(Editor’s note: A section of the original article that referred to a court decision regarding the legal relationship between XPO and Pathway has been deleted, as it created confusion and ultimately was not a factor in the court’s decision.)
A lower-court ruling that a group of drivers who were leasing their trucks from Pathway Leasing were not employees but rather independent contractors has been affirmed by an appellate court.
The 10th U.S. Circuit Court of Appeals, based in Denver where Pathway is located, upheld the lower-court ruling that dates back to a six-day bench trial in June 2018. The decision was not handed down until 2021.
The 15 plaintiffs were all drivers who leased trucks through Pathway and drove for XPO Logistics (NYSE: XPO). XPO originally was a defendant in the case, but the drivers dismissed the company earlier.
The lower-court ruling used the “economic realities” test to determine if the Pathway lessees were independent contractors or employees under the Fair Labor Standards Act. The test is generally considered more favorable to finding that a worker is an independent contractor rather than an employee. On the six prongs of the economic realities test, the lower court found that five favored the Pathway argument that the drivers were independent contractors. The ruling on the sixth is that it was “neutral.”
The lower-court decision also tossed out as plaintiffs 30 drivers who opted into the lawsuit after the bench trial.
XPO’s role was that the plaintiffs were under a two-year contract to haul freight. That agreement with XPO could be secured only if the driver had obtained a lease, as they did with Pathway.
The six prongs of the economic realities test are:
— Degree of control the employer exerts over the worker.
— The worker’s opportunity to profit from his or her activities, or the exposure to loss.
— Worker investment in the business.
— The degree of permanence in the relationship between worker and employer.
— The degree of skill needed to perform the work.
— The extent to which the work is an “integral part” of what the employer does.
The test, as the appellate court wrote, is such that “no one factor is dispositive” because earlier precedents have established a “totality of the circumstances approach.” A determination under one of the tenets of the economic realities test does not immediately invalidate any other findings. What matters is the sum total of the findings.
The appellate court said it applied a “clear error” standard to the lower-court decision, limiting its ability to overturn the lower court in the absence of obvious errors.
But some of the appellate court’s review does sound supportive of specific findings by the lower court. The appellate court ruled that the lack of forced dispatch and the drivers’ ability to hire their own employees to become a team argues in favor of the drivers having control, the first prong of the economic realities test.
Other points made by the appeals court:
— Among its findings, the lower court found that drivers operating under the lease were not subject to “forced dispatch,” under which they would be required to drive a load if ordered to do so by XPO.
— Drivers had the ability to create additional profit for themselves by better fuel efficiency, route optimization and completing the lease to own arrangement, so that they would be truck owners freed of the burden of monthly payments.
— The lease payments themselves constituted investments in their business.
— The “integral part of the business” test was “neutral,” given that XPO fell off as a defendant and the Pathway business is leasing, not hauling freight.
Ultimately, the appellate court agreed with the earlier district court that “considering the totality of the circumstances, [the drivers] acted with a degree of independence which set them apart from what one would consider normal employee status.”
The economic realities test is at the heart of the current independent contractor definition of the Fair Labor Standards Act, under which the lawsuit was originally filed. However, that is only because a Biden administration move to toss out a Trump administration rule, implemented less than two weeks before the end of that administration, was overturned by a federal court.
The Biden administration is currently reviewing a proposed new definition of independent contractors under the FLSA. It is expected to be less favorable to classifying workers as independent, with the freelance community expressing concern that the Biden administration will use the ABC test, which is the core of California’s AB5 legislation on independent contractors.