Co-authored by Robert S. Whitman and Howard M. Wexler

Trying to catch a cab in New York City is not for the faint of heart.  In addition to the traditional “yellow cabs,” which often treat the city streets like a NASCAR track, there are many “Black Car” companies that offer rides through dispatch systems that allow for scheduled pickups.  In Saleem v. Corporate Transportation Group, Judge Jesse Furman of the Southern District of New York held that drivers for a group of “Black Car” companies were properly classified as independent contractors, not employees.

The plaintiffs in Saleem were drivers who were parties to franchise agreements ranging in value from $20,000 to $60,000.  To obtain work, drivers log into the dispatch system, indicate that they are available for work, and then accept or reject jobs when they become available.  The drivers are responsible for procuring the car, paying for vehicle maintenance, and obtaining the appropriate licenses and insurance.  Pursuant to the franchise agreements, they receive a percentage of the total fare charged to the client; are prohibited from soliciting or doing business with any of the franchisor’s clients directly; and had to follow a set of rules that subjected them to penalties depending on the infraction.  Notably, the drivers were not prohibited from working for competitor “Black Car” companies or driving their own private customers.

The drivers filed a putative class/collective action alleging that they should have been classified as employees, and thus were entitled to overtime pay.  The court conditionally certified their FLSA claim in June of 2013, but denied class certification of their state law claims under Rule 23 of the FRCP.  At the close of discovery, both parties filed motions for summary judgment.

The Court applied the “economic reality” test for whether the drivers were employees or independent contractors under the FLSA.  The factors were:  (1) the degree of control exercise by the employer; (2) the workers’ opportunity for profit or loss; (3) the degree of skill and independent initiative required to perform the work; (4) the permanence or duration of the working relationship; and (5) the extent to which the work is an integral part of the employer’s business.

Judge Furman held that the factors overall weighed in favor of independent contractor status.  He noted that the drivers:

  • Were completely free to set their own schedule of work and were under no obligation to accept a particular job;
  • Were free to—and frequently did—work for other car services and provide transportation to private customers;
  • Made numerous decisions that affected their overall profitability, such as whether to rent or buy a franchise, whether to hire other drivers, whether to work for other car service companies, and whether to solicit private clients;
  • Made substantial investments in their businesses through purchasing franchises as well as on their own private vehicles;
  • Exercised a significant degree of independent initiative in order to be a successful driver; and
  • Could terminate the franchise agreements at will.

Although the New York Labor Law test required Judge Furman to assess several additional factors, he reached the same conclusion, that the drivers were properly classified as “all five NYLL factors favor independent contractor status.”

Together with a decision earlier this week involving U.S. Open tennis umpires, this case is a welcome development for defendants in the tricky world of independent contractor classification.  Nonetheless, companies should continue to pay careful attention to this area, especially in light of the U.S. Department of Labor’s September 15, 2014 announcement that it awarded $10.2 million to 19 states “to implement or improve worker misclassification detection and enforcement initiatives.”  Diligent compliance in classifying workers as independent contractors rather than employees remains as important as ever.