The Second Circuit has affirmed the dismissal of a class action of New York City “black car” drivers who alleged they were misclassified as independent contractors by their dispatchers. In reaching its ruling, the Court found that multiple factors of the economic realities test weighed against employee status for the drivers.

Black car drivers provide rides to high-end clientele, such as business executives, celebrities, and dignitaries. In 2012, a class of drivers sued Corporate Transportation Group Ltd. and a number of its affiliates (collectively, the “dispatchers”) alleging they were misclassified as independent contractors in violation of the FLSA and New York Labor Law.  After originally granting conditional class certification, the U.S. District Court for the Southern District of New York granted the dispatchers’ motion for summary judgment, concluding the drivers were properly classified as independent contractors under both statutes.

On appeal before the Second Circuit, the plaintiffs argued that the district court applied the incorrect standard when considering plaintiffs’ claims. In finding the district court did not err in its conclusion, the Second Circuit applied the “economic realities test” first announced in the 1947 U.S. Supreme Court case United States v. Silk, which focuses on whether, as a matter of economic reality, workers are dependent upon an employer (signifying employee status) or whether they are able to render services as if they were in business for themselves (signifying independent contractor status).  Although the factors serve as general guidelines and no single factor is dispositive, the Second Circuit emphasized that the factors should not be mechanically applied and instructs courts to draw upon those factors where relevant to the ultimate question of the economic reality of the relationship between the parties.

In applying the economic realities test to the facts of the case, the Second Circuit acknowledged there were a few factors weighing in favor of employee status. For instance, the drivers drove for the dispatchers’ list of clients, relied on the dispatch system to receive fares through the companies, and accepted rates set by the dispatchers.  However, the Court determined that the dispatchers’ level of control was negligible.  Rather, the drivers had considerable control over their own circumstances and business ventures, including: [1] signing franchise agreements with the dispatchers which specified the drivers were independent contractors; [2] making significant investments in their own cars and franchise licenses; [3] setting their day-to-day operations and schedules; [4] choosing whom they wanted to pick up, in addition to personal fares not arranged by their dispatchers; [5] driving for rival black car services; and [6] deciding which insignia they wanted to display on their vehicles, or none at all.  The Second Circuit concluded, “In short, based on the record here, these driver-owners [were] small businessmen. . . . While defendants did exercise direct control over certain aspects of the [drivers’] enterprise, they wielded virtually no influence over other essential components of the business, including when, where, in what capacity and with what frequency plaintiffs would drive.”  As a result, the Second Circuit affirmed the district court’s decision the drivers were properly classified as independent contractors.

The case is Mazhar Saleem et al v. Corporate Transportation Group Ltd. et al, case number 15-88, in the U.S. Court of Appeals for the Second Circuit. The case may signify a renewed trend for courts to find in favor of independent contractor status for similar workers.  For example, the Ninth Circuit recently determined in the unpublished opinion Iontchev et al. v. AAA Cab Service Inc. et al., case number 15-15789, that Phoenix airport cab drivers are independent operators under the FLSA. Most notably, the Second Circuit’s decision provides an important reminder that it is the relationship between the parties and not simply a tallying of factors that dictates whether a worker is properly classified as an independent contractor.  It remains to be seen how the Second Circuit’s latest announcement of the economic realities test will play out with the seemingly ever-growing independent contractor misclassification claims within the “on-demand economy”.