Classifying Workers, Employees or Independent Contractors? « Law Offices of Timothy Bowles | Top Employment Law Firm in Los Angeles

Classifying Workers, Employees or Independent Contractors?

New Court Decision on Delivery Drivers Shows the Issue Requires Detailed Analysis

 The dividing line between properly classified employees and independently contracted workers can often be about as clear as mud.   The June, 2014 decision from the federal Ninth Circuit Court of Appeals in Ruiz v. Affinity Logistics Corp illustrates the perils of a company’s miscalculation on this issue.

Sears contracted with the Affinity Logistics Corporation to make home deliveries of Sears merchandise to consumers.  As a condition of hiring, Affinity required delivery drivers to work as “independent contractors” through registration of fictitious business names, maintenance of separate business licenses and commercial bank accounts, and one-year, automatically renewed contracts.

Affinity directed these drivers to work five-to-seven days/week and paid them $23 per delivery, usually with eight deliveries per day.   The drivers held no special licenses or training.  Nearly all leased their trucks from Affinity with fees deducted from paychecks.  The trucks bore the Sears’ logos and Affinity’s name and motor carrier number on their doors.  The company required drivers to stock their trucks with supplies required by Affinity’s procedure manual.  The company required drivers to leave the trucks at Affinity’s warehouse at day’s end, leaving their keys in case someone else needed the trucks overnight. The Affinity manual also required specific uniforms and grooming standards for drivers.

The drivers had to attend meetings with company supervisors each day before starting their Affinity-designated sequence of deliveries.  Supervisors also checked the loaded trucks daily for proper tools and other materials.  Affinity also required the drivers to report completed deliveries to Sears by phone as well as to call in their progress to Affinity throughout the day.  The company phoned drivers running late or off course to get back on schedule or on route.  Affinity also conducted “follow-alongs,” supervisors tailing drivers for the first few stops to confirm a given driver was wearing a uniform and using the proper delivery procedure.

Affinity won the first round in court.  Focusing on driver ability to hire helpers and back-up drivers, a federal trial judge in San Diego ruled the drivers were independent contractors.  The Ninth Circuit reversed on appeal, finding the drivers employees under California law.

That Ninth Circuit appeals court relied primarily on the California Supreme Court’s guidance in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341 [256 Cal. Rptr. 543, 769 P.2d 399] that “the right to control work details is the most important or most significant consideration.”  It concluded that Affinity’s right to control the details of the drivers’ work, including their equipment, “every exquisite detail” of their appearance, and the close monitoring and direction of driver movements and production was the most important factor supporting employee status.  The appeals court rejected the trial judge’s emphasis on driver ability to hire helpers, observing that Affinity actually required the drivers to hire the helpers.  Affinity also imposed the same degree of driver control upon any back-up drivers.  The court thus ruled these factors amounted to Affinity’s “absolute overall control.”

As also directed by the Borello decision, the Ninth Circuit found many secondary factors that required the drivers to be classed as employees, including the drivers’ lack of a genuinely distinct business operation; the lack of specialized skill requirements; Affinity’s providing the drivers with trucks and requiring drivers use a specific type mobile phone;  compensation that was essentially by the hour and not by the jobs completed;  drivers’ delivery work was the central aspect of Affinity’s regular business; and the lack of any definite term for the relationship.

This has almost certainly been a very costly learning experience for Affinity.  In addition to paying attorney fees through several rounds of court battle only to eventually lose at the higher court, the suit was brought as a class action, potentially applicable to all Affinity drivers the company had erroneously classified as independent contractors.  Affinity is thus now potentially responsible for paying compensation, penalties and interest for its alleged failure to pay each such driver sick leave, vacation, holiday pay and severance wages and for return to the drivers the fees charged them for workers’ compensation insurance.

The proper classification of workers as employees or independent contractors is a case-by-case undertaking.   If the trial judge and the three appeals court judges could not agree on the proper outcome in the Ruiz case, then a company’s decision on which way to go with classification for any given individual in countless other scenarios can be anything but clear-cut.   See also, our blog article Independent or Employed?.   Thus, skilled legal assistance in evaluating or reevaluating such classifications is good business.  Please contact Tim Bowles, Cindy Bamforth, or Helena Kobrin in our office.