2 Important Cases Regarding Misclassification of Drivers in California

by G. Spencer Mynko, Esq.

Here at Transportation Attorneys, we strive to stay abreast of recent and important legal decisions that affect the trucking and transportation industry. As everyone who reads my articles knows, I have written extensively on misclassification issues, the distinctions between employee and independent contractor drivers, and case law that interprets and determines who is an independent contractor and who is an employee.

There are two cases I’ve recently come across, one in the course of doing legal research, and another which was just handed down this month by the California Court of Appeals. Every trucking company should be familiar with these two cases as they provide good guidance on the analysis California courts utilize when distinguishing between an independent contractor and an employee truck driver. I like these cases as well because they illustrate when trucking companies are doing things right and trucking companies are doing things wrong.  

I encourage all trucking companies to make themselves familiar with these two cases as they will provide you with important guidelines you can use to protect yourself against misclassification allegations.
Furthermore, because these cases are California Court of Appeals cases, California’s Employment Development Department (EDD) which handles employment related taxes; California’s Division of Labor Standards Enforcement (DLSE), which enforces California wage and hour laws; California’s Franchise Tax Board (FTB), and the Division of Worker’s Compensation (DWC), will be bound to follow these decisions as they are California state agencies bound to follow California law.
The first case I wish to discuss is a 1995 case State Compensation Insurance Fund v. Brown , (1995) 32 Cal.App.4th 188. In this case, Plaintiff State Compensation Insurance Fund (SCIF) filed an action against its former insureds, Robert and Judy Brown, alleging its right to recover premiums due on the insurance contract. The defendants, doing business as Mountain Valley Trucking, successfully moved for summary judgment on the ground they were not contractually obligated to pay the premiums because the workers on whom the premium claim was based were not employees eligible for workers’ compensation benefits. SCIF’s appeal challenged both the trial court’s jurisdiction and its conclusion that the workers were independent contractors as a matter of law. However, SCIF lost their challenge and the Court held that the drivers were Independent Contractors. 

What is of great importance in this case is that the court went into a detailed analysis as to why the truckers are independent contractors. The court noted that the independents voluntarily entered into a contract which gave them complete control over their working conditions and the manner in which a load would be transported. The drivers were free to accept or reject an assignment without reprisal. There was no direct supervision. Truck driving requires skill beyond that of a general laborer. In essence, The trucking company showed that it lacked any significant control over the independents job performance.

Furthermore, the Independents were paid on a job by job basis and either party could terminate or opt to continue the contractual relationship. The court also stated that the independents are engaged in a distinct occupation, one with its own trade association. Furthermore, the independents drove for other companies and owned their own trucks, which reflected a substantial investment beyond the provision of their labor. The court also found there was true entrepreneurial opportunity, depending on how well the independents performed their transportation services. Finally, the trucking company and drivers agreed to independent contractor status.

Interestingly, The court also commented on the fact that some drivers did not have their own operating authority. The court ultimately held this was not the deciding factor, as the independents were not required to have (Federal) trucking permits (DOT or MC authority) because state regulators have no jurisdiction over schedule permits, and federal regulators do not require permits.

Every trucking Company executive should be familiar with this decision. It has been cited extensively by other courts and has been uniformly upheld. It clearly is good case law.

For a good example of how not to do things, trucking companies should look to the recent decision on Garcia v. Seacon Logix, Inc. Cal.App.4th (2015). This case was just handed down in July 2015. Here, a suit brought by truck drivers under Labor Code section 2802 for the reimbursement of paycheck deductions, contending that they should have been classified as employees, not independent contractors, the trial court’s finding that plaintiffs are defendant’s employees is affirmed where substantial evidence supports the finding (that the drivers are employees).

In this particular case, court went into a detailed analysis as to why the drivers were employees, and not independent contractors. Some of the high points of the decision include the fact that the company was the registered owner of the trucks, the drivers made no significant investment into their equipment, and in reality the carrier provided the equipment.

Furthermore, the carrier required the drivers to report at 7 o’clock every day, and were required to call the company to let them know if they were going to be absent. If the drivers declined a delivery, they would not receive work the following day.
The drivers did not have any separate business licenses or any other source of income while driving for the carrier. Furthermore, the company did not permit the drivers to hire other drivers to use their trucks, or use the trucks to haul for other companies.

Again, these are just some of the high points, but every trucking company executive should read this brand-new case has it clearly illustrates the dangers of a trucking company,  as the registered owner of its trucks, leasing its trucks to its drivers, and yet maintaining heavy control over the drivers. The court stated that “Seacon controlled the manner and means of their work”. The Court then went onto further state that Seacon “retained all necessary control over the operation as a whole”.
The court also went on to say that The drivers were not engaged in a distinct occupation, they could be discharged at will, they worked under direct supervision, the instrumentalities of the job were provided by the employer, they were paid on a weekly basis, as opposed to a per job basis, and the work was an integral part of the principle’s business

How will your company survive an audit or misclassification lawsuit?
In California, whether a worker is an employee or an independent contractor depends upon application of factors contained in California case law and the California Unemployment Insurance Code. Courts look to factors such as the right to control the details of the work. Even if the principal does not exercise control, as long as it has the right to direct and control the manner and means by which the work is performed, the worker will be considered an employee.

Courts will also consider whether the worker has a separately established business. When individuals hold themselves out to the general public as available to perform services similar to those performed for you, it is evidence that the individuals are operating separately established businesses and would normally be independent contractors.
Courts consider whether the worker is free to make business decisions which affect his or her ability to profit from the work. If an individual has the ability to enjoy profits or suffer losses, the courts are more likely to consider that person an independent contractor.

Courts consider whether the individual has made a substantial investment that would subject him or her to financial risk of loss. A huge consideration in this test is whether the independent contractor owns their own truck. Generally, independent contractors furnish their own tools, equipment, and supplies.

We here at Transportation Attorneys are experts at the distinctions between independent contractors and employees. I urge you to contact us so we can help you evaluate your risk of being held liable for misclassification of drivers. Now is not the time and California is not the place where you want to take chances regarding this.

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!