A trade group’s racketeering lawsuit accuses a Lowell home health care company of misclassifying its workforce to avoid mandatory employer costs that its competitors have to pay.
The defendant, Pinnacle In Home Care LLC, classifies most of its workforce as independent contractors, which puts its competitors at a “competitive disadvantage in the marketplace,” the Arkansas Home-Based Services Association Inc. said in a lawsuit filed in November in federal court in the Western District of Arkansas.
Pinnacle has asked that the lawsuit be dismissed.
The association claims that Pinnacle’s classification practice allows it to avoid paying minimum wages and overtime, as well as other mandatory costs, such as Social Security and workers’ compensation insurance. The association accused Pinnacle of violating the Fair Labor Standards Act and the Minimum Wage Act of Arkansas.
The lawsuit asks U.S. District Judge Timothy Brooks to stop the practice.
The association also named as defendants owners Victoria Williams and Lawrence Williams, who started the business six years ago and added multiple locations.
The lawsuit accused the couple and Pinnacle of participating in a Racketeer Influenced & Corrupt Organizations Act enterprise. “The common purpose of the RICO enterprise was to cause unfair competition and to defraud money from the local, state, and federal tax authorities, their employees, and various government payors in order to realize a greater financial benefit for the Defendants,” the lawsuit said.
The association cited a $191,300 federal Paycheck Protection Program loan that Pinnacle received in April 2020 to preserve 81 jobs during the COVID pandemic. Pinnacle’s 2019 payroll expenses were estimated to be at least $918,240, according to loan data that was attached as an exhibit in the lawsuit.
Under rules of the Small Business Administration, as the association noted, “PPP funds were not available for employers to cover the expenses of their independent contractors.”
The association is represented by attorneys Abtin Mehdizadegan of Hall Booth Smith’s Little Rock office and Casey Castleberry of Little Rock.
Pinnacle moved to dismiss the suit on the grounds that the association doesn’t have the right to make a legal claim. Pinnacle said that the association hasn’t suffered an injury and it doesn’t have a legal interest in the dispute.
Pinnacle’s attorneys include Lisa Geary and Tim Hutchinson of RMP LLP of Springdale. Their motion to dismiss said that the association’s lawsuit didn’t have many details about the alleged wrongdoing.
The association isn’t a state or federal regulatory body and its members don’t work for Pinnacle, the company said. “The Court would be right to wonder, then, what basis the Association has to bring this suit against Pinnacle for allegedly ‘misclassifying’ its workforce,” the motion said. “The answer is: none.”
In the motion, Pinnacle didn’t address the question of whether it violated the law with its classification of its workers. Pinnacle argues that only employees or the state and federal Departments of Labor can sue for violations of labor laws.
The association filed a declaration from Pinnacle’s former human resources coordinator, Jalyndia Baker, who said: “I am speaking out because I believe Pinnacle’s misclassification of caregivers is illegal, immoral, and wrong.” Baker was Pinnacle’s HR coordinator from Oct. 16 through Nov. 8.
DOL Cracks Down
The U.S. Department of Labor has been cracking down on companies that misclassify employees as independent contractors.
In November, the DOL recovered $532,842 in back wages and damages from Jennings Professional Services, an Alabama in-home, day and overnight health care provider, for misclassifying 67 employees as independent contractors.
“Misclassifying employees as independent contractors is a serious problem that deprives employees of their rightful wages and benefits,” Kenneth Stripling, Wage & Hour Division district director in Birmingham, said in a news release.
In the fiscal year that ended Sept. 30, 2022, the Wage & Hour Division closed more than 1,100 investigations in health care industries that recovered nearly $15 million in back wages for more than 22,000 workers, the news release said.
Stuart Jackson, a partner at Wright Lindsey Jennings in Little Rock, told Arkansas Business that federal courts in Arkansas use a six-factor test to determine whether a worker should be classified as an employee or independent contractor.
“Ultimately, the court is going to look at how much control the business has over the individual doing the work,” said Jackson. He is not involved in the Pinnacle lawsuit.
One factor also is how much investment the worker has put into the business and whether the worker has his or her own equipment, Jackson said. If the business provides the equipment, it looks more like an employee relationship.
“I tell clients, ‘Always assume a person is an employee, unless you can convince me otherwise, just to be safe,’” Jackson said. “Because you can’t just call a person an independent contractor, and they qualify as an independent contractor. … You have to look at the facts of the relationship and then decide.”
Pinnacle warned in its filing that if the association’s lawsuit succeeds, it would open the floodgates of suits between competitors for any alleged wrongs or administrative violations, “each of which could be said to place their competitors at a disadvantage.”
If the association lawsuit succeeds, “then every Arkansas business will be empowered to identify laws or regulations its rivals may be breaking and sue them in federal court because their alleged lack of compliance isn’t ‘fair,’” Pinnacle’s filing said. “Competitors will no longer compete in the marketplace, but in the courtroom.”
‘A Lot of Experience’
Victoria Williams and Lawrence Williams started Pinnacle In Home Care in January 2018.
She is a registered nurse and he worked in medical equipment sales, Lawrence Williams said in October during a ribbon-cutting ceremony for Pinnacle’s Harrison location. “So we came with a lot of experience into home care,” he said in a YouTube video of the event.
Pinnacle’s website lists six locations; Williams said in the video that the company has seven locations. The company provides nonmedical in-home care services such as bathing, dressing, grooming, running errands and light housekeeping.
“And I think one of the things that sets us apart from other agencies out there is we provide a personal touch, not only to our clients, but to our caregivers,” Lawrence Williams said. “We try to have that personal connection. And what that does is that allows us to keep our caregivers on staff.”
He said that there were caregivers and clients who have been with the company since it opened.
He also said that Pinnacle hires “exceptional people, and we take care of those people in the office. They take care of the caregivers, which take care of the clients, and it’s just worked well for us.”
For the fiscal year that ended June 30, 2022, Pinnacle received $3.3 million in Medicaid provider payments from the Arkansas Department of Human Services, according to the Arkansas Department of Finance & Administration’s website.
That figure jumped to $5 million the following fiscal year. And so far this fiscal year, which began July 1, DHS has paid Pinnacle $3.1 million.
The Arkansas Home-Based Services Association was founded in December 2022 to represent companies providing home-based care to aging and disabled adults,
“Home care is changing,” Matt McClure, the association’s chairman, told Arkansas Business. “It’s kind of been in the shadows, and we’re trying to professionalize the industry moving forward.”
Less than a year after the association was created, it filed the lawsuit against Pinnacle.
The case is pending.
Sign up for Daily E-news
