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.
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).
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.