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Vasto v. Credico (USA) LLC

United States District Court, S.D. New York

October 27, 2017

PHILIP VASTO, ZAO YANG, ALEX TORRES, AND XIAOJ ZHENG, individually and on behalf of all others similarly situated, Plaintiffs,
v.
CREDICO (USA) LLC, CROMEX INC., and MEIXI XU, Defendants.

          OPINION & ORDER

          Paul A. Engelmayer United States District Judge.

         Plaintiffs Philip Vasto, Zao Yang, Alex Torres, and Xiaoj Zheng bring this action on behalf of themselves and similarly situated persons, alleging violations of the Fair Labor Standards Act, 29 U.S.C. § 201, et seq. (“FLSA”), the New York Labor Law, N.Y. Lab. Law § 650, et seq. (“NYLL”), the Arizona Wage Act, Ariz. Rev. Stat. § 23-350, et seq. (“AWA”), and the Arizona Minimum Wage Act, Ariz. Rev. Stat. § 23-362, et seq. (2015) (“AMWA”).

         Plaintiffs served as field agents securing low-income customers to acquire wireless telephones pursuant to a federal subsidy program. They claim primarily that they were misclassified as independent contractors, as opposed to as employees, and therefore were denied statutorily required minimum wage and overtime compensation. They seek to hold three parties liable for this misclassification: Cromex, Inc. (“Cromex”), their direct employer, Meixi Xu, Cromex's owner, and Credico (USA) LLC (“Credico”), the company that subcontracted with Cromex to administer the federal subsidy program. Plaintiff Torres also alleges that he was denied minimum wage and timely payment of wages as required under Arizona law during his stint with another Credico subcontractor. Finally, plaintiffs Vasto and Yang separately allege that they were terminated in retaliation for complaining about their classification as independent contractors.

         Pending now are the parties' cross-motions for summary judgment. These motions raise four issues: (1) whether plaintiffs were employees rather than independent contractors under the FLSA, NYLL, and AMWA; (2) if so, whether Credico and Xu may (or, in the case of Xu, must) be considered plaintiffs' employers; (3) whether, even if plaintiffs are employees, they are exempt from FLSA and NYLL requirements as outside salespeople; and (4) whether plaintiffs Vasto and Yang have adequately supported their retaliation claims so as to survive summary judgment.

         The first three legal issues in this case coincide substantially with those addressed in this Court's recent decision in Martin v. Sprint United Management Co., No. 15 Civ. 5237 (PAE), 2017 WL 4326109 (S.D.N.Y. Sept. 27, 2017). To the extent the issues overlap, the facts here compel the same result. For the reasons that follow, the Court holds that, even assuming arguendo that plaintiffs were employees rather than independent contractors, (1) Credico cannot be held liable as plaintiffs' joint employer, and (2) the outside sales exemptions to the FLSA and NYLL apply. Further, assuming arguendo that Xu was plaintiffs' employer, plaintiffs have failed to demonstrate a clear assertion of rights under the FLSA so as to sustain a retaliation claim. These rulings collectively preclude liability for all defendants on all counts. The Court therefore grants summary judgment in favor of defendants and denies plaintiffs' cross-motion for partial summary judgment.

         I. Background[1]

         A. Factual Background

         1. The Parties

         The federal government subsidizes provision of cell phones to low-income subscribers through a program called Lifeline Assistance. JSF ¶¶ 96-100. Lifeline participants receive a free wireless phone and a free preset bundle of minutes and messages, with the option to purchase additional minutes and messages above this preset amount. See Credico 56.1 ¶ 140; First Williams Decl., Ex. 56 at 2. Sprint, a telecommunications carrier, participates in the Lifeline Assistance program through what Sprint calls the Assurance Wireless campaign. JSF ¶ 101. To conduct the Assurance Wireless campaign (i.e., to promote and market Lifeline services), Sprint contracts with third-party Outreach Agencies (“OAs”). Id. ¶ 102.

         Defendant Credico is one of those OAs, tasked with assisting Sprint in implementing the Assurance Wireless campaign. Id. ¶¶ 113-17. To that end, in September 2013, Sprint and Credico entered into an Amended and Restated Outreach Agency Agreement (the “OA Agreement”) effective September 1, 2013, amending an original agreement dated September 15, 2012. Id. ¶ 114; First Williams Decl., Ex. 15 at 511. Attached to the OA Agreement was a copy of Sprint's Standard Operating Procedures (“SOPs”). JSF ¶ 106; First Williams Decl., Ex. 13. Under the OA Agreement, Credico is authorized to solicit and collect applications for Sprint's Assurance Wireless Program within designated areas. JSF ¶¶ 113, 117. Instead of collecting applications itself, however, Credico outsources sales and marketing to subcontractors, to which it refers as “independent sales offices” (“ISOs”). Id. ¶¶ 14-15. ISOs, in turn, recruit and hire individual “agents” who sell and market products on behalf of Credico's clients. Id. ¶¶ 19-20.

         Defendant Cromex is one such ISO, and it is owned by defendant Xu. Id. ¶¶ 29, 39. Xu oversees Cromex's day-to-day operations. Id. ¶ 40. Since it began operating in 2014, Cromex has provided sales and marketing services for Credico's clients only, and revenues generated from the Assurance Wireless campaign account for a “significant portion” of Cromex's income. Id. ¶¶ 30-31. The subcontractor agreement between Credico and Cromex extends to Cromex the contractual obligations that Credico owes to Sprint and sets forth the territories in which Cromex is authorized to operate. Id. ¶¶ 50, 54. It requires further that Cromex (1) comply “with all applicable federal, state, county, and local laws, ordinances, regulations and codes”; (2) “comply and have its own employees comply with the Credico USA Code of Business Ethics and Conduct, ” as well as “any Credico USA Client Dress Code, Conduct Policy, and Operational Requirements”; (3) “[a]dher[e] to any Client pre-conditions to performing Services, such as drug testing and background checks with authorized providers and compliance with Client branding”; (4) “[t]rain[] its employees in accordance with Credico USA's Client requirements which may include, but [are] not limited to, attending class periodically”; and (5) “[s]olicit[] business on behalf of Credico USA Clients regarding their products or services . . . using the techniques and information as set out in Credico USA Clients' Training Guides.” Credico 56.1 ¶¶ 51-53.

         Plaintiffs were hired by Cromex as field agents to work on the Assurance Wireless campaign. JSF ¶¶ 10, 139, 193. Vasto worked for Cromex in New York from approximately March 2015 through May 2015. Id. ¶ 2. Yang did the same from approximately February 2015 through April 2015, Torres from approximately January 2015 through mid-March 2015, and Zheng from approximately February 2015 to August 2015.[2] Id. ¶¶ 4, 7, 11. Field agents like plaintiffs were referred to as “account executives” and could later be promoted to “corporate trainers.” Id. ¶¶ 128-29. Plaintiffs Yang, Zheng, and Torres were all promoted to corporate trainers, and Zheng was subsequently promoted to senior corporate trainer. Id. ¶¶ 200-01.

         2.The Responsibilities of Field Agents

         Field agents on the Assurance Wireless campaign solicited and collected applications from potentially qualifying Lifeline Program applicants. Id. ¶¶ 149, 181-84. Agents worked on only one campaign at a time. First Savytska Decl., Ex. 1 at 175.

         As set forth in the OA Agreement, field agents were required to “inform and educate potential [c]ustomers about Assurance Wireless, seek to determine and advise on an individual's qualification for the program and engage the eligible [c]ustomers in the [a]pplication process for Assurance Wireless.” First Williams Decl., Ex. 15 at 512. Field agents distributed Sprint-provided materials, visiting “targeted community locations and attending public or private community events.” Id.

         In initially addressing potential applicants for phones pursuant to the Lifeline Program, field agents were required, as set forth in the SOPs, to begin by “utiliz[ing] an approved pitch that meets [Assurance Wireless] standards and clearly indicates only qualified applicants may receive . . . lifeline service.” Id. at 536. One such pitch, for example, could be: “Would you like to find out if you qualify for free lifeline service from Assurance Wireless?” Id. The SOPs also address the remainder of the interaction between field agents and potential applicants. For example, the SOPs state that field agents “must ask potential applicants if they currently have a lifeline phone” and “if they have applied with [Assurance Wireless] or any lifeline carrier recently.” Id. at 537.

         Using their Credico-provided tablets, field agents uploaded completed Lifeline Program applications to a third-party vendor called Solix so that the applications could be either approved or denied. JSF ¶¶ 153-59. If an applicant was approved, the enrollee received a free phone, and the government would pay Sprint, via subsidy, for providing that service. Id. ¶¶ 96, 100. Agents, for their part, would receive a commission from Cromex. Id. ¶ 187. If an applicant was determined not to be qualified, the agent received no pay for that customer. Id. ¶ 188.

         3. The Schedules of Field Agents

         Plaintiffs reported to work at Cromex's New York City office. Credico 56.1 ¶¶ 27, 94. The parties dispute whether agents were required to come to work every day. Defendants point to testimony suggesting scheduling flexibility, see Id. ¶¶ 89, 106, while plaintiffs rely on Cromex's Account Executive Manual, which provided field agents with a daily schedule and prohibited unexplained absences, see Pl. 56.1 ¶¶ 37, 41. Plaintiffs claim they typically worked between 60 and 70 hours per week. Pl. 56.1 ¶ 71. In any event, it is undisputed that agents working on the Assurance Wireless campaign picked up tablets each day from the Cromex office and participated in morning “atmosphere” meetings, during which agents received guidance as to how to solicit Assurance Wireless applications. JSF ¶¶ 155, 167-69.

         Agents like plaintiffs spent the majority of their time soliciting and accepting applications in the field. Id. ¶ 181; see also Vasto Decl. ¶¶ 11-12; Torres Decl. ¶ 8; Zheng Decl. ¶ 4; Yang Decl. ¶ 5. Plaintiffs were supervised by (and communicated exclusively with) Cromex personnel, who would assign agents a particular location (in New York City) in which to begin their day. JSF ¶¶ 148, 202-18; Pl. 56.1 ¶ 51; Credico Counter 56.1 ¶ 51. Upon their return to the Cromex office at the end of the work day, agents would report their application numbers and either return their tablets or take them home. JSF ¶¶ 170-71; Pl. 56.1 ¶ 42; Credico Counter 56.1 ¶ 42. Credico, like Cromex, received agents' application data. Credico 56.1 ¶ 156.[3]

         4. The Hiring of Field Agents

         Cromex was directly responsible for its own hiring decisions. JSF ¶ 19. To that end, Cromex conducted its own recruitment and interviews. Id. ¶ 127. Cromex also made its own promotion decisions. Id. ¶ 133. Accordingly, Cromex recruited, interviewed, hired, and promoted plaintiffs. Id. ¶¶ 192-93, 200.

         As part of their onboarding, Cromex field agents signed “Independent Sales Representative Agreements.” Id. ¶ 196. These agreements allowed either party to terminate the agreement at will. Id. ¶ 198. The agreements also permitted plaintiffs to offer their services to other companies engaged, like Cromex, in direct sales, provided that this other work did not interfere with ongoing work performed for Cromex. Id. ¶ 197. Sprint's SOPs also required that field agents collecting Lifeline Program applications on the Assurance Wireless campaign submit to background checks. Id. ¶ 108.

         5. The Training of Field Agents

         Cromex was responsible for training its field agents, including plaintiffs. Id. ¶¶ 134, 169199. Field agents also participated in a “Management Training Program” devised by Credico but implemented through subcontractors. Pl. 56.1. ¶ 33-34; First Savytska Decl., Ex. 1 at 71. Credico also conducted in-person audits of ISOs to ensure compliance with clients' requirements. JSF ¶ 56.

         6. The Classification and Compensation of Field Agents

         Specific ISOs like Cromex would decide independently whether to classify agents as independent contractors or employees. Credico 56.1 ¶ 166; Pl. Counter 56.1 ¶ 166. In this case, plaintiffs' Independent Sales Representative Agreements classified each plaintiff as an independent contractor, Credico 56.1 ¶ 69, and Cromex paid them as such, JSF ¶ 145. After this lawsuit was filed, however, Credico decided that it would no longer contract with ISOs that classified agents as independent contractors. JSF ¶ 75.

         As Cromex agents, plaintiffs were paid on commission, receiving $10 per approved Assurance Wireless application. Id. ¶ 139. These payments came from Cromex, id. ¶ 143, but the parties dispute who determined agents' pay. Defendants contend based on the deposition testimony of presidents of other ISOs that ISOs independently determined their agents' pay rates. Credico 56.1 ¶ 161-62. Plaintiffs counter that Credico provided ISOs with commission schedules listing individual agents' pay rates and mandated that ISOs pay commissions pursuant to the established rates. Pl. Counter 56.1 ¶ 161-62; First Savytska Decl., Ex. 37 at 31098.

         Vasto earned an average of $136 per week during his time at Cromex. Pl. 56.1 ¶ 84. Zheng earned an average of approximately $466 per week. First Savytska Decl., Ex. 84. Three of Yang's pay statements are in the record, showing weekly earnings of $40, $220, and $590. Pl. 56.1 ¶ 85; Credico Counter 56.1 ¶ 85. Torres has no pay statements, but estimates his average weekly pay was approximately $300 per week. Pl. 56.1 ¶ 86.

         7. The Suspension and Termination of Field Agents

         The parties dispute the precise contours of Credico's ability to suspend or terminate field agents. It is undisputed that Credico had the authority to “deactivate”-i.e., remove from the Assurance Wireless campaign-a field agent suspected of fraud or failure to abide by the SOPs. JSF ¶ 179; Credico 56.1 ¶ 46. Credico in fact exercised that authority in deactivating Cromex agents. JSF ¶ 180. But plaintiffs also assert that Credico has “suspended” agents and “required” their termination. Pl. 56.1 ¶¶ 137, 139, 144, 146-47; First Savytska Decl., Ex. 62 (Credico email instructing offices to “eliminate 20% of their lowest performers”); First Savytska Decl., Ex. 67 (Credico “Compliance Improvement Plan” describing agent misconduct that could trigger mandatory probation or termination); First Savytska Decl., Ex. 64 (Credico email indicating an agent would be suspended). Credico responds that it had no authority to terminate agents; rather, “deactivated” agents were merely removed from the Assurance Wireless campaign and not necessarily terminated. Credico Counter 56.1 ¶¶ 137, 144, 147; First Williams Decl., Ex. 4 at 131-32 (Credico president Jesse Young testifying ISOs owners could remove somebody from the Assurance Wireless campaign without Credico's approval). Credico suggests further that it deactivated agents only to prevent fraud and noncompliance with client requirements. Credico 56.1 ¶ 46.

         8. The Terminations of Vasto and Yang

         Both Vasto and Yang repeatedly complained about their treatment as independent contractors. Pl. 56.1 ¶¶ 89-90. Rather than seek reclassification as employees, however, each sought greater professional latitude in their positions, consistent with their expectations regarding independent contracting work. Vasto, for example, “complained that [he] had the right as an independent contractor to conduct business on the terms of an independent contractor, i.e., to have more freedom.” First Williams Decl., Ex. 28 at 198. Vasto objected specifically that he could not “choose [his] days, ” “could not chose the time [he] worked, ” “could not choose [his] break period, ” and “could not control anything.” Id. Yang, for his part, “constantly present[ed] proposals to be an independent contractor” so that he could pursue his own ideas for event marketing. First Savytska Decl., Ex. 41 at 241-42.[4]

         Vasto and Yang claim that they were terminated as a result of these complaints. See Pl. 56.1 ¶ 91. They cite two sources for this conclusion: (1) statements of supervisors that Yang was a “troublemaker” and “not trying to follow the system, ” First Savytska Decl., Ex. 41 at 239, and (2) an audio recording of a Credico consultant informing Vasto that he was terminated because he failed to sign up enough customers and his co-workers found him “difficult to work with, ” First Savytska Decl., Ex. 19.

         B. Procedural History

         On July 27, 2015, plaintiffs filed the initial complaint in this action, bringing claims against Credico, Cromex, Xu, and Jesse Young in the Northern District of Illinois. Dkt. 1. Plaintiffs amended three days later, Dkt. 6, and, in October of that year, moved for conditional certification of a collective under the FLSA, Dkt. 38. Judge Shadur of the Northern District of Illinois denied the motion. Dkt. 41. Plaintiffs thereafter moved to transfer the case to this District, Dkt. 42, and Judge Shadur granted the motion, Dkt. 46. Plaintiffs again moved for conditional certification, Dkt. 62, and this Court granted the motion as to all persons who conducted face-to-face marketing work for Credico and its subcontractor ISOs in the United States, while classified as independent contractors, at any point during the three years preceding the issuance of court-approved notice, Dkt. 113.[5] Meanwhile, defendant Young moved to dismiss plaintiffs' claims against him, Dkt. 106, and the Court granted the motion, Dkt. 161.

         Following discovery, Credico, Dkt. 211, and Cromex and Xu, Dkt. 218, moved for summary judgment. Plaintiffs opposed and cross-moved for partial summary judgment. Dkt. 225. At the time it resolved the summary judgment motions in the companion case of Martin v. Sprint/United Management Co., No. 15 Civ. 5237 (PAE), the Court issued an order stating that the decision on the motions here would issue in October. See Dkt. 246.

         II. Applicable Legal Standards for a Motion for Summary Judgment

         To prevail on a motion for summary judgment, the movant must “show[] that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant bears the burden of demonstrating the absence of a question of material fact. In making this determination, the Court must view all facts “in the light most favorable” to the non-moving party. Holcomb v. Iona Coll., 521 F.3d 130, 132 (2d Cir. 2008); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         If the movant meets its burden, “the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.” Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008). “[A] party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment.” Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (internal quotation marks and citation omitted). Rather, the opposing party must establish a genuine issue of fact by “citing to particular parts of materials in the record.” Fed.R.Civ.P. 56(c)(1)(A); see also Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009).

         “Only disputes over facts that might affect the outcome of the suit under the governing law” will preclude a grant of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining whether there are genuine issues of material fact, the Court is “required to resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought.” Johnson v. Killian, 680 F.3d 234, 236 (2d Cir. 2012) (quoting Terry v. Ashcroft, 336 F.3d 128, 137 (2d Cir. 2003)) (internal quotation marks omitted).

         III. Discussion

         The parties' cross-motions for summary judgment raise four issues: (1) whether plaintiffs were employees rather than independent contractors under the FLSA, NYLL, and AMWA; (2) if so, whether Credico and Xu may (or, in the case of Xu, must) be considered plaintiffs' employers; (3) whether, even if plaintiffs are employees, they are exempt from FLSA and NYLL requirements as outside salespeople; and (4) whether plaintiffs Vasto and Yang have adequately supported their retaliation claims so as to survive summary judgment.

         As in Martin, this Court holds that, even assuming arguendo that plaintiffs were employees rather than independent contractors, (1) Credico cannot be held liable as plaintiffs' joint employer, and (2) the outside sales exemptions to the FLSA and NYLL apply. These rulings preclude liability altogether for Credico and compel dismissal of Torres's claims under Arizona law. They also compel dismissal of plaintiffs' minimum wage and overtime claims against Cromex and Xu. The Court then turns to plaintiffs' claims of retaliation and holds that, even assuming arguendo that Xu was plaintiffs' employer, Vasto and Yang cannot sustain a claim for retaliation under the FLSA. Accordingly, defendants' motions must be granted and plaintiff's motion dismissed.

         A. Credico as Joint Employer

         Credico seeks summary judgment on the ground that the evidence would not permit a finding that it was a “joint employer” of plaintiffs. In other words, it argues, even assuming plaintiffs were employees, they were employees only of Cromex, and therefore only Cromex can be held liable for any FLSA and NYLL violations. For the reasons that follow, the Court agrees.[6]

         1. Applicable Legal Standards

         The FLSA defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). The Supreme Court has emphasized that this is an expansive definition with “striking breadth.” Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992). An individual may simultaneously have multiple “employers” for the purposes of the FLSA, in which event, “all joint employers are responsible, both individually and jointly, for compliance with all of the applicable provisions of the [FLSA].” 29 C.F.R. § 791.2(a).

         “[W]hether an employer-employee relationship exists for purposes of the FLSA should be grounded in ‘economic reality rather than technical concepts.'” Barfield v. N.Y.C. Health & Hosps. Corp., 537 F.3d 132, 141 (2d Cir. 2008) (quoting Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 33 (1961)). Courts determine whether defendants are plaintiffs' joint employers based on “the circumstances of the whole activity, ” Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947), viewed in light of “economic reality, ” Goldberg, 366 U.S. at 33; see also Barfield, 537 F.3d at 141-42 (employment is “to be determined on a case-by-case basis by review of the totality of the circumstances”). “Above and beyond the plain language, moreover, the remedial nature of the statute further warrants an expansive interpretation of its provisions so that they will have ‘the widest possible impact in the national economy.'” Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 139 (2d Cir. 1999) (quoting Carter v. Dutchess Cmty. Coll., 735 F.2d 8, 12 (2d Cir. 1984)).

         “When it comes to ‘employer' status under the FLSA, control is key.” Lopez v. Acme Am. Envtl. Co., Inc., No. 12 Civ. 511 (WHP), 2012 WL 6062501, at *3 (S.D.N.Y. Dec. 6, 2012); see also Herman, 172 F.3d at 135 (“[C]ontrol of employees is central to deciding whether appellant should be deemed an employer.”). In assessing economic reality, the Second Circuit has articulated two tests for evaluating whether an employment relationship existed for the purposes of the FLSA: one relating to formal control and the other to functional control.

         The formal control test inquires “whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.” Carter, 735 F.2d at 12 (quoting Bonnette v. Cal. Health & Welfare Agency, 704 F.2d 1465, 1470 (9th Cir. 1983)).

Formal control does not require continuous monitoring of employees, looking over their shoulders at all times, or any sort of absolute control of one's employees. Control may be restricted, or exercised only occasionally, without removing the employment relationship from the protections of the FLSA, since such limitations on control do not diminish the significance of its existence.

Hart v. Rick's Cabaret Int'l, Inc., 967 F.Supp.2d 901, 939 (S.D.N.Y. 2013) (citing Herman, 172 F.3d at 139) (internal ...


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