under the FLSA and the New York Labor Law.

In an August 24, 2016 ruling, Judge J. Paul Oetken of the Southern District of New York held that six interns, who worked for Marie Claire, Seventeen, Cosmopolitan, Esquire, and Harper’s Bazaar, were not employees as a matter of law and granted summary judgment to Hearst. After reviewing each of their circumstances individually, the court held:

These interns worked at Hearst magazines for academic credit, around academic schedules if they had them, with the understanding that they would be unpaid and were not guaranteed an offer of paid employment at the end of the internships. They learned practical skills and gained the benefit of job references, hands-on training, and exposure to the inner workings of industries in which they had each expressed an interest.

The six named plaintiffs were the only ones remaining after the Second Circuit, in July 2015, denied their bid for class and collective certification. The court in that decision also articulated a new set of factors for determining whether unpaid interns at for-profit companies are “trainees” (who are not entitled to compensation) or “employees” (who must receive minimum wage and overtime premiums).

The Second Circuit’s decision adopted the “primary beneficiary” test to determine internship status—i.e., whether the “tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.” Applying that test to the Hearst interns, Judge Oetken concluded, “[w]hile [the six plaintiffs’] internships involved varying amounts of rote work and could have been more ideally structured to maximize their educational potential, each Plaintiff benefited in tangible and intangible ways from his or her internship, and some continue to do so today as they seek jobs in fashion and publishing.”

Among the factors he relied on: the relatively brief duration of the internships, typically limited to college semesters or summer breaks; the interns’ opportunities for observation and learning, such as “Cosmo U,” a program in which senior editors spoke about their career paths; and the receipt of or opportunity for academic credit.

Aside from its detailed discussion of the facts of the plaintiffs’ internships, the court’s decision, Wang v. The Hearst Corporation, is notable for two reasons:

  1. It shows the practical impact of a denial of class and collective certification. Although the court addressed the six named plaintiffs’ claims in a single opinion, it was effectively a series of rulings on each intern’s individualized circumstances. As the court noted, some of the factors—such as the receipt of college credit for the internships—weighed differently for the different plaintiffs. But in the end, the result for each of them, given the “totality of the circumstances” in their particular cases, was the same.
  2. The court’s decision applied equally to the plaintiffs’ claims under the FLSA and the NY Labor Law. This issue was left somewhat unsettled after the Second Circuit’s 2015 decision, which noted the similarities in the definitions of “employee” under the two statutes but did not explicitly say that the ruling pertained to both. Judge Oetken, following the earlier lead of a Southern District colleague, held that his ruling decided the claims under federal and NY law.

The Hearst decision is not the first to grant summary judgment under the Second Circuit’s factors. In March 2016, a Southern District Judge found that an intern for the now-late Gawker website was properly treated as such and was not entitled to wages. Despite the positive trend, these cases are highly fact-driven and do not foreclose the possibility that interns will be deemed to be employees, nor should they make for-profit employers complacent about not paying interns. But they signal that, where interns have a bona fide learning experience in coordination with their academic pursuits, they need not be paid as a matter of law.

Co-authored by Monica Rodriguez and Justin Curley

Seyfarth Synopsis: The California Supreme Court holds that employers must promptly pay final wages owed to employees who quit, including those who retire, or risk paying steep statutory penalties under California Labor Code section 203.

What Were the Plaintiff’s Claims?

Janis McLean worked as deputy attorney general for the California Department of Justice. In November 2010, McLean retired and filed suit in an individual and representative capacity against the State of California shortly thereafter. She alleged that the State Controller’s Office failed to pay her final wages on her last day of employment or within 72 hours of her last day after she retired.

What Do California Labor Code Sections 201 and 202 Require of Employers?

California Labor Code sections 201 and 202 require employers to pay final wages owed to employees who are fired or quit. Depending on how the employment comes to an end, final wages are due immediately or within 72 hours after the last day of employment. Failure to timely pay final wages subjects employers to penalties of up to 30 days’ wages.

What Did the California Supreme Court Decide?

The California Supreme Court agreed with McLean that the prompt payment provisions of California Labor Code sections 201 and 201 included protections for employees who retire. The State had demurred to the complaint, arguing that because McLean had retired from her job, she had not stated a claim for statutory penalties which applies only when employees “quit” or are “discharged.” While the trial court sustained the demurrer, the California Court of Appeal and California Supreme Court disagreed.

The California Supreme Court looked to the legislative purpose of the statute and noted that the statute is meant to be “liberally construed with an eye to promoting such protection” of employees. The court also considered the ordinary meaning of the word “quit” to determine whether it encompasses the word “retire,” and concluded that the word “quit” is broad enough to cover a voluntary departure through retirement.

Lessons Learned for Employers?

This decision serves as a reminder to California employers to promptly pay wages owed to their employees after termination, regardless of the method in which the employment ends–through discharge, retirement, or resignation. For those who are interested, a more in-depth review of the case is available here.

Authored by Simon L. Yang

Seyfarth Synopsis: PAGA was amended earlier this week, in connection with the California legislature’s approval of the state’s annual budget. The legislation did not implement any of the more substantive changes that Governor Brown’s proposed budget had previously suggested—e.g., requiring PAGA plaintiffs to provide additional information when submitting pre-filing written notice to the LWDA or permitting the LWDA an opportunity to object to PAGA settlements. While some procedural changes are worth noting, they don’t alleviate any of employers’ main concerns with PAGA.

And that’s to be expected, since the Legislative Analyst’s Office previously recommended rejecting any substantive changes. In its view, such amendments should be considered only after (i) requiring additional information be provided to the LWDA about the actual results of PAGA litigation and (ii) increasing funding to the LWDA so that it could actually fulfill its role in PAGA enforcement. This week’s alterations to PAGA procedure attempt to address these two preliminary objectives.

First, California employees used to be able to threaten employers with the prospect of PAGA litigation for the mere $3 cost of sending a written notice via certified mail. Effective today, hopeful PAGA plaintiffs must now pay a $75 filing fee and submit written notice via online filing. The filing fee and online system aim to assist the LWDA manage its PAGA burdens. But the 25x filing-fee increase likely won’t curb employers’ PAGA burdens, since employees often demand PAGA settlements that are 2,500x greater than even the new filing fee.

Second, courts now have to approve all settlements in PAGA actions—and not just settlements involving PAGA penalties. Contrary to some rumors, the amendments do not provide the LWDA an opportunity to object to PAGA settlements. The amendments do require PAGA plaintiffs to provide the LWDA with copies of any filed PAGA complaint, proposed settlements, and final judgments, but this week’s revisions merely assist the LWDA in being informed of PAGA litigation.

Third, employees also now have to wait 65 (as opposed to 33) days after sending their written notice before filing suit, as the LWDA has 60 (instead of 30) days to potentially respond. Both employees and the LWDA generally do nothing during this period, so employers may be further annoyed that they still have but 33 days to potentially cure certain Labor Code violations.

Still, maybe the LWDA will become more involved in PAGA enforcement. The LWDA has launched a new PAGA website, though it notes that the statutorily required online filing system is not yet developed. It also notes the prior reality about the LWDA’s role in PAGA enforcement—that employees and employers ordinarily won’t hear anything from the LWDA.

Only time will tell if the LWDA is ready to become more involved. What remains certain—and what the PAGA amendments do not alter—is that California employers will continue to face an abundance of PAGA litigation.

 

Authored by Simon L. Yang

When PAGA—California’s Labor Code Private Attorneys General Act of 2004—was first enacted, we knew it would take years to see how it would be applied. Twelve years (and over $30 million in penalties paid to the state) later, we thought we’d have more answers. But many California employers, attorneys, and judges, now all too familiar with PAGA, still are uncertain how to manage and litigate PAGA claims and continue to await guidance.

But we’re tired of waiting. And we might be waiting for Godot (since California legislators have those more than 30 million reasons to like the PAGA status quo). Nor can we expect California executives and agencies to assist, since they largely ignore their roles for overseeing and authorizing PAGA claims (as less than 1% of received PAGA notices are even reviewed in practice).

So the joy of addressing the uncertainty of PAGA is left for litigants and courts. Of course, courts can’t really be blamed for furthering confusion with inconsistent and contradictory rulings, since one of the few certainties is that the bounty hunter statute simply isn’t the California legislature’s finest work—meaning only that the statute’s text is the source of much PAGA confusion.

But wait no more, and add this to the list of certainties: The California Wage & Hour Series will include “PAGA Primer” posts returning to the basics, starting with the statute, and seeking to defuse PAGA misconceptions. It’s time to ask the stupid questions: What does PAGA actually say? When does PAGA create penalties? Does PAGA permit recovery of two penalties for a single violation? Does PAGA create substantive or procedural rights? Does Rule 23’s applicability to a PAGA claim vary on a case-by-case basis? Does PAGA exempt claims from manageability requirements? Does a right to a jury trial exist for PAGA claims? Asking stupid questions is the way to avoid stupid answers.

We’ll still blog on PAGA developments—including the California legislature’s response to the governor’s proposed amendments, the California Supreme Court’s ruling on the standard for and scope of PAGA discovery, and maybe even a final disposition in a case permitting the United States Supreme Court to weigh in on the Iskanian rule. And we’ll not only wait for answers but also take the proactive approach by addressing a series of basic but necessary questions.

If you have other PAGA questions that you want answered, well, good luck—you’re not alone. Joking aside, feel free to reach out to the author or any of the other 50+ members of Seyfarth’s California Wage & Hour Litigation team if you need assistance with PAGA, want to suggest questions, or just want to talk PAGA.

Authored by Hillary J. Massey

Employers have a new tool for opposing conditional and class certification of overtime claims by financial advisors and other exempt employees—last week, a judge in the District of New Jersey denied conditional and class certification of such claims because the plaintiffs failed to show that common issues predominated. The court, pointing to other decisions denying class status to financial advisors in recent years, concluded that the advisors’ duties varied significantly and required individual treatment. While recent headlines have announced large settlements of class claims by financial advisors, this decision bolsters employers’ opposition to those and other purported wage and hour class and collective claims.

The four named plaintiffs brought suit under the FLSA and the laws of New Jersey, New York, and Connecticut, claiming that they and the purported class members were entitled to overtime pay and business expenses, and proposing three classes and an opt-in federal collective. Plaintiffs contended the bank’s uniform categorization of financial advisors as exempt was improper because the advisors regularly made sales “cold calls,” regularly attended networking events to attract new clients, were paid based on their ability to generate sales, were heavily supervised, and had no role in managerial decisions affecting the bank’s business.

Denying plaintiffs’ motions, the judge first concluded that plaintiffs failed to establish their claims were typical and they were adequate representatives of the class because, unlike the plaintiffs, many proposed class members had signed releases of all claims.  The court explained it was unclear how the class representatives would challenge releases they did not sign.

On predominance, the judge concluded that the bank’s policies, plaintiffs’ depositions, and the declarations submitted with the bank’s opposition demonstrated that financial advisors varied in:

  • how often they sold financial products;
  • how they were supervised;
  • how they were paid;
  • what types of clients they served; and
  • how much autonomy they enjoyed.

For example, one plaintiff testified that some advisors did cold calling while others did not, and plaintiffs testified that as their business became more established, they spent less time generating sales.  The record also showed that some managers were involved in the day-to-day work of their financial advisors, but others were more hands off.  Thus the court concluded that common questions did not predominate.

As in another case we recently discussed, where the Sixth Circuit upheld the dismissal of a proposed collective action of bank loan underwriters, the court here also rejected plaintiffs’ heavy reliance on the DOL’s 2010 Administrative Interpretation concerning mortgage loan officers’ non-exempt status, noting that that the Interpretation did not apply to financial advisors.

Finally, despite a “lenient standard,” the judge denied plaintiffs’ motion for conditional certification under the FLSA.  Plaintiffs could not meet their burden by merely showing that the bank had a uniform policy of treating financial advisors as exempt, and the significant class discovery record revealed that financial advisors’ duties varied greatly.

The case will now proceed on the merits of the claims of the four individual plaintiffs only.

Authored by Jeffrey A. Berman, Julie G. Yap, and Michael Afar

Last week, the California Supreme Court issued a ruling on a California Wage Order requirement that employers provide “suitable seats” for employees when the “nature of the work reasonably permits the use of seats.” The consolidated decision says employers have to provide seating where employee tasks performed at a particular location reasonably permit sitting, and where providing a seat would not interfere with the performance of standing tasks.

Background: Taking a Stand for Seats

Nykeya Kilby worked as a Clerk/Cashier for CVS Pharmacy, Inc. Sometimes she moved around the store, gathered shopping carts, and restocked display cases, but she spent 90% of her workday at the cash register. Kemah Henderson worked as a teller at JPMorgan Chase Bank. Sometimes she escorted customers to safety deposit boxes, worked the drive-up teller window, and checked to ensure that ATMs were working properly, but she spent the majority of her time at her teller window. Neither company provided the plaintiffs with seats. CVS’s business judgment was that standing promotes excellent customer service.

Kilby and Henderson stood up for themselves—and others—by seeking to represent CVS cashier and JPMorgan teller classes in federal district court for violation of California’s “suitable seating” requirements. But the district court denied class certification and granted summary judgment to CVS, since the “‘nature of the work’ performed by an employee must be considered in light of that individual’s entire range of assigned duties” and that “courts should consider an employer’s ‘business judgment.’”

On appeal, the Ninth Circuit sat this one out. It noted the “lack of any controlling California precedent” and that the “nature of the work,” “reasonably permits,” or “suitable seats” language was not defined. So it asked for the California Supreme Court’s interpretation.

The Decision: It Definitely Depends

The California Supreme Court addressed the undefined terms:

First, it held that the “nature of the work” refers to tasks performed at a given location for which a right to a suitable seat is claimed. In rejecting both an “all-or-nothing approach” and a “single task” approach that would be “too narrow,” it said trial courts should look to the “actual tasks performed, or reasonably expected to be performed,” rather than “abstract characterizations, job titles, or descriptions that may or may not reflect the actual work performed.”

Second, the Cal Supremes concluded that whether the nature of the work “reasonably permits” sitting is determined objectively based on the “totality of the circumstances.” An employer’s business judgment, the physical layout of the workplace, and the “feasibility” of providing seats—including “whether providing a seat would unduly interfere with other standing tasks, whether the frequency of transition from sitting to standing may interfere with the work, or whether seated work would impact the quality and effectiveness of overall job performance”—all should be considered. The court did caution that whether an employer would “unreasonably design a workspace” to deny a seat that might otherwise be reasonably suited for certain tasks also should be considered.

Third, the court effectively suggested that what would be “suitable seating” depends, by ruling that “an employer seeking to be excused from the requirement bears the burden of showing compliance is infeasible because no suitable seating exists.”

The Takeaway: What It Means for California Employers

While Kilby/Henderson provides some guidance on “suitable seating” rules, the case now requires an inquiry focusing on each particular location where an employee works—as opposed to generally analyzing an employee’s entire set of job tasks. And while the California Supreme Court validated the employer’s position that “business judgment” and store layouts must be considered, those factors are relevant, but not dispositive.

So it’s all clear: “the nature of the work” depends on any individual employee’s actual work, whether it “reasonably permits” sitting depends on a totality of work factors, and what constitutes “suitable seating” depends on what is infeasible in a particular workplace.

In the end, although the California Supreme Court may have affirmed the viability of a cause of action for suitable seating, employers might stand and rejoice. The required location-specific analysis in seating may now be so individualized that class actions across classifications and locations are no longer “suitable.”

Edited by Simon L. Yang

Authored by Michael Kopp

Piece-rate employers in California have faced a surge of class action lawsuits in recent years seeking substantial sums for the failure to separately pay for rest breaks and nonproductive time. On January 1, 2016, California Labor Code section 226.2 went into effect, requiring employers to separately compensate piece-rate employees for rest break and nonproductive time. But the statute also offers piece-rate employers a safe harbor option to clear the decks of liability as to certain wage and hour claims, provided the employer makes the election by July 1, 2016. Before this deadline passes, piece-rate employers must take stock of their potential liability and the relative risks of accepting or declining this safe harbor.

The need for safe harbor? Wage and penalty claims for unpaid rest breaks and nonproductive time have proliferated against California piece-rate employers. A wave of California state and federal court decisions, including Bluford v. Safeway Stores, Inc. and Gonzalez v. Downtown LA Motors, have held that employers must make a separate payment for rest break and nonproductive time, in addition to piece-rate compensation. Labor Code 226.2 now provides employers an affirmative defense to these claims for unpaid rest breaks and nonproductive time, as well as the derivative claims for liquidated damages, penalties, premiums, and wage statement violations, for periods prior to December 31, 2015.

What is the price for safe passage? Employers have two alternate payment options. Under the first option, employers may pay the wages for all previously uncompensated rest and recovery periods and nonproductive time from July 1, 2012 through December 31, 2015, along with statutory interest. This option presents a challenge for most piece-rate employers, who are likely not to have tracked nonproductive time. It also invites ongoing challenges as to whether the full amount of nonproductive and rest break time was correctly paid. The safe harbor itself contains a safe harbor, which allows an employer to correct “good faith” miscalculations in the safe harbor payment within 30 days of notice. The employer has the burden of proving, however, that the mistake “was solely the result of good faith error.”

Under the second option, employers may pay a flat 4% of the employee’s gross earnings from July 1, 2012 through December 31, 2015, for pay periods in which a piece rate was paid. This option will generally be the safer, simpler, and cheaper option. For a 40- hour workweek, rest break wages alone will generally amount to slightly over 4% of the employee’s gross wages, even without including any nonproductive time. In addition, unlike the first option, there is no requirement to pay statutory interest. Finally, gross wage records should be accessible and less subject to dispute than estimates of untracked nonproductive time.

Regardless of which method is used, the employer must provide employees statements identifying the payment calculations. In addition, the employer must use due diligence (such as skip tracing) to locate and pay former employees. Payments must be made “as soon as reasonably feasible” after providing notice to the state of the safe harbor election, and must be completed no later than December 15, 2016. In addition, employers must preserve the records regarding payments and the calculations until December 16, 2020.

Get your pass stamped. As a deterrent to would be litigants and plaintiff’s attorneys, employers who have elected the safe harbor will be identified on the California Department of Industrial Relations’ website through March 31, 2017.

Carve outs? Employers currently mired in long-standing litigation of these claims may not qualify. If the complaint was filed prior to March 1, 2014, the claim will likely escape the safe harbor. Claims that are not based on unpaid rest breaks, but rather allege that rest breaks were not permitted, are not subject to the safe harbor. A specific type of wage claim, more commonly asserted in an agricultural context, is also excluded for claims filed prior to April 1, 2015. The defense also does not apply to claims accruing after January 1, 2016.

To the safe harbor or the unprotected seas? The impending deadline forces a risk calculation. For piece-rate employers who have not previously made separate payments for rest breaks and nonproductive time, the payment comes at a substantial discount to potential class litigation exposure. Depending upon the pay practices and specifics of the workforce, some employers are more at risk of wage and hour litigation than others. As the clock continues to tick toward the July 1, 2016 deadline, if you would like assistance in evaluating these risks, please do not hesitate to contact the authors or any other member of Seyfarth’s Labor and Employment Group.

Authored by Michael A. Wahlander and John R. Giovannone

With March Madness in full swing, we interrupt your crumbling tournament brackets to ensure you’re aware of a truly maddening development. California law now makes individuals potentially liable for employer violations of many often-convoluted wage and hour rules.

That’s right—individuals, not just companies, may be liable for wage and hour violations.

We mentioned this legislation here last Fall, when it was part of California’s “A Fair Day’s Pay Act” (SB 588). We described it there as what it is: an enhancement to the California Labor Commissioner’s enforcement authority. The bill’s introductory summary explained that the “bill would authorize the Labor Commissioner to provide for a hearing to recover civil penalties against any employer or other person acting on behalf of an employer … for a [wage and hour] violation.” The Senate Bill Analysis opined that the bill targeted “willful” wage theft and would give the “Labor Commissioner” additional avenues to enforce its judgments. The Senate Bill Analysis can be found here, and the full text of the bill can be found here.

Even though the limited purpose of the new law is clear, enterprising members of the plaintiffs’ bar have recently sought to read the new law as authorizing a private right of action against individual managers. These lawyers have seized upon a legislative oversight. Although 12 of the 13 bill’s enactments refer to the Labor Commissioner, the 13th provision—Section 558.1 of the California Labor Code—does not expressly mention “Labor Commissioner.” These lawyers have seized upon this obvious oversight to argue that Section 558.1 goes further than its 12 companion provisions and somehow creates a private right of action against individuals.

The personal liability language of Section 558.1 is not complex: any employer or “other person acting on behalf of an employer” “may be held liable as the employer for” violations of the directives in the Wage Orders and in various provisions of the Labor Code. Thus, the Labor Commissioner may now hold individuals liable for certain wage and hour violations, including California’s big six: unpaid overtime, unpaid minimum wage, denied meal/rest breaks, untimely termination pay, inadequate wage statements, and failure to reimburse for employee business expenses.

The Legislature defines “other person acting on behalf of an employer” as “a natural person who is an owner, director, officer, or managing agent of the employer.” The “managing agent” definition mirrors that found in California’s punitive damages statute. Under that statute and case law, “managing agents” are all employees who exercise substantial independent authority and judgment in their corporate decision-making such that their decisions ultimately determine corporate policy.

But while this statutory language thus creates the potential for individual liability at the hands of the Labor Commissioner, none of the foregoing statutory language, nor anything in the legislative history of the bill’s enactment creates a private right of action. As the California Supreme Court has explained, it takes more than statutory silence in a Labor Code provision to create a private right of action: the statute must contain “clear, understandable, unmistakable terms, which strongly and directly indicate that the Legislature intended to create a private cause of action;” and if the statute lacks that language, the statute’s legislative history must be examined. Applied here, that analysis would show that the plaintiffs’ lawyers are out of line, and should seek their easy pickings elsewhere.

We expect courts to remedy the plaintiffs’ interpretive overreaching. Meanwhile, however, the new statute remains significant for high-level managers regardless of who is empowered to enforce it. What’s clear is that now, more than ever, employers and their corporate policy-makers may have a personal stake in ensuring that the company’s wage and hour house is in order and ensuring that employees are paid properly. Employers would be well-advised to take proactive measures to ensure compliance with California’s unique wage and hour landscape, such as auditing current pay practices and policies.

If you would like assistance in ensuring your company’s wage and hour compliance, or if have questions regarding the issues raised in this post, then please do not hesitate to contact the authors or any other member of Seyfarth’s Labor and Employment Group.

We are thrilled to announce a special blog series, coming soon to this very blog! This series will focus on wage & hour issues specific to the Golden State and will highlight the unique problems raised by California labor laws and litigating California wage & hour cases. As many of our readers are all too well aware, California’s wage & hour laws differ from federal laws in subtle yet important ways. This series will focus on some of the key differences that are impacting employers with a California presence, as well as cover breaking California law on issues of importance to wage & hour litigation. We hope you find the series valuable, and we look forward to posting!

Authored by Patrick Bannon and Anne Bider

Independent contractor misclassification claims have become an epidemic — nationally and especially in Massachusetts.  Under most tests for independent contractor status, whether an individual’s services are within the usual course of the business of the company for which they are performed is an important factor.  Under Massachusetts’ Independent Contractor Statute it is an essential element of independent contractor status.  But who gets to define the scope of the company’s business, and how?

After a stream of cases under Massachusetts law in which courts rejected defendants’ attempts to define the scope of their businesses, the U.S. District Court for the District of Massachusetts recently issued a decision that gives businesses hope.  In Ruggiero v. American United Life Insurance Company, the Court held that plaintiffs cannot use the independent contractor statute to expand the boundaries of a legitimately defined business—even if those boundaries exclude services that are important to and closely integrated with a company’s business.

The plaintiff in Ruggiero was an insurance agent who entered into a contract with American United Life Insurance Company (“AUL”) to sell AUL’s insurance products and recruit and train other agents to do the same.  With the help of a loan from AUL, the plaintiff established an agency in Massachusetts.  After a few disappointing years, the plaintiff sued under the Massachusetts Independent Contractor Statute, claiming the rights and benefits of an AUL employee.  To defend the claim, AUL was required to show that: (1) Ruggiero was free from the company’s direction and control; (2) Ruggiero’s services were “outside the usual course of the business” of AUL; and (3) Ruggiero was engaged in an independently established trade.

The crux of the dispute was Prong 2.  AUL contended that, while some insurance companies issued products and sold them—taking a product from inception all the way to the customers’ hands—others limited their business.  AUL argued that it drafted policy language, obtained regulatory approval of policies, and invested premiums.  It did not, however, sell policies.  Instead, it left distribution to third parties, including banks, credit unions, wholesalers, and insurance agents, including the plaintiff.

In ruling on cross-motions for summary judgment, the Court agreed with AUL.  It found that while sales were “essential” to AUL’s success, AUL had legitimately outsourced that function.  And, unlike cases involving delivery services, cleaning companies, and adult clubs, where defendants artificially attempted to deconstruct their businesses to avoid proper classification of employees, AUL’s definition of its business was bona fide.  In reaching the conclusion that the plaintiff’s services were outside the scope of AUL’s business, the Court also found it relevant that the plaintiff mostly sold non-AUL policies, thus benefitting competing insurance companies as well as AUL.

The Court also held that AUL established Prongs 1 and 3 of the Independent Contractor Test, noting that the plaintiff was free to run his agency as he pleased and sell the products of AUL’s competitors.  That the plaintiff sold the insurance products of a number of unrelated insurance companies – indeed, sold mostly non-AUL products – undoubtedly also helped as to Prong 2, by persuading the judge that the plaintiff’s services could legitimately be considered outside AUL’s business.

The Ruggiero decision offers Massachusetts employers insight into how courts may approach the most contested provision in the nation’s most stringent independent contractor laws.  For employers outside of Massachusetts, it also provides a counterpoint to the idea, recently  advocated by the Wage and Hour Division of the U.S. Department of Labor, that close coordination between a company and an individual who provides services that are important to the company’s business automatically creates an employment relationship.  Employers who think that theory is unreasonably broad can find support in the Ruggiero decision.