Inaccurate Independent Contractor Agreement Unsurprisingly Fails to Protect Employer from Fair Labor Standards Act Claim

Sometimes, just seeing a few words in a decision is enough to let a person know which way the court will go in a case.  In the district court’s summary judgment decision in Walsh v. Alpha & Omega U.S., Inc., where the plaintiffs, a group of independent contractors for Travelon, were suing for unpaid wages for work performed on behalf of the defendant, all we needed to see was that the owner’s “specific responsibilities include hiring drivers, setting pay, directing work and ensuring drivers comply with the law.” This sentence alone told us these workers were likely not going to be considered independent contractors, as the defendant had considered them for the duration of their time with the company.

Travelon was registered with the Minnesota Department of Transportation as a Special Transportation Provider to transport customers to and from medical appointments.  In order to work as a driver for Travelon, drivers needed to apply to the company, undergo a background check, and sometimes go through on-the-job training with a long-time Travelon driver.  Once hired, these independent contractors would operate one of Travelon’s vans, which were equipped with the equipment necessary for medical transportation work.

Prior to working for Travelon, new drivers were required to sign an independent contractor agreement informing drivers that they controlled the manner of their performance, and informing them that they could accept or decline assignments, could furnish their own equipment, and could hire assistants.  The agreements also stated that drivers would receive all of the fees paid by customers.  However, Travelon then separately charged drivers fees to recoup their own costs, including dispatch fees and 30-35% of amounts earned in excess of $300 per week.  Travelon also charged drivers $270 per week for insurance, because all drivers were insured through Travelon’s insurance policy.

On top of this, drivers were tracked by the company’s dispatcher, the owner’s sister, through GPS, and were instructed to notify dispatchers of their availability.  Drivers could not choose which trips to take, could not see other available trips, and could not independently arrange trips.  The company owner admitted during his deposition that it was impossible for drivers to work simultaneously for Travelon and any other transportation providers.

The court evaluated the six factors of control to determine whether the drivers were independent contractors, which are as follows:

  • Whether the service rendered by the worker is an integral part of the alleged employer’s business;
  • The degree of skill required for rendering of the services;
  • The worker’s investment in equipment or materials for the task;
  • The degree of the alleged employer’s right to control the manner in which the work is performed;
  • The worker’s opportunity for profit or loss, depending upon his skill;
  • The permanency of the relationship between the parties.

After a brief evaluation of the facts, the court found that every factor led to the conclusion that the drivers were employees rather than independent contractors.  This led to a determination that Travelon had committed minimum wage, overtime and recordkeeping violations.  The plaintiffs were given backpay, back overtime, and liquidated damages as a result of the misclassifications.

Employers should be hesitant to apply the independent contractor label to workers in any situation, especially when they control every aspect of their business and apply that control to the people performing work on behalf of their business.  The employer here took a major hit from the Wage and Hour division, not to mention the legal fees he likely had to pay in defending himself.  If you, or your organization, need assistance with the classification of your employees, contact Wiley Reber Law, for wage and hour advice that works.