Companies that classify workers as independent contractors are facing increasing scrutiny in court and before administrative agencies. A recent unpublished California Court of Appeal decision in a case titled Garcia v. Seacon Logix, Inc. highlights the factors considered by a court in determining worker status.

Four truck drivers sued Seacon Logix under California Labor Code section 2802 for the reimbursement of paycheck deductions, contending that they should have been classified as employees—not independent contractors.

Originally, the drivers had owned their own trucks and used them to transport cargo out of Los Angeles-area seaports. However, when the ports implemented clean air regulations in 2008, the drivers were no longer able to use their older, higher-emission trucks. Seacon purchased trucks for the drivers, but continued to treat the drivers as independent contractors, requiring them to enter into lease agreements for the use of the trucks and deducting lease and insurance payments from their paychecks.

The drivers filed claims with the California Labor Commissioner’s Office, seeking to recover those deductions on the basis that they were employees, not independent contractors. After the Labor Commissioner ruled in the drivers’ favor, Seacon appealed the awards to the Superior Court. Following a bench trial, the Superior Court found that the drivers were employees, not independent contractors, and awarded them damages in excess of $110,000.

Seacon appealed, arguing that the trial court's decision was not supported by substantial evidence and that the damage award was excessive. The California Court of Appeal affirmed the trial court’s ruling on both issues.

The court recited the factors considered in determining whether a worker is an employee or an independent contractor, referencing the California Court of Appeal’s 2014 decision in Ayala v. Antelope Valley Newspapers, Inc.. (Note that this issue is pending before the California Supreme Court in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County). The court stated that the principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. In addition, the court, quoting a 2007 Court of Appeal case, listed a number of secondary factors:

(1) whether the worker is engaged in a distinct occupation or business, (2) whether, considering the kind of occupation and locality, the work is usually done under the principal’s direction or by a specialist without supervision, (3) the skill required, (4) whether the principal or worker supplies the instrumentalities, tools, and place of work, (5) the length of time for which the services are to be performed, (6) the method of payment, whether by time or by job, (7) whether the work is part of the principal’s regular business, and (8) whether the parties believe they are creating an employer-employee relationship. [Citations.] The parties’ label is not dispositive and will be ignored if their actual conduct establishes a different relationship.   

The court held that the drivers' testimony proved that Seacon controlled the manner and means of their work. Seacon told them when to arrive at work and approved or disapproved requests for absences. The company assigned and tightly controlled the drivers’ delivery assignments and constantly monitored the progress of deliveries. The drivers testified that they could not decline assignments without punishment and were not allowed to work for other companies. The company provided the customers and determined the prices to be charged. The drivers could not work for any other delivery companies or use Seacon’s trucks for any other purpose. The Court of Appeal found that the trial court had weighed this evidence and had made an appropriate determination that the workers were employees.

The appellate court acknowledged that the drivers had signed independent contractor agreements, which is one factor supporting the claim that the drivers are independent contractors. However, the court determined that substantial evidence regarding actual control of the drivers outweighed the evidence of a written agreement regarding status.

The court held that the secondary factors also supported the conclusion that the drivers were employees. The court made the following inferences based on these factors.

• Following absences for personal reasons, Seacon discharged two of the drivers without notice.
• The drivers were an integral part of Seacon’s transportation business.
• The court did not find evidence that driving the trucks required special skills.
• The company supervised the drivers.
• The company owned the trucks and did not allow the drivers to use them for other jobs.
• The court acknowledged that the drivers were paid per delivery, rather than by the hour.

But, the court also determined that other factors outweighed this evidence. Considering all of these factors together, the appellate court determined that the trial court’s award was supported by sufficient evidence.

Minimizing Risks of Liability

With the law complicated and changing, the risk of liability for misclassification looms large. As this case reveals, the determination requires careful analysis of the legal criteria and a thorough review of the actual working relationship between the workers and the business. Given this and other recent California decisions, employers should work to define and implement working relationships that will minimize the risks of misclassification liability.