Second Circuit Holds That Black-Car Drivers Are Independent Contractors, Not Employees

Lev Craig

On April 12, 2017, the Second Circuit affirmed the district court’s decision in Saleem v. Corporate Transportation Group, Ltd., finding that a group of black-car drivers had been properly classified as independent contractors under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL). The court held that the drivers’ significant degree of independence prevented them from establishing that they were employees within the meaning of the FLSA or NYLL.

Under New York law, black cars are defined as a “type of for‐hire vehicle (along with livery vehicles and limousines) that provide ground transportation by prearrangement with customers.” The Saleem plaintiffs are a group of black-car drivers serving clients throughout the tri-state area; the defendants were operators and administrators of a black-car dispatch, which sells black-car franchises to individual drivers and refers the dispatcher’s clients to the driver. Each driver signed an agreement with a franchisor, stating that the driver was not an “employee or agent” but instead a “subscriber to [the franchisor’s] services offered,” that the driver would “at all times be free from [the franchisor’s] control or direction,” and that the franchisor would not “control, supervise or direct” the driver’s work. The agreements did not prohibit drivers from transporting customers for other companies, including competitors, but did require that drivers comply with policies set out by each franchisor, such as rules concerning dress code and vehicle cleanliness.

In November 2012, a group of drivers filed suit in the U.S. District Court for the Southern District of New York, alleging that the franchisors had violated the overtime provisions of the FLSA and NYLL by misclassifying the drivers as independent contractors and thus depriving them of overtime compensation; under the FLSA and NYLL, employees are entitled to overtime pay for hours worked over 40 in a work week, while independent contractors are not. In June 2013, the case was conditionally certified as an FLSA collective action, and in 2014, the parties cross-moved for summary judgment. The district court granted summary judgment in favor of defendants, finding that “all Plaintiffs in this suit — both named Plaintiffs and opt-in Plaintiffs — are independent contractors for purposes of the FLSA and the NYLL.” Plaintiffs subsequently appealed to the Second Circuit.

In its April 12 ruling affirming the lower court’s decision, the Second Circuit held that the drivers had been properly classified as independent contractors. The court applied the “economic reality” test, which involves reviewing the totality of a working relationship to decide whether a particular individual is a legitimate independent contractor or an employee. While there is no hard-and-fast rule or set of factors that determines whether a working relationship qualifies as an employer-employee relationship, the Department of Labor lists a number of “economic realities” that influence such a determination, including “the extent to which the work performed is an integral part of the employer’s business,” “the worker’s skill and initiative,” “the permanency of the worker’s relationship with the employer,” and “the nature and degree of control by the employer.”

The Second Circuit listed four factors supporting the Saleem plaintiffs’ classification as independent contractors, not employees:

… Plaintiffs independently determined (1) the manner and extent of their affiliation with [franchisors]; (2) whether to work exclusively for [franchisors’] accounts or provide rides for [franchisors’] rivals’ clients and/or develop business of their own; (3) the degree to which they would invest in their driving businesses; and (4) when, where, and how regularly to provide rides for [franchisors’] clients.

While the court stated that none of these factors would be “determinative on its own,” the court found that, when all facts were “considered as a whole with the goal of discerning the underlying economic reality of the relationship,” the drivers failed to show an employer-employee relationship. The court noted the significant autonomy and flexibility that drivers had in determining their schedules, hours, and association with franchisors, as well as their freedom to work for competitor companies.

However, the Second Circuit also noted the complexity of the issue and indicated the ways in which the law surrounding independent contractor classifications could evolve in future cases. While “these Plaintiffs were not employees of these Defendants,” the court wrote that “[i]n 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.” The court specifically mentioned several factors present in Saleem which plaintiffs in other cases might use to show an employer-employee relationship: for instance, that the Saleem defendants provided plaintiffs with a client base, charged plaintiffs fees when plaintiffs utilized defendants’ referral systems, and were involved in rule enforcement.

With the rapid growth and expansion of companies like Uber and Lyft, which rely heavily on independent contractors, defining the boundaries of classifications like “employee” and “independent contractor” is becoming more and more complicated, and courts will undoubtedly begin to see increasing numbers of cases involving the issues raised by Saleem. If your employer has violated your rights under wage-and-hour laws, contact The Harman Firm, LLP.