The War on Independent Contractors Continues
The California Labor Department has been waging a war on courier companies to force them to use only employees, not independent contractors (IC) as drivers. Although paying lip service to the concept that each situation must be examined on its own merits, I have been told point blank by a workers comp administrative hearing officers that she didn't believe any driver working for a courier company could be an IC.
This war has been waged in two forms. The more benign attacks have been EDD audits which seek to examine whether proper payroll taxes have been paid (or withheld) and which seek monetary compensation if (or rather when) the audit reclassifies the drivers from ICs into employees.
The more aggressive tactic has been Labor Dept. inspections under the workers' compensation laws. These procedures are more difficult to defend and carry potential criminal penalties.
On August 22, 2006 a California Appellate court supported a workers comp board hearing officers decision that the drivers of one particular company were really employees, not Independent Contractors. This case was certified for publication on the request of the California Department of Justice and the Department of Industrial Relations. This decision (and its certification) are significant for several reasons:
1. The Justice Dept and the DIR specifically stated in their requests for certification that they want to have this case published so they can use it in future cases against courier companies.
2. Proceedurally this case makes it very very clear that it's important to present your best case possible at the first administrative hearing level. This is not the audit, but your first hearing before a hearing officer or administrative judge. Many people think they will wait till they get up to a more impartial tribunal, but this case made it clear that even though the first appeal from some administrative hearings are to a trial level court, that court doesn't really take new evidence. It merely looks to see if there is "substantial evidence" to support the hearing officer. So you have only one shot to create a good record. I can't tell you how many cases are lost by not getting serious until you're in the court system - when it is often too late.
3. This case, like the most recent independent contractor case heard by the California Supreme Court (Borello v. DIR) is a workers comp case, NOT a payroll tax case. There are subtle but legally significant differences between these two types of cases, a fact which even many attorneys might tend to ignore.
4. To my knowledge, there are at least three recent cases before the Unemployement Insurance Appeals board that have held couriers to be Independent Contractors. Although the EDD appealed one of them, they dropped their appeal, which means that the case never got its chance to be certified for publication. However, these cases are evidence that you can even win on the administrative level. And no, for the record, I didn't win all three cases, but yes, I won two of them.
I believe that courier companies can use independent contractors. I also know that the industry had, in the past, flagrantly overstepped the definitions of independent contractors, which is partly what brought about this war. It saddens me that the over use of independent contractors is resulting not in a correction by the state, but is resulting in a gross over correction.
If this is a concern you are facing, please give me a call at 408-955-9100 or email me at nina@buslaw.com.
EDD workers compensation stop order independent contractor SS-8 JKH couriers
