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News

Commentary: The power of control

Factors courts consider in challenges to a party’s independent contractor status

Note: In the case of Edwards v. Cardinal Trucking, Inc., the U.S. Court of Appeals for the 4th Circuit addressed whether a jury instruction was proper and whether the verdict rendered was against the weight of the evidence. However, the true “heart” of the case centered around the issue of whether Cardinal had the power of control over a co-defendant. This commentary focuses on the power of control and what factors are considered by courts when a party’s status as an independent contractor is challenged.

Jay-Z once said “[t]his is the life I chose, or rather the life that chose me.”[1] At its most basic, the distinction between whether someone is an independent contractor or an employee can be summed up by the same sentiment. An independent contractor chooses “the life,” i.e., day-to-day management of work, billing and collection issues, and the manner and scope of work performed. Conversely, an employee can be said to have been chosen by “the life,” i.e., the employer, who directs the manner and scope of work performed, handles billing and collection, and manages day-to-day issues. In other words, the proper classification often focuses on which party retains the power of control. If companies seek to retain too much control over an independent contractor, then the distinction between an independent contractor and an employee becomes blurred, resulting in similar outcomes as those seen in a recent decision from the U.S. Court of Appeals for the 4th Circuit in Edwards v. Cardinal Transport, Inc., et al, No. 19-1034.

The Edwards case has raised concerns over how the court could have upheld the jury award of $5 million to plaintiff Richard Edwards Jr. when, arguably, defendant Cardinal Transport Inc. should have been protected by an Independent Contractor Agreement between it and co-defendants McElliotts Trucking LLC and Danny McGowan. The decision was based, in part, on the determination by the court that, despite the Independent Contractor Agreement, the jury reasonably could have found that Cardinal retained the power of control over McElliotts and McGowan that resulted in the relationship becoming that of an employer/employee, thereby subjecting Cardinal to vicarious liability for the negligence of McGowan. 

Background

The plaintiff, Edwards, was injured while helping McGowan load metal rods onto one of McGowan’s trucks. One of the rods fell from a forklift that was operated by McGowan, crushing the plaintiff’s foot, ultimately requiring the amputation of the lower portion of his leg.[2] Edwards claimed McGowan was an employee of Cardinal and, as a result, Cardinal was vicariously liable for his injuries. The trial court held that 49 C.F.R. §376.12(c)(1) created a rebuttable presumption that McGowan was an employee of Cardinal, and the jury was instructed as such.[3] Cardinal appealed after the jury found in favor of the plaintiff and awarded him $5 million, claiming that the jury instruction regarding the rebuttable presumption of an employment relationship was in error.

Discussion

In Cunningham v. Herbert J. Thomas Mem’l. Hosp. Ass’n., the West Virginia Supreme Court of Appeals held that the four factors of an employment relationship necessary to prevail on a claim of vicarious liability are: (1) the selection and engagement of the servant; (2) payment of compensation; (3) the power of dismissal; and (4) the power of control.[4] In fact, the court in Cunningham stated that the power of control is the determining factor.[5] Further, in Roberston v. Morris, the West Virginia Supreme Court held that an employment relationship, or master-servant relationship, is established when one party retains the power over the process of the work performed.[6] In the context of transportation, controlling the outcome (i.e., on-time delivery of a shipment) does not establish an employer/employee relationship. However, controlling the process (i.e., day-to-day operations) will give rise to such a relationship.

In Edwards, Cardinal admitted it retained the power of selection, payment of compensation and dismissal over McGowan. Cardinal only disputed that it retained the power of control over McGowan.[7] However, the trial court found that the terms of the Exclusive Freight Sales Agency Agreement and the Independent Contractor Agreement between Cardinal and McGowan “… support a reasonable inference that McGowan was an employee of Cardinal and thus Cardinal could be subject to vicarious liability for the negligence of McGowan.”[8]

For example, the trial court found that the terms of the sales agency agreement incorporated the terms of the Cardinal Agent’s Policy Manual, which, among other things, provided the process for approving and onboarding new customers, that Cardinal controlled the shipping rates that would govern, and that a contract was considered finalized only when Cardinal provided the agent with a final contract.[9] Moreover, the Cardinal Agent’s Policy Manual provided that billing and accounts receivable are handled by Cardinal, and that any money collected by the sales agent is the property of Cardinal unless and until Cardinal sends the agent his or her commission. 

Additionally, the Independent Contractor Agreement required McGowan to only hire drivers who met specifications set by Cardinal, that certain insurance coverages be maintained by McGowan, that McGowan file with Cardinal all log books, physical examination certificates and accident reports, and that all of McGowan’s drivers check in with Cardinal’s dispatch daily to provide updates on shipment progress.[10]

As a result, the lower court found that Cardinal “… had the power to review potential customers and the rates negotiated … provided McGowan with forms … collected shipping fees, paid McGowan his commission, and reminded customers of their outstanding balances.”[11] The net result of all of these factors was that the plaintiff had established a prima facie case of vicarious liability based on Cardinal maintaining the power of control over McGowan, thus giving rise to an employment relationship. On appeal, the 4th Circuit held that, based on the evidence, the jury’s verdict supports a “… finding that Cardinal failed to show that McGowan was an independent contractor.”[12]

Conclusion

As a word of caution, the Edwards decision has two red herrings: (1) whether 49 C.F.R. §376.12(c)(1) creates a rebuttable presumption of an employment relationship; and (2) whether the jury instruction on the aforementioned rebuttable presumption was correct. Assuming, arguendo, that 49 C.F.R. §376.12(c)(1) creates a rebuttable presumption of an employment relationship and that the jury in Edwards was properly instructed, that still means that Cardinal was required to show that it did not maintain the power of control over McGowan. However, as noted above, the two agreements governing the relationship between Cardinal and McGowan, as well as the course of conduct between the parties during the contractual terms, showed that, arguably, Cardinal did maintain the power of control.

It is not enough that a company has a contract that claims one party is an independent contractor. Rather, the conduct of the parties must be such that one party does not exercise the power of control over the other. Remember, a contract simply spells out the course of conduct between two parties; how those parties act under the agreement is just as important as the contractual language itself. In a perfect world we would be able to trust that the terms of the contract would absolutely control how courts determine issues of employment relationships and vicarious liability. However, in the landscape of litigation, you cannot rest on the fact that the language in a contract supports your position; you must prepare as if everything were a rebuttable presumption.


[1] Jay-Z, December 4th, on The Black Album (Rock-A-Fella/Def Jam 2003).

[2] Edwards v. McElliotts Trucking, LLC, et al, 268 F. Supp.3d 867 (S.D. W.Va. 2017).

[3] Edwards v. Cardinal Transport, Inc., et al, No. 19-1034 (4th Cir. 2020).

[4] 737 S.E.2d 270, 277 (W. Va. 2012)(citations and quotations omitted).

[5] Id.

[6] 546 S.E.2d 770, 773 (W. Va. 2001).

[7] Edwards v. Cardinal Transport, Inc., et al, No. 19-1034 (4th Cir. 2020).

[8] Edwards v. McElliotts Trucking, LLC, et al, 268 F. Supp.3d 867 (S.D. W.Va. 2017).

[9] Id.

[10] Id.

[11] Id.

[12] Edwards v. Cardinal Transport, Inc., et al, No. 19-1034 (4th Cir. 2020).

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Frank McCabe

Frank McCabe is both an attorney and executive with more than 15 years of experience in the transportation industry.

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