Recently, the U.S. Department of Labor (DOL) announced that it secured $5.6 million in back wages and liquidated damages for 1,398 misclassified employees of an Arizona-based logistics company. Briefly, the company illegally misclassified them as exempt independent contractors, denying them overtime pay and other rights under the Fair Labor Standards Act (FLSA). The misclassified employees operated as delivery drivers for joint employers under the company. Earlier, in December 2022, the DOL and the Internal Revenue Service (IRS) renewed a memorandum of understanding, combining resources to prevent employee misclassification.

Overview of the Worker Misclassification Case

According to an investigation by the DOL’s Wage and Hour Division (WHD), the logistics company misclassified employees as independent contractors between April 20th, 2012, and March 31st, 2020. In detail, the company’s FLSA violations included:

  • a failure to comply with minimum wage requirements;
  • illegally paying straight time for all hours worked, including hours over 40 in a workweek; and
  • failing to keep required timekeeping records.

Additionally, the company required its misclassified employees to use personal vehicles for their deliveries but did not compensate them for miles driven.

What the FLSA Says About Misclassified Employees

As the nation’s primary wage law, and one of the most crucial employment laws all businesses need to know, the FLSA provides a minimum wage and overtime protections for virtually all U.S. workers. In brief, the FLSA requires private sector and government employers to pay a federal minimum wage of not less than $7.25 an hour and an overtime pay rate of one and one-half the regular pay rate during hours worked over 40 a week.

However, some employers illegally and inaccurately classify their workers as independent contractors to avoid paying required overtime. What’s more, this illegal independent contractor misclassification denies employees benefits and protections to which they are legally entitled. It’s worth noting that employee misclassification is illegal even if the employee agrees to the erroneous classification. Independent contractors differ from employees in that they:

  • control their own workload or run their own business,
  • provide their own materials,
  • work with multiple clients, and
  • deal with temporary client relationships.

Settlement for the Misclassified Employees

The EEOC obtained a consent judgment in the U.S. District Court for the District of Arizona (the Court). In DOL vs. Arizona Logistics Incorporated, et al., the Court ordered the joint employers of the company to pay $2.8 million in back wages and an equal amount in liquidated damages to the misclassified employees. In sum, a total of $5.8 million will be distributed to affected workers. In addition, the consent judgment requires the company to pay $150,000 in civil money penalties for the FLSA violations. Finally, the company will need to treat all current and future delivery drivers as employees. This will ensure that they are not exempt from the employment rights afforded to them under the FLSA.