Sub-minimum wage Internet employer loses round one in federal court

SAN FRANCISCO (PAI) – A federal court case in San Francisco could have national implications for wages paid to workers hired to do specific tasks over the Internet. And the ruling could also have long-term implications on the hourly wages of millions of workers in an office or plant whose tasks could be moved online.

That’s because the case challenges Internet companies that misclassify their workers as “independent contractors,” thereby paying them far less than the federal minimum wage. A top official for the firm defending itself in the case estimates up to four million workers could be included in the case, just from his company alone.

While the federal minimum wage is $7.25 an hour and various states and municipalities require a higher minimum wage, online workers are now being paid $2 to $3 an hour, in some cases less, because CrowdFlower, a leader in the crowdsourcing industry, claims the federal minimum wage law does not cover their online workers.

And workers whose jobs could be shifted to the Internet could wind up earning a pittance.

“If a repetitive task now performed in an office – say, bookkeeping for $15 an hour — or in a plant, where machine monitoring is the process paying $15 or more an hour, those jobs could be shifted to online workers who are paid a lot less, destroying a lot of jobs,” said attorney Mark Potashnick of Weinhaus & Potashnick in St. Louis, Mo., one of the attorneys representing the plaintiff workers who are suing to prevent such wage slashes.

“I see this as the newest effort to evade paying the minimum wage,” Potashnick told the Labor Tribune in an exclusive interview.

In a suit filed by Potashnick and co-counsel firms in Pittsburgh and Los Angeles, U.S. District Judge Jon Tiger in San Francisco ruled there’s enough evidence already for the case to proceed as a collective action. A collective action suit is different from a class-action suit. In a collective action, people who may be harmed must opt in to join the suit. In class actions, they’re automatically in unless they opt out.

This is the first step in the legal process to win justice and fair wages for on-line workers and potentially forestall the loss of millions of jobs for other workers whose tasks are not performed on-line but could be.

The employer – and the defendant in the case — CrowdFlower, Inc., pays only $2 to $3 an hour to Internet workers to gather valuable information for its customers. CrowdFlower classifies the workers as “independent contractors,” not subject to state or federal minimum wage laws, job safety and health laws, or Social Security withholding.

Potashnick and his co-counsels contend the workers are misclassified as “independent contractors.” He says the level of CrowdFlower’s control of their work, monitoring of their work, supervising their work, and motivation of their work, among ample other evidence, shows they are “employees” instead, covered by federal labor laws, including minimum wage and overtime laws.

“If the defense” – the company – “is ultimately successful in winning this case, it will have a profound impact on America’s minimum wage in any job that can be moved from a permanent facility to online,” Potashnick said.

“At that point, America’s minimum wage is in jeopardy because so many tasks could be put on the Internet and tens of thousands, perhaps millions, of workers could lose their jobs or be forced to do online work for a lot less than they are now earning.”

Crowdsourcing started as a way for entrepreneurs to raise money over the Internet for projects or start-up businesses that could not get traditional bank funding. However, companies now use the concept to hire workers – calling them independent contractors – over the Internet to do projects. Without protection of a federal, state or municipal minimum wage law, those companies would be free to pay as little as people they find are willing to accept.

Judge Tiger ordered CrowdFlower to turn over the emails and other contact information they have on the workers to the plaintiff/workers’ attorneys so workers doing similar work for CrowdFlower can be invited to join a collective action lawsuit under the Fair Labor Standards Act, which governs minimum wages and overtime.

If Tiger ultimately rules for the workers and against CrowdFlower, the workers would be entitled to be paid at least the federal minimum wage, and entitled to recover unpaid minimum wages for work previously performed plus liquidated damages. The back wages would amount to the difference somewhere between the $7.25 federal minimum wage and whatever CrowdFlower had paid them.

But the case has broader implications: It could establish a precedent that would require other Internet employers to pay at least the federal minimum wage. If that happens, the incentive to move jobs from site-specific companies to online would be severely dampened.

CrowdFlower is believed to be the largest Internet employer in the world, with more than a million workers who perform a variety of tasks such as verifying business listings for sales calls. In a sworn declaration filed with the court, CrowdFlower’s Chief Technology Officer testified that “based upon my preliminary review of the available data, I estimate the total number of potential class members…could exceed 4,000,000…” More than 60 percent of their online workers live in the United States. One CrowdFlower executive calls its work “a digital automotive assembly line.”

Defending the case is Littler Mendelson, the largest pro-business employment law firm in the world. They have just lost round one. But it is only round one.

Dana Spitzer and Ed Finkelstein are, respectively, the Managing Editor and publisher of the St. Louis Labor Tribune.

Photo: CrowdFlower claims their online workers are not covered by federal minimum wage law. CrowdFlower.com