Yesterday the Ninth Circuit issued its opinion in Ruiz v. Affinity Logistics Corp., holding that Affinity Logistics violated California law by misclassifying its home delivery drivers as independent contractors rather than employees. The full opinion is available here.
Prior to working for Affinity Logistics, Ruiz worked as a driver for Penske Logistics, a furniture delivery company that had a contract with Sears. Ruiz was classified as an employee throughout the time he worked for Penske. In 2003, Sears announced that Affinity Logistics was taking over the services that had previously been provided by Penske. Sears advised Ruiz and his fellow Penske drivers to speak to Affinity about working for Affinity. Affinity told Ruiz and the other drivers that if they wished to work for Affinity, they would have to do so as independent contractors. Affinity advised them that they would need a fictitious business name, a business license, and a commercial checking account. Affinity helped the drivers complete all necessary forms and procedures to accomplish these tasks. Affinity also required the drivers to sign an independent contractor agreement that automatically renewed from year to year but could be terminated for any reason on 60 days’ notice. Affinity’s drivers leased their trucks from Affinity and were required to leave them at Affinity during non-working hours.
Ruiz filed a class action lawsuit against Affinity, alleging that Affinity misclassified its drivers as independent contractors rather than employees and thereby deprived them of various benefits afforded employees, including sick leave, vacation, holiday, and severance wages, and improperly charged them workers’ compensation fees. The district court held a bench trial to determine whether or not the independent contractor classification was proper. Following the bench trial, the district court concluded that the drivers were properly classified as independent contractors under California law. The drivers appealed and the Ninth Circuit reversed, holding that the district court’s legal conclusion was wrong.
The Ninth Circuit applied the test set forth by the California Supreme Court in 1989 in Borello & Sons, Inc. v. Dep’t of Industrial Relations, in order to analyze whether a worker is an employee or an independent contractor. Under that test, the primary consideration is the degree to which the principal has the right to control the manner and means by which the work is accomplished. While the right of control is the most important factor, the following secondary factors are also relevant: (1) whether the worker is engaged in a distinct occupation or business; (2) as a matter of local industry custom and practice, whether the type of work performed is typically done under the direction of a principal or by a specialist without supervision; (3) the skill required in the particular occupation; (4) whether the principal or the worker supplies the tools and place of work; (5) the length of time for which services are to be rendered; (6) whether or not the work is part of the regular business of the principal; and (7) whether or not the parties believe they are creating the relationship of employer-employee.
Applying this test to the largely undisputed facts, the Ninth Circuit held that Affinity’s drivers clearly were employees and not independent contractors. First, the court held that Affinity substantially controlled the manner and means of its drivers’ performance of their duties. Affinity determined and controlled the flat “per stop” rate paid to the drivers for their work and the drivers could not negotiate for higher rates, as independent contractors commonly do. Affinity decided the drivers’ schedules and set their daily routes each day, with specific instruction not to deviate from the order of deliveries list on the route manifests. Affinity also controlled the drivers’ appearance by requiring that they wear specific uniforms and prohibiting them from wearing earrings, displaying tattoos, or having certain designs of facial hair. Affinity also required its drivers to comply with a detailed procedures manual and closely monitored and supervised their work. Each morning, the drivers were required to report to the warehouse for a morning meeting where supervisors and drivers would discuss customer satisfaction reviews from previous deliveries and any other issues arising out of previous deliveries. Affinity further monitored its drivers by inspecting their appearance and the loading of their trucks and monitoring their progress throughout the day, including through a requirement that the drivers call their Affinity supervisor after every two or three stops and contacting them if they were running late or off course. Based on all of these facts, the court determined that Affinity retained and exercised the right to control the drivers’ work.
The district court had found that the drivers retained sufficient control over their work, largely because their independent contractor agreements stated that the drivers could hire helpers, and the right to hire others generally is indicative of independent contractor status. However, the Ninth Circuit disagreed that the drivers had any truly independent right to hire helpers because the evidence revealed that Affinity had the right to approve or disapprove of the helpers and the only time drivers hired helpers was if Affinity suggested they do so.
The court held that the balance of the secondary factors also supported a finding that the drivers were employees, not independent contractors. Affinity’s drivers did not have distinct occupations or businesses apart from their work for Affinity, and the type of work they provided was not a specialized or unique skill commonly performed by an independent contractor. The only reason the drivers established the formality of separate businesses was because Affinity required them to. However, most only performed work for Affinity. Indeed, they were not permitted to use the trucks they leased from Affinity for any purpose other than carrying out duties for Affinity. Affinity provided the trucks and phones for their drivers’ use, and required that the trucks be kept on Affinity property when not in use. Affinity even retained the right to use the drivers’ trucks for other purposes when not in use by the driver. The district court had held that because the drivers were required to pay for the use of the trucks and phones (through a payroll deduction), the drivers “provided” their own equipment. The Ninth Circuit rejected this analysis, effectively holding that paying for the use of the equipment is not the same thing as providing it. Affinity encouraged or required the drivers to use the trucks and phones owned and provided by Affinity and this equipment was only used by the drivers to perform work for Affinity—not for any other purpose. As such, this factor was suggestive of an employment relationship rather than an independent contractor relationship.
The court also reiterated that the drivers did not perform work without supervision because Affinity closely monitored and directed their work. Furthermore, the drivers’ work was a regular part of Affinity’s business. Affinity is a provider of home delivery services and, thus, the drivers’ work was at the very core of Affinity’s business. Additionally, the contracts between Affinity and its drivers did not contemplate any set duration or end for the drivers’ work for Affinity. The contracts automatically renewed from year to year, and many drivers worked for Affinity for years. The court further stated that the fact that the contracts were terminable on 60 days’ notice was not unique to an independent contractor relationship.
The court acknowledged that the drivers were paid a flat rate per delivery, rather than by the hour, but disagreed with the district court’s conclusion that this supported a finding of independent contractor status. The Ninth Circuit reasoned that because most drivers made eight deliveries per day, their pay generally remained about the same week to week, and this was more akin to be being paid by a regular rate of pay than “per job” or “per assignment.” As such, this factor too was indicative of an employee relationship.
Finally, the Ninth Circuit acknowledged that the drivers and Affinity understood their working arrangement to be an independent contractor arrangement rather than an employment relationship. However, the court dismissed this factor, reasoning that the parties’ label is not dispositive and that the parties’ conduct in fact revealed an employment relationship.
The Ruiz v. Affinity Logistics decision serves as a reminder to employers that litigation surrounding the independent contractor/employee classification remains alive and well in California, and improper classification carries substantial risk for employers. Employers who have independent contractor arrangements should carefully review these classifications to ensure that these workers are properly classified. The fact that a worker agrees to be classified as an independent contractor, or even asks to be classified as an independent contractor, does not prevent a misclassification claim nor does it prevent liability if the worker ultimately is determined to have been misclassified.