In Saleem v. Corporate Transportation Group, 2017 U.S. App. LEXIS 6305 (2d Cir. Apr. 12, 2017), the Second Circuit Court of Appeals recently ruled that a group of black-car drivers were properly classified as independent contractors rather than employees, and as a result, were not entitled to overtime compensation under the Fair Labor Standards Act (“FLSA”) or the New York labor Law (“NYLL”).

By way of background, the defendants in this case each own and operate a black-car dispatch service in New York City and sell franchises to individual drivers (franchisees). In addition to operating dispatch services, the defendants also provide administrative support services for their franchisees, including billing, bookkeeping, accounting, and various other services. The plaintiffs were the drivers who owned the black-car franchises.

While the defendants classified these drivers as independent contractors and failed to pay them overtime compensation, the drivers disagreed and brought a lawsuit alleging that they were employees and seeking overtime pay pursuant to the FLSA and NYLL. Since only employees are entitled to overtime compensation, the drivers needed to prove that they were actually employees of the defendants and not independent contractors. Ultimately, the district court concluded that, “as a matter of law, [the drivers] were properly classified as independent contractors rather than employees” for purposes of the FLSA and NYLL. The drivers thereafter appealed to the Second Circuit.

In affirming the district court’s decision, the Second Circuit first noted that determining whether a worker is an independent contractor or employee must be examined using the “economic realities” test. This test looks to the realities of the business relationship, focusing primarily on whether the defendants exercised “control” over the drivers to such a degree as to create an employment relationship. The Second Circuit concluded that, “even when the historical facts and relevant factors are viewed in the light most favorable to [the drivers], and despite the broad sweep of the FLSA’s definition of ‘employee,’ the record here does not permit the conclusion that [the drivers] were employees, but instead establishes that they were in business for themselves.”

As the court explained, the reasons for its decision were as follows:

The Drivers Had Entrepreneurial Opportunities. Because the drivers were permitted to work for direct competitors, it showed a lack of control because “a company relinquishes control over its workers when it permits them to work for competitors.” Here, the drivers “possessed considerable independence in maximizing their income through a variety of means. By toggling back and forth between different car companies and personal clients, and by deciding how best to obtain business from [the defendants’] clients, drivers’ profits increased through the[ir] initiative, judgment[,] or foresight — all attributes of the typical independent contractor. Whatever control [the defendants] exerted over negotiated fares and its rolls of institutional clients, Plaintiffs retained viable economic status that [could] be [and was] traded to other [car companies].”

The Drivers Made Personal Investments In Their Businesses. “In the economic reality test, ‘large capital expenditures’ — as opposed to ‘negligible items, or labor itself’ — are highly relevant to determining whether an individual is an employee or an independent contractor.” Here, in addition to purchasing a franchise, the drivers were responsible for acquiring their own vehicle as well as paying for fuel, repairs, maintenance, licensing, registration, insurance, tolls, parking, tickets, and advertising. Further, the defendants did not provide any reimbursements for these expenses. “In short, based on the record here, these driver-owners were small businesses.”

The Drivers Exercised A High Degree Of Schedule Flexibility. “The ability to choose how much to work also weighs in favor of independent contractor status. … After purchasing or leasing a franchise and securing a suitable vehicle, Plaintiffs set their own schedules, selecting when, where, and how often to work (if at all). Defendants provided no incentive structure for Plaintiffs to drive at certain times, on particular days, or in specific locations, leaving the decision to work ‘to the whims [and] choices’ of its drivers. Likewise, Defendants required no notice on the part of drivers as to when they intended to work, nor did they make any effort to coordinate drivers’ schedules. … Plaintiffs also exercised considerable discretion in choosing when and where to drive. … Additionally, the record demonstrates that, as a matter of economic reality, Plaintiffs accepted and rejected (despite the penalty of being placed at the end of the queue) varying numbers of job offers, a fact indicative of the discretion and independence associated with independent contractor status.”

However, the court nonetheless reiterated that this determination is very fact-specific and must be examined on a case-by-case basis using the totality of circumstances. “To be clear, we note in conclusion the narrow compass of our decision. Specifically, we do not here determine that it is irrelevant to the FLSA inquiry that the Defendants provided Plaintiffs with a client base, that Defendants charged fees when Plaintiffs utilized Defendants’ referral system, or that Defendants had some involvement, if limited, in rule enforcement among franchisees … In a different case, and with a different record, an entity that exercised similar control over clients, fees, and rules enforcement in ways analogous to the Defendants here might well constitute an employer within the meaning of the FLSA.”

If you believe that your employer is misclassifying you as an independent contractor rather than an employee, and as a result, denying you proper compensation under the FLSA or the NY Labor Law, it’s important to speak with a New York City employment attorney to properly assess and determine all of your legal rights.

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