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Care required in explaining employer’s position to putative class members

November 3rd, 2015  |  Ron Miller

An employer’s attempt to explain its side of a dispute in a collective action alleging that it improperly classified “fit models” as independent contractors came close to crossing the line into inappropriate communications found a court in Agerbrink v. Model Service LLC dba MSA Models. Although the court declined to enjoin the company’s chief operating officer (COO) or the employer itself from discussing the litigation with putative class members, it did concluded that a corrective notice was required and placed limited restrictions on future communications to address any harm caused by an email and to protect against future harm.

The plaintiff filed a collective action alleging that the employer violated her FLSA rights and those of other “fit models” by misclassifying them as independent contractors. At a pretrial conference, she raised concerns about an email sent by the COO to members of the putative class. The plaintiff contended that the email contained statements that were misleading, coercive, and likely to chill participation and confuse potential opt-in plaintiffs.

Employer’s relationship with models. Of critical concern to the court was the business relationship between the employer, a modeling agency, and the models. Was the communication from the agency to the models inherently coercive? Here, the court observed that the potential opt-in plaintiffs may be inclined to defer to the defendants because of the nature of their relationship. The models not only were economically dependent on the agency, but also looked to it for “guidance.” As a result, the fact that the models relied on the employer for “professional advice” made it less likely they would question information they received from a senior executive and, therefore, more likely they would be misled by misrepresentations or omissions in the email.

Moreover, the court found the email’s depiction of independent contractors versus employees as one-sided by casting independent contractors in a more positive light. However, it concluded that the statements did not come across as a “statement of law,” nor did they suggest a legal test used by courts in deciding employee status. Thus, while the description of independent contractors and employees was selective, it was not so misleading as to require correction.

Tax status. The court was also troubled by the implications of the email that any change in tax status would be negative. The defendants were correct that the lawsuit had “foreseeable outcomes that could well impact the tax status and resulting tax obligations of the models.” But, the court found the email’s discussion of tax status misleading in its one-sided presentation of the tax benefits and responsibilities of independent contractors and employees. The email suggested that independent contractors paid fewer taxes because they may deduct “substantial legitimate business expenses” and have “no income withholding for taxes,” whereas employees “are limited in what employment business expenses they can deduct” and “have federal, state and city taxes and social security withheld from their pay.” However, the email did not mention that independent contractors are still liable for income tax, but pay taxes directly rather than having them withheld from earnings.

The potential for this omission to mislead was compounded because the models looked to the employer for “professional advice.” Because the email cataloged specific differences between the tax liabilities of employees and independent contractors, the court pointed out that the putative class members would have no reason to question its accuracy. Given the parties’ relationship, the court found this aspect of the email both coercive and misleading.

Employer’s interest in litigation. The court also disagreed with the defendants’ argument that the employer was not obligated to disclose its interests in putative class members’ non-engagement in the lawsuit, or that the email’s acknowledgement that the employer was defending the lawsuit clearly meant that it was being sued and that its interests were adverse to the plaintiff’s and putative class members. In light of their ongoing business relationship, the models may presume that their interests are aligned with the employer’s, and therefore may not question the email’s “advice.” Thus, the court found that the email’s failure to explicitly acknowledge the defendants’ specific adverse interests had the potential to mislead by omission.

Corrective measures. Still, while the court found that the email had the potential to mislead, it determined that its task was to tailor “the narrowest possible relief” which would protect the respective parties. As a result, the court ordered a corrective notice and a limited restriction on future communications; however, it declined to enjoin the COO or the employer from discussing the litigation with the putative class members.