Multiple Factors Considered When Determining Independent Contractor Status

February 17, 2011  |  From HRCalifornia Extra

Although the right to control the work is still the most important factor in determining independent contractor or employee status, other factors must also be considered. Some factors include whether or not the employer provides benefits to the workers and terms of a collective bargaining agreement (CBA). Truck owners transporting cargo between ports and the employer's customers brought suit against Bridge Terminal Transport, Inc., for failure to:

  • Pay minimum wage
  • Pay all wages due upon termination
  • Provide itemized wage statements

The court ruled that the truck owners are employees, not independent contractors (Arzate v. Bridge Terminal Transport, Inc., 2011 Cal. App. LEXIS 115).

Bridge Terminal's business was to arrange for transportation of cargo between the ports of Los Angeles, Long Beach and San Diego, and its customers' facilities. Bridge Terminal did not own any trucks, but considered itself a "common carrier" in the business of transporting property.

The truck drivers were members of the Teamsters Union and were subject to a collective bargaining agreement (CBA) between Bridge Terminal and the Teamsters. According to the CBA, the truck drivers who brought this claim were classified as "employee owner/operators" who worked exclusively for Bridge Terminal. The owner/operators signed an agreement with Bridge Terminal to lease their trucks exclusively to Bridge Terminal.

Bridge Terminal required a specific size vehicle and it inspected and approved the trucks the drivers owned. The drivers were responsible for all expenses (fuel, registration, maintenance, repairs, taxes and insurance). They determined actual routes taken when delivering cargo, used their own maps, scheduled their own meal and rest breaks, decided where to park their trucks and paid a parking fee if they parked in the company's yard.

The employer provided placards with the company's name that the drivers affixed to their trucks. The company dispatchers communicated with the drivers as to when and where they should pick up and deliver cargo, and drivers had to maintain communication with company dispatchers if they were delayed in making a pick up or delivery. The company maintained specific rules about calling in if a driver was not reporting for work and an absence control policy that applied to the drivers.

Loads were assigned by seniority, with the better paying jobs going to the driver with the most seniority with the company. The company required that the drivers complete and turn in log books and required the drivers to periodically attend company provided training.

The drivers received two types of compensation from the employer:

  1. Money for the lease of the truck
  2. A payroll check for the services of the driver

The drivers received W-2 wage and tax statements which indicated they were "employees" of the company, and they were eligible for company's health insurance plan. The compensation for the drivers was based on the "haul" and distance of the haul, as well as hourly compensation for any time spent waiting.

Though the company maintained that it did not control the "manner and means" by which the drivers hauled cargo, the court reviewed other factors that must be considered:

  • The CBA with the union referred to the drivers as employees of Bridge Terminal.
  • The company issued W-2 forms to the drivers, withheld taxes and offered health benefits.
  • The company paid hourly rates for waiting time and meetings.
  • The company could terminate the lease with 24 hours' notice - i.e. discharge at will, without cause.

The court noted that though the company argued that the drivers did not perform work as part of the company's regular business, the company's own documentation indicated it was a motor carrier involved in transportation. Therefore, the drivers were engaged in work that is part of the regular business of the company.

The trial court determined (before trial) that the drivers were independent contractors, and dismissed the case. The court of appeal overturned the lower court decision, finding that the drivers were employees and returned the case to the lower court.

Best Practices

  • Assume all workers are employees unless they clearly meet all legal requirements and pass all tests various federal and state agencies use for proper classification of independent contractors. State and federal agencies use their own tests to determine whether an individual qualifies as an independent contractor. Understand them all before classifying an individual as an independent contractor.
  • Require each independent contractor hired to sign a contract, approved by legal counsel, specifying the scope of work and the terms of the agreement.
  • Report independent contractors to the EDD's New Employee Registry within 20 days of the start-of-work date. Use the Report of Independent Contractor(s)(Form DE 542).
  • Be careful in making a decision. Each case is unique, and employers face costly penalties for making a mistake. Consult legal counsel to help determine an individual's status.