Just the Facts on Independent Contractors

Fact Situation 1

How does a court decide whether a worker is an employee as opposed to an independent contractor? The determination of employee or independent contractor is a slippery slope at best. Under the tenets of employment law, the basic, very general rule of thumb depends on the amount of control the employer has over the work product, meaning if there is no control over the means by which a person attains the results on a job, he or she is an independent contractor (Perritt, 1988). If the employer controls how and what is done, that person is considered an employee. In addition, usually, an employee works for only one person where an independent contractor has the ability and mobility to work several jobs. The courts use a five-prong test to determine into which category an individual belongs (Perritt, 1988).

First, the court will determine the amount and extent of control and/or oversight that is exercised by the employer. Next, financial considerations are given to how the individual’s on-the-job expenses are handled, such as unreimbursed expenses and profit-and-loss issues on behalf of the worker. Third, the overall perception of the association and how it was formed – via contract with flexibility or long-term employment – is considered. Fourth is whether the level of skill required to perform the work requires training. And, finally, whether or not the association is long term (Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1045 (5th Cir. 1987)).

What facts do you feel are especially relevant to deciding whether the cab driver was an employee or an independent contractor? The facts set forth in the current case as they relate to the five-prong test are as follows:

1. Control: Yellow Cab hired Nelson and assigned him shift work. Relative to the incident at the heart of the immediate lawsuit, Yellow Cab dispatched Nelson to a particular location to perform a particular task. Yellow Cab exercises control over its drivers with its cab guidelines. Yellow Cab also sets forth numerous violations which results in termination of the cab driver. Nelson also worked for the post office at the same time he leased a vehicle from Yellow Cab (which has little relevance in this case as it appears the Nelson was not an independent contractor for the post office).

2. Investment: Nelson leases the vehicle from Yellow Cab for $79 per 24-hour period; Yellow Cab pays the insurance and for repairs for which Nelson reimburses Yellow Cab a portion.

3. Profit and loss: Nelson paid rent to Yellow Cab for the use of its vehicle during Nelson’s assigned shift hours with Nelson paying the cost of the fuel consumed during his shift. Drivers usually retain their fares unless they are sent by Yellow Cab to a particular location to pick up a specific fare, as in the underlying case here. In those cases, Yellow Cab bills the customer and pays the driver. Yellow Cab vehicles are identifiable by the Yellow Cab logo which promotes business and profit for both Yellow Cab and its drivers. Profit and loss to Nelson is dependent on the number of fares he transports. Yellow Cab earns the same amount per vehicle whether the driver is busy or not.

4. Skill and motivation: Yellow Cab outlines the rules to which their drivers must adhere in its “Drivers Information and Training Package” which more than implies job training and also acts to control the drivers’ behaviours. Yellow Cab provides the equipment to lease along with the dispatch service and dispatch equipment, which the drivers must use if Yellow Cab vehicles are leased.

5. Length of relationship: Initially, Nelson worked part-time with Yellow Cab increasing his shifts to full time. Nelson chose the hours during the 24 hours the Yellow Cab was leased within which to work. While it is not clear, it is reasonable to assume that Nelson could terminate his association with Yellow Cab at any time.

Additional information: Yellow Cab requires its drivers to sign a form indicating that the signator is not an employee of Yellow Cab, which acknowledgement could be considered evidence of a mutual agreement of the parties to an independent contractor status. Actually, the court will analyze the behaviour of the parties and assess that in terms of employment status since it is the day-to-day practice that truly represents the working association. Another caveat worth noting is that Nelson files his income tax returns as a sole proprietor and Yellow Cab does not issue either a W-4 or 1099 to him. The Internal Revenue Service does not define the term independent contractor (Dowd, 1984) so Nelson’s income tax returns are of little relevance to the court’s evaluation other than being consistent with the Yellow Cab application.

What should the court decide - was the driver truly an independent contractor, or was he an employee of the cab company? At first blush, it seems a no brainer that Nelson is clearly an employee of Yellow Cab given the facts as set forth above. However, there are two aspects of the association between Nelson and Yellow Cab which should cause some concern. That is, that Nelson could determine the hours he worked during his 24-hour lease period and that Nelson retained the fare money he collected less the cab lease fee and repair and maintenance costs due to Yellow Cab. As noted above, there are very clear-cut guidelines and rules in order to lease a Yellow Cab, but that is reasonable in that the cabs are Yellow Cabs’ livelihood, along with its reputation, and Yellow Cab is smart to protect its investment and, in fact, increase profits by demanding some high-quality representatives leasing its equipment (and name). A comparison may be used here where an individual may rent a piece of equipment from Joe’s Rental. Joe has strict guidelines included in his short-term equipment rental agreement, including, but not limited to instructions for use, condition of equipment after use and upon return, assignment of costs to operate the equipment where the lessor pays fuel and a sum may be built into or broken out for insurance. If the lessor uses Joe’s equipment to perform a task for another individual, Joe probably will not realize any benefit from that but is still the legal owner of the equipment and as such allowed to dictate terms of use for the same. Yellow Cab is entitled that same luxury when controlling the use of its cabs, rather than concluding that Yellow Cab is controlling the drivers. The area gets a little gray(er) as the out-of-the-ordinary-fares-for-particular- use are thrown into the mix as were requested by Yellow Cab from time to time; however, that is not the usual and ordinary course of business and Yellow Cab does reimburse the drivers for their time it takes to transport those special fares.

So, in conclusion, the court should affirm Nelson’s status as an independent contractor since it was not so much that Yellow Cab was controlling the drivers but protecting its investment by controlling the use of its cabs. Now, this is not to claim that Nelson, at the particular times he was performing transportation tasks at the request of Yellow Cab, was not in some way an agent of Yellow Cab; thus, possibly creating a liability to Yellow Cab for any injuries sustained while Nelson was acting as an agent of the company, but now is not the time or the place for that discussion. . . .

Fact Situation 2

Is the evidence that the 67-year-old will be able to produce in support of her claim the type known as direct evidence or is it circumstantial evidence? In order to prevail in a claim of age discrimination under the Age Discrimination in Employment Act (ADEA), four criteria must be proven: 1) that the claimant is a member of the protected class; 2) that the claimant was qualified to do the work; 3) that the claimant was victim to harmful employment conduct; and 4) that other persons under 40 were not subjected to the same conduct (Neumark, 2003). In the underlying case here, there are several instances that support the plaintiff’s allegations of misconduct based on age and that satisfy the above requirements. They fall into the following two categories of evidence:

Direct evidence: Claimant was over the age of 40; thus, a member of the protected class. Age is easily provable and about as direct as possible. Also, the claimant was hired but precluded from actually commencing employment based on her age and/or on a miscommunication, lack of communication or erroneous communication, depending on whether the claimant’s allegation is considered or the respondent’s explanation is believed. However, even if the respondent’s explanation is believable, the claimant should assert it as pretextual to age discrimination based on the respondent’s conduct and not discount the claimant’s allegations. Finally, the other servers currently in the employ of the respondent were assumedly under the age of 40.

Circumstantial evidence: Claimant had 40 year experience as a waitress although that experience was not demonstrated, per se, since she was not afforded the opportunity to perform the job duties. So, there was no direct evidence of her experience but a logical assumption can be made of the same due to the number of years she had worked in the field.

How does the issue of pretext relate to this case? Respondent claimed that the reason the claimant was terminated or denied employment was her failure to report to work as scheduled determining that she had abandoned the job. Claimant’s response was that Respondent used that as an excuse or pretext to discriminate against her where the real reason was based on her age which at the time was 67.

Who should win this legal battle - did the restaurant discriminate against the 67-year-old on the basis of age, or was the restaurant justified in not hiring her due to a legitimate [non-discriminatory] reason? Based on the evidence above, it appears that the restaurant discriminated against the claimant and the reason offered for not remaining an employee was due to her failure to report for her shift, which, based on the evidence appears to be pretextual in nature and inconsistent with the conduct of the restaurant’s manager during the entirety of the claimant’s application, interview and hiring process. As mentioned above, even if her failure to adhere to the schedule was determined to be a basis for termination, the age discrimination allegation should not be abandoned and the schedule snafu be considered pretextual in nature.

References

Brock v. Mr. W Fireworks, 86-2170 (US Ct. App. 5th Cir April 20, 1987).

Dowd, N. E. (1984). The test of employee status: economic relations and Title VII. William and Mary Law Review, 26(1).

Neumark, D. (2003). Age discrimination legislation in the United States. Contemporary Economic Policy, 21(3), 297-313.

Perritt, H. J. (1988). Should some independent contractors be redefined as employees under labor law. Villanova Law Review, 33(6).