CWS 3.0: June 25, 2014

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More drivers ruled employees, not independent contractors

Last week, the U.S. Court of appeals for the ninth circuit ruled that a class of drivers were employees under California law, reversing a lower court’s decision.

In Ruiz v. Affinity Logistics Corp., a lower court initially ruled the employment status of the California-based drivers were determined by Georgia law, as Affinity is based in Georgia, and under Georgia law, the drivers were found to be independent contractors. The plaintiffs appealed to the Ninth Circuit, which in February 2012 determined the employment status of the California residents fell under California jurisdiction, and sent the case to the lower courts. In August 2012, a lower court ruled the drivers were independent contractors under California law.

The Ninth Circuit then reheard the case to determine actual employment status.

Background
Plaintiff Fernando Ruiz had worked as a driver for Penske Logistics Corp. under a contract with Sears. At Penske, he was an employee. Sears terminated its contract with Penske in November 2003, referring drivers to Affinity Logistics Corp., which took over Penske’s contract.

Affinity required its drivers to become independent contractors, and have a business name and license and a commercial checking account.

Additionally, each driver was required to sign an Independent Truckman’s Agreement (ITA) and Equipment Lease Agreement (ELA), which stated “the parties intend to create an independent contractor relationship and not an employer-employee relationship.”

The ITA set the drivers’ rate of pay, which, in 2004, was a flat rate of $23.00 per stop. The ITA also stipulated the company’s option to transfer the drivers to other locations it serves and that failure to comply would be a breach of the ITA.

After signing the agreements, the drivers received a manual outlining procedures drivers were required to follow regarding loading trucks, delivering goods, installing goods, interacting with customers, reporting to Affinity after deliveries, and addressing returns and refused merchandise, damaged goods, and checking in with Affinity after deliveries. The manual included mandatory language such as “must,” “will report,” “must contact,” “required,” “not acceptable,” “100 percent adherence,” and “exactly as specified.”

The Decision
The primary factor in court’s decision was the matter of control, specifically that Affinity controlled the details of the drivers’ work, including rates, schedules and routes. Affinity also controlled the equipment, including the vehicles the drivers used, and their appearance (uniforms, tattoo and earring prohibitions).

Due Diligence
This is another in long line of independent contractor driver cases working their way through the courts. Some turn out in favor of the employer. Others, like Ruiz, favor the workers.

Independent contractors can be a vital part of running a business. However, companies that engage them need to be mindful of how much influence they maintain over how the worker does his or her job. Too much control can lead to the worker being reclassified upon an audit or lawsuit, which would open the company up to financial repercussions in the form of benefits and back pay. So do your due diligence up front, and then re-evaluate your IC relationships periodically to ensure no changes have taken place that would put the classification in jeopardy.