Employees or independent contractors? Hampton Creek joins growing number of firms sued over worker classification

The San Francisco-based company is accused of violating the Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL) by classifying its 'relationship specialists' - people recruited to do instore demos and other activities - as independent contractors, rather than employees.

The distinction matters because employees can hold their employers accountable for violations of wage and hour laws, such as those requiring employers to pay their employees for all hours worked, pay additional compensation for overtime, provide meal and rest breaks, and reimburse employees for work-related expenses. Independent contractors, by contrast, enjoy fewer rights.

While this is not a new issue in employment-related litigation, high-profile cases against firms including Uber and FedEx have raised awareness of the issue, and a series of food companies including Pepperidge Farm (Campbell Soup), Flowers Foods, GrubHub, InstaCart, DoorDash, Caviar, Bimbo Bakeries and Albertsons have been sued for allegedly misclassifying 'sales development associates,' drivers, delivery people, and instore demo providers in the past three years.

Plaintiffs seek to represent a class of 100+ workers​

In a complaint* filed in New York on Friday, plaintiffs Lisa Castagna and Anthony Pennington seek to represent a class of 100+ relationship specialists who they claim routinely work far longer than their contracted 40 hours/week, but are not paid overtime.

Castagna – who was employed in New York by Hampton Creek from summer 2014 to around May 2015 – claims that she regularly worked 70+ hours a week but was not paid for the extra hours she needed to put in to complete the assigned tasks.

According to the lawsuit, Hampton Creek’s ‘relationship specialists’ are key to its success on the ground, arranging and conducting instore demos, ensuring shelves remain stocked with its products, posting messages about the products on social media, offering customers coupons, taking pictures of customers with Hampton Creek products, and providing feedback to the company about how consumers are responding.

Plaintiff regularly worked 70-80 hours a week, but was only paid for 40, alleges lawsuit​

“In order to avoid paying plaintiffs and similarly situated relationship specialists overtime premiums for all of the hours worked in excess of 40 per workweek, Defendant misclassified their relationship specialists as independent contractors ​[as opposed to full-blown employees] and paid them a biweekly salary ​[in order to avoid the requirements of the FLSA and NYLL],” argues the lawsuit.

(Under those statutes, companies are required to pay employees a minimum wage as well as overtime.)

While employed by Hampton Creek, the plaintiffs were also denied a minimum wage due to the “unlawful kick-backs they were required to pay in order to complete their duties for Hampton Creek, including but not limited to expenses related to their vehicle, gasoline, and other travel expenses”,​ argues the complaint.

The lawsuit seeks to recover unpaid overtime compensation, interest, liquidated damages, attorneys’ fees, and costs on behalf of the plaintiffs and “all similarly situated persons who work or have worked for Defendant as relationship specialists within the last three years and who elect to opt-in to this action."​

It adds: “Defendant was aware or should have been aware that the law required it to pay non-exempt employees, including Plaintiffs and the FLSA Collective, an overtime premium of 1.5 times their regular rate of pay for all work-hours Defendant suffered or permitted them to work in excess of 40 per work week."​

Revenues at Hampton Creek surged 350% in 2015 as the company expanded its product range and strengthened partnerships in retail and foodservice.

The San Francisco-based firm - which made its name by launching an egg-free spread called Just Mayo - has since expanded its portfolio to include cookies, dressings, cake mixes and other products, which are sold to retail and foodservice customers in the US and overseas.

Legal reaction​

So what do attorneys make of the case?

Rachel Atterberry, partner in the litigation practice group at Freeborn & Peters LLP, told FoodNavigator-USA that the case was not unusual, and that the practice of classifying workers as ‘independent contractors' or temporary contractors, rather than full-blown employees, was increasingly under attack by courts and government agencies.

Exploring the line between the two classifications, she explained, was fertile ground for plaintiffs’ attorneys "given the statutory penalties involved, the numbers of workers that can be joined in the lawsuit (thus increasing damages and, potentially, fees) and the prevalence of violations across industries"​.  

She added: "When workers are classified as contractors, as opposed to employees, they often are not afforded the protections of various employment laws including the FLSA.​

"The workers in this case allege their employer knowingly misclassified them as independent contractors in order to avoid paying minimum wage and overtime. They claim their job duties were extensive, intertwined with the operations of the company, and subject to extensive supervision and requirements – all important factors that a court considers in determining whether a worker is an employee or a true independent contractor. As a result, the workers claim that they should be entitled to the protections of the FLSA and NYLL."​

Employee or independent contractor?

“Despite the media attention that has been focused on the issue of independent contractor misclassification in recent years… most companies have yet to diagnose their state of compliance or determine their potential exposure for independent contractor misclassification liability. ​

“Fewer still have enhanced or updated their workforce models in a manner sufficient to meaningfully minimize or eliminate the risks of costly government regulatory and enforcement actions and class action litigation.”  ​Pepper Hamilton LLP​​

Attorney: A lack of commonality among the workers may prove a barrier in this case ​

Ann M. Grottveit, litigation attorney at Kahn, Soares & Conway, LLP, added that such cases were on the rise in the on-demand economy, particularly in New York, California, and Florida. 

She added: "In the Hampton Creek case, an assessment of how the workers choose to manage their time and their degree of independence, as well as their contract terms, will impact whether they are properly classified as employees. ​

"A lack of commonality among the workers may tend to defeat an argument that a collective action is manageable and appropriate to address the worker’s claims that they are entitled to unpaid employee wages because they work “off the clock” and thus are entitled to overtime, missed breaks, other wages, and expense reimbursement consistent with employee status."​

What can companies do to avoid litigation?​

So what can companies do to ensure they are not targeted in such lawsuits?

In a 2015 blog post​ ​by law firm Pepper Hamilton LLP, the authors note that, "Virtually all newly enacted state laws, as well as proposed federal legislation, permit the continued use of independent contractors, provided the workers are properly classified."​

While many firms may need to restructure to ensure their employment practices can withstand legal scrutiny, it is usually possible to come up with a model that complies with the law and meets their unique needs, they argue: "Restructuring, re-documentation and re-implementation need not be a prohibitive undertaking and, once completed within a reasonably short period of time, can place a business in an enhanced and sustained state of compliance."​

Hampton Creek declined to comment on the lawsuit.

*The case is Lisa Castagna and Anthony Pennington et al v Hampton Creek Inc (2:16-cv-00760-SJF-AYS) filed in the US district court in the Eastern District of New York on February 12, 2016.