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7th Cir.: Truck Driver Adequately Alleged He Was Misclassified as an Independent Contractor and Thus Entitled to Minimum Wage and Overtime
Brant v. Schneider National, Inc.
In this case, a truck owner-operator who contracted with an over the road hauling company contended that he was misclassified as an independent contractor, and thus entitled to overtime pay and minimum wages under the Fair Labor Standards Act (FLSA) and Wisconsin law (minimum wage). In addition, the plaintiff alleged that the contracts he signed with the defendant were unconscionable and thus defendant was unjustly enriched because it required him to bear overhead costs that should have been borne by defendant. Finally, plaintiff alleged that defendant violated the Truth in Leasing regulations, based on representations it made to him.
After the district court dismissed the case with leave to amend, the plaintiff amended his complaint, and the defendant moved to dismiss the amended complaint. The lower court again dismissed the complaint, but the second time with prejudice, and held that plaintiff’s claims were essentially barred by the very agreements he was challenging the legality of. On appeal, the Seventh Circuit reversed, noting that employee status is determined by application of the “economic reality” test and thus, reaffirmed the longstanding black letter law that FLSA rights may not abridged by contract.
While Schneider argued that this agreement established that the driver had a high degree of control over his work and that Schneider had therefore properly classified him as an independent contractor, the plaintiff argued that under the controlling test–the economic reality test–he was Schneider’s employee.
Under the FLSA, workers are employees when “as a matter of economic reality, [they] are dependent upon the business to which they render service.” As the Seventh Circuit noted, the economic reality test includes analyzing: (1) the nature and degree of the alleged employer’s control as to 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 workers; (4) whether the service rendered requires a special skill; (5) the degree of permanency and duration of the working relationship; and (6) the extent to which the service rendered is an integral part of the alleged employer’s business.
In reversing dismissal of the driver’s minimum wage claims, the Seventh Circuit concluded that the district court had “erred by giving decisive effect to the terms of [its] contracts,” when “what matters is the economic reality of the working relationship, not necessarily the terms of a written contract.”
For instance, while the operating agreement gave the driver the ability to choose the route and schedule to follow when delivering a shipment, the driver alleged that “the economics of his work constrained his route selection, so his nominal freedom to choose a route did not determine whether he controlled his labor.”
Similarly, while the operating agreement gave the driver the ability to choose which Schneider shipments to haul (and in theory, to select more shipments with higher profit margins), the driver alleged that he could not actually exercise this theoretical right to turn down shipments. The driver further alleged that, despite the terms of his contract, Schneider did not allow him to hire workers or haul freight for other carriers.
In light of these allegations, the Seventh Circuit concluded that the driver’s amended complaint had pled sufficient facts to allow a plausible inference that Schneider was his employer and he was its employee, and not an independent contractor. Thus, the Seventh Circuit reversed.
Click Brant v. Schneider National, Inc. to read the entire Opinion.
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6th Cir.: Purportedly “Volunteer” Firefighters, Paid Per Call as Independent Contractors, Are “Employees” Under FLSA
Mendel v. City of Gibraltar
This case was before the Sixth Circuit, following the district court’s order granting the defendant’s motion for summary judgment. Although the case concerned the issue of whether the defendant-City met the prerequisite for FMLA coverage (number of employees), the issue considered by the Sixth Circuit was “purportedly volunteer firefighters who receive a substantial hourly wage for responding to calls whenever they choose to do so are “employees” or “volunteers” for purposes of the Fair Labor Standards Act (“FLSA”) and Family Medical Leave Act (“FMLA”).” The Sixth Circuit held that the firefighters at issue were employees rather than volunteers, such that the defendant met the number of employee requirement to trigger FMLA coverage.
The Sixth Circuit laid out the following facts relevant to its inquiry of whether the firefighters were properly deemed to be employees or volunteers:
The volunteer firefighters of Gibraltar must complete training on their own time without compensation. While they are not required to respond to any emergency call, they are paid $15 per hour for the time they do spend responding to a call or maintaining equipment. They do not work set shifts or staff a fire station; they maintain other employment and have no consistent schedule working as volunteer firefighters. The firefighters generally receive a Form–1099 MISC from the City. They do not receive health insurance, sick or vacation time, social security benefits, or premium pay. The City does have an employment application for the firefighters, and it apparently keeps a personnel file for each firefighter. A volunteer firefighter may be promoted or discharged. [The Plaintiff] introduced evidence below of what several other local communities pay their full-time firefighters. According to his wife’s affidavit, she and Mendel discovered that certain other communities in the area pay hourly wages ranging from approximately $14 to $17 per hour. Also, the City pays its own part-time Fire Chief $20,000 per year, and the Chief testified in his deposition that he “tr[ies] to work 20 hours per week at the [Gibraltar] fire station.” Based on this information, the Secretary of Labor notes in her amicus brief that if one assumes the Fire Chief works fifty-two weeks per year, he effectively earns $19.23 per hour.
After explaining that the FMLA’s definition of “employees” incorporates the FLSA’s definition, the Court then examined the issue under the FLSA. Holding that the firefighters were employees and not volunteers, the Court explained:
Here, it appears that the Gibraltar firefighters fall within the FLSA’s broad definition of employee. The firefighters are suffered or permitted to work, see
29 U.S.C. § 203(g), and they even receive substantial wages for their work.
This is not the end of our analysis, however. In 1986, Congress amended the FLSA to clarify that individuals who volunteer to perform services for a public agency are not employees under the Act. Section 203(e) now includes the following provision:
The term “employee” does not include any individual who volunteers to perform services for a public agency which is a State, a political subdivision of a State, or an interstate governmental agency, if—
(i) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered; and
(ii) such services are not the same type of services which the individual is employed to perform for such public agency.
Thus, the question becomes whether the Gibraltar firefighters fall within this exception to the FLSA’s generally broad definition of “employee.” Specifically, the question before us is whether the wages paid to the firefighters constitute “compensation” or merely a “nominal fee.” If the hourly wages are compensation, then the firefighters are employees under the FLSA. Conversely, if the wages are merely a nominal fee, then the firefighters are volunteers expressly excluded from the FLSA’s definition of employee.
The official regulations provide guidance at this juncture. The regulations define “volunteer” as “[a]n individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered.” 29 C.F.R. § 553.101(a); see also 29 C.F.R. § 553.104(a) (employing similar language). The regulations proceed to recognize, “Volunteers may be paid expenses, reasonable benefits, a nominal fee, or any combination thereof, for their service without losing their status as volunteers.” 29 C.F.R. § 553.106(a). The specific provision addressing nominal fees provides, in part, “A nominal fee is not a substitute for compensation and must not be tied to productivity. However, this does not preclude the payment of a nominal amount on a ‘per call’ or similar basis to volunteer firefighters.” 29 C.F.R. § 553.106(e). Finally, the regulations caution, “Whether the furnishing of expenses, benefits, or fees would result in individuals’ losing their status as volunteers under the FLSA can only be determined by examining the total amount of payments made (expenses, benefits, fees) in the context of the economic realities of the particular situation.” 29 C.F.R. § 553.106(f).
In the context of the economic realities of this particular situation, we hold that the hourly wages paid to the Gibraltar firefighters are not nominal fees, but are compensation under the FLSA. The firefighters do not receive “a nominal amount on a ‘per call’ or similar basis.” 29 C.F.R. § 553.106(e). Rather, they render services with the promise, expectation, and receipt of substantial compensation. See 29 C.F.R. §§ 553.101(a), 553.104(a). Each time a firefighter responds to a call, he knows he will receive compensation at a particular hourly rate—which happens to be substantially similar to the hourly rates paid to full-time employed firefighters in some of the neighboring areas. Essentially, the Gibraltar firefighters are paid a regular wage for whatever time they choose to spend responding to calls. These substantial hourly wages simply do not qualify as nominal fees. Cf. Purdham v. Fairfax Cnty. Sch. Bd., 637 F.3d 421, 433–34 (4th Cir.2011) (holding that a School Board’s payment of a fixed stipend to a golf coach was a nominal fee where: (1) the stipend amount did not change based on either how much time and effort the coach expended on coaching activities or how successful the team was; and (2) the approximate hourly rate to which the coach’s stipend could be converted was only a fraction (less than¼) of the hourly wage he received as a full-time security assistant employed by the School Board).
Notably, the Supreme Court has held that those who “work in contemplation of compensation” are “employees” within the meaning of the FLSA, even though they may view themselves as “volunteers.” Tony & Susan Alamo Found., 471 U.S. at 300–02, 306, 105 S.Ct. 1953. Despite the fact that the Gibraltar firefighters are referred to as “volunteers,” the inescapable fact nevertheless remains that they “work in contemplation of compensation.” Thus, the Gibraltar firefighters are “employees” and not “volunteers” within the meaning of the FLSA. See Krause v. Cherry Hill Fire Dist. 13, 969 F.Supp. 270, 277 (D.N.J.1997) (“In view of the fact that the plaintiffs [firefighters] both expected and received hourly compensation, in an amount greater than a ‘nominal’ fee, it is clear that plaintiffs were not volunteers….”).
Finally, the Court rejected the defendant’s contention—apparently adopted by the court below, that the firefighters were not “employees” under the FLSA, because they fell within the purview of 207(y).
Thus, the Court concluded “under the relevant authority and the facts of this case, we are constrained to hold that, simply put, the substantial wages paid to these firefighters constitute compensation, not nominal fees, which makes the Gibraltar firefighters employees, not volunteers, for purposes of the FLSA and FMLA.”
Click Mendel v. City of Gibraltar to read the entire Opinion. Click DOL Amicus Brief, to read the DOL’s Brief in support of the Plaintiff-Appellant, relied upon in part by the Court.
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