Lawsuit Claims Schmidt Baking Co. Distributors Misclassified as Independent Contractors

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Two Schmidt Baking Company distributors claim in a proposed class and collective action that they and similarly situated workers were misclassified as independent contractors.

The 31-page lawsuit names as defendants Schmidt Baking Company; affiliate Schmidt Baking Distribution; Distribution Consultants, Inc., who provides consulting services for food and beverage manufacturers; and Exeter Financial Services and Distribution Services of America, two entities who provide financing to distributors.

According to the suit, the defendants have violated several Maryland laws by misclassifying Schmidt distributors as independent contractors instead of employees and denying the individuals the privileges and benefits afforded under law in an employer-employee relationship. 

The lawsuit explains that Schmidt relies on its distributors to deliver bakery products to the company’s retail customers, who include Safeway, Harris Teeter, Food Lion and other grocery stores and mass merchants. Per the case, the defendants control “virtually all terms” of distributors’ relationships with retailers, including wholesale and retail prices; service and delivery agreements; shelf space; product selection; promotional pricing; the display of promotional materials; and “virtually every other term of the arrangement.”

The suit says that although Schmidt represents that its distributors can run their businesses independently and exercise independent discretion in managing their work, the company has instead denied workers the “benefits of ownership and entrepreneurial skill” by controlling all aspects of their work. According to the lawsuit, Schmidt, aside from controlling negotiations with retailers, modifies distributors’ orders and requires them to pay for, deliver and stock products they did not order; requires distributors to make deliveries in a specific order; maintains the right to discipline or terminate the workers; receives and addresses any complaints against distributors; deducts expenses from distributors’ pay; and unilaterally changes the standards, guidelines and operating procedures with respect to the distribution, stocking and removal of its products from retailers’ shelves.

The case claims Schmidt distributors must “strictly follow” the company’s instructions, pricing, policies and procedures or risk termination.

The lawsuit contends that Schmidt’s relationship with distributors more closely resembles that of an employer-employee relationship than that between a company and an independent contractor given the workers “cannot meaningfully control the profitability of their work.” According to the suit, distributors make a “relatively low” investment in equipment to work for Schmidt and are not required to have any specialized skills. Moreover, distributors’ services are an integral part of Schmidt’s overall business, which the case says indicates that the workers should be more properly classified as employees, the case attests.

The lawsuit claims that because Schmidt distributors were misclassified as independent contractors, they were denied certain employee rights and benefits, including proper payment of wages, and subjected to improper wage deductions. Per the suit, distributors were required to bear the costs of equipment, insurance, product loss, product returns and other expenses that should otherwise have been borne by Schmidt as their employer.

Moreover, the complaint alleges that Schmidt does not disclose to distributors its relationship with Exeter and Distribution Services of America, who provide financing for the “purchase” of the workers’ routes. Per the suit, the agreements distributors enter into with Exeter carry interest rates of 9.5 percent, a five-percent late charge for overdue monthly payments not made within 15 days of the due date and, in the event acceleration is triggered by a payment made more than 20 days late, 12 percent of unpaid principal on the basis of a 360-day year.

Distributors’ agreements with Distribution Services of America, the case relays, carry an interest rate of 13 percent, a five-percent late fee for overdue monthly payments and, in the event acceleration is triggered by a payment more than 20 days late, 16 percent of unpaid principal on the basis of a 360-day year.

The lawsuit looks to cover anyone who performed work as a distributor for Schmidt Baking Company, Inc. or Schmidt Baking Distribution, LLC in Maryland under a distribution agreement during a period within four years before the lawsuit was filed and the present.

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