Saleem v. Corp. Transp. Grp., Ltd. - 854 F.3d 131 (2d Cir. 2017)

Rule:

The Fair Labor Standards Act (FLSA), 29 U.S.C.S. § 201 et seq., defines an employee as any individual employed by an employer. 29 U.S.C.S. § 203(e)(1). An entity employs an individual under the FLSA if it suffers or permits that individual to work. In light of the definition's circularity, courts have endeavored to distinguish between employees and independent contractors based on factors crafted to shed light on the underlying economic reality of the relationship. The case law has focused on the totality of the circumstances in addressing the ultimate concern whether, as a matter of economic reality, the workers depend upon someone else's business for the opportunity to render service or are in business for themselves. The case law has identified certain factors as relevant to separating employees from independent contractors in the context of the FLSA. Nevertheless, these factors are merely aids to analysis and are helpful only insofar as they elucidate the economic reality of the arrangement at issue. FLSA precedent, despite endorsing these factors, cautions against their mechanical application. The determination of whether an employer-employee relationship exists for purposes of the FLSA should be grounded in economic reality rather than technical concepts, determined by reference not to isolated factors but rather upon the circumstances of the whole activity.

Facts:

Plaintiffs were black-car drivers who rented or purchased their franchises directly from the Franchisor Defendants or, in some cases, from other franchisees. Plaintiffs’ franchise agreements stipulated that no employer-employee relationship existed between plaintiffs-franchisee and defendants-franchisor. However, each franchise agreement contained a non-compete provision, and also required plaintiffs to comply with the rulebooks of the defendants. Plaintiffs brought an action against defendants under the Fair Labor Standards Act ("FLSA") and New York State Labor Law ("NYLL") for unpaid overtime. The district court, after conditionally certifying a collective action under the Fair Labor Standards Act ("FLSA"), granted defendants’ motion for summary judgment, concluding that as a matter of law, plaintiffs were properly classified as independent contractors rather than employees for purposes of both statutes. Plaintiffs appealed.

Issue:

Were the plaintiffs-franchisees employees of the defendants franchisors?

Answer:

No.

Conclusion:

The Court held that under the economic reality test, drivers who owned or operated for-hire vehicle franchises were independent contractors rather than employees under 29 U.S.C.S. § 203(e)(1) as a matter of law because the franchise agreements contained provisions indicative of the drivers' independence, the franchisor exercised minimal control over the drivers as shown by their ability to work for competing companies and to transport personal clients, the drivers invested heavily in their businesses whether or not they actually purchased a franchise, and the drivers set their own schedules. Although the franchisor provided a dispatch system, negotiated rates with clients, and engaged in some monitoring and discipline of drivers, the economic reality was that the drivers operated like small businesses and decided how to go about their work.