In our previous article, we discussed California's overtime compensation and meal and rest period obligations in relation to truck drivers engaging in interstate and intrastate commerce. In this article, we discuss independent contractors and the risks associated with misclassification of employees in California.
Transportation companies frequently utilize independent contractors or owner/operators to provide hauling and services on its behalf. However, with ever-increasing regulations and legislations relating to classification of employees, California has made it more and more difficult to truly classify someone as an independent contractor. In fact, the California Labor Code starts with the presumption that an individual is an employee and places the burden on the "employer" to show proper classification as an independent contractor. Fortunately, the California courts provided some direction as to what factors would be looked at in determining the proper classification of a trucker driver in Ruiz v. Affinity Logistics Corp. (2014) 754 F.3d 1093.
In the Ruiz case, the plaintiff alleged that he, as well as other similarly situated truck drivers, was misclassified as an independent contractor while providing furniture delivery services in California for Sears. Previously, the plaintiff had provided the same delivery services for Penske Logistics as an employee, but was reclassified as an independent contractor when Affinity Logistics took over the contract with Sears. Ruiz argued that as a result of the misclassification, the drivers were deprived of various benefits afforded to employees including sick leave, vacation, holiday, and severance wages, in addition to improperly being charged workers' compensation fees.
In order to analyze whether or not the truck drivers were properly classified as independent contractors, the court looked to a 1989 California Supreme Court case called S.G. Borello & Sons, Inc. v. Dep't of Industrial Relations (1989) 48 Cal.3d 341 (Borello). The court in Ruiz noted that Borello emphasized that the most important or most significant consideration in determining proper classification was based on who has the right to control the work details. (Ruiz, 754 F.3d at 1101.) In addition to the "right of control" factor, Borello had also set forth additional "secondary" factors including (a) whether the one performing services is engage in a distinct occupation or business; (b) 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; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is part of the regular business of the principal; (h) whether or not the parties believe they are creating the relationship of employer-employee. (Ibid.)
In Ruiz, the court found that it was undisputed that Affinity had the right to control the details of the drivers' work in light of the fact that Affinity controlled the drivers' rates, schedules, and routes. Specifically, Affinity set the drivers' flat "per stop" rate and the drivers, unlike true independent contractors, could not negotiate for higher rates. Furthermore, Affinity decided what days drivers worked and could deny drivers' requests for days off. Additionally, Affinity determined what routes the drivers would take and drivers were instructed not to deviate from the order of deliveries listed on the manifest route Affinity had prepared. Moreover, Affinity controlled the trucks, tools, and equipment used by the drivers and even regulated the appearance of the drivers by implementing a dress code and prohibiting earrings, tattoos, and certain facial hair. Accordingly, under the "most significant factor" of Borello, theRuiz court found that drivers for Affinity were, in fact, employees and not independent contractors.
Although it is easy to look at the facts in Ruiz and understand that the court found misclassification based on the degree of control by the employer, other regulatory agencies are free to determine classification of employees or independent contractor based on different considerations. For example, the Internal Revenue Service uses a 20-point test to determine if a worker is an Aindependent contractor." As such, when determining a worker's classification, business owners will be asked the following questions to determine whether the worker(s) in question are employees or independent contractors:
Even though there are a series of objective factors and measurements to be applied, many times the decision on classification becomes quite subjective depending on who is evaluating the factors. As such, while an employer may believe they are on the right side of the balancing test, ultimately it is an auditor or a jury who will determine whether the scales tip in favor or against the business. Unfortunately, this lack of certainty for employers of truck drivers in California means that there is always a looming risk of misclassifying a driver as an independent contractor. However, with the assistance of competent counsel, such risks can be reduced, or altogether eliminated.