November 19, 2014 IRS: The general rule is that an individual is an - PowerPoint PPT Presentation

Presented by Cameron Roberts Roberts & Kehagiaras LLP November 19, 2014

 IRS: ◦ “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done .” ◦ http://www.irs.gov/Businesses/Small-Businesses- &-Self-Employed/Independent-Contractor-Defined ◦ http://www.irs.gov/Businesses/Small-Businesses- &-Self-Employed/Independent-Contractor-Self- Employed-or-Employee

 IRS ◦ Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. ◦ http://www.irs.gov/Businesses/Small-Businesses- &-Self-Employed/Employee-Common-Law- Employee

 EDD: ◦ A service-provider is defined as an independent contractor; an independent contractor is any individual who is not an employee of the service- recipient for California purposes and who receives compensation or executes a contract for services performed in or outside California. ◦ http://www.edd.ca.gov/payroll_taxes/FAQ_- _California_Independent_Contractor_Reporting.htm #Whoisaserviceprovider

 EDD ◦ The basic test for determining whether a worker is an independent contractor or an employee is whether the principal has the right to direct and control the manner and means by which the work is performed. When the principal has the "right of control," the worker will be an employee even if the principal never actually exercises the control.  http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf

 A person who provides services to another is presumed to be an employee.

◦ California Labor Code Section 226.8 imposes penalties on employers who willfully misclassify their employees as independent contractors. Willful misclassification is defined as “voluntarily and knowingly misclassifying that individual as an independent contractor .” ◦ The penalties for violating Section 226.8 include fines between $5,000 and $15,000 per violation of the law. If the employer is engaged in a pattern or practice of violating this law, the fines are increased to between $10,000 and $25,000 per violation.  http://www.leginfo.ca.gov/cgi- bin/displaycode?section=lab&group=00001- 01000&file=200-244

 According to the Los Angeles Times’ July 8 th article, “the labor commissioner has ruled in recent months that as many as 40 drivers were improperly classified as independent contractors; $4.3 mi million llion in in ba back ck pay pay and and penal nalti ties es has been en awa warded ded to to these ese driver vers. ”  More than 500 complaints were filed in 2012 and 2013, against 17 trucking companies.  http://www.latimes.com/business/la-fi-port-truck-drivers- 20140705-story.html#page=1  https://www.facebook.com/justiceattheports

◦ Dilts v. Penske Logistics, LLC, 769 F.3d 637 (9th Cir. Cal. 2014):  The panel held that California's meal and rest break laws as applied to the motor carrier defendants were not "related to" defendants' prices, routes, or services, and therefore they were not preempted by the Federal Aviation Administration Authorization Act of 1994.

◦ People ex rel. Harris v. Pac Anchor Transportation, Inc., 59 Cal. 4th 772 (Cal. 2014):  In a case in which the People alleged that defendants misclassified their truck drivers as independent contractors, the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) did not facially preempt the People's unfair competition law (“UCL”) action against defendants; The People's UCL claim was not preempted as applied under the FAAAA.

◦ Slayman v. FedEx Ground Package Sys., 765 F.3d 1033 (9th Cir. Or. 2014):  Plaintiffs' claims under Or. Rev. Stat. § 652.610 were governed by Oregon' egon's ri right ght-to to-contro ntrol tes test; Plaintiffs were employees under both the right-to-control and economic-realities tests where defendant had the right to control its drivers as the Operating Agreement and defendant's policies and procedures unambiguously allowed defendant to exercise a great deal of control over the manner in which its drivers did their jobs.

 Alexander v. FedEx Ground Package Sys., 765 F.3d 981 (9th Cir. Cal. 2014): ◦ The extrinsic evidence supported a conclusion that defendant the righ ght t to control ntrol its s dri river vers s and controlled the appearance of its drivers and their vehicles where defendant controlled its drivers' clothing from their hats down to their shoes and socks and defendant assigned each driver a specified service area and told drivers where in their service area to deliver packages.

 Ruiz v. Affinity Logistics Corp., 754 F.3d 1093 (9th Cir. Cal. 2014):  Sears terminated it contract with Penske.  Penske’s drivers were Penske employees.  Sears awarded the contract to Affinity.  Affinity recruited the former Penske employees to become independent contractors, not employees.  Drivers had to have a DL and sign the ITA & ELA, and pass a drug test and physical exam.

 Hanson, an Affinity employee, told drivers, including Ruiz, that they needed: ◦ a fictitious business name, ◦ a business license, and ◦ a commercial checking account;  With Affinity’s help, Ruiz did business as R&S Logistics (R&S), and  Ruiz also obtained a ◦ Federal Employer Identification Number, and ◦ A separate business banking account for R&S.

◦ The parties intend to create an independent contractor relationship and not an employer- employee relationship. ◦ Outlined procedures drivers were required to follow regarding the following: ◦ Loading trucks, delivering goods, installing goods, interacting w/customers, reporting to Affinity after deliveries, addressing returns & refused merchandise, also damaged goods; ◦ The procedures manual included mandatory language such as “must,” “will report,” “must contact,” “required,” “not acceptable,” “ 100% adherence,” & “exactly as specified. ”

 Drivers had to request time off three to four weeks in advance, & Affinity had discretion to deny those requests; request for time off were denied when it was decided that the delivery schedule was to busy;  Affinity encouraged, if not required, drivers to lease trucks from Affinity, and  $350.00 automatically deducted from drivers pay check to pay for leased trucks.

 Affinity required drivers & helpers to attend a 15-30 minute “stand - up” meeting at 7:15 a.m.  Drivers required to wear uniforms & abide by certain grooming requirements, as set forth in the “Delivery Team Apparel and Appearance” section of the Procedures Manual; drivers made deliveries according to the route manifests provided to them daily, and  Drivers required to call automated Sears customer service # after each delivery.

 Whereby an Affinity supervisor followed a driver for a few stops to ensure that the driver was wearing the uniform and using proper delivery techniques;  Affinity admitted that it “strongly discouraged” drivers from taking the trucks home or otherwise removing trucks from the warehouse lot overnight or on weekends.

◦ 1) Who has the right ight to contr ntrol ol the worker’s manner and means of performing his or her duties – an independent contractor has more control over the day-to-day details of his or her job than an employee; ◦ 2) The skill required in the worker’s job – independent contractors often perform highly skilled jobs; ◦ 3) Whether the worker is engaged in a distinct business or occupation – if the worker is engaged in a distinct business or occupation, it is more likely the worker is an independent contractor;

◦ 4) Whether the work rk is done e under er superv pervisio ision n – the more an employer is directly supervising the worker, the more likely he or she is an employee; ◦ 5) Whether the worker can be discharged at will or for cause – allowing discharge at will often weighs in favor of an employer-employee relationship; ◦ 6) Who o suppli plies es the e tools, ols, instrum strumentalit entalities ies and place ace of work rk – if the wor orker er supplies pplies these, se, he or she is mo more re lik ikel ely y an independent dependent contr ntract ctor or; ◦ 7) The length of time the services are to be performed – discrete jobs are generally performed by independent contractors;

◦ 8) Th The me method hod of paymen ment, t, whether ther by time me or by the job – payment ment by time e generally erally sign gnals als an empl ployee oyee relat lation ionshi ship; ◦ 9) Whether the work is part of the regular business of the principal – if it is, the worker is more likely an employee, and ◦ 10)Whether the parties subjectively believe they are creating an employer-employee relationship.  See S. G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal.3d 341, 350-51 (1989); 38 Cal. Jur. 3d Independent Contractors §3.

 The Ninth Circuit, based on Borello, determined that Ruiz and his fellow class members were employees and NOT independent contractors.