In NLRB v. Friendly Cab Company, Inc. (January 8, 2008, Slip Opn. No. 05-73752) ("Friendly Cab"), the Ninth Circuit Court of Appeals applied and clarified the "common law agency test" to hold that taxicab drivers are "employees" and not "independent contractors." Writing for the Circuit, Judge Callahan emphasized Friendly Cab Company, Inc.'s ("Friendly") "prohibition on its drivers' operating an independent business and developing entrepreneurial opportunities with customers" as the most significant factor in reaching its holding. In addition to this restrained "entrepreneurial freedom," the Circuit found six other indicia of Friendly's control over its drivers, which it held substantially outweighed any evidence that the drivers were independent contractors. As with most independent contractor cases, the ruling here was largely fact-driven and based on industry-specific case law. However, these factors, and especially the Circuit's emphasis on "entrepreneurial freedom," should be appreciated by all employers classifying individuals as "independent contractors."
Friendly operates approximately eighty taxicabs out of a facility in Oakland, California. As a result of tension between Friendly and its drivers, the East Bay Taxi Drivers Association ("Union") was certified by the National Labor Relations Board ("NLRB") as the exclusive collective bargaining representative for the drivers. The Union attempted to negotiate with Friendly, who refused and instead challenged the NLRB's determination that Friendly's drivers were entitled to collective bargaining representation because they were "employees" within the meaning of the National Labor Relations Act ("NLRA"), which protects only employees and excludes independent contractors. NLRB v. United Ins. Co. of Am., 390 U.S. 254, 260 (1968). In Friendly Cab the Ninth Circuit upheld the NLRB's certification.
The Circuit applied fact-intensive common law agency principles to distinguish "employees" from "independent contractors." While the totality of the circumstances should be considered, the amount of control that an employer exercises over an employee is the primary focus. While the courts have previously identified "entrepreneurial aspects of the person's business," "risk of loss and opportunity for profit," and the individual's "proprietary interest in his business" as relevant factors, the Circuit placed "particular significance on Friendly's requirement that its drivers may not engage in any entrepreneurial opportunities." Slip Opn. at p. 185.
In applying this test, the Circuit followed a long history of industry-specific case law and held that Friendly was entitled to a "strong inference" of lack of control over the drivers because its drivers paid a fixed rental fee for the cabs and were not required to account for fares or tips. However, it characterized this inference as generous because Friendly varied its weekly fee between $450 and $600 depending on the cab model assigned and the driver's record and ability. Other facts that supported an "independent contractor" classification were: (1) drivers had no set work hours or minimum hour requirements, (2) cab lease agreements stated that the drivers were independent contractors, (3) the drivers did not receive benefits, and (4) Friendly did not withhold social security or income taxes. Slip Opn. at pp. 186-87.
The Circuit concluded that the lack of control inference, even when strengthen by the other four facts, was rebutted by evidence that Friendly actually exercised significant control over the drivers. The drivers' lack of "entrepreneurial freedom" was central to this determination. The drivers could only use the cabs to respond to Friendly's dispatches, and not for outside business. Drivers were prohibited from distributing private business cards to customers, and could not accept calls for service on personal cell phones. Drivers leased rather than owned their cabs, and could not employ others because Friendly prevented subleasing. The Circuit distinguished Friendly's drivers from those that it determined to be independent contractors in SIDA of Hawaii Inc. v. NLRB, 512 F.2d 354 (9th Cir. 1975) ("SIDA"). In SIDA, the drivers were free to work or not work for SIDA, they were allowed to drive for other cab companies, and could make their own arrangements with clients. The Circuit reasoned that unlike the drivers in SIDA, Friendly's drivers were not allowed to "develop their own business interests like true independent contractors." Slip Opn. at pp. 187-88.
The Circuit highlighted six other factors, which individually might not constitute substantial control, but added to its conclusion that the drivers were "employees" under the NLRA. First, the drivers were required to comply with Friendly's company policies, which dictated the "means and manner of its drivers' performance," including how to accelerate and stop their vehicles, and factors to consider in where to drop off passengers. Second, the drivers were subject to a "strict disciplinary regime," which many courts have considered a significant indication of control. Refusal to cooperate with Friendly's dispatcher, late arrival at a dispatch, or disagreements with management at times resulted in monetary fines, bypassing on future dispatches, and suspension or termination of lease agreements. Third, the drivers had to carry advertisements on their cabs which generated revenue for Friendly at the expense of the drivers because the drivers were unable to earn fares during the downtime when the advertising was installed. Fourth, the drivers had to accept vouchers based on Friendly's contracts with certain companies. (While some courts have held that requiring drivers to accept vouchers is not sufficient evidence of control, because these mandated trips often paid less than meter-rates and because Friendly charged graduated processing fees of between ten and thirty percent of the fee to redeem the vouchers, Friendly's system evidences greater control than that usually exercised over independent contractors.) Fifth, Friendly imposed a strict dress code. The final evidence of Friendly's control was that it required its drivers to take two days' worth of training class beyond that which was legally mandated. Slip Opn. at pp. 189-94.
As a practical matter the Friendly Cab decision did two things. It reaffirmed the common law agency test and its recognized factors as the relevant inquiry in determining whether an individual is an "employee" or an "independent contractor" under the NLRA. Friendly Cab also provided workers with additional ammunition in their fight to classify themselves as employees because of the increased importance this decision gave to the prohibition of entrepreneurial opportunities. Following this decision, employers should be especially cautious of refusing to negotiate with unions on the basis that the individuals they seek to represent are independent contractors, if the employer also limits their entrepreneurial opportunities. Employers should reconsider such policies under the light of Friendly Cab because the Circuit specifically emphasized the significance of entrepreneurial freedom "in any analysis of whether an individual is an 'employee' or an 'independent contractor' under the common law agency test."
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