This is the third article in a series where I discuss recent legal developments and new case law that directly impacts trucking companies that use independent contractor drivers.
by G. Spencer Mynko, Esq.
What is the current state of the law on the Independent Contractor Drivers? This is the third article in a series where I discuss recent legal developments and new case law that directly impacts trucking companies that use independent contractor drivers.
In this article, I address the use of Independent Contractor Operating Agreements and the use of the Borello Factors in the context of trucking. The bottom line regarding contracts with your Independent Contractor drivers, is that they are necessary, but not sufficient, to create an Independent Contractor relationship. I frequently talk to clients who are dealing with “Independent Contractor” drivers who go on to file a work comp claim, ask for unemployment, or sue the trucking company claiming they were misclassified as Independent Contractors. The Company points to their agreement, signed by the driver, acknowledging their status as an “Independent Contractor”, and say to me “the driver agreed he was an ‘Independent Contractor’, how can he get away with this?” The answer to that question is that the courts look beyond the contracts and scrutinize the actual conduct of the parties.
Ruiz v. Affinity Logistics Corporation, a case that was decided on June 16, 2014 by the 9th Circuit Court of Appeals, ruled that Affinity Logistics Corporation’s truck drivers were employees, despite ostensibly being independent contractors because they signed independent contractor agreements. Essentially, the court ignored the company’s label and looked to actual work done by the truck drivers and the amount of the control Affinity exerted over the drivers.
The plaintiff in the case, Fernando Ruiz worked as a driver for Penske Logistics Corporation, a furniture delivery company that had a contract with Sears. During this time he was an “employee.” However, in November 2003, Sears told its drivers that Affinity would take over Penske’s contract. Ruiz was then advised by Affinity that he needed to become an “independent contractor.” Affinity advised them that they would need a fictitious business name, a business license, and a commercial checking account. Affinity helped the drivers complete all necessary forms and procedures to accomplish these tasks. Affinity also required the drivers to sign an independent contractor agreement that automatically renewed from year to year but could be terminated for any reason on 60 days’ notice. Affinity’s drivers leased their trucks from Affinity and were required to leave them at Affinity during non-working hours.
Ruiz filed a class action lawsuit against Affinity, alleging that Affinity misclassified its drivers as independent contractors rather than employees and thereby deprived them of various benefits afforded employees, including sick leave, vacation, holiday, and severance wages, and improperly charged them workers’ compensation fees. The trial court concluded that the drivers were properly classified as independent contractors under California law. The drivers appealed and the Ninth Circuit reversed, holding that the district court’s legal conclusion was wrong. The Ninth Circuit applied the Borello Test in order to analyze whether a worker is an employee or an independent contractor.
Under Borello, the primary consideration is the degree to which the principal has the right to control the manner and means by which the work is accomplished. While the right of control is the most important factor, the following secondary factors are also relevant: (1) whether the worker is engaged in a distinct occupation or business; (2) as a matter of local industry custom and practice, whether the type of work performed is typically done under the direction of a principal or by a specialist without supervision; (3) the skill required in the particular occupation; (4) whether the principal or the worker supplies the tools and place of work; (5) the length of time for which services are to be rendered; (6) whether or not the work is part of the regular business of the principal; and (7) whether or not the parties believe they are creating the relationship of employer-employee.
Applying the Borello Test to the facts, the Ninth Circuit held that Affinity’s drivers were employees and not independent contractors. First, the court held that Affinity substantially controlled the manner and means of its drivers’ performance of their duties. Affinity determined and controlled the flat “per stop” rate paid to the drivers for their work and the drivers could not negotiate for higher rates, as independent contractors commonly do. Affinity decided the drivers’ schedules and set their daily routes each day, with specific instruction not to deviate from the order of deliveries list on the route manifests. Affinity also controlled the drivers’ appearance by requiring that they wear specific uniforms and prohibiting them from wearing earrings, displaying tattoos, or having certain designs of facial hair. Affinity also required its drivers to comply with a detailed procedures manual and closely monitored and supervised their work. Each morning, the drivers were required to report to the warehouse for a morning meeting where supervisors and drivers would discuss customer satisfaction reviews from previous deliveries and any other issues arising out of previous deliveries. Affinity further monitored its drivers by inspecting their appearance and the loading of their trucks and monitoring their progress throughout the day, including through a requirement that the drivers call their Affinity supervisor after every two or three stops and contacting them if they were running late or off course. Based on all of these facts, the court determined that Affinity retained and exercised the right to control the drivers’ work.
The court also held that the balance of the secondary factors also supported a finding that the drivers were employees, not independent contractors. Affinity’s drivers did not have distinct occupations or businesses apart from their work for Affinity, and the type of work they provided was not a specialized or unique skill commonly performed by an independent contractor. The only reason the drivers established the formality of separate businesses was because Affinity required them to. However, most only performed work for Affinity. Indeed, they were not permitted to use the trucks they leased from Affinity for any purpose other than carrying out duties for Affinity. Affinity provided the trucks and phones for their drivers’ use, and required that the trucks be kept on Affinity property when not in use. Affinity even retained the right to use the drivers’ trucks for other purposes when not in use by the driver.
Affinity encouraged or required the drivers to use the trucks and phones owned and provided by Affinity and this equipment was only used by the drivers to perform work for Affinity-not for any other purpose. As such, this factor was suggestive of an employment relationship rather than an independent contractor relationship.
The court also reiterated that the drivers did not perform work without supervision because Affinity closely monitored and directed their work. Furthermore, the drivers’ work was a regular part of Affinity’s business. Affinity is a provider of home delivery services and, thus, the drivers’ work was at the very core of Affinity’s business. Additionally, the contracts between Affinity and its drivers did not contemplate any set duration or end for the drivers’ work for Affinity. The contracts automatically renewed from year to year, and many drivers worked for Affinity for years. The court further stated that the fact that the contracts were terminable on 60 days’ notice was not unique to an independent contractor relationship.
Finally, the Ninth Circuit acknowledged that the drivers and Affinity understood their working arrangement to be an independent contractor arrangement rather than an employment relationship. However, the court dismissed this factor, reasoning that the parties’ label is not dispositive and that the parties’ conduct in fact revealed an employment relationship.
The Ruiz v. Affinity Logistics decision serves as a reminder to employers that improper classification carries substantial risk for employers. Employers who have independent contractor arrangements should carefully review these classifications to ensure that these workers are properly classified. The fact that a worker agrees to be classified as an independent contractor, or even asks to be classified as an independent contractor, does not prevent a misclassification claim nor does it prevent liability if the worker ultimately is determined to have been misclassified
I urge any trucking company to contact Transportation Attorneys today so we can assess whether your company’s right to control its drivers puts you at risk for misclassification accusations.
We hope that once you utilize Transportation Attorneys to help you get your IC agreements and business model set up, you’ll enjoy many miles of trouble-free trucking. Worker misclassification is a big deal in California. Trucking companies who use independent contractors should carefully review their contracts and practices in order to comply with the law. We are one of the few law firms that focuses on trucking, transportation and logistics with the knowledge and experience to competently guide you through these ever present hazards. We are very experienced in dealing with the distinctions between independent contractors and employees.
We here at Transportation Attorneys can help you with your Independent Contractor business model and your ability to withstand the toughest scrutinization of anyone alleging your company is misclassifying its drivers.
Contact Transportationattorneys.net today!