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 In an unpublished decision, the Court of Appeal upheld the decisions of the DIR and the trial court, finding that the workers were bona fide employees.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.