Transportation Industry Wins Latest Battle Over Classification of Owner-Operators

Gus J. Bourgeois, III

August 7, 2012

In a win for the transportation industry, a federal court in New Jersey recently dismissed a lawsuit brought under the federal Fair Labor Standards Act by six owner-operators who performed services for Ironbound Express, Inc., an intermodal freight company.  Luxama v. Ironbound Express, Inc. et al., Civil Action No. 2:11-cv-02224 (D.N.J. June 28, 2012). The plaintiffs alleged that they should have been classified as employees of Ironbound Express (rather than independent contractors), and were therefore entitled to minimum wages, overtime pay and other benefits under the FLSA and state wage and hour laws.

The plaintiffs each owned their own tractors and leased them to Ironbound Express pursuant to standardized lease agreements, which clearly identified the plaintiffs as independent contractors and not employees. Nevertheless, the plaintiffs argued that they should have been classified as employees because “… they perform the integral and main services of Defendants’ regular business, work for years exclusively for Ironbound [Express] and have no separate or distinct occupation or business, are not highly skilled, must be available for service at the option and upon demand of the Company, use Company signs and permits, can be and have been terminable at will upon only thirty days’ notice, submit paperwork and quarterly reports to Ironbound [Express] on forms provided by the Company, receive training from time to time … and operate trucks within the guidelines and destination points and pickup and delivery times set by the Company.”

The court considered six factors in evaluating the plaintiffs’ claims:

  1. the degree of the alleged employer’s right to control the manner in which the work is to be performed;
  2. the alleged employee’s opportunity for profit or loss depending upon his managerial skill;
  3. the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
  4. whether the service rendered requires a special skill;
  5. the degree of permanence of the working relationship; and
  6. whether the service rendered is an integral part of the alleged employer’s business.

As to the first factor, the court held that the company’s setting a work schedule and requiring plaintiffs to report to a given location at a given time was not the degree of control required to establish an employer-employee relationship, and that such actions by the company were consistent with the terms of the lease agreements, which required that the company exercise only “minimal control” over the plaintiffs’ work.  The court found that plaintiffs generally exercised a greater degree of control over their work by determining, for example, driving routes, the method of securing their loads, and the maintenance, repair, financing and insuring of their vehicles.

In addition, the court held that he plaintiffs had an opportunity for profit and loss because they were paid on a per trip basis and had the opportunity to acquire additional trucks and employ drivers.  The court further held that the plaintiffs also invested in their own equipment under the terms of the lease agreement, and had a special skill because they possessed commercial drivers’ licenses.

However, the court stated that the long length of the working relationship between the company and the plaintiffs, and the exclusive nature of the relationship with the company, weighed in favor of an employer-employee relationship.  In addition, the court held the plaintiffs’ services were integral to the company’s business.  Nevertheless, the court determined that “the circumstances of the whole activity” weighed against a finding that the plaintiffs were employees and dismissed the suit.

This “win” for the transportation industry is especially meaningful, having occurred in a state that has recently been at the forefront of organized labor’s attempts to push through new laws limiting the use of owner-operators.  Carriers must continue to be careful that their written contracts with owner-operators, as well as their actual practices, will stand up to scrutiny if an owner-operator makes claims similar to those made by the plaintiffs in the Luxama case.