The existence of an employer-employee relationship is a necessary precursor to wage and hour protection under California law. With its recent decision in NLRB v. E. Bay Taxi Drivers Ass'n et al., the Ninth Circuit reminded employers that they cannot simply avoid their wage and hour obligations by self-anointing individuals as "independent contractors" despite the economic realities of the relationship.

Friendly Cab Company was one of six cab companies operating under single ownership in Northern California (discussed herein collectively as "Friendly"). Friendly owned taxicabs and leased them to drivers it classified as independent contractors. The leases provided that no employee-employer relationship existed and Friendly was not responsible for withholding payroll taxes or providing worker's compensation insurance. In return for the use of the cabs, the drivers were required to pay a fee, as determined by Friendly, based on the cab model, and the driver's driving record and ability.

Pursuant to the leases, Friendly's drivers were required obey company policy and standard operating procedures when driving Friendly cabs. Such policies and standards included simple driving do's and don'ts and grooming standards. They also compelled the attendance of drivers to annual classes on company policies and discrimination laws, and mandated that drivers post and replace advertisements on their cabs at Friendly's discretion. In addition, Friendly drivers were prohibited from subleasing their cabs, were expected to service all reasonable customer calls from Friendly dispatchers, and were required to accept vouchers at a discount from patrons with which Friendly maintained relationships. Friendly further prohibited its drivers from distributing private or individual business cards or phone numbers to customers during the term of the lease. Friendly employed a "road manager" to monitor adherence to these and other policies, and could terminate the leases of noncompliant drivers.

The drivers challenged their classification as "independent contractors" as opposed to "employees" in conjunction with a union dispute under the National Labor Relations Act. The court concluded that Friendly exercised significant enough control over the means and manner of its drivers' performance to render them "employees" under the law. While acknowledging that indicia of "independent contract" status existed in that Friendly did not set the working hours of its drivers, the lease agreements explicitly characterized the relationship as one of independent contract, and Friendly did not withhold payroll taxes on behalf of its drivers, the court concluded that such factors did not outweigh the significant control Friendly had over its drivers. Integral to the court's finding of control was the fact that Friendly drivers were not permitted to operate an independent business, but were made to use their "taxicabs only to respond to dispatches from Friendly and not for outside business." Further, drivers were prohibited from distributing private business cards or phone numbers to customers. The court also found Friendly's regulation of the manner in which it drivers drove, its dress code, its training requirement in excess of the regulatory minimum, its imposed advertisements and vouchers, and its strict disciplinary regime indicative of "employee" status.

This case serves as yet another reminder that employers do not have carte blanch to classify individuals with whom they work as "independent contractors." While an individual's inability to pursue entrepreneurial opportunities is the most compelling sign of "employee" status, courts examine all aspects in which an employer may exercise control over the manner and means in which the work is performed. Employers should carefully examine each classification decision on a case-by-case basis in light of all of the circumstances.