?Takeaway: In deciding whether workers are employees or independent contractors, a court must weigh a number of different factors. Ultimately, the determination is a fact-based one. If there is conflicting evidence, the determination should be left to a jury.
?Drivers for a company that transported patients to and from medical appointments could be found to be either employees or independent contractors based on the evidence presented to the trial court, and therefore, the court erred in not submitting the case to the jury, a federal appeals court ruled. In the Fair Labor Standards Act (FLSA) lawsuit brought by the U.S. Department of Labor’s (DOL) Wage and Hour Division, the lower court had ruled in favor of the DOL and awarded damages based on the DOL’s calculations of back wages due to the drivers.
The company hired drivers to provide nonemergency medical transportation. The company provided equipment such as vans and electronic tablets to drivers and paid for costs such as Internet service and insurance for the vans. Customers paid the company for the transportation services, and the company distributed the entire sum paid by the customers to the drivers. Drivers were then responsible for paying the company weekly expenses such as a dispatch fee, 35 percent of the commissions generated by the drivers’ weekly trips (when the drivers’ weekly income exceeded $300), insurance fees, vehicle lease fees, vehicle maintenance fees, and a tablet rental fee plus added costs for any additional gigabytes of data used. The company generated its revenue from these fees paid by the drivers.
The company’s dispatch service assigned trips to drivers through an application on the drivers’ tablets. The app monitored the drivers’ GPS locations and their availability. Drivers were also encouraged to notify dispatch when they were available to take trips. Dispatch then assigned a trip to the driver and provided instructions through the app such as pick-up/drop-off times and locations. Drivers set their own schedules and could change their schedules daily.
The company classified its drivers as independent contractors. After investigating the company’s FLSA compliance, however, the DOL’s Wage and Hour Division determined the company’s drivers were employees. The DOL sued the company and its owner on behalf of 21 drivers, alleging that because the drivers were employees, the company violated the FLSA by failing to pay minimum wage and overtime.
The company appealed the trial court’s ruling, arguing that the lower court erred in classifying the drivers as employees under the FLSA.
Economic Realities Test
The appeals court first noted that the trial court decided whether the drivers were independent contractors or employees by applying the multi-factor “economic realities” test. This test examines six factors regarding the economic realities of the working relationship:
- The degree of control exercised by the alleged employer over the business operations.
- The relative investments of the alleged employer and the employee.
- The degree to which the alleged employee’s opportunity for profit and loss is determined by the employer.
- The skill and initiative required in performing the job.
- The permanency of the relationship.
- The degree to which the alleged employee’s tasks are integral to the employer’s business.
As to the degree of control exercised by the employer, the appeals court noted that the lower court found that the company exercised control by assigning trips, pressuring drivers to accept trips offered by dispatch, regulating the times at which drivers could provide services, requiring the drivers to obtain permission to take a break, tracking drivers through GPS location monitoring and requiring drivers to submit travel logs.
However, the court noted that there was also evidence that the company allowed drivers to decline trip assignments.
Similarly, the court said, there was a genuine dispute as to the extent of the control the company had over the drivers’ hours. There was evidence that drivers were able to set their own schedule and could change their schedule daily.
The profits and losses factor also showed genuine issues of material fact were still in dispute, the court said. Under this factor, courts generally consider whether workers had control over profits and losses depending on their managerial skill.
The company set the drivers’ rates and facilitated trip assignments given to drivers through the driving app. However, there was also evidence that the drivers were able to earn additional income through their own initiatives—for example, by transporting multiple customers at a time to make trips more profitable. Drivers could also maximize their profit by using their own vehicles and tablets rather than leasing from the company.
Lastly, it was unclear whether the drivers were integral to the company’s business. This factor turns on whether workers’ services are a necessary component of the business, the court said.
The company described itself as an “intermediary company that supports the drivers’ transportation businesses” that only makes revenue by leasing vehicles and equipment to drivers and selling dispatch subscriptions. The company’s revenue was generated entirely from the drivers—not the passengers.
Therefore, whether the company was indeed a transportation provider or merely a technology company that supported the drivers’ transportation businesses remains an open question, the court said.
This competing evidence requires a designated party to weigh the evidence and ultimately make a credibility determination—a role reserved for the jury, the court concluded.
Walsh v. Alpha & Omega USA Inc., 8th Cir., No. 21-2961 (July 14, 2022).
Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.