Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D.N.Y.: Limousine drivers independent contractors, not entitled to overtime pay, (Sep 18, 2014)

By Ronald Miller, J.D.

Drivers for a limousine service were independent contractors for purposes of the Fair Labor Standards Act (FLSA) and New York Labor Law and were not entitled to overtime compensation, ruled a federal district court in New York City. Whether examined under the FLSA or the NYLL, the court determined that the relevant factors favored a finding that the drivers were independent contractors (Saleem v. Corporate Transportation Group, Ltd, September 16, 2014, Furman, J.).

The defendants in this action operate a “black car” business that provides ground transportation services in New York, New Jersey, and Connecticut. They were comprised of Corporate Transportation Group (CTG), which provided billing and other administrative support services; and six franchisors that owned the base license authorizing the operation of the limousine service. The franchisors established accounts with corporate clients. The plaintiffs were drivers who worked for the business. They alleged the defendants violated the FLSA and NYLL by failing to pay overtime. The parties filed cross-motions for summary judgment regarding the employee status of the drivers.

Franchisor agreements. The drivers entered into agreements with their franchisors governing the terms of their relationships. The agreements were similar in most respects, and provided that the drivers would be offered work through the CTG’s dispatch or referral system. They prohibited drivers from personally soliciting business from CTG clients, and set forth the methodology by which drivers were compensated. The agreements also incorporated the provisions of the franchisor’s “Rulebook,” which set forth guidelines as to driver conduct, including a dress code, vehicle maintenance, and violations and fines. However, not all of the plaintiffs drove exclusively for CTG. Some had their own private clients who paid them directly, bypassing CTG’s voucher system. Further, some worked for competitor companies at the same time as working for CTG.

The question here was which side of the line did the drivers fall on the issue of “employee” versus “independent contractor.” Because the inquiries under the FLSA and NYLL have slightly different emphases, and because the question of whether “the tests for ‘employer’ status are the same has not been answered by the New York Court of Appeals,” the court conducted the two inquiries separately.

Degree of control. The first factor of the FLSA inquiry, “the degree of control exercised by Defendants over the workers,” favored independent contractor status. Here, it was undisputed that each driver was “free to set his own schedule and take vacations when he wished.” Moreover, drivers were free to — and frequently did — work for other car services and provide transportation to private customers. While the defendants engaged in some monitoring and discipline of drivers, the court declined to characterize the monitoring as consistent.

Opportunity for profit or loss. There was no question that drivers had an opportunity for profit and loss in their businesses. The franchise agreements “did not guarantee a certain amount of work to the Plaintiffs.” Instead, drivers principally “controlled . . . how much overall money [they] earned as a result of the number of [jobs they] took.” In addition, drivers made numerous decisions that would affect their overall profitability, such as whether to rent or buy a franchise, whether to hire other drivers, whether to work for other car service companies, and whether to solicit private clients.

Degree of skill and independent initiative. The drivers were correct that driving is not a “specialized skill,” the court noted. At the same time, in order to be a successful driver, one needed to exercise a significant degree of independent initiative. The defendants did not guarantee any level of work to drivers, so in order to procure even a single job, the drivers were required to take affirmative steps. Because the work may not have required a high degree of skill but did require the exercise of independent initiative, the court concluded that this factor did not weigh strongly in either direction.

Duration of the relationship. The fourth factor—the permanence or duration of the working relationship—also favored a finding of independent contractor status. The franchisor agreements were of an indefinite duration, and drivers could terminate them at will, a fact that courts have found favors a finding of independent contractor status. In addition, the drivers were free to take extended breaks from driving whenever they wished, were never under any obligation to book into the dispatch system at a particular time, and were free to work for competitor car services. Further, each job was separately contracted, further suggesting the existence of an independent contractor relationship.

Integral to operations. Turning to the final factor, the court found that the drivers were integral to the defendants’ business, since the business could not function without drivers. Thus, this factor favored employment status. Considering the totality of the circumstances, however, the court concluded that the drivers were independent contractors under the FLSA. Accordingly, the court granted the employer’s motion for summary judgment on their federal claim.

NYLL inquiry. Turning to the NYLL, the court observed that although it engages in a similar inquiry, the primary emphasis is on the “degree of control exercised by the purported employer over the results produced or the means used to achieve the results.” The factors to be considered in the course of that inquiry include “whether the worker (1) worked at his own convenience, (2) was free to engage in other employment, (3) received fringe benefits, (4) was on the employer’s payroll, and (5) was on a fixed schedule.”

In this instance, it was abundantly clear that the drivers worked at their own convenience and were “free to engage in other employment,” so this factor favored independent contractor status. Moreover, the third and fourth factors unquestionably favored independent contractor status, as the defendants did not provide drivers with any benefits, and they were paid as non-employees on a daily basis, weekly basis, or every three weeks, depending on what cycle they chose. In addition, the fact that the drivers “received no salary but only retained a percentage of the fares” counseled in favor of a finding that they were independent contractors. Finally, the fact that the drivers “sought significant tax benefits associated with their independent contractor status” weighed heavily in favor of independent contractor status.

In short, all five NYLL factors favored independent contractor status. Accordingly, the court found, as a matter of law, that the drivers were independent contractors for purposes of the NYLL as well.

The case is 12-CV-8450 (JMF).

Attorneys: Adam T. Klein (Outten & Golden) for Mazhar Saleem. Evan J. Spelfogel (Epstein, Becker & Green) for Corporate Transportation Group, Ltd, NYC 2 Way International, Ltd, Allstate Private Car & Limousine, Inc., Aristacar & Limousine, Ltd, and TWR Car and Limo, Ltd.

Companies: Corporate Transportation Group, Ltd; NYC 2 Way International, Ltd; Allstate Private Car & Limousine, Inc.; Aristacar & Limousine, Ltd; TWR Car and Limo, Ltd.

Cases: FranchisingDistribution NewYorkNews