Fernando Ruiz worked as a driver for Penske Logistics Corporation, a furniture delivery company that had a contract with Sears. When Sears terminated its contract with Penske, Sears advised its drivers that Affinity Logistics Corporation, a Georgia corporation, would take over the contract. A manager for Affinity told the drivers, including Ruiz, that they had to become independent contractors in order to be hired by Affinity. The drivers were told that they needed a fictitious business name, a business license, and a commercial checking account. With Affinity's help, Ruiz formed R&S Logistics. The drivers were also required to sign an Independent Truckman's Agreement (ITA), a one-year contract that automatically renewed each year, and an Equipment Lease Agreement (ELA). Both contracts included clauses stating that the parties were creating an independent contractor relationship.
After signing the contracts, Ruiz and the other drivers received an Affinity Contractor Procedures Manual, which outlined the procedures the drivers were required to follow when completing various job duties. Affinity hired Ruiz in 2003.
Ruiz filed a class action against Affinity alleging that Affinity wrongfully classified him and the other class members as independent contractors, failed to pay them sick leave, vacation, holiday, and severance wages, and improperly charged them workers' compensation insurance fees. In 2009, the district court determined that the drivers were independent contractors under Georgia law. Ruiz appealed, and the Court of Appeals for the Ninth Circuit concluded that the question should have been decided under California law, not Georgia law. It returned the case to the district court, which determined that Ruiz and the other drivers were independent contractors under California law. Ruiz appealed, and the Court of Appeals reversed.
In order to determine whether a worker is an employee or an independent contractor, a court should evaluate the facts of the service arrangement, but should also be guided by a number of factors. The most important factor is whether the principal (the person or entity requesting the work) maintains the right to control the work details.
Here, Affinity decided the days the drivers worked and retained the discretion to deny their requests for days off. It set the drivers' flat "per stop" rate, and did not allow them to negotiate it. Affinity set the drivers' routes and instructed them not to deviate from the order of deliveries that Affinity created. It required the drivers to report to the warehouse every morning at 6:00 or 6:30 a.m., and to attend a stand-up meeting at 7:15 a.m. It monitored the drivers by inspecting their appearance and supervising while they loaded their trucks. Affinity required the drivers to call their supervisors every two or three stops. It controlled the equipment, the delivery trucks and keys to the delivery trucks, which had to be returned to the warehouse at the end of the day. It controlled the drivers' appearance by requiring the drivers to wear uniforms and prohibiting them from wearing earrings, displaying tattoos, and exhibiting certain designs of facial hair. Finally, the Procedures Manual outlined the procedures that the drivers were required to follow. Thus, the Court of Appeals held that Affinity clearly had the right to control the details of the drivers' work.
Secondary factors for determining whether an employer-employee relationship exists include (1) whether the worker is engaged in a distinct occupation or business; (2) the kind of occupation and whether the work is done by a specialist without supervision or under the principal's direction; (3) the skill required in the occupation; (4) whether the principal provides the tools and place of work; (5) the length of time for which services are performed; (6) the method of payment, whether by time or by job; (7) whether the work is part of the principal's regular business; and (8) whether the parties believe they are creating an employer-employee relationship.
The Court held that the remainder of the factors also weighed in favor of finding that Ruiz and the other drivers were employees of Affinity. While Ruiz formed a distinct business, he did so because Affinity required him to do so. Further, it was not a truly separate business because the drivers could not use their trucks for any purpose other than performing work for Affinity. The drivers were closely supervised by Affinity, and the work did not require any special licenses, skills, or work experience. As for the tools and instrumentalities, Affinity advanced the drivers' costs of leasing and maintaining their trucks, provided them cell phones, and then deducted these costs from the drivers' paychecks. There was no contemplated end to the relationship between the parties. While the drivers were paid per delivery, they were essentially paid by a regular rate of pay because the drivers made approximately eight deliveries per day and the amount paid to each driver remained essentially the same. The drivers performed the services at the core of Affinity's regular business, which is to perform home delivery services. While Affinity and the drivers understood their relationship to be an independent contractor relationship, that label will be ignored when the actual conduct establishes a different relationship.
For the foregoing reasons, the Court of Appeals held that Affinity and the drivers formed an employer-employee relationship under California law. It reversed the district court's decision and remanded for further proceedings.
Agencies often employ independent contractors. While the use of independent contractors is common, there are risks. As this case illustrates, the fact that an individual is called an independent contract, or that the parties intended for there to be an independent contractor relationship, is not determinative. The issue of whether a worker is an independent contractor or an employee often turns on one factor: control. While it is difficult to identify one aspect of the delivery drivers' duties or work days that Affinity did not control, this issue is often less clear in other cases. If your agency has a worker classified as an independent contractor, consider seeking legal advice regarding whether the classification is proper. A worker's classification will affect how a variety of laws apply to the employer, from wage and hour to retirement laws. Incorrectly designating an individual as an independent contractor may expose the agency to claims for unpaid benefits, compensation, retirement contributions, and other damages.
Ruiz v. Affinity Logistics Corp. (9th Cir. 2014) __ F.3d __ [2014 WL 2695534].