Misclassifying Employees as Independent Contractors

The biggest labor scam since the last biggest labor scam.

After graduating from Harvard Law School in 1996, Shannon Liss-Riordan was working at a boutique labor law firm when she got a call from a waiter at a fancy Boston restaurant. He complained that his manager was keeping a portion of his tips and wondered if that was legal. Armed with a decades-old Massachusetts labor statute she had unearthed, Liss-Riordan helped him take his employer to court — and won. "This whole industry was ignoring this law," Liss-Riordan recalls. Pretty quickly, she became the "go-to" expert for employees seeking to recover skimmed tips — and before she knew it, her whole practice was representing waitstaff.

Liss-Riordan (who is a big fan of Massachusetts Senator Elizabeth Warren) has spent her career successfully fighting behemoths such as FedEx, American Airlines and Starbucks. In a series of cases that began in 2005, she has won multi­million-dollar settlements for FedEx drivers who had been improperly treated as contractors and were expected to buy or lease their delivery trucks, as well as pay for their own gas.

In November 2012, she won a $14.1 million judgment for Starbucks baristas in Massachusetts. One lawsuit resulted in a $100 million payout to more than 120,000 Starbucks baristas in California. (The ruling was later overturned on appeal.)

After a federal jury ordered American Airlines to pay $325,000 in lost tips to skycaps at Boston's airport, one of the plaintiffs dubbed her "Sledgehammer Shannon." (The case was since appealed and lost.)

Boston Globe: Passengers, accustomed to paying only tips, assumed the fee was going to the workers. The skycaps took the companies to court for violating the Massachusetts tips law, which states that charges that appear to be gratuities must go to the workers. The case was one of several class-action cases Liss-Riordan filed on behalf of skycaps at Logan, all of which were effectively thrown out after the federal appeals court in Boston ruled that the Airline Deregulation Act trumped state law. Liss-Riordan took two cases — against United Airlines and US Airways — to the US Supreme Court, arguing that Congress did not intend for the federal law to preempt state law in wage-related matters. The court has not acted on the cases [but] two and a half years into the tips lawsuit, one employee was fired for allegedly soliciting a tip by telling a passenger about the bag fee, according to the suit. Managers had been pressuring the skycaps to drop the suit and two of the plaintiffs eventually withdrew from the case. “They saw me as the leader of the lawsuit. I think this was the way to get everybody to drop out.” Last year he was awarded nearly $1 million by a jury in US District Court in Boston. The final amount could be as much as $3 million under Massachusetts law, which requires wage-related damages to be tripled.

And when one of Shannon Liss-Riordan's lawsuits caused a local pizzeria to go bankrupt. So she bought it, raised the employees' wages, and renamed it The Just Crust.

* In 2009, the U.S. Department of Labor ordered the owners of the Upper Crust to pay workers nearly $350,000 in back wages. Upper Crust management then allegedly threatened employees, telling workers that if they did not give their share of the court-ordered overtime pay back to the company they would lose their jobs. Employees were forced to go to court to protect themselves. Labor attorney Shannon Liss-Riordan represented them. The new store now pays its workers $15/hour (Full story here.)

These days Shannon Liss-Riordan is spearheading class-action lawsuits against Uber, Lyft, and nine other apps that provide "on-demand" services — shaking the pillars of Silicon Valley's much-hyped "sharing economy". She has been challenging how these companies classify their workers, trying to convince judges that these so-called "micro-entrepreneurs" are in fact employees, and not independent contractors.

Uber alone was recently valued at $51 billion—and relies on cheap labor and a creative reading of labor laws. Her Uber offensive began in late 2012, when several Boston drivers approached her, alleging that the company was keeping as much as half of their tips, which is illegal under Massachusetts law. Liss-Riordan sued and won a settlement in their favor. And while looking more closely at Uber, she confirmed her suspicion that the company's drivers are classified as independent contractors rather than official employees, meaning that Uber can forgo paying for benefits like workers' compensation, unemployment and Social Security. Uber can also avoid taking responsibility for drivers' business expenses such as fuel, vehicle costs, car insurance and maintenance.

Liss-Riordan has made some progress in her work for Uber drivers. Just this month, after Uber tried several tactics to shrink the class, she won a key legal victory when a judge in San Francisco found that more than 100,000 drivers can join her class action lawsuit. "These companies save massively by shifting many costs of running a business to the workers, profiting off the backs of their workers," Liss-Riordan says.

Uber tried to get the case thrown out, arguing that its business is technology, not transportation. The drivers, the company contended, were independent businesses, and the Uber app was simply a "lead generation platform" for connecting them with customers.

Liss-Riordan has heard all this before. When she litigated similar cases on behalf of cleaning workers, the cleaning companies claimed they were simply connecting broom-pushing "independent franchises" with customers. When she won several landmark cases brought by exotic dancers who had been misclassified as contractors, the strip clubs argued that they were "bars where you happen to have naked women dancing," Liss-Riordan recounts with a wry smile. "The court said, 'No. People come to your bar because of that entertainment. Adult entertainment. That's your business.'"

Liss-Riordan is tired of hearing that labor laws should adapt to accommodate upstart tech companies, not the other way around: "Why should we tear apart laws that have been put in place over decades to help a $50 billion company like Uber at the expense of workers who are trying to pay their rent and feed their families?"

For the most part, the courts have sided with her.

Meanwhile, other sharing-economy startups are changing the way they do business. The grocery app Instacart and the shipping app Shyp have announced they will start converting contractors to full employees (Liss-Riordan has cases pending against both.) She says her ultimate goal is to protect workers in the new economy, not to kill the innovation behind their jobs. "This is not going to put the Ubers of the world out of business," she says.

Last fall, the laundry-delivery app Washio convinced a judge that Liss-Riordan (a Boston, Massachusetts lawyer) had no right to practice law in California. Liss-Riordan easily could have relied on a local lawyer to head the case, but instead she signed up to take the California bar exam in February. "Their plan kind of backfired," she says. "I expect they'll be seeing more of me, rather than less."

[NOTE: This post was edited and excerpted for length using an article posted on January 1, 2016 by Hannah Levintova at Mother Jones titled "Road Warrier" — read for more details.]