Truck Law

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Category: Driver Misclassification

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!

California Labor Commission rules Uber driver is an employee, not contractor

by G. Spencer Mynko, Esq.

Here at Transportation Attorneys, we pay close attention to legal developments and major cases that can have a direct impact on the trucking and transportation industry.  Uber is an American international transportation network company headquartered in San Francisco, California. It develops, markets and operates the Uber mobile app, which allows consumers to submit a trip request which is then routed to sharing economy drivers.  Recently, the California Labor Commission ruled that Uber drivers have been misclassified as Independent Contractors: they are really employees. While this business may not seem to have much in common with motor carriers hauling freight, I believe there are important issues regarding misclassification that will be decided by California courts involving this case that will affect the law regarding the distinction between Independent Contractors and Employee drivers.

Recently, a California Labor Commissioner concluded that an Uber driver was misclassified as an independent contractor, and therefore was an employee. San Francisco resident Barbara Berwick filed a Labor board complaint against Uber alleging that the company misclassified her as an independent contractor, therefore making her entitled to Worker’s Compensation benefits, unemployment benefits, over time, and other protections associated with being an employee. The commission awarded Ms. Berwick $4,152.20 in employee expenses, including mileage reimbursements, toll charges and interest. Uber has appealed the ruling in Superior Court
Of course, Uber treats their drivers as independent contractors, and probably for good reason.

Uber drivers choose when to work, when to start working and when to finish working. Their smart phones receive a message from a remote center that someone needs a ride. You can accept or reject as many rides as you wish. Once each ride is completed, uber deposits a pre-negotiated fare rate into your bank account. You are responsible for your car, gas, maintenance, and insurance. Obviously, you get to use your car for personal purposes as you like.

Uber requires their drivers to pass a background check, their car has to be reasonably new, and they have to carry a 1 million dollar insurance policy. If your passengers are dissatisfied with your your service, you run the risk of getting no more assignments.
In Berwick’s case, Uber argued that it is just a “technological platform” for private vehicle drivers to facilitate private transactions, that drivers are independent contractors, that Uber has no control over the hours drivers work, and that the company does not have to reimburse drivers for any “expenses related to operating their personal vehicles.”

But the labor commission disagreed and found that Berwick is in fact an employee of Uber, saying, “Without passengers such as Plaintiff [Berwick], Defendant’s [Uber’s] business would not exist.” Relying on precedent that applied to cabdrivers and pizza delivery employees, the commission ordered Uber to reimburse Berwick for 6,468 miles she drove while working as an Uber driver, at a rate of $0.56 per mile. Berwick was also awarded toll charges of $256.00, and $274.12 in interest.
The hearing officer applied California’s legal test for distinguishing between an employee and an independent contractor, concluding that a Berwick, was an employee. California presumes that workers are employees unless the hiring party can show the workers are independent contractors. The hearing officer concluded that drivers were integral to Uber’s business, notwithstanding the company’s contention that all it did was generate a lead for the driver and facilitate a ride for the passenger. California presumes that workers are employees unless the hiring party can show the workers are independent contractors. According to the hearing officer, Uber is “in business to provide transportation services to passengers.”  The hearing officer said that, by obtaining the clients who needed the driver’s services, Uber “retained all necessary control over the operation as a whole,” making the driver Uber’s employee under California law. In essence, without drivers, Uber would not exist.

The ruling sets up companies like Uber to be responsible for things like Social Security, health care and other benefits. The Los Angeles Times reports that just in California, if Uber drivers were classified as employees, they’d have to be reimbursed for gas, tolls, insurance, unemployment benefits, workers’ compensation and Social Security. Whatever happens with Uber’s appeal of the commission’s ruling, more challenges are on the way. A site for drivers involved in legal challenges against the company says a hearing for a class certification of one lawsuit will come in August.
Count on this ruling to inspire a lot of people, particularly in California, to file copycat claims seeking benefits of employment, such as overtime or workers’ compensation payments.
Why should trucking companies be concerned about this? In my opinion, it represents further successful attacks on the Independent Contractor business model. Consider the Uber Driver – then consider the Owner-Operator truck driver – don’t they seem remarkably similar? As a trucking company, don’t you rely on making the same arguments Uber made to the labor commissioner to prove your drivers are Independent contractors? I find the similarities to be striking.

However their may be a happy ending: Uber is going to appeal this ruling and fight back hard. If Uber is successful at overturning this ruling and others like it, and if they are successful at convincing the courts that their drivers truly are Independent Contractors, then trucking companies will be able to make those same arguments and hopefully reverse the tide that has so damaged the Independent Contractor business model for California trucking companies. 

You can count on us to closely follow this matter as it makes it way through the courts.

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!

Recent Legal Developments regarding Misclassification of truck drivers as Independent Contractors.

by G. Spencer Mynko, Esq.

Here at Transportation Attorneys, we pay close attention to legal developments and major cases that can have a direct impact on your trucking company. Please read this article for recent developments in the ongoing misclassification war being waged against California trucking companies and Owner Operators. 

The Pac Anchor case denied review by the United States Supreme Court.   As most of you who read my articles already know, the Pac Anchor case involved The California Attorney General suing Pac Anchor Transportation, Inc. alleging that the trucking company violated the Unfair Competition Law (UCL) by misclassifying its truck drivers as independent contractors.  People ex. rel Harris v. Pac Anchor Transportation, Inc., 59 cal. Fourth 772 (Cal. 2014). The Attorney General argued that Pac Anchor Transportation gained an unfair advantage over competitors by avoiding Worker’s Compensation insurance, not paying unemployment insurance, and failing to pay drivers minimum wage. Pac Anchor Transportation argued that The California labor laws were preempted by the Federal Aviation Administration Authorization Act (the “FAAAA”). Pac Anchor Transportation prevailed at trial, but the Attorney General appealed and the decision was reversed on appeal. This went all the way to the California Supreme Court which held that there was no federal preemption of California labor law. Pac Anchor Transportation petitioned the United States Supreme Court to review this matter, but the US Supreme Court declined to review it and therefore Pac Anchor is law of the land.

Taylor v. Shippers Transport Express, Inc. is a class-action lawsuit brought by Los Angeles port truckers against Shippers Transport Express, Inc. and SSA Marine, Inc. where the drivers claim they were misclassified as independent contractors. Rather than fight this out, the case has settled for $11 million. A California federal District Judge has approved the settlement, which includes $4.9 million in attorneys fees. This settlement doesn’t surprise me considering how hostile California is to the independent contractor business model in trucking.

Vasquez v. Sterling Express Services, Inc. , Los Angeles County Superior Court.   In another California port class-action case, two Los Angeles and Long Beach drivers filed a class action lawsuit against their former employer, Sterling Express Services, Inc. alleging that they were misclassified as independent contractors, and that Sterling Express Services, Inc. improperly deducted truck lease, fuel, registration, parking and other fees from the drivers pay . Also, The drivers claim they did not receive overtime benefits, timely wage payments, and if they rejected assignments, they suffered retaliation.

Hub Group Trucking. Hub Group Trucking is the drayage  operation of the logistics provider The Hub Group. In September 2014, Hub Group announced it was abandoning its owner operator business model in California port trucking, due to the unfriendly business and legal climate in California regarding the use of Independent Contractors as truck drivers
How will your company survive an EDD 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 theright 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!

Department of Labor Audits – Are You Vulnerable?

by G. Spencer Mynko, Esq.

Those of you who read my articles know that I have written extensively about EDD (Tax) Audits and EDD’s campaign against trucking companies who misclassify employee drivers as independent contractors.  No doubt EDD’s war against trucking companies continues unabated in their never ending quest to fill the state’s coffers.  But there is another growing threat to trucking companies that I predict we will be hearing more and more about:  Department of Labor Audits.

The Department of Labor enforces wage and hour, workers’ compensation, labor code laws, and misclassification of employees as independent contractors.  Traditionally, these audits target industries like construction, landscaping, agriculture, and others who rely on minimally skilled workers.

More recently, Department of Labor Audits are focusing on more and more on industries who misclassify employees as Independent Contractors.  And, rightly or wrongly, trucking companies have a reputation for misclassifying drivers as Independent Contractors.  Trucking companies need to take notice: Department of Labor Audits can be devastating.

Here in California, our state Department of Labor is known as the Department of Industrial Relations (DIR).  “The DIR was established in 1927 to improve working conditions for California’s wage earners and to advance opportunities for profitable employment in California. DIR administers and enforces laws governing wages, hours and breaks, overtime, and coordinates with other agencies to target egregious violators of labor laws and tax laws in theUnderground Economy.”   Misclassification of drivers as Independent Contractors is considered part of the Underground Economy because it is a method of tax evasion and is used to avoid paying for workers’ compensation insurance.

Unlike EDD where you get a letter stating that you are being audited and gives you time to respond, the Department of Industrial Relations (DIR) can raid your business with Inspectors who wear badges, carry guns, and are classified as police officers.  The DIR doesn’t call their unannounced visits “raids”, but instead refers to them as “sweeps”.  While “sweep” may sound more benign than “raid”, in reality it is not: Typically, as soon as the “sweepers” arrive and identify themselves, they demand that everyone stop what they’re doing and then they check identification. Next, they inspect for labor law violations, safety violations, overtime violations, minimum wages, look at your record keeping practices, check for tax non-compliance, determine if you have misclassified workers,insure you have the proper licensing and anything else observed while onsite.It’s not uncommon for the business to be ordered to be closed down immediately and “citations” to be issued for many thousands of dollars. In these cases, the business is not allowed to reopen until they “fix” the problems and receive an “OK” from the inspectors.

What triggers these “sweeps”?  Well, consider this: California’s government employs hundreds of employees whose only responsibility is to find businesses to inspect.  These cyber-detectives spend all day:

  • Scanning government data bases, comparing them for inconsistencies
  • Surfing the internet
  • Searching the yellow pages
  • Following up on complaints from former, or current, workers who are disgruntled.
  • Making “drive-by’s” to observe business operations

Other big triggers are: A worker filing a claim for a work injury who is not covered by Workers’ Compensation insurance and EDD “nominating” a business for “unannounced inspections”  if they suspect the business is misclassifying it’s employees as Independent Contractors. 
What are the implications here: big time penalties and fines:

Sections 226.8 and 2753 of California Labor Code authorize California’s Labor and Workforce Development Agency to assess civil penalties of not less than $5,000 and not more than $15,000 for each violation in addition to those civil penalties already permitted by law. The civil penalties increase to $10,000 and $25,000 for each violation if the Agency determines that the employer has engaged in a pattern, or practice, of willful misclassification of its employees as independent contractors. The worker can file a complaint with the Labor Commissioner and the Labor Commissioner can assess the above-mentioned civil penalties against the employer if the Labor Commissioner determines that the employer has in fact misclassified the employee.

The misclassified employee can seek up to three years worth of unpaid wages (including overtime and meal and rest break violations), unreimbursed businesses expenses, and penalties for violating various California Labor Code provisions (Labor Code §203, §210, §226.3, §2802 and §3710.1; California Unemployment Insurance Code §§1112, 1113.2, and 2118).  California business owners may also face exposure to tort liability for injuries suffered by employees when workers compensation insurance was not secured (Labor Code §3706), for unfair business practices (Business and Professions Code §17200), and even potential criminal liability under Labor Code §3700.5

Pursuant to California Labor Code § 226.3, a misclassified worker may claim that the business violated the statutory obligation to provide itemized wage statements each pay period. If the Court determines the worker was in fact an employee, the court may award additional civil penalties in the amount of $250 per employee for the first citation and $1,000 per employee for each subsequent citation. It should also be noted that under California Labor Code §226.6, a knowing and intentional violation of these requirements is a misdemeanor.

Pursuant to California Unemployment Insurance Code §§1112 and 1113 2, if a court determines that a worker was misclassified, the employer will be assessed amounts due for state income tax withholding, unemployment insurance contributions, and disability insurance contributions, unless the employer can show the income was reported and all taxes due were paid by the employee. Employers who fail to pay for unemployment insurance benefits and/or state disability insurance benefits are not only required to pay the unwithheld amounts, but may also be assessed a 10% penalty and interest on the unpaid contributions

At the federal level, the IRS is conducting random audits, and businesses found to have misclassified their workers presently face a fine of up to $5,000 per misclassified employee.

And just like EDD, the DIR and Labor Commissioner will scrutinize the relationship you have with your drivers to determine if they have been misclassified.  (Please refer to my prior articles where I discuss that process in-depth).

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!

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!

What is the current state of the law on the Independent Contractor Drivers? This is the second 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 second article in a series where I discuss recent legal developments and new case law that directly impacts trucking companies that use independent contractor drivers.
If your company utilizes Independent Contractor Drivers, the Right To Control test utilized by the courts and case law interpreting Right To Control is something you need to be familiar with and understand clearly.  2014 marked a year where significant, new case law interpreting the Right To Control doctrine was developed by the courts.  First we should do a quick review of the legal principles involved here.
Presumption of Employment:

So where do we start?  Remember the Burden Of Proof in California falls upon the Employer. The party seeking to avoid liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees. In other words, there is a presumption of employment. (Labor Code § 3357; S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal. 3d 341, a.k.a. “Borello”.    It’s up to the trucking company to prove their drivers are Independent Contractors.

Right To Control:

In the course of the evolution of the Right To Control test, the leading case on this subject was Tieberg v. Unemployment Insurance Appeals Bd. (1970) 2 Cal.3d 94 3, which held that “the principle test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Under this test, “if the employer has the authority to exercise complete control, whether or not that right is exercised with respect to all details, an employer-employee relationship exists.” Empire Star Mines Co. v. Cal. Emp. Com. (1946) 28 Cal.2d 33, 43.

Borello Factors:

Then we come to the case that changed everything: S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal. 3d 341, a.k.a. “Borello”.   If you use Independent Contractor drivers, you need to understand the “Borello Factors” or “Borello Test”, because that’s how your trucking company will be scrutinized. Here they are:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;

2. Whether or not the work is a part of the regular business of the principal or alleged employer;

3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;

4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;

5. Whether the service rendered requires a special skill;

6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;

8. The length of time for which the services are to be performed;

9. The degree of permanence of the working relationship;

10. The method of payment, whether by time or by the job; and

11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

How does your company stack up after reading this?  Did reading this make you feel relaxed and confident, or are you sitting in a pool of sweat?  Or consider this: if your drivers are applying the “Borello Test” to their current situation, are they thinking their next phone call should be to a Plaintiff’s attorney who sues trucking companies alleging misclassification of the driver as an Independent Contractor (Labor Code section 226.8).

A critical aspect of a misclassification allegation (particularly in the context of a civil lawsuit), is that the misclassification issue the linchpin of the case:  If the driver can prove he or she was misclassified, then he or she has overcome a major hurdle and can go after reimbursement for “all necessary expenditures”, unpaid meal breaks, unpaid rest breaks, unfair business practices and the plaintiff’s attorney can go after the trucking company to pay his fees.

In my next article, I will begin to discuss the cases that applied the Borello Test, so we can better understand its application in the context of various factual scenarios.This is where we go searching for our silver lining: we need to look for ways you can apply the Borello Test to tilt the scale toward Independent Contractor status, and away from Employee status.  The Borello case spawned much case law: in my next article we will begin to examine Borello’s progeny.

As a matter of trivia, the Borello case did not involve trucking, but instead involved migrant farm workers picking cucumbers near Gilroy, CA.  Nonetheless, those pesky factors have been used in several important trucking cases, and that’s what we need to carefully look at and will look at in part 3!

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!

20 Factor IRS Test used for Misclassification

by G. Spencer Mynko, Esq.

20 Factor IRS Test used for Misclassification.

20 Factor IRS Test used for Misclassification

by G. Spencer Mynko, Esq.

I’ve been writing mostly about EDD these days, but given the cooperative relationship and understanding that EDD has with the IRS, I think its worth talking about what the IRS looks for in determining whether a worker is an Employee or Independent Contractor. The IRS employs a 20 factor test to determine independent contractor status under the Internal Revenue Code. These factors generally relate to  evidence of behavioral and financial control and  the nature of the worker’s relationship with the employer. 

The twenty factors are: 
 
1. Whether the worker is required to follow the company’s instructions. 
 
2. Whether the company provides training to the worker to accomplish the work. 
 
3. Whether the worker’s services are integrated into the company’s regular business. 
 
4. Whether the company requires that the worker perform the services personally, as opposed to assigning work to others. 
 
5. Whether the company hires, supervises and pays the worker’s assistants. 
 
6. Whether there is a continuing relationship between the company and the worker. 

 

7. Whether the company sets the worker’s hours.   

 

8. Whether the company requires the worker to work full-time.   

 

9. Whether the worker works at the employer’s place of business.   

 

10. Whether the company sets the order or sequence of the worker’s work.  

11. Whether the worker is required to provide oral or written status reports to the company.   

 

12. Whether the worker is paid by the hour, week or month, rather than upon completion of the project.   

 

13. Whether the worker is reimbursed for business or travel expenses. 

 

14. Whether the company provides the employer with tools and materials.   

 

15. Whether the worker has made a significant investment in performing the services.   

 

16. Whether the worker can realize a profit or loss.   

 

17. Whether the worker works for more than one company at a time.   

 

18. Whether the worker makes the services available to the general public.   

 

19. Whether the company has the unilateral right to discharge the worker. 

 

20. Whether the worker has the right to terminate the relationship without being liable under contract.

  

Call Transportation Attorneys so we can tell you what side of the Independent Contractor/Employee fence you will fall on if you get audited by the IRS!

 

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.  If you find yourself in trouble, you can turn to Transportationattorneys.net to fight for you. 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!

EDD Auditors are becoming very sophisticated investigators and interrogators of truckers and trucking companies.

by G. Spencer Mynko, Esq.

EDD Auditors are becoming very sophisticated investigators and interrogators of truckers and trucking companies.

 

A recent EDD auditor impressed me with his detailed knowledge of trucking and in-depth investigation of a trucking company.

The Auditor clearly understood the distinction between an employee driver and an owner-operator.  The auditor did his home work:  He checked business licenses, secretary of state information, USDOT/SAFER and looked for related or “sister” companies under the dreaded “Unity of Enterprise Theory”.  Unity of Enterprise, or “UE” as it is commonly known, refers to Unemployment Insurance Code Secs. 135.2 and 1127.5.

Sec. 135.2 codifies the concept of unity of enterprise, authorizing EDD to consolidate multiple businesses into a single employing unit for the purpose of determining the rate of employer contributions.  In other words, if one of your companies gets audited, EDD can look into any of your other companies and audit them.  Period.

The auditor wanted a complete list of every driver for all statutory quarters going back three years.  The auditor wanted the Independent Contractor Lease Agreements,  and then turned to the details of the relationships the company had with the drivers.  Basically the auditor was interested in how tightly the company controlled the drivers.

The auditor also looked into whether the drivers were “genuinely in the the trucking business”:   Did they have appropriate licenses, registrations, insurances, advertisements, etc. that would indicate the trucking company was dealing with an independent business (as opposed to simply an employee driver).

The auditor conducted detailed interviews with drivers about the contracts, assignments, and dispatch.  The auditor was particularly interested in the type of instructions and demands the company would make upon the drivers.  The auditor inquired about whose authority was being used to haul loads.  After conducting these interviews, the auditor concluded that the company had the right to direct and control the the services of the drivers and they were, ultimately, misclassified employees.

What was particularly troubling is that the drivers and the company owner were not adequately prepared to answer the auditor’s questions.  A big reason for the auditor’s conclusions was the answers he was given to his questions.  Don’t let this happen to you.  Let us help you make sure all indicators point to a true Independent Contractor / Owner Operator Driver.  And by all means, never talk to an auditor without talking to us first.  These people know how to skew the facts, put words in your mouth, and get you to say things that support their version of the truth.  Ideally, that’s why you should have a lawyer or experienced representative appear for you at an EDD audit.  When you hire Transportation Attorneys to represent you get both: Mr. Mynko and Mr. Beckett will represent your company in the best possible light, answer the auditor’s questions with skill and caution, and protect your interests to greatest extent possible.
I entitled this article “EDD Auditors know what questions to ask in misclassification audits”.  The question you should be asking yourself, is “Should I be answering these questions or let a skilled representative handle it?”   Steve and I see these guys coming a mile away – let us be the wall to protect you from the attack.
You can rely on us to help you with your Independent Contractor business model.
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.  If you find yourself in trouble, you can turn to Transportationattorneys.net to fight for you. 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.

When Transportation Attorneys looks at your business, we consider the same criteria EDD, Plaintiffs attorneys, Labor Commissioners, Judges and other labor law experts will look at to determine whether a driver is an independent contractor or an employee.

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!

Call us before the State or IRS wants to audit you for misclassifying drivers as Independent Contractors.

by G. Spencer Mynko, Esq.

Call us before the State or IRS wants to audit you for misclassifying drivers as Independent Contractors.

Recently at Transportation Attorneys, we had a new client retain us to help them get their Owner-Operator, Independent Contractor business model operating and compliant with State and Federal Laws.  This is a great thing to do, but there was a problem.

Unfortunately this trucking company received a letter from the California Employment Development Department (A.K.A. E.D.D.) to schedule an employment tax audit.  In this situation, a former driver who was as an independent contractor (“1099 pay”) decided to apply for unemployment benefits in the State of California.  When EDD processed his application, they noticed his “employer” wasn’t on their roster.  This triggered an investigation and now EDD is going to scrutinize this trucking company.

EDD is responsible for for auditing records of employers to “ensure the proper reporting of wages and contributions for Unemployment Insurance, State Disability Insurance, Employment Training Tax, and California Personal Income Tax withholding purposes.”  “The purpose of the the audit program is to ensure that all workers and wages that are subject to the provisions of the California Unemployment Insurance Code (CUIC)have been properly reported by employers.”

 

The auditor will review the books and records to: “Verify that all individuals paid for services have been properly classified as either employees or independent contractors in accordance with the provisions of the CUIC and the common law test as applied by the State Supreme Court.”  The auditor will also want to talk to you and the “worker” about the relationship you had.  There are about 36 factors the auditor will look at to determine whether the “worker” was an employee or independent contractor.

 

Pardon my cynicism, but these people are tax collectors who are working for a cash strapped state desperately in need of revenue.  Chances are the auditor will conclude the company has been misclassifying its drivers as independent contractors, the “workers” are really employees, and will stick the company with a tax bill.   Disagree with the auditor’s conclusions?  Well you can try to settle (i.e.: pay money), or appeal and ask for a hearing in front of an Administrative Law Judge.  If that doesn’t go your way, you can then appeal in Superior Court.  Regardless of what happens, the process is drawn out and expensive.

Finally, “The EDD employment tax audit information is made available to the IRS under an exchange agreement, and the IRS may use the information in the administration of its tax program”.  Need I say more?

We here at Transportation Attorneys can help you with your Independent Contractor business model and your ability to withstand a state or federal audit.  Get your ducks in a row before you get a letter.  Contact Transportationattorneys.net today!