Last week’s discussion about Sleepy’s and Uber drivers steered us back (see what I did there?) toward independent contractor-versus-employee issues. Click here if you missed that post. Many companies hire drivers, call them independent contractors and have no repercussions. Other companies may not have drivers but rely on salespeople hired as “independent contractors” Mmmmm weeell, those companies might want to rethink that. Join The EmpLAWyerologist after the jump for the details…
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Last week we looked at two cases involving drivers and misclassification. We also briefly looked at the ABC test, which the New Jersey Supreme Court used in Hargrove v Sleepy’s. Other states use some form of the ABC test to determine the employee/independent contractor issue. Massachusetts applies more or less the same test, which has enable many drivers to successfully challenge their independent contractor designations.
The US District Court for the District of Massachusetts in Martins v 3PD Inc 2013 WL 1320454 (D. Mass. Mar. 28, 2013) agreed that drivers, were employees, not independent contractors as 3PD, a delivery company for retail stores, contended. Why? In short, 3PD Inc did not satisfy the “A Prong”, i.e. control. The court cited the following factors in determining that 3PD failed to satisfy the first prong: a) the drivers drove for 3PD five full days a week; b) drivers had to have background checks before 3PD would accept them as drivers; c) drivers had to wear designated uniforms bearing either 3PD’s logo or that of its retail customers; d) drivers had to report for duty at specific times each day and make deliveries in accordance with routes and orders determined by 3PD; e) drivers had to report their status at the start and completion of each delivery; f) 3PD monitored drivers’ performance and disciplined or terminated them based on that performance; g) drivers brought back to the warehouse or store all products hauled away from delivery locations and had to pay for damage caused to delivered products. With this level of control it should not be hard to see why 3PD failed this first prong.
As you may know from last week’s post, the company must meet all three prongs or it fails the ABC test, and the workers are then classified as employees. The court nonetheless determined that 3PD also failed to satisfy Prong B, i.e. is the worker is performing a service within the employer’s usual course of business? Now, there is one small, subtle but very significant difference between Massachusetts and New Jersey’s ABC test, specifically regarding Prong B. A New Jersey company can satisfy Prong B by showing that the service is either outside its usual course of business or the service is performed outside of the employer’s usual place of business. In Massachusetts, there is no allowance for services that are within the employer’s usual course of business but performed outside any place that could be considered the employer’s place of business. This difference can sometimes make the Massachusetts ABC test even harder than New Jersey’s. Getting back to 3PD: 3PD, a delivery company, would have been unable to perform its services without engaging the drivers in question.
What about Prong C–the worker being customarily engaged in an independently established, trade, occupation or business? For the same reasons that 3PD did not satisfy Prong A it likely would not have satisfied Prong C. Similarly, in Fucce v Eastern Connection Operating Inc No-08-2659, the Massachusetts Supreme Court determined that couriers were employees, not independent contractors, because: a) they had to wear company uniforms and comply with daily manifests; and b) Eastern Connection, not the couriers negotiated with customers regarding costs and billing, clearly showing that the drivers were not operating independently established businesses”.
What about salespeople? Arent’ they outside contractors? Courts aren’t necessarily buying that. (I didn’t actually mean to make a bad pun here but it kinda sorta works, so bear with me, OK?) As with truck drivers, many courts find that the employer exercises signficant direction and control over their workers, thus failing to satisfy Prong A. For example, the Connecticut Supreme Court found sufficient control when salespeople were required to use company materials and supplies, attend meetings and threatened with discharge for noncompliance in Tianti ex rel Gluck v William Raveis Real Estate Inc 231 Conn 690 (1995). Similarly, when the company provides the sales materials and training and retains a right of discharge, a court is likely to find a “strong indication” of employee status (AAD Vantage of South Cent Connecticut, Inc v Administrator, W.L. 661440 (Conn Sup Ct 1998).
Some courts will, virtually by definition, find that companies hiring salespeople are unable to satisfy Prong B the “usual course of business” test. For example, the Supreme Court of South Dakota held that “sale of [company] products is not outside the usual course of Company business. It is the very act through which the Company breathes existence”. (Miller Liquid Feeds v South Dakota Dept of Labor, Unemployment Ins Div 340 N.W.2d 185 (1983). Similarly, a salesman selling carpets for a carpet company, according to a Tennessee appellate court, does not satisfy Prong B (See Carpet Barn Inc v Neel 1987 W.L. 7971 (1987).
What about the second part of Prong B– the “outside all of the places of business of the enterprise “requirement? (Remember what we just learned about Massachusetts: not every ABC test will include this part.) You might think that that prong would be the easiest to meet. After all, as long as the salesperson works outside the office, s/he is working “outside all of the places of business of the enterprise”, right? Nope. At least one court has held that place of business includes not only company headquarters or actual offices, but also “the business territory within which it operated”, which includes locations where salespeople seek business for the company. (See, for example, In re Bargain Busters, Inc 130 Vt. 112, Vermont Supreme Court 1972).
OK, so we now know that you need to be very, very careful if you hire someone to do work in the normal course of or integral to your business and you classify them as independent contractors. While we will discuss some other wage and hour/FLSA issues in the coming weeks we will start the new year with a return to some Affordable Care Act issues next week. Best wishes to all of you for an awesome 2016!
Disclaimer: This post and all its contents are for educational/informational purposes only, are not intended as legal advice, do not create an attorney-client relationship, and are not intended to replace consultation with competent employment counsel in the state(s) in which you employ people
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