Caution: Take A Second Look At Your Independent Contractors
In a suit filed by Air Couriers International ("Sonic") against the Employment Development Department ("EDD"), to recover employment taxes paid for drivers who operated as independent contractors, the California Court of Appeal rejected Sonic's claim that the drivers were independent contractors and instead found that the drivers acted as Sonic's employees.
The facts established by each party as to the drivers' day-to-day duties varied widely. In evaluating the facts presented by both sides, the trial court found that the drivers performed an integral and entirely essential aspect of Sonic's business such that their relationship with Sonic was not of an independent nature. The trial court also found there was no evidence that some of the drivers executed independent contractor agreements, and as to those that did, there was no evidence that they understood the terms in such agreements or that Sonic enforced the agreements. Finally, the trial court found persuasive the facts the drivers were required to utilize Sonic's forms in order to be paid, they were provided with pick-up and delivery deadlines for each delivery, they were encouraged to wear uniforms, and they were provided identification badges and vehicle placards. In light of the above facts, the trial court rejected Sonic's argument that its drivers were independent contractors such that Sonic was entitled to a tax refund from the EDD.
On appeal, the appellate court found the trial court had correctly considered the extent to which Sonic controlled the work done by its drivers. In finding that Sonic's drivers performed an integral and essential aspect of Sonic's business, the court considered most persuasive the facts that Sonic provided the drivers with regular schedules and regular daily routes, and that many of the drivers had worked for Sonic for a long period of time. Also persuasive was the fact that, as a practical matter, drivers could not turn down assignments from Sonic. Sonic also only required its drivers to provide their own vehicle and auto insurance, and did not require that they make any other significant investment in equipment. Finally, the court found that Sonic's drivers were not engaged in separate professions or businesses other than working for Sonic.
In light of the above, if an employer considers classifying its workers as independent contractors, it is essential to ensure that the relationship with the employer is not seen as so essential and interrelated to the very core of the business that, without them, the business would not exist. In such a circumstance, an employer will likely be required to classify these individuals as employees versus independent contractors.