Nokia has agreed to settle a Fair Labor Standards Act suit action in which the workers charged they were misclassified as independent contractors and not paid proper overtime. In this suit, filed in federal court in Texas, the plaintiffs had tried to recover unpaid back wages, attorneys’ fees and costs, based on a theory that they consistently worked in excess of forty hours per week.
The plaintiffs had worked for a staffing company and they were assigned by the staffing agency to work as engineers at a field support center. They were charged with the responsibility of providing telephone support to field technicians and installers who installed Nokia equipment at cellular locations all across the nation.
The plaintiffs alleged that they were, in fact, “employees,” because they claimed they worked solely for Nokia, on Nokia premises and used Nokia equipment. The plaintiffs, who were paid by the staffing company, also alleged that the staffing entity misclassified them. Nokia defended by asserting that it had negotiated contracts with these staffing companies and those contracts set forth the rates that Nokia would pay for certain services.
The plaintiffs tried to make this a nationwide class action, trying to draw in support centers in Texas, California and New Jersey as sites of allegedly aggrieved workers. In September 2007, a judge denied the motion to conditionally certify a class, concluding that the named plaintiffs did not prove that they were similarly situated due to the fact that Nokia, as a corporate policy, had not mandated a common pay procedure or arrangement or practice that adversely impacted the plaintiffs.
This was a potentially very explosive case and Nokia, in my view, wisely chose to settle. If workers are found to be employees, rather than independent contractors, a virtual Pandora’s Box opens for the employer. These “new” employees can not only seek overtime compensation, but they also may lay claims to certain company benefits (e.g. stock option plans) that are only allowed to be enjoyed by employees.
Independent contractor audits are tough to succeed upon and are more and more the focus of state administrative agencies, because such audits produce (often) significant revenue for a State in terms of back due unemployment contributions. The putative independent contractor must be in a recognized business and free from control. The above shows certain evidences of control, which might have undermined the defense at a trial..