On remand from the Ninth Circuit, the United States District Court for the Southern District of California issued its decision on August 27, 2012, holding Affinity Logistics Corporation (“Affinity”), a motor carrier, carried its burden of establishing it properly classified as independent contractors a certified class of former owner-operator delivery drivers (the “contractors”) under California law. Ruiz v. Affinity Logistics Corp., No. 05CV2125, slip op. at 21 (S.D. Cal. Aug. 27, 2012).
The Southern District previously reached this same conclusion under Georgia law, which applies a presumption of independent contractor status, to the facts adduced at a three-day bench trial. On appeal, the Ninth Circuit concluded California, not Georgia, law should apply to the contractors’ relationship with Affinity and remanded the case. California law applies a presumption of employment status that a putative employer may overcome if the weight of the evidence supports a finding of independent contractor status when the court applies a multi-factor, common law right of control test.
When it revisited the issue under California law, the Southern District applied the right of control test with “with deference for the remedial purposes of California’s protective legislation.” Id. at 6. This notwithstanding, the court found evidence that the contractors could “hire others to complete the deliveries Affinity hired them to do is strong evidence suggesting that Affinity did not have the requisite level of control over the manner and means of [the contractors’] work.” Id. at 7. The court further found the majority of the “secondary factors” considered by California courts, including, e.g., investment in equipment and opportunity for profit or loss, among others, favored independent contractor status. Id. at 20-21.
While the court further found Affinity exercised “some control” over the contractors, the court deemed this evidence irrelevant to the ultimate question because “this control was either unrelated to the manner and means by which [the contractors] accomplished their work, or it was a result of other factors—such as federal regulatory requirements or [customer] preferences—rather than direct control by Affinity.” Id. at 21.
The court therefore found in favor of Affinity. Judgment has been entered against the plaintiff and class of contractors. Plaintiff filed a Notice of Appeal on August 29, 2012.
The Oregon Employment Department intends to initiate formal proceedings to repeal an administrative rule prohibiting the application of the Oregon For-Hire Carrier Unemployment Tax Exemption to owner-operators that obtain their equipment through motor carrier- and motor carrier affiliate-sponsored equipment acquisition programs, sometimes referred to in the industry as “leaseback” arrangements. A taskforce comprised of industry players, with the advice and guidance of counsel and represented in large part by the Oregon and American Trucking Associations, advanced a vigorous and proactive effort to secure the repeal of the rule. The repeal of the rule is crucial to protect the long standing utilization of leaseback arrangements by Oregon motor carriers and owner-operators. The Employment Department resisted the efforts of the task force, but the Governor’s office ultimately intervened. The formal repeal of the administrative rule is expected to occur at the end of the next legislative session.
The Oregon For-Hire Carrier Unemployment Tax Exemption provides that the term “employment” excludes “transportation performed by motor vehicle for a for-hire carrier by any person that leases their equipment to a for-hire carrier and that personally operates, furnishes and maintains the equipment and provides services thereto.” ORS 657.047(2) (emphasis supplied). The soon-to-be repealed administrative rule defined the term “their equipment” to include only equipment “independently furnished by the service-provider, neither leased nor purchased from the for-hire carrier or from any entity affiliated with the for-hire carrier.” OAR 471-031-0200 (certified as effective on Dec. 13, 2010).
This week, the Supreme Judicial Court of Massachusetts concluded Massachusetts Wage and Hour Laws prohibit an employer from setting-off damages arising from an accident against the wages of employee drivers, even if the employee drivers agree to the wage deduction in writing. Camara v. Atty. Gen., SJC-10693, 2011 WL 198644, at *4 (Mass. 2011). In Camara, a policy of a disposal service required employee drivers unilaterally determined by the disposal service to be at fault in accidents to either accept disciplinary action or enter an agreement to set-off the damages against their wages. While Massachusetts Wage and Hour Laws allow “valid set-off[s]” against wages, the court concluded damages arising from an accident do not constitute a “a clear and established debt owed to the employer by the employee,” the only type of debt which gives rise to a “valid set-off” under M.G.L.A. 149 § 150. Id. (citing Somers v. Converged Access, Inc., 454 Mass. 582, 593, 911 N.E.2d 739 (2009)).
In light of this finding, caution is warranted prior to setting-off wages in Massachusetts. Employers should review any agreements in place with employees related to set-offs and ensure any set-offs against wages are clear and established debts owed to the employer.
Several states have passed laws that limit or prohibit cell phone use while driving. A chart compiled by the Governors Highway Safety Association outlining state cell phone and text messaging laws is available at
http://www.ghsa.org/html/stateinfo/laws/cellphone_laws.html.
Though many motor carriers are now familiar with state laws related to distracted driving, additional caution is warranted to the extent some municipalities may also impose restrictions that are even more stringent than state laws. For example, Mike Tauscher of Scopelitis, Garvin, Light, Hanson & Feary, P.C. - Detroit reports a Troy, Michigan, ordinance prohibits any type of "distracted driving." The ordinance defines “distracted driving” to include driving while (1) texting (modeled after the state law), (2) talking on cell phones, and (3) other common distractive behaviors, including, but not limited to “eating, reading, writing, performing personal hygiene/grooming, physical interaction with pets, passengers, or unsecured cargo, any of which is done in a manner that prohibits the driver from maintaining direct physical control of the motor vehicle steering mechanism with at least one hand that is free of all other objects and used entirely to form a controlled grip on the steering mechanism."
While many aspects of this ordinance are obviously aimed at non-commercial drivers, the ordinance would nonetheless equally apply to commercial drivers.
A new study released this week by the National Employment Law Project (“NELP”), a union advocacy coalition, Change to Win, and Rutgers University charges motor carriers with misclassifying more than 110,000 port truck drivers as independent contractors, as opposed to employees. The release of this study comes on the tails of a call to action by the American Trucking Association regarding Senate Bill 3786, the Fair Playing Field Act of 2010, as an offset for the 9/11 Health and Compensation Act. The Bill targets the use of independent contractors and requires the treasury to release guidelines to help clarify the status of individuals as independent contractors or employees for the purpose of federal employment taxes.
The NELP study, based on surveys from drivers at seven major ports, including Seattle, Oakland, Los Angeles, Long Beach, New York and New Jersey, estimated that approximately 82% of port truck drivers are treated as independent contractors. The study criticizes the use of the independent contractor model, claiming, in part, drivers classified as independent contractors earned, on average, 18% less than employee drivers, are asked to use illegal and unsafe equipment, and face health problems imposed by high concentrations of diesel emissions.
The NELP study recommends that (1) policymakers adopt uniform rules requiring motor carriers to employ drivers to operate company owned equipment; (2) Congress pass the Clean Ports Act of 2010 to empower port authorities to attach misclassification; (3) the DOL, IRS, and state agencies take coordinated action to end misclassification; and (4) federal, state, and local governments create incentive funds for diesel emissions reduction contingent on proper classification.
The Fair Playing Field Act of 2010 (the “Act”) was introduced in both the U.S. House of Representatives and Senate and backed by the Whitehouse this week in an effort to end the current moratorium on Internal Revenue Service guidance addressing worker classification. The Act will require the treasury to release guidelines to help clarify the status of individuals as independent contractors or employees for the purpose of federal employment taxes.
If passed, the Act could significantly impact the ability of transportation (and other) companies to seek the protections afforded by Section 530 of the Revenue Act of 1978, as amended, reprinted at 27 U.S.C.A. § 3401 note (2008), a safe harbor provision which was intended to prevent the IRS from forcing expensive reclassifications of workers as employees when companies had, in good faith, based upon prior IRS audits, judicial precedent, or significant industry practice, treated the workers consistently as independent contractors for employment tax purposes.
Among other requirements and potential civil penalties for potential or repeated violations, the Act will compel transportation companies that engage independent contractor drivers to provide the drivers with a written statement detailing federal tax obligations imposed on and labor and employment practices denied independent contractors. The notice must further inform the contractors of the ability to request a status determination from the IRS.
A federal judge presiding over the FedEx Ground Package System Inc. (“FedEx”) multidistrict litigation (“MDL”) proceeding ruled this week that the class of Kansas drivers who originally filed an action against FedEx in a Kansas federal district court are independent contractors, not employees, under the Kansas Wage Payment Act, Kan. Stat. Ann. § 44-313 (the “Wage Act”). In re MDL-1700 FedEx Ground Package Sys. Inc., Employment Practices Litig., No. 3:05-MD-527 RM (MDL 1700) (N.D. Ind. Aug. 11, 2010). The MDL court’s 103-page decision is available here: FedEx MDL SJ Order 8 12 10. The ruling by Judge Robert L. Miller Jr. of the U.S. District Court for the Northern District of Indiana came in response to cross-motions for summary judgment on the issue of the employment status of FedEx’s Kansas drivers. The ruling does not end the FedEx MDL proceeding. Rather, the parties have been directed to file supplemental briefing explaining whether the employment classification issue should come out the same way in the other cases in which similar summary judgment motions regarding driver employment status are pending. Those briefs are due 30 days from date of the Court’s order. We will continue to follow the impact of this decision in the FedEx MDL and in the numerous other similar wage and hour cases filed by independent contractor drivers against transportation providers around the country.
This week, in Murray v. Principal Fin. Group, Inc., __ F.3d __, No. 09-16664, 2010 WL 2902512 (9th Cir. Jul. 27, 2010), the Ninth Circuit held that an insurance agent was an independent contractor and not an employee for purposes of Title VII.
In its opinion, the court specifically addressed Title VII, but generally referred to its analysis as a clarification of the appropriate test to apply in the federal statutory context, mentioning ERISA and the ADEA in addition to Title VII. The court found the appropriate test to apply is the “common law agency approach.” Id. at *2. As such, when determining whether an individual is an independent contractor or employee in this context, the court found it must apply a twelve-factor test, placing emphasis on whether the hiring party has the right to control the manner and means by which the work is accomplished. Id. (citing Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992).
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