Overturning summary judgment in favor of the U.S. Department of Labor (DOL), the Eighth Circuit ruled that the jury questioned whether the defendant employed drivers who provided non-emergency medical transportation services or whether he filed properly these drivers as independent contractors. Walsh vs. Alpha & Omega USA, Inc., 2022 US app. LEXIS 19431 (8th Cir. July 14, 2022). The Eighth Circuit has jurisdiction over the federal courts of Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.
Alpha & Omega USA, Inc. d/b/a Travelon (“Travelon”) hires drivers for the non-emergency transportation of patients to and from medical appointments (referred to as Special Transportation Services (STS)). Travelon provides vans and tablet computers to drivers and covers some of their costs, such as internet service and vehicle insurance. Customers pay Travelon for transportation services, which in turn distributes those payments to drivers. However, drivers must pay Travelon a 35% commission on all weekly payments totaling $300 or more per week and miscellaneous expenses such as dispatch, insurance, vehicle rental and maintenance fees and tablet rental. These fees are how Travelon generates its revenue.
Travelon assigns rides to drivers on tablet computers through an app called “MediRoutes,” which monitors driver locations and availability. Although Travelon establishes the hours when shipping services are available (MF 5am-6pm, Sat 5am-4pm or 5pm), drivers can set their own hours during these hours.
The company classifies and pays the drivers as independent contractors but, following an investigation, the DOL’s Wage and Hour Division concluded that the drivers were in fact employees and sued the company on behalf of 21 drivers for violation of minimum wage, overtime and record keeping. On cross-motions for summary judgment, the trial court agreed with the DOL that the drivers were employees and awarded them both back wages and damages. Travelon appealed and the Eighth Circuit reversed.
The “economic realities” test
The FLSA guarantees minimum wage for all hours worked and overtime for all hours worked in excess of 40 hours per week for all covered and non-exempt employees. As the U.S. Supreme Court first noted more than 70 years ago, individuals who provide services to a business as an independent contractor do not enjoy minimum wage and hour protections. from the FLSA because they are not “employees”. The FLSA, however, says little about how to distinguish an employee from an independent contractor.
Over the years, the courts and the DOL have developed similar, but somewhat different, standards and factors that should be used to determine whether a person is an employee or an independent contractor. The standards developed aim to reveal the “economic reality” of the relationship between the employer and the individual, and are derived from six non-exclusive factors originally presented by the Supreme Court in two cases on the same day, United States v. Silk331 US 704 (1947), and Rutherford Food Corp. vs. McComb331 US 722 (1947).
The Eighth Circuit has concluded (without really deciding, he notes) that the economic realities test is the proper method of determining whether an individual is an employee or an independent contractor, and applies a six-factor test that closely mirrors the original version of the Supreme Court. . These six factors are:
(1) the degree of control exercised by the alleged employer over business operations;
(2) the relative investments of the alleged employer and employee;
(3) the extent to which the opportunity for profit and loss of the alleged employee is determined by the employer;
(4) the skill and initiative required to perform the job;
(5) permanence of the relationship; and
(6) the extent to which the duties of the alleged employee are integral to the employer’s business.
The circuit court decision
In reversing the trial court’s grant of summary judgment, the Eighth Circuit found that there were questions to the jury as to whether the drivers were employees or independent contractors, particularly with respect to factors one (degree of employer control), three (drivers’ opportunity for profit or loss) and six (whether drivers are an integral part of the employer’s business).
With respect to the issue of employer control, the trial court found that Travelon exercised significant control by assigning rides, pressuring drivers to accept rides, regulating hours during which drivers could provide services, requiring them to obtain permission to take breaks, tracking them via GPS location monitoring, and requiring them to submit trip logs. However, the Court of Appeal noted that the company owner and his longtime dispatcher testified that drivers were allowed to refuse rides without penalty. Additionally, a driver who said he felt pressured into accepting assignments admitted that he had sometimes turned down rides without repercussion. Further, the Court of Appeal found that drivers could, and did, set their own schedules within the available hours of service and could change their schedules on a daily basis. Also, the fact that the company limited the hours of service available was more of an indication of “common sense” rather than a check on the drivers, given that the drivers were providing not urgent transportation services that would rarely be required outside these hours.
With respect to the “opportunity for profit or loss” factor, Travelon has set driver rates and facilitated ride assignments through the MediRoutes app, thereby limiting the opportunity for profit or loss for drivers to some extent. Drivers, however, have been able to earn additional income, for example by transporting multiple customers at once to make trips more profitable and by using their own vehicles and tablets rather than renting them from the company. In addition, conflicting testimony existed on whether drivers could provide transportation services independently of Travelon, even using Travelon vans.
As for the last factor – whether drivers are an integral part of Travelon’s business – the DOL asserted that Travelon calls itself an STS provider, which is registered with Minnesota as an STS provider, and that its customers depend on drivers. to perform services. The Eighth Circuit, however, found that Travelon stands apart from true STS providers, describing itself instead as a “middle-man company that supports the transportation business of drivers” by leasing vehicles and equipment to drivers and selling subscriptions from division. Thus, Travelon’s revenue is generated entirely from commissions and fees charged to drivers, and not from fees paid by passengers as would be the case with traditional STS providers.
Therefore, the Court of Appeal found that substantial factual issues remained for a jury as to whether these three factors favored a finding of an employer-employee or employer-independent contractor relationship. Thus, the summary judgment decision was set aside and the case was remanded for trial.