Federal class-action lawsuit challenges independent contractor definition

A federal class-action lawsuit brought by 5,000 so-called independent contractors could deliver wholesale changes to employee-benefit guidelines.

Filed in the Western District of New York, the suit claims a Westport, Conn., delivery service has cheated thousands of drivers out of benefits they're entitled to under state and federal law by treating them as independent contractors.

Plaintiff attorney Michael Law of Phillips Lytle LLP in Rochester said the suit was filed after Monroe County resident James Charles was fired without cause, in violation of his contractor agreement. Charles is joined by Harold Smith and Gary Ketchum, of Monroe and Livingston counties, respectively, as lead plaintiffs in the suit, and backed by about 5,000 other plaintiffs.

The class action seeks damages for fraud and breach of contract and claims the plaintiffs, including about 500 New York drivers, don't operate independent businesses and have no significant entrepreneurial opportunity in the defendant's employ.

Instead, they provide the company's customers "with the core service defendants promote as their business," and the company, "through the guise of the [independent contractor agreement]," has stuck them with benefits costs "without providing them the independence to engage in entrepreneurial opportunities," the complaint alleges.

The defendant, Velocity Express Corp., cites a "strongly entrepreneurial" philosophy on its Web site.

"Our driving force is largely made up of men and women who own their own vehicles and have made an investment in servicing the customer," the site notes.

While they do own their own delivery and pick-up trucks, the drivers claim they have no control over their work assignments and cite evidence that their work is part of Velocity's normal operations, done in the company's name and performed with assistance and direction from the company.

They seek rescission of the contractor agreements signed when they were hired, as well as money they claim was deducted from their wages in violation of state labor laws. The plaintiffs also seek damages under the federal Employee Retirement Income Security Act and the federal Family Medical Leave Act.

How the courts define an "employee" versus an "independent contractor" looms large on Long Island, according to attorney Robert McGovern of Garden City law firm Meyer, Suozzi, English & Klein.

The U.S. Department of Labor advocates six factors that courts "typically find significant, with no single factor being controlling," noted McGovern, of counsel to Meyer Suozzi, where his practice areas include employee benefits and ERISA law.

A worker is likely to be classified as an employee - not an independent contractor - if the company retains a "high nature and degree of control" over the worker's duties, if the job requires little initiative and judgment by the worker, if there's a "high degree of permanency in the work relationship" and if the worker's services are "an integral part of the company's business," McGovern said.

The Labor Department also considers whether a worker's investment in facilities and equipment is limited, McGovern added, and so is his or her "opportunities for profit and loss."

ERISA defines an employee as "any individual employed by an employer." The U.S. Supreme Court has gone a little deeper in determining whether a person qualifies as an employee under ERISA, weighing the skill required to perform a job, the location of the work and the duration of the work relationship, among other factors.

The employee-vs.-contractor issue also arises in federal income tax contexts. The Internal Revenue Service maintains a list of 20 common-law factors to determine the difference; independent contractors don't have to satisfy all 20, McGovern said, and no one factor is controlling.

"The determination is based on the totality of the circumstances," he said.

As for whether independent contractors have any claim to employment benefits, "they might," McGovern noted, depending on how a benefit plan defines its class of eligible persons.

"Independent contractors, as a class, usually are specifically excluded," he said. "But the issue of whether a person is in fact an independent contractor is often disputed."

McGovern wouldn't presume to predict the outcome of the Velocity case, citing the "many, many issues in play." But he did prognosticate a "vigorous" defense by the company, "because the financial stakes are high."

Reporter Elizabeth Stull of sister paper The Daily Record in Rochester contributed to this report.

Credit: Gregory Zeller