Were Truck Drivers Employees Despite Terms of Agreement?

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“I've told you before you can't wear those pants on delivery runs,” Steven, who sent a package-delivery service's truck drivers their routes, told Marie, one of the drivers, who replied, “If you are going to try to control my working conditions, such as by telling me what to wear, then you need to pay me like an employee, not like the independent contractor you claim that I am.”

FACTS:A truck driver worked in Kansas for a package-delivery service and nearly 500 other truck drivers who also had full-time delivery routes in the state for the company brought a class action against their employer, claiming their employer improperly classified them as independent contractors. They sought repayment of expenses they incurred as drivers and unpaid overtime.

The employer controlled how many deliveries they could make and required that they purchase vehicles, tools, certain equipment and clothing, the truck drivers said.

The drivers had profit-and-loss opportunities that supported an independent-contractor finding, the company claimed.

An appeals court asked from the state supreme court guidance on two questions: whether, under state law and according to the case's undisputed facts, the drivers are employees or independent contractors and whether such status might be different for drivers with responsibility for more than one service area.

ISSUE: Were the drivers independent contractors or employees?

DECISION: The drivers were employees under the Kansas Wage Payment Act, not independent contractors excluded from the state law's protection, the Kansas Supreme Court said.

The state supreme court had not established a test to distinguish employees from independent contractors under the KWPA, but said it would apply a 20-factor test that it used in state workers' compensation cases and that “includes economic reality considerations, while maintaining the primary focus on the employer's right to control.”

The company's agreements with drivers were structured to depict the drivers as independent contractors, but a “compelling factor” was how the agreements were implemented, the court said.

The employer required drivers  to purchase vehicles, clothing, tools and certain equipment.

The company supervised drivers in extensive detail and typically maintained long-term relationships more consistent with an employment relationship than with an independent business relationship, the court said. The company's “control and micromanaging” were inconsistent with its claim that the drivers were independent contractors, it said.

The court expressed skepticism of the company claim that the drivers had profit-and-loss opportunities. “To truly have the ability to make a profit, a business owner must have control over the amount of revenues generated and control over the amount of expenses incurred.”

Company specifications about the drivers' vehicles, clothes and other items made it impracticable for drivers to reduce expenses, while the drivers' revenue depended on the company making more packages available for delivery, the court said.

The company “established an employment relationship with its delivery drivers but dressed that relationship in independent-contractor clothing,” the state supreme court said, ruling in answer to the federal appeals court's first question that undisputed facts show the drivers to be employees as a matter of law.

The company's employment relationship with a full-time driver would not be altered if the driver acquired an additional service area for which he or she was not the driver, the state supreme court said, ruling in response to the federal appeals court's second certified question. A full-time driver would not lose protection under the state wage payment law by acquiring one or more additional delivery routes and hiring someone else to deliver there, it said (Craig v. FedEx Ground Package Sys. Inc.,2014 BL 276508, Kan., No. 108,526, 10/3/14).

POINTERS: Employers must have accurate and reliable ways of classifying employees because such decisions usually determine how employees are paid and their benefits.

State wage and hour laws and special provisions within the Fair Labor Standards Act exempt certain groups of employees from coverage.

Depending on the particular provisions, employees may be exempt from all FLSA coverage or exempt only from the law's minimum wage or overtime requirements. Distinctions made by compensation specialists between exempt and nonexempt employees are based on FLSA exemptions available for white-collar employees, such as executives, administrators, professionals and computer technicians, and for full-time students, disabled employees, apprentices and other employee classes.

The U.S. Supreme Court has ruled that the exemptions available under the FLSA are to be applied only to the employees and establishments that “plainly and unmistakably” meet the letter and the spirit of the law. As a consequence, employers must be careful that employees meet the requirements of the applicable exemption test before departing from the FLSA's rules.

For additional information, see Compensation and Benefit Library's “FLSA Exemptions” chapter.

To contact the reporter on this story: Allison Gatrone in Washington at agatrone@bna.com

To contact the editor responsible for this story: Michael Baer at mbaer@bna.com

This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.