Earlier this week, the Seventh Circuit rejected an attempt by the U.S. Department of Justice to rewrite a federal statute to suit the Executive Branch’s convenience.  In Bormes v. United States, No. 13-1602 (7th Cir. July 22, 2014), the issue was whether the United States can be sued for damages under the Fair Credit Reporting Act, which authorizes litigation against a  “person” who willfully or negligently violates the statute.  See 15 U.S.C. § 1681n(a).  The Act defines “person,” inter alia, as “any . . . government or governmental subdivision or other agency.”  Id. § 1681a(b).  In an opinion written by Judge Easterbrook, the court of appeals held that “[b]y authorizing monetary relief against every type of government, the United States has waived its sovereign immunity.”  Slip op. at 2.  

To support its contention that the Act does not waive sovereign immunity, DoJ essentially argued that the statute’s damages provision implicitly and necessarily excludes the United States.  According to the court, this was tantamount to  maintaining that  “the definition [of person] should not be given its natural meaning.”  Ibid.  The court explained that “Congress need not add ‘we really mean it!’ to make statutes effectual.”  Id. at 4 (emphasis added).  

The statute was originally enacted in 1970.  The damages provision, § 1681n, was broadened in 1996 to encompass “all persons,” but the already broad statutory definition of “person,” § 1681a(b), remained the same.    “Apparently no one in the Executive Branch asked Congress to revise the definition of § 1681a(b) when changing the category of entities for which § 1681n authorizes awards of damages.” Id. at 3.  The court indicated that “[t]he argument that a silent legislative history prevents giving the enacted text its natural meaning has been made before—and it has not fared well.” Ibid.

The Seventh Circuit did exactly what a court should do when interpreting a federal (or state) statute:  Give the statutory text its plain meaning, rather than rewrite it for policy reasons or the Executive Branch’s convenience.  The Constitution, of course, provides the proper remedy for a problematic federal statute—leave it to Congress to fix!             

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When a federal district judge issues an important interlocutory ruling, the options for immediate appeal are limited. Most lawyers think of certification under 28 U.S.C. § 1292(b). But certification is within the trial court's discretion, and as a practical matter, certification requests are usually denied. Further, even when an interlocutory order is certified, the court of appeals has to agree to hear the appeal. See Fed. R. App. P. 5. A "collateral order appeal" is another option for certain types of interlocutory rulings-orders that (i) conclusively determine a disputed question of law, (ii) resolve an important issue that is completely separate from the merits of the case, and (iii) would be effectively unreviewable on appeal from a final judgment. See Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541 (1949). But various categories of interlocutory rulings-including rulings involving application of the attorney-client privilege-do not qualify for collateral order appeal. See Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100, 106-13 (2009).

That leaves mandamus, the most drastic method for challenging a federal district court's interlocutory ruling. Many lawyers consider filing a petition for a writ of mandamus under Fed. R. App. P. 21 to be a daunting, no-win situation. They are reluctant to seek mandamus out of fear of alienating (or further alienating) the trial judge, who presumably will continue to preside over the suit.

A recent D.C. Circuit case, however, In re Kellogg Brown & Root, Inc. ("KBR"), No. 14-5055, demonstrates that mandamus can be used successfully to challenge interlocutory rulings that meet the stringent criteria set forth in Cheney v. U.S. District Court for the District of Columbia, 542 U.S. 367 (2004). Under Cheney, the following three conditions must be met: (i) the mandamus petitioner must have no other adequate means for attaining the desired relief; (ii) the mandamus petitioner must show that its right to mandamus is clear and indisputable;, and (iii) the court of appeals, in the exercise of its discretion, must be satisfied that mandamus is appropriate under the circumstances. Id. at 380-81 (citing Kerr v. U.S. District Court for the Northern District of California, 426 U.S. 394, 403 (1976)).

In the KBR case, a federal district judge, presiding over a False Claims Act qui tam action, denied the protection of the attorney-client privilege to a company that had generated certain documents in connection with an internal investigation. The district court declined to certify its ruling for interlocutory appeal, so the company filed a petition for a writ of mandamus in the D.C. Circuit. Applying the Cheney factors, the court of appeals held that the denial of the privilege was clear error, and issued a writ of mandamus vacating the district court's document production order. First, the court indicated that in an attorney-client privilege case where an order to disclose documents is being challenged, mandamus (in the absence of § 1292(b) certification) is often the only adequate means to obtain relief since even in light of Mohawk, appeal after final judgment "will often come too late." Second, the court explained that if denial of attorney-client privilege is not merely erroneous, but instead, "a clear legal error," the right to mandamus is "clear and indisputable." Third, the court held that although the requirement that mandamus be appropriate under the circumstances is "broad and amorphous," it is satisfied where a district court's broad and novel privilege ruling "would have potentially far-reaching consequences," such as creating widespread uncertainty within the business community, and even among other trial courts.

Be forewarned, however, that issuance of a writ of mandamus does not necessarily mean that the errant judge will be taken off the case. In the KBR case, the court of appeals indicated that "we will reassign a case only in the exceedingly rare circumstance that a district judge's conduct is 'so extreme as to display inability to render fair judgment'" (quoting Liteky v. United States, 510 U.S. 540, 551 (1994)). The court held that the KBR case did not reach "that very high standard."

 

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Shortly after the NCAA’s imposition of unprecedented sanctions against Penn State, I wrote in this space about the myth of due process protection in the NCAA arena. Essentially, the NCAA, as a private voluntary association of member institutions, is not a state actor and is not bound by state or federal constitutional constraints. Since NCAA member institutions appear to have validated President Mark Emmert’s unilateral punishment (through the NCAA Executive Committee and Division I Board of Directors), and Penn State consented, affected parties were left with very little recourse. Now, it appears that the Paterno family intends to challenge this notion. For various reasons, the family is unlikely to succeed either through an administrative appeal or in court.

As a threshold matter, the consent decree falls completely outside the normal NCAA procedural process outlined by Article 32. Normally, an appeal cannot occur until a hearing has been conducted, and a decision has been rendered. The Paternos could conceivably circumvent the standard appeals process by arguing that the NCAA did not adhere to its own prescribed procedure, and therefore, an exception should be made allowing for an unconventional appeal as well. With no hearing, however, there can be no subsequent appeal of a decision based on the same.

Even assuming, arguendo, that an appeal would be permitted from a procedural standpoint, the family simply has no standing to appeal. Counsel for the Paterno family has stated the opposite, based on the fact that Joe Paterno’s name is found in the Freeh Report as well as the consent decree. This is a misguided assertion. For an “involved individual” such as Paterno to appeal, he would have had to make an in-person appearance before the Committee on Infractions. Bylaw 32.10.1.2. To reiterate, the Committee has never been involved here. The standing argument on behalf of a family of an affected individual is even more attenuated, as no member of the Paterno family would even qualify as an involved individual. To analogize: would the NCAA allow the family of an ineligible student-athlete to bring its own appeal to the Student-Athlete Reinstatement Committee for related pecuniary or reputational damage? Clearly not.

The Paterno family’s hopes of recompense in a court of law may be equally slim. The Paternos may bring suit on behalf of the late Joe Paterno seeking toprohibit the NCAA from vacating his wins, and ordering the NCAA to follow its own procedures, thereby invalidating the consent decree. The Paterno family could contend that the consent decree is unenforceable as a whole because it had a significant adverse impact on Paterno as a third-party affected by a decree that neither Paterno nor his family consented to. But setting aside, for a moment, the fact that courts look with skepticism upon challenges to NCAA decisions, and separating the family’s claim from the arguments advanced by some members of the Board of Trustees, the Paternos simply cannot show sufficient harm warranting the issuance of an injunction against enforcement of the NCAA decision.

Pennsylvania courts will only grant a preliminary injunction when relief is necessary to prevent immediate and irreparable harm where the aggrieved party cannot be adequately compensated by damages. Summit Towne Ctr., Inc. v. Shoe Show of Rocky Mount, Inc., 786 A.2d 240 (Pa. Super. Ct. 2001).Courts have defined an injunction as an extraordinary remedy that should be issued with caution. Big Bass Lake Cmty. Ass’n v. Warren, 950 A.2d 1137, 1144-45 (Pa. Commw. Ct. 2008).

By any discernable standard, the diminution of Paterno’s win total does not constitute a harm warranting redress, in part because Paterno’s reputation has already been significantly tarnished by the entire ordeal, but primarily because no “show cause” order was ever issued against Paterno. If the NCAA  had issued a show cause order as part of this major infractions case, the irreparable nature of harm would be more evident, since it would result in a loss of employment opportunity. See Sanchez v. Dubois, 291 F. App’x 187 (10th Cir. 2008) (holding that since the secondary infractions case was unpublished, there was no deprivation of a liberty interest, but suggesting that a show cause order preventing employment could be sufficient). But since the NCAA did not issue such an order, and given that Paterno has since passed, this argument becomes moot. Likewise, an equitable remedy would be unnecessary to prevent immediate future harm for the same reasons. Barring a successful challenge to the consent decree by the University, the Paterno family is likely going to be bound by its contents and its reputational effects.

The same conclusion is likely to be reached in the appeal filed by individual members of the Board of Trustees. The Board members contend that the NCAA violated their “fundamental” due process rights, but again, this is a misconceived notion. The Board members further argue that the consent decree is null and void since President Rodney Erickson lacked the legal capacity to agree to the sanctions and did not properly consult the Board. Even if true, this likely has no bearing on the NCAA’s ruling, and similarly, a court would likely find that Erickson was acting with apparent or actual authority to bind the University. The Board may elect to take internal action against Erickson and is well within its rights to do so, but it is difficult to foresee a scenario that would result in a re-adjudication of the punishment rendered against Penn State that would produce a more favorable result for Happy Valley. Given the reputational damage that the University has already suffered, perhaps that is for the best. 

As originally published on Sports Law Blog  Hat tip to law clerks Brian Konkel and Jane Kwak for their assistance on this piece.

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As required by the Consumer Product Safety Improvement Act of 2008 (“CPSIA”), the Consumer Product Safety Commission published ANSI/SVIA 1-2007 as a mandatory consumer product safety standard for ATVs.  The standard became effective on April 13, 2009.  ANSI/SVIA has since issued a 2010 version of the standard.  The Commission issued a notice of proposed rulemaking on July 25, 2011 and is soon expected to issue a final rule amending the mandatory standard to reference the 2010 version. 

The Commission found that though most of the changes in the 2010 version are relatively minor, merely enhancing the standard’s clarity and consistency, the Commission thought it best to incorporate all of the provisions of ANSI/SVIA 1-2010 in order to avoid any confusion with two slightly different versions of the standard, the current mandatory standard and the revised voluntary standard. 

The most substantive of the changes noted by the Commission in the 2010 version are as follows: (1) elimination from the scope section of a provision calling for expiration of the definition and requirements for the Y-12+ youth ATV age category on July 28, 2011; (2) a change in how to calculate the speed for the braking test of youth ATVs; (3) a change in the force applied to passenger handholds during testing; (4) the addition of a requirement that youth ATVs shall not have a power take-off mechanism; (5) the addition of a requirement that youth ATVs shall not have a foldable, removable, or retractable structure in the ATV foot environment; (6) additional specificity concerning the location and method of operation of the brake control; (7) tightening the park brake performance requirement, by requiring the transmission to be in “neutral” during testing, rather than in “neutral” or “park”; and (8) the requirement that tire pressure information be on the label, when the previous requirement could be interpreted to allow tire pressure to be either on the label, the owner’s manual, or the tires. 

If the Commission issues a final rule, the 2010 standard will become effective 60 days after publication of the final rule in the Federal Register.  The rule will apply to all ATVs manufactured or imported on or after that date.

 

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A recent article published on socialmediatoday.com suggests that unlike other professional industries, health care providers have been slow to engage on social media.  The article posits that the key reasons for their reluctance stem from concerns about accountability and privacy.  At its root, the issue seems to be that between the protections afforded under the Health Insurance Portability and Accountability Act (HIPAA) and more generalized notions of physician-patient confidentiality, many providers are concerned that a presence in social media threatens patient confidentiality and exposes them to expanded liability.  The article makes the point that a lack of social media presence is itself risky for health care providers, and argues that the risk of not establishing a presence subjects providers to potentially negative commentary and characterization.

The risks to physicians, hospitals and similar providers posed by interaction on social media are analogous to a large extent to those faced by lawyers, a group which in my experience has fairly enthusiastically embraced social media, and opportunities for professional on-line communication and networking.  Like physicians, lawyers are bound by client confidentiality.  We are also bound by rules of professional conduct that regulate what we are permitted to communicate about our services and our experience.  This does (or should) cause us to be cautious and deliberative when engaging social media, particularly when we do so under color of our profession and/or our firm.  Notwithstanding these restrictions, lawyers have been active in social media for many years.

On the other hand, health care providers have to be concerned about additional scrutiny that we lawyers do not.  This includes state and federal oversight associated with Medicare and Medicaid, as well as board licensure review.  Health care providers also face heightened attention and expectations of accountability when there is a bad patient outcome.  Providers may be understandably leery of engaging in yet another form of exposure and communication in which there is certainly opportunity for “bad press.”  However, as the socialmediatoday.com article suggests, media silence can be detrimental both from a financial point of view and in the arena of public opinion.  Even social media silence.

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Two decisions within the past few days emphasize the limits on class action arbitration waivers, despite recent United States Supreme Court opinions that breathed new life into such provisions.  With these recent decisions, we see courts relying on both federal and state law concepts to invalidate arbitration provisions when the courts conclude that an individual plaintiff could not feasibly pursue arbitration. 

Vindication of Federal Rights.

The Second Circuit visited the issue for the third time in In re American Express Merchants’ Litigation, No. 06-1871-cv (2d Cir. Feb. 1, 2012).  Merchants there are pursuing Sherman Act antitrust claims against American Express, alleging that American Express improperly ties its non-premium credit cards to its premium charge card services.  Because charge card customers are much more desirable from the merchants’ perspective, American Express is able to charge higher processing fees for those transactions.  These plaintiffs allege that American Express forces merchants to also accept its credit cards and to pay higher processing fees for them even though the credit card customers tend to make smaller purchases.

In two earlier opinions, 554 F.3d 300 (2d Cir. 2009) and 634 F.3d 187 (2d Cir. 2011), the Second Circuit held that the arbitration provision in the merchants’ agreements with American Express was unenforceable.  Following the Supreme Court’s opinion in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Second Circuit asked for supplemental briefing on the topic.  Although Concepcion held that the Federal Arbitration Act preempts state law that imposes particular restrictions on arbitration provisions, the Second Circuit held for a third time that American Express’ arbitration clause is unenforceable because it prevents an aggrieved party from vindicating a federal statutory right.

In this third opinion, the Second Circuit concluded that Supreme Court authority “leaves open the question presented on this appeal: whether a mandatory class action waiver clause is enforceable even if the plaintiffs are able to demonstrate that the practical effect of enforcement would be to preclude their ability to bring federal antitrust claims.”  [Slip Op. at 15]  These plaintiffs satisfied the Second Circuit that they would be precluded from doing so in individual arbitrations because individual damages (a mean of $5,300 and a maximum of $39,000) could not compare to the several hundred thousands of dollars needed for an expert economic analysis of liability and damages.  [Id. at 22]  Thus, “the only economically feasible means for plaintiffs enforcing their statutory rights is via a class action.”  [Id.]  It is not enough that the Clayton Act, 15 U.S.C. § 15, allows for treble damages, attorneys’ fees, and expenses.  A plaintiff must advance the expert costs and then must assume the risk of losing—a significant deterrent to pursuing civil antitrust claims in the court’s mind.  [Id. at 23]

Those plaintiffs relied on an economist’s declaration to establish the likely cost of the necessary analysis.  The court concluded that American Express did not seriously challenge that evidence, which amounted to a concession that an individual plaintiff could not reasonably pursue the claims, whether in court or arbitration.  [Id.]  Just as notable, the court’s “decision in no way relies upon the status of plaintiffs as ‘small’ merchants.  We rely instead on the need for plaintiffs to have the opportunity to vindicate their statutory rights.”  [Id. at 24]

Other courts, particular lower courts in the Second Circuit, have applied this vindication of federal right approach to other statutory claims, such as Title VII employment discrimination suits.  E.g., Chen-Oster v. Goldman, Sachs & Co., 2011 WL 2671813 (S.D.N.Y. July 7, 2011).  With the Second Circuit’s most recent opinion, expect such attacks on arbitration provisions to increase.  It will become more important to challenge the validity of an expert’s assertion of the costs of proceeding with individual arbitration—perhaps to the point of seeking Daubert hearings as part of this process.  While Concepcion and other Supreme Court opinions strengthen defendants’ positions regarding enforcing arbitration provisions, the law is by no means settled. 

Traditional Unconscionability.

On the other side of the country one day earlier, the Northern District of California relied on traditional unconscionability principles to invalidate an arbitration provision in Lau v. Mercedes-Benz USA, LLC, No. CV 11-1940-MEJ (N.D. Cal. Jan. 31, 2012).  That plaintiff bought a luxury car but had numerous mechanical problems with it.  Mercedes sought to compel arbitration when the plaintiff filed suit.  The court found the provision procedurally and substantively unconscionable. 

The contract contained paragraph in capital letters noting the plaintiff’s ability to take the contract to review it and that it contained an arbitration provision on the back.  The arbitration provision had a bold font heading and also was in capital letter.  [Slip Op. at 2]  The court found that procedural unconscionability existed because the dealership presented the contract on a take-it-or-leave-it basis.  It did not matter that the plaintiff signed next to a paragraph mentioning the arbitration provision on the back of the contract.  While the plaintiff negotiated the price (apparently exceeding $100,000), he “was never offered the opportunity to negotiate the inclusion or exclusion of specific pre-printed terms.”  [Id. at 12]

The court found substantive unconscionability because the plaintiff faced substantial expenses in arbitration that do not exist in litigation.  Those expenses include the arbitrator’s hourly fee and the administrative body’s fees.  [Id. at 13]  The provision also was unbalanced because it allowed for a de novo appeal to a three-member panel only if the award was $0 or in excess of $100,000.  The practical effect was to deny plaintiff an appeal right if he recovered less than his full reimbursement right of more than $100,000 but allowed Mercedes to appeal if plaintiff received that full recovery.  Of course, plaintiff also faced advancing more costs if he appealed any award.  [Id. at 14]

Courts frequently undertake this traditional unconscionability analysis to invalidate arbitration provisions.  Plaintiffs’ counsel are being more aggressive in attacking provisions on those grounds, including seeking discovery about a corporation’s experience in arbitration in hopes of showing that the deck is stacked against the consumer.  Thus, it is crucial to take care in drafting an arbitration provision, presenting it to the consumer/employee, and documenting those efforts well before the threat of suit arises.  Consider having the business advance the costs of the arbitration, forgoing seeking its fees (unless the claim against it is frivolous), and ensure that the clause treats the parties equally.    

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FCC Inching Closer to Ending NFL Blackouts

Posted on February 2, 2012 01:21 by Joseph M. Hanna

Recently the Federal Communications Commission (FCC) took measures that may possibly eliminate all sports television blackouts — a move that would delight many fans but is up against the strong defense of leagues like the National Football League (NFL). 

The NFL is the most notable league to experience a significant number of blackouts per year, with 2011 seeing 16 of them. The NFL’s blackout policy states that in order for a team’s home game to be televised in that team’s market, the game must be sold out 72 hours prior to kickoff. 

The FCC is seeking public inquiry on eliminating its own blackout rules, which support league blackout policies. Specifically, the FCC’s blackout rule, which has been in place since 1970, is being targeted. In November, the Sports Fans Coalition, supported by other interest groups, filed a petition to end the FCC’s blackout rule, its executive director Brian Fredrick stating, “We’re asking the government to get out of the business of propping up sports blackouts.” The NFL, however, strongly supports the FCC’s blackout rule, as it is said to ensure a team’s “ability to sell all of its game tickets” and to “make televised games more attractive to viewers through the presence of sellout crowds.” 

Fredrick believes that the NFL, along with other leagues, will argue that blackouts are financially necessary and should not be dispelled. In the petition filed in November, interest groups argued that the FCC’s blackout rule “supports anti-fan, anti-consumer behavior by professional sports leagues.” In addition, they believe that the leagues are the main reason this issue exists because, they argue, the leagues overcharge fans for tickets — the whole reason there are so many empty seats come game day in the first place. 


 

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A recent Seventh Circuit opinion indicates that plaintiffs' counsel in a class action suit that engages in misconduct will not likely be able to adequately represent the class.  In Creative Montessori Learning Centers v. Ashford Gear LLC, No. 11-8020 (7th Cir. Nov. 22, 2011), Judge Posner's opinion overturned the district court's class certification because the district court applied a standard that was too lenient for misconduct on the part of plaintiffs' counsel. 

The named plaintiff, Creative Montessori Learning Centers, sued Ashford Gear LLC for violating the Telephone Consumer Protection Act, 47 U.S.C. § 227.  The Act provides that the recipient of an unsolicited fax can be compensated up to $1,500 for each fax.  There are 14,573 other members of the class who collectively claim to have received 22,222 unsolicited faxes. 

Plaintiffs' attorneys, attorneys from Bock and Hatch, specialize in bringing suits under the Act, but used some unethical tactics to initiate the suit.  The attorneys contacted a fax broadcasting company that faxes advertisements on behalf of advertisers.  Then the attorneys asked the broadcasting company for information about faxes it had sent – and promised to keep the information confidential.  But instead of keeping the information confidential, the attorneys used the information to drum up lawsuits.  The attorneys found violators of the Act and potential plaintiffs.  Notably, the attorneys found Montessori, the named plaintiff, and misleadingly told them that a class action already existed.     

This behavior prompted defense attorneys to argue that the class should not be certified because plaintiffs' attorneys behaved unethically and would not be able to adequately represent the class.  However, the district court applied an egregious misconduct standard, and found that the conduct was not egregious and certified the class.  On appeal, the Seventh Circuit applied a different standard. 

The Seventh Circuit emphasized the importance of ensuring that plaintiffs' counsel can adequately represent a class.  The court noted that class plaintiffs lack the knowledge and monetary stake to allow them to monitor their lawyers.  Therefore, courts have to take great care in ensuring that plaintiffs' counsel will fulfill their fiduciary duties.  The court then held that the district court erred by applying an egregious misconduct standard; rather, any misconduct on behalf of plaintiffs' counsel should create a serious doubt that plaintiffs' counsel is fit to represent a class.  The court then remanded the case back to the district court so the district court could determine whether the class should be certified. 

With this decision, the Seventh Circuit is leaving less room for unethical conduct on the part of plaintiffs' counsel in class action litigation.  It is a decision that will likely be welcomed by defense counsel and class plaintiffs alike

William F. Auther is a partner with an active trial practice in business litigation and Kelly M. McInroy is an associate in the Phoenix office of Bowman and Brooke LLP.  

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With the federal and many state governments facing record deficits, legislatures and various governmental agencies have set their sights on the practice of Independent Contractor Misclassification as a way of adding billions of dollars to their revenues. It has been estimated that the misclassification of employees as independent contractors will cost the U.S. Treasury Department an estimated $7 billion in lost payroll tax revenue over the next 10 years. Recent audits by the California Employment Development Department (EDD) netted $140 million in additional tax revenues from companies that had misclassified 70,000 workers. Since 2009, multiple states have passed laws giving labor enforcement agencies more authority in auditing and penalizing companies that illegally classify employees as independent contractors. And although federal legislation aimed at enforcing improper classification has stalled in Congress, the 2011 federal budget appropriated $25 million to aid the Department of Labor in identifying and attacking employee misclassification. Similarly, the Internal Revenue Service is implementing a tax audit program that has also been fully funded in President Obama’s budget.

As if employers did not have enough motivation to take a second look at their use of independent contractors, plaintiff attorneys throughout the country have hastened the need for transportation companies to examine their employment practices with extensive class action litigation that has resulted in high stake verdicts and settlements in federal and state jurisdictions. While litigation was costly to the companies involved, it has also helped trucking and logistics companies identify employment and payment practices that contributed to findings that drivers were misclassified as independent contractors. Some of these practices have helped clear up the blurry line distinguishing employees from independent contractors. Among the policies that have led judges and juries to find that misclassification had occurred include:

- Drivers being required to adhere to company standards set forth in a guidebook
- Company advertising that it maintains its own fleet of vehicles
- Employers controlling the workload of the drivers and not allowing substitution of drivers
- Companies giving specific instructions to their drivers as to how to load, transport and unload shipments
- The practice of prohibiting drivers from using their own vehicles to provide services to other companies
- Internal employer evaluation of the performance of its drivers
- The requirement the drivers use certain routes on pick-ups and deliveries, drive trucks with the company logo and wear company uniforms

In short, companies that exercise control over the payment, routes, manner of delivery, and the ability of their drivers to work for other companies were deemed to be misclassifying employees as independent contractors. As a result, expensive settlements were reached to provide the drivers with lost workers' compensation, overtime, minimum wage, and other benefits. Ironically though, transportation companies have arguably benefited from the aggressive plaintiff litigation tactics since it has forced the industry to develop policies and procedures consistent with delegating control over duties to the drivers and preserving the independent contractor relationship. These practices include

- Allowing the independent contractors the freedom to accept or turn down loads with the exception that drivers need to be shut down when they are close to exceeding federal hours of service limits
- Avoiding the use of driver uniforms, universal driver policies and the common painting or logos on vehicles (especially in fleets with a combination of an employee and independent contractor drivers)
- Requiring drivers to maintain their own insurance, special permits and training records
- The updating and revision of owner-operator and lease agreements to make sure that the language reflects the intent of the parties to enter into an independent contractor relationship
- Making an independent contractor responsible for specific charges in vehicle lease agreements by correctly disclosing the charges pursuant to 49 CFR 376.12(h)

In sum, the transportation employers are faced with a difficult task of delegating control to drivers in an industry that certainly requires compliance with federal regulations. This inherent tension makes it wise for transportation employers to conduct mock audits as to the practices identified above. If an internal audit does reveal misclassification, employers do have options to remedy the situation:

1. Use the Safe Harbor provision of Section 530 of the Internal Revenue Code to provide an administrative settlement program, which is still more employer-friendly than many of the newer state laws.

2. Reclassify contractors who are clearly employees or, in the alternative, restructure the relationship via the use of an owner-operator agreement and the policy changes identified above. 

3. Consult with local labor and employment attorneys who can assist in the creation and the management of the audit and provide ongoing guidance about the evolving legal landscape and the likelihood of further changes in federal and state law in this area.


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Barbie Rockin' without Permission

Posted on December 28, 2010 07:06 by David H. Levitt

According to the article appearing on DRI Today from Courthouse News, Mattel/Barbie are once again heading to court.  The Hard Rock Barbie series sought permission from Cyndi Lauper and Joan Jett for dolls modeled after them, but neglected to seek permission from Patricia Day of HorrorPops for this version.  It is noteworthy that Ms. Day has chosen Indiana as the venue for her right of publicity lawsuit.  The right of publicity is a creature of state law, not federal law, and Indiana is considered by many to have among the most far-reaching right of publicity statutes.  The choice of law decision by the federal court will be interesting, since Ms. Day is from Denmark (the Complaint does not allege in which U.S. state she resides) and the target defendants are based in California (Mattel) and Florida (Hardrock International).  In addition to the right of publicity, the lawsuit also claims false association and false endorsement as a violation of Section 1125(a) of the Lanham Act.

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