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Executive Summary: A federal trial court in New Jersey has dismissed a lawsuit brought under the federal Fair Labor Standards Act (FLSA) by a group of drivers against a trucking company, holding that the drivers are not employees but independent contractors. Luxama v. Ironbound Express, Inc. et al., Civil Action No. 2:11-cv-02224 (D.N.J. June 28, 2012).
FordHarrison Partner Salvador Simao served as lead counsel for Ironbound Express prior to joining FordHarrison. During that time he filed a motion to dismiss requesting that the court find the drivers to be owner operators and not employees. Almost a year later the court issued its decision dismissing the matter and adopting Mr. Simao's position that the drivers were contractors and not employees.
In reaching this decision, United States District Court Judge Esther Salas analyzed six factors: the degree of the company's control; the owner-operators' opportunity for profit or loss; the owner-operators' investment in equipment; whether the owner-operators possessed a special skill; the permanence of the working relationship between the company and the owner-operators; and whether the services rendered by the owner-operators were an integral part of the company's business.
The court found that four of the six factors weighed in favor the owner-operators' status as independent contractors. The court held that the company's setting a work schedule and requiring the owner-operators report to a given location at a given time was not the degree of control required to establish an employer-employee relationship. Additionally, the court found that the owner-operators exercised control over their work because they determined driving routes, the method of securing the load, and the maintenance, repair, financing, and insuring of their vehicles. The owner-operators also possessed an opportunity for profit and loss because they were paid on a per trip basis and had the ability to acquire additional trucks and employ drivers. The owner-operators also invested in their own equipment through the structure of the lease agreement. The court further held that the owner-operators satisfied the requirement of having a special skill because they possessed commercial drivers' licenses.
However, the length of the working relationship between the company and the owner-operators (ranging from three to eight years) and the exclusive nature of the owner-operators' relationship with the company weighed in favor of an employer-employee relationship. Additionally, the court found the owner-operators' services to be an integral part of the company's business, which also weighed in favor of classifying the owner-operators as employees.
In sum, four of the six factors weighed in favor of finding the owner-operators to be independent contractors. The court determined that "the circumstances of the whole activity" weighed against a finding that the owner-operators were employees and dismissed their complaint.
The Bottom Line: The Luxama decision is good news for the transportation industry, which has been under pressure recently regarding the status of owner-operators as independent contractors. It is important for transportation firms that use owner-operators, either directly or indirectly, to review and revise their lease agreements. Doing so will allow companies to avoid costly litigation and attempt to have the matters dismissed on the lease.
If you would like to discuss this matter further or review your lease please contact Salvador Simao, who is co-chair of FordHarrison's Transportation Industry Practice Group, at 973-646-7302, email@example.com, or the FordHarrison attorney with whom you usually work.