California HR, Employment Law

Taxi Drivers: Employees or Independent Contractors?

With lawsuits against ride-sharing companies like Uber and Lyft in the news, the issue of whether a worker is an independent contractor or an employee has been getting quite a bit of attention recently. The following case involved an employee performing what now seems like an almost old-fashioned occupation: taxicab driver.taxi

The trial court found the taxi driver was an independent contractor, but the court of appeal concluded the trial court applied the wrong standard and sent the case back to the lower court with instructions on the correct standard to apply.

Taxi Driver Didn’t Fare Well in the Trial Court

“Jason” drove a taxicab for DeSoto Cab from September 2008 to August 2012. He completed a 15-page “Taxicab Lease Agreement,” which disclaimed any employment relationship between him and DeSoto and provided that either party could cancel the contract with 30 days’ notice or, in the event of a breach, without notice.

At the beginning of each shift, drivers check in with the cashier and are assigned a cab. At the end of each shift, drivers pay the cashier a gate fee for leasing the vehicle. Drivers keep the fares and tips they receive from their passengers, and they aren’t required to account to DeSoto for their fares. DeSoto’s only income under the lease agreement is the gate fee, which is generally about $100 per day.

During shifts, DeSoto’s dispatch relays requests from customers and radios the customers’ locations to drivers. Drivers can then respond with their own locations, and dispatch will assign the closest driver to pick up the customer. Drivers are free to accept or reject dispatch calls. DeSoto doesn’t require its drivers to check in during their shifts or report when they take breaks. However, the cabs are equipped with GPS tracking, and there are audio and video recording devices mounted on the windshield of each cab.

After he was terminated for allegedly making unauthorized charges on a customer’s credit card, Jason filed a claim with the California labor commissioner contending he had been misclassified as in independent contractor.

Relying on the factors set forth in the California Supreme Court’s decision in S.G. Borello & Sons v. Department of Industrial Relations, the labor commissioner held that Jason was an employee and was therefore entitled to be reimbursed for the $50,180 in gate fees he paid. DeSoto appealed the labor commissioner’s ruling to the San Francisco Superior Court.

The trial court concluded that Jason was an independent contractor. The court found that Borello and other cases involving taxi drivers were not applicable because they addressed the independent contractor/employee issue in the context of workers’ compensation or unemployment benefits. Jason appealed.

Cab Company Taken for a Ride by Court of Appeal

The court of appeal first found that the Borello case was controlling, even though it arose in the workers’ comp context. In that case, the supreme court held that the primary factor governing whether a worker is an employee or an independent contractor is the extent to which the “employer” has a right to control the details of the work performed. The right to discharge a worker at will is also strong evidence of the existence of an employment relationship. Secondary factors include:

  • Whether the person performing the services is engaged in a distinct occupation or business;
  • Whether the work is usually done under the direction of an employer or by a specialist without supervision;
  • The skill required in the particular occupation;
  • Whether the company or the worker supplies the instrumentalities, tools, and the place of work; and
  • Whether the work is a part of the regular business of the company.

The court of appeal observed that the fact that DeSoto retained the right to terminate the relationship at will was strong evidence of control. Moreover, the fact that taxicab drivers exercised freedom to decide which passengers to pick up and how much time they spent working each shift wasn’t, by itself, sufficient to establish an independent contractor relationship.

The court of appeal also noted that the trial court placed too much emphasis on the fact that the lease agreement described the parties as having an independent contractor relationship because the agreement was prepared by DeSoto and Jason had no choice but to sign it if he wanted to drive a cab. California courts have consistently held that the actual conduct of the parties is more important than the labels the parties may ascribe to the relationship.

The court also noted that the work Jason performed was a necessary part of DeSoto’s business, a factor that further militated in favor of finding an employer-employee relationship. Finally, the tools provided for the work—the cab and the means for collecting fares—were provided by DeSoto, another fact that supported an employment relationship.

Jason argued that the facts so persuasively established an employment relationship that the court of appeal should find that he was an employee. The court declined to do so and instead sent the case back to the trial court with instructions to reconsider the evidence in light of the pertinent legal principles discussed in its decision. Linton v. DeSoto Cab Co., Inc.,California Court of Appeal, 1st Appellate District, 10/5/17.

Bottom Line

This case should be a reminder that classifying workers as independent contractors is very risky, and it’s the rare situation in which an independent contractor classification is truly appropriate.

Matthew A. Goodin, a contributor to the California Employment Law Letter, can be reached at Epstein, Becker & Green, P.C., in San Francisco, mgoodin@ebglaw.com.