Los Angeles Class Action Blog

A group of newspaper carriers recently reached a settlement in their lawsuit against the Orange County Register's parent company, Freedom Communications Inc.

The California class action lawsuit centered around claims that the company wrongfully classified carriers as independent contractors instead of as employees. As a result, the carriers were denied a number of employee rights, including lunch breaks, mileage reimbursement and overtime pay.

In addition, the carriers claimed that the company engaged in unfair business practices and failed to keep accurate payroll records.

Under the terms of the settlement, approximately 5,000 carriers will share in a $30 million award.

Misclassification of an employee as an independent contractor is a recurring problem. So is misclassifying hourly workers as exempt employees who are not eligible for overtime pay. When an employer does these things frequently, the misclassification can potentially give rise to a class action lawsuit.

The reason why employers are tempted to misclassify employees as contractors is simple. When someone is classified as a contractor, the employer does not have to pay payroll tax or other benefits. The immediate dollars and cents aspects of the decision are clear.

Depending on what test is used, determining whether or not someone is an employee or a contractor can depend on many factors. At common law, one of those has traditionally been the degree of control over which the employer has over someone's work. If the employer has control over important aspects of the work, it suggests that the worker is an employee, not a contractor.

In California, the state supreme court's decision in Martinez v. Combs sets forth a somewhat more refined test. The common law test is still valid, but not necessarily conclusive.

Corporations have shed millions of jobs during and the Great Recession and its uncertain aftermath. Companies have considerable discretion in doing this. But downsizing cannot be aimed indiscriminately against older workers, as a case involving former 3M employees.

The Equal Opportunity Employment Opportunity Commission sued the manufacturing giant 3M on behalf of a class of former employees over age 45. The EEOC asserted that hundreds of workers over that age were let go between mid-year 2003 and the end of 2006. Many of these workers were highly paid and were responsible for training younger workers in leadership skills.

During its investigation of the case, the EEOC discovered an e-mail by the then-CEO, Jim McNerney, urging a focus on "developing 30-year-olds with General Manager potential."

Under a consent decree between the EEOC and 3M, the company will pay $3 million to a group consisting of approximately 290 former employees. 3M must also institute training for both managers and supervisors on the prevention of age bias, as well as put in place a process for the review of worker termination decisions.

The consent decree requires court approval in order to take effect.

Often, corporate misconduct that is easily overlooked by outside authorities is readily detectable to those within an organization. For this reason, government enforcement efforts are commonly driven by whistleblowers who report violations of the law. To promote this type of collaboration with the government, the Securities and Exchange Commission ("SEC") recently adopted rules aimed at creating a more expansive whistleblower incentive program.

Whistleblowers Could Earn Millions for Exposing Wrongdoing

It is not unheard of for whistleblowers to face retaliation by employers for reporting illegal conduct. Implemented under Section 922 of the Dodd-Frank Act, the new SEC rewards program is hoped to encourage whistleblowers to do the right thing and come forward.

In order to receive compensation under the new rules, a whistleblower must voluntarily come forward to the SEC with new information that results in a successful enforcement outcome, either in the federal courts or by an administrative action. In addition, the reported conduct must be sufficiently serious: for the whistleblower to be considered for an award, the SEC must gather monetary sanctions greater than $1 million from the offending organization.

The rules include certain incentives for employees to turn to internal company compliance programs when appropriate; for example, whistleblowers who report internally may still receive an award if the company subsequently reports the violations to the SEC. And a whistleblower's voluntary participation in internal compliance systems can increase the amount of an award. But resisting internal compliance can lower the total award.