California Court of Appeal Affirms Expense Reimbursement Award to Misclassified Employees
Four drivers who transported cargo from the Ports of Long Beach and Los Angeles were misclassified as independent contractors and subjected to illegal paycheck deductions, a California Court of Appeal has held. Garcia et al. v. Seacon Logix, Inc., No. B248227 (July 16, 2015) (unpublished). This case reiterates a simple, yet important principle of employment law: notwithstanding the express language in an “Independent Contractor Agreement,” workers are employees—and not independent contractors—if the business controls the manner and means of their work.
In Garcia, the Company hired truck drivers to transport cargo from Southern California ports to warehouses or other facilities. The truck drivers were required to enter into equipment lease and indemnification agreements, whereby the Company deducted $650 per week from each driver for the use of a specified truck and auto insurance. Under this arrangement, at the end of 260 weeks, title would be transferred from the Company to the driver. In an attempt to classify the drivers as independent contractors, the Company also required the drivers to sign transportation agreements that labeled them as either “independent contractors” or “subcontractors” and purportedly allowed them to use the trucks for any purpose. Nevertheless, and despite this agreement, the specified trucks were solely registered to the Company and were not allowed to be taken to the driver’s home or used for the driver’s personal use.
Four drivers subsequently filed claims with the Department of Labor Standards and Enforcement (“DLSE”), seeking to recover the weekly deductions as well as fuel, repair costs, and registration on the basis that they were employees, not independent contractors. The drivers’ theory was that the Company was required to indemnify them as employees for all necessary expenditures incurred in the direct discharge of their duties, as required by California Labor Code section 2802. Both the DLSE and Superior Court found that the drivers were employees, not independent contractors. As such, Labor Code section 2802 applied and an award was entered in favor of the drivers in excess of $100,000. The Company subsequently filed an appeal.
In analyzing the classification dispute, the California Court of Appeals primarily focused on the drivers’ working conditions. According to the drivers, they had set work schedules and deliveries, plus they were penalized if they declined a route for any reason. Further, the Company provided the customers and determined the prices to be charged. The drivers also testified that they were required to stay in constant contact with the Company regarding their status and whereabouts during their work-day. On the other side, the Company claimed that the language and intent of the negotiated transportation agreements labeled the drivers as independent contractors who owned and operated their own “leased” trucks. Nevertheless, the appellate court rejected this argument, relying on long-standing case law that holds mere language an independent contractor agreement is not dispositive. Ultimately, the California Court of Appeals affirmed the judgment based on the conditions of the actual working relationship.
This case should remind businesses—especially trucking companies in California—that a failure to properly classify workers as employees can be a costly mistake. In addition to the drivers in Garcia who were awarded expense reimbursements, misclassified employees may also be entitled to various damages and penalties under the California Labor Code, including but not limited to overtime premium, meal and rest period pay, tax liability, civil penalties, and attorneys’ fees and costs.