A class-action lawsuit that alleges a national bakery company violated state and federal overtime laws is moving closer to trial in Charlotte after a federal judge’s ruling this week.
The suit, first filed in 2012, also has importance for other North Carolina workers, thanks to an order that adds new clarity to state labor laws.
At issue is whether distributors who deliver baked goods to grocers and other retailers for Flowers Foods were improperly classified as independent contractors. If they were employees, these workers would be entitled to benefits under federal and state labor laws, including overtime pay.
Flowers Foods, a Georgia-based company whose products include Wonder Bread and Tastykake treats, had sought a summary judgment in its favor. But U.S. District Judge Max Cogburn Jr. this week issued a ruling that allows the case to proceed.
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The issue of employee “misclassification” has gained more attention in recent years, especially as companies such as ride-sharing service Uber Technologies increasingly rely on independent contractors, rather than employees, as a critical part of their business model.
We put up all this money to buy our routes, but we had no say in how to run them.
Mario Ronchetti, one of the plaintiffs in a class-action suit who alleges he and other distributors for Flowers Foods were misclassified as independent contractors
Last year, Gov. Pat McCrory launched a crackdown on businesses in the state that improperly classify workers, following a series of stories on the topic by the Observer and the (Raleigh) News & Observer.
The judge’s order this week also has broader implications for workers in North Carolina, a lawyer representing the plaintiffs said. That’s because Cogburn ruled that liability releases signed by some former Flowers Foods distributors did not bar claims brought under the North Carolina Wage and Hour Act, which covers minimum wage, overtime and other requirements for businesses.
Under federal law, it was already clear that workers couldn’t sign agreements that prevented them from receiving overtime pay or making at least minimum wage, said Shawn Wanta, a Minnesota-based lawyer representing the plaintiffs in the case. But that standard had not been established on the state level.
“That is an issue that has never been decided in North Carolina under the state law, and now it has,” said Wanta, who is working with Charlotte attorney Ann Groninger on the case. “... It’s really a great order for employees of North Carolina, whether you’re misclassified or not.”
Carol Brooke, a senior staff attorney at the N.C. Justice Center, agreed that it was a significant ruling.
“Having the same protections for waivers of state minimum wage, overtime, and promised wage claims is a logical, and very important, extension of that concept,” Brooke said.
Flowers can’t appeal the ruling now, but could do so after a trial, Wanta said.
In a statement, Flowers Foods, a publicly traded company with $3.8 billion in annual sales, said it respects the court’s decision and looks forward to presenting its case at trial.
The ruling “is a continuation of the legal process and is not a determination of the merits of the case,” the company said. “Flowers believes its independent distributor model creates entrepreneurial incentives that result in significant benefits to independent distributors, their customers and the company.”
Flowers’ business approach has been in place since the mid-1980s and is similar to others in the baking and other industries that have been upheld as independent contractor models in other legal forums, the company said. In North Carolina, Flowers has around 900 employees and about 430 independent distributors.
“We do not believe this lawsuit or the others that are being brought against the company have merit and intend to vigorously defend our position,” the company added. Flowers did not specifically comment on Cogburn’s ruling on the North Carolina Wage and Hour Act.
The Charlotte case was the first of more than a dozen similar cases filed around the country in recent years, including another case filed in Charlotte in November involving distributors from Eastern North Carolina. Cogburn is also presiding over that case.
In September 2012, the three Charlotte-area plaintiffs – Scott Rehberg, Willard Allen Riley and Mario Ronchetti – filed a class-action suit against Flowers Foods and a subsidiary in Jamestown, in the Triad.
As Flowers distributors, the plaintiffs deliver fresh baked goods to grocery stores, fast food chains and other retailers, according to the complaint. These workers also stock the store shelves and set up displays.
Among other claims, the suit alleges that Flowers Foods misclassified the distributors as independent contractors and failed to pay them overtime even though they worked more than 40 hours a week.
Flowers believes its independent distributor model creates entrepreneurial incentives that result in significant benefits to independent distributors, their customers and the company.
Flowers Foods, in a statement
There are more than 200 members of the class-action group tied to the state claims, and about 20 in the class-action group tied to the federal claims, Wanta said. The amount of money “in controversy” exceeds $5 million, according to the complaint.
In an interview, Ronchetti said he became a distributor in 2004. He said he became a plaintiff in the suit after becoming increasingly frustrated by the company’s control over the way he sold the baked goods he delivered.
“We put up all this money to buy our routes, but we had no say in how to run them,” Ronchetti, 39, said. This was important because if the products didn’t sell, he lost out on commissions, he said.
When determining whether a worker is an independent contractor, control is one of the factors considered by the IRS. Does the boss dictate when and how the worker gets the job done? Is the compensation enough to allow the worker to operate as if he’s self-employed with overhead of his own?
Ronchetti said he is on call to make deliveries seven days a week. Still working for Flowers, he said he works at least 46 hours a week, and sometimes more than 50.
Analysts that follow the company are closely watching the suit. In a research note this week, BB&T Markets analysts said they expect the company will try to reach a settlement before trial. If Flowers should lose at a trial, then it might have to change its business model, allowing distributors to become employees, the analysts said. Such a move could bring workers overtime and healthcare benefits, but it could also mean lower pay, the note said.
Wanta, the attorney for the plaintiffs, said the next step in the case is to determine a schedule for trial. It’s possible the judge will order mediation in an effort to settle the case, he said.
“It’s nice to see we’re moving forward finally after all the setbacks we’ve had,” Ronchetti said. “We are ready to have it finished.” Mandy Locke of The (Raleigh) News & Observer contributed.