As many members of the California Transportation industry are aware, claims of Independent Contractor Misclassification have been echoing down the halls of courtrooms, the Labor Commissioner's Office and the Legislature throughout the state for the past several years. While the claims have been painful and expensive lessons for some companies, recent court rulings have created a Right to Control Test that should be taken by any transportation company that does business with independent contractors or owner-operators in California.
The Ninth Circuit Establishes California's Right to Control Test
Although there is no magic formula that companies can use to assure that its drivers are independent contractors, the Courts have cobbled together the Right to Control Test that weighs a number of intertwined factors to evaluate the issue as to whether the company has the right to control the "manner and means" of the work being performed.
The Ninth Circuit Court of Appeal set the standard by which claims of independent contractor misclassification can be evaluated in the transportation industry by outlining its Right to Control Test
in Alexander v. FedEx Ground Package System, Inc.
D. C. No. 3:05-CV-0038-EMC. Here, the Ninth Circuit held that FedEx drivers were employees as a matter of law under the test. This action was brought by 2,300 drivers who contracted with FedEx to deliver packages to customers between 2000 and 2007 and sought damages consisting of unpaid wages and driving expenses. In ruling that the drivers were misclassified, the Court made several specific findings that provide guidelines for all members of the transportation industry in California who seek to avoid the exposure created by independent contractor misclassification.
The Court dismissed FedEx's contention that its drivers were independent contractors because that was what the contract said. Instead, the Court looked at FedEx's actual relationship with its drivers, including the FedEx requirement that deliveries be made within times designated by contracts with its customers, the FedEx practice of structuring workloads ensuring drivers worked between 9.5 and 11 hours per day and active FedEx monitoring of driver performance by enforcing company policies for safe driving standards, personal appearance and interaction with customers.
1 Transportation companies of all sizes are impacted by the test as evidenced by ongoing Federal Court actions filed by drivers of ride-sharing start-up companies Uber and Lyft. In fact, the Judge in the Uber case recently granted it class action status.
FINAL EXAM: Take The Right to Control Test in California
In order to evaluate if drivers are misclassified as independent contractors, companies of all sizes can perform self-analysis to see if they are violating the Right to Control Test by answering the following questions:
- Do your policies control the routes and times that the driver must make deliveries? (Note: Control can be found even without specific route requirements, especially where negotiated delivery times make a route in effect mandatory.)
- Does your Operating Agreement give you the ability to control the number of hours worked by the driver?
- Do you have rules for driver behavior regarding their personal appearance, interaction with customers and vehicle markings?
- Is the service being provided by the driver similar to the regular business of your company?
- Do you retain the right to terminate the driver at will?
- Do you supply the instrumentalities, tools and place of work (i.e., do you provide the vehicle, trailer or loading area)?
- Is the driver expected to perform services for an indefinite period of time (rather than a specific time designated in the Operating Agreement)?
- Do you pay the driver according to number of hours worked (as opposed to pay per each job that is completed)?
- Is the driver working exclusively for your company (compared to driving for several companies)?
- Did you or the driver believe an employer-employee relationship was being created?
Although the Right to Control Test questions are often intertwined, the more often a company answers "Yes" the more vulnerable it is to a ruling that the drivers are employees rather than independent contractors. And since drivers are providing services that are often similar to the business of the company that hired them, it is important to not rely solely on an Operating Agreement in establishing an independent contractor relationship. Unless a transportation company interacts with drivers so that it can answer "No" to as many questions as possible, it faces the risk of exposure to the claims of misclassified drivers for unlawfully withheld employee-related benefits and punitive damages.