Recent Case Reminds Companies That, Though Much Embattled, Independent Contractor Classifications Can Be Valid

The dividing line between employees and independent contractors has been a hot topic in employment law for several years. In addition to the interest the federal government has taken in possible misclassification of employees, employers can also be subject to civil suits under the Fair Labor Standards Act (“FLSA”) and/or state employment law. In fact, litigation related to the FLSA has increased dramatically in the last few years. However, a New York federal court recently threw out a class action claim under the FLSA and the New York Labor Law (“NYLL”), giving some indication that while independent contractor challenges are notoriously difficult for employers to prevail upon, when a business is careful to observe the formalities and necessities of the independent contractor relationship, court still recognize its validity.

The case involved over 200 individual drivers who worked for a group of transportation companies. The drivers alleged that they were actually employees, and that the defendant transportation companies had improperly classified them as independent contractors. The drivers brought claims under both the FLSA and the NYLL, seeking significant amounts for unpaid overtime and other wage claims. The court reviewed both the FLSA test and the New York test for independent contractors.

In the case, the drivers had agreed to a franchise agreement with transportation companies. Through that franchise agreement, they were then able to access the collective dispatch system operated by the transit companies to take jobs. However, the drivers were not required to work a certain number of hours or days, take a certain number of jobs, be in a certain location, or even to work exclusively for the transportation companies. They were allowed to work for competitors and accept jobs from their private clients. The drivers also drove their own cars, and maintained the cars themselves. The drivers were subject to certain rules, including for example, a dress code. However, the rules were created and enforced by a committee of other drivers, rather than the transportation companies.

In reviewing the claim under the FLSA, the court looked at the complete factual picture and the economic realities of the arrangements to determine whether the drivers were employees of the transportation companies. It determined that given all of the facts, including the flexibility the drivers had to take or decline jobs, and the lack of any competitive restrictions, the drivers were actually in business for themselves, rather than working for the transportation companies. Therefore, the court dismissed all of the FLSA claims.

The court then had to take a slightly different approach to the drivers’ NYLL claims because that law has a slightly different focus to determine if a person should be deemed an independent contractor. It focuses on the degree of control the employer asserts over an individual. Looking at the same facts described above, the court also found that the employer exercised only a limited amount of control over the drivers, which indicated that they had been properly classified as independent contractors. The court then also dismissed the NYLL claims.

This recent decision illustrates how important the facts of a given employment situation are when determining whether people can be considered employees or independent contractors. If you engage independent contractors to carry out the work of your business, it is critical to evaluate not only your workplace policies and procedures, but also the specific facts relating to the degree of control and those contractors have when determining whether an independent contractor or employee designation is appropriate. However, in light of the scrutiny on independent contractor classifications and the challenges they present to employers, it is always a good idea to consult with experienced counsel before embarking on an independent contractor relationship.