Courier Firm Can't Classify Drivers as Independent Contractors

Last month, the Sixth District Court of Appeal ruled than a courier business cannot classify its drivers as independent contractors. In JKH Enterprises Inc. v. Department of Industrial Relations, the employer challenged a trial court's denial of its petition for a writ of administrative mandamus to overturn a DIR stop work order and penalty assessment for misclassification of 15 drivers as independent contractors and failure to maintain workers’ compensation insurance for them. In an unpublished decision, the Court of Appeal upheld the decisions of the DIR and the trial court, finding that the workers were bona fide employees. On Monday, the opinion was ordered published.

Some of the facts seemed to support JKH's position. The drivers all used their own vehicles, paid for their own gas, maintenance and insurance. They communicated with dispatch via their own cell phones. They wore nore uniforms and had no company logos on their cars. Some even did courier work for other firms and two had separate business licenses. They set their own schedules and chose their own driving routes. They are not required to report to work at JKH’s office, and the manager hadn't even met them all. They can take time off when they choose. They are paid twice a month, and draw annual 1099s.

None of that matters. Under the “economic realities” test in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, they were found by the DIR to be employees, not independent contractors.

“Although some of the factors in this case can be indicative of the workers being independent contractors, the overriding factor is that the persons performing the work are not engaged in occupations or businesses distinct from that of [JKH]. Rather, their work is the basis for [JKH’s] business. [JKH] obtains the clients who are in need of delivery services and provides the workers who conduct the service on behalf of [JKH]. In addition, even though there is an absence of control over the details, an employee-employer relationship will be found if the [principal] retains pervasive control over the operation as a whole, the worker’s duties are an integral part of the operation, and the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288). Therefore, the finding is that these workers are in fact employees of [JKH].”

The Court of Appeal upheld the finding, holding that it was supported by substantial evidence, "in light of the whole record to support the Department’s determination that 15 of 16 of JKH’s drivers were functioning as its employees rather than as true independent contractors. ... [where] our review is limited to examining the whole administrative record to determine if the Department’s findings and order are supported by substantial evidence, it is not our function to reweigh the evidence or the particular factors cited by the Department in support of its decision, to which we afford considerable deference. Once we conclude, as we have here, that the Department’s findings are indeed supported by substantial evidence, and that those findings in turn support the Department’s legal conclusion or ultimate determination, our analysis is at an end."

Very few businesses can rely upon an army of independent contractors to do their work, and the standard of review makes it very difficult to challenge the DIR's findings when they characterize your workers as bona fide employees. The language of this now-published opinion is going to prove extremely useful to employees and should be on the hard drives of every wage and hour lawyer. You can and should download JHK here in pdf or word format.

Comments

[Steve Kane]

Would anyone like to comment on whether or not the analysis in JKH Ent. v. DIR applies to cases outside the Workers Comp area? The JKH court seems to base its analysis on the policy behind the workers comp law, but, a similar case could be made with regard to Labor Code wage and hour protections.

Any thoughts?

[krissie]

I am a taxicab driver for a small company in California.When I was hired a year ago, I signed a contract, calling myself an independent contractor, but I'm not at all sure I really am one.There are only six drivers, including the company's owner and his wife.I "lease" the cab, at the rate of $.45 per mile, plus a daily fee of $3.00, for maintenance of the vehicle, payable every two days. Also, I am responsible for cleaning the cab at the end of each shift, and I must buy my own fuel, which costs $3.39 per gallon in my area. The minimum wage in my state is $6.75 per hour, but after I've paid my lease, washed and fueled the car, after working all night ( my shift is 12 hors long, from 8;00PM to 8:00AM....I have no control over my hours or what shift I have) I take home between $30.00 and $60.00 per 12-hour shift, which is far below minimum wage. My question is this: AM I ENTITLED TO BACK WAGES AT THE MINIMUM HOURLY WAGE OF $6.75 ?? As a single mom, in an area of high unemployment, any insight would be much appreciated. Thanks very much......KRISSIE

[Steve Kane]

It is hard to see how the "work as basis of business" test elicited in this case would not apply to wage and hour standards. Krissie's question above involves violation of minimum wage requirements. Why would the public policy behind minimum wage be less important than that governing workers compensation requirements? How would one distinguish the two situations? The Borello court seems to try to back off from broad application of the decision, but how would one argue against it?

There may be a huge number of people in California working for less than minimum wage as "independent contractors." Would the courts uphold this deliberate evasion of the law?

Comments?

[krissie]

Well, I've finally found the nerve to take some action against my former employer, the owners of the taxicab company I worked for for the past year. I contacted the labor commissioner in my area, and I filed a claim against the cab company, for wages. I don't know how this will all turn out, but I am so thankful that I found your web page, because it helped to give me the courage I needed, to take action. I have since quit my taxi driving job, gotten my CDL, and gone to work, driving the regional public transit busses. It sure feels good, to have a paycheck coming in every two weeks now! I'll keep you posted...I'm sure the outcome of my case could be of great interest, to a whole lot of so-called "independent contractors", all over California...KRISSIE krissieboo2000@hotmail.com

[Bernard King]

There are currently three class action lawsuits pending in San Diego asserting wage and hour violations against taxicab companies that misclassify their drivers as "independent contractors" rather than employees.

The taxicab companies hire their taxicab drivers under similar "lease agreements." The employment status of taxicab drivers who lease taxicabs has been previously addressed by the courts in the context of workers' compensation and unemployment insurance. (See Yellow Cab Cooperative, Inc. v. Workers’ Comp. Appeals Bd. (1991) 226 Cal.App.3d 1288.)

These cases are moving very slowly right now and it remains to be seen how they will be received

[Bruce Pachter]

My question is: can a courier company not pay for one's fuel costs doing their deliveries if they sign you on as an employee....thanks for any info...Bruce

[Bernard King]

If you are an employee, you fall within the protections offered by Labor Code section 2802. This section requires an employer to reimburse its employees for "all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties." (Cal. Labor Code, s. 2802.) If you are employed as a courier-driver, gas expenditures would likely be an expense necessary to performing your duties. Accordingly, your employer should reimburse you for those expenses.