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The court found that the visa, travel, and recruitment expenses primarily benefited the employer and that, as per U.S. Department of Labor regulations, the employer must reimburse the workers for those costs if the workers would otherwise effectively receive sub-minimum wage compensation. See 29 C.F.R. §§ 531.3(d), 531.35.

The court relied heavily on the fact that a 2009 Department of Labor Field Assistance Bulletin declared that employers must reimburse H-2B visa workers for the costs of transportation, obtaining a visa, and third-party recruiters whose services the employer retains. The Field Assistance Bulletin reasoned that the costs of transporting H-2B workers and of obtaining an H-2B visa primarily benefit the employer because the H-2B visa program provides “greater-than-normal” benefits to the employer, since such workers are available to an employer only if it attests that no comparable domestic workers are available. In concluding that the recruitment costs primarily benefited the employer, the district court emphasized that the employer had retained the third-party recruiter’s services.

The courts have been divided on this issue. The Eleventh Circuit has similarly ruled that travel and visa expenses must be reimbursed when a worker’s effective wage received would otherwise be below minimum wage. See Morante-Navarro v. T&Y Pine Straw, Inc., 350 F.3d 1163, 1166 n.2 (11th Cir. 2003). The Fifth Circuit, however, has held to the contrary. See Castellanos-Contreras v. Decatur Hotels, 622 F.3d 393 (5th Cir. 2010) (en banc).

This entry was written by Bruce Millman and Nicholas Ortiz.

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Texas-based EGL, Inc. retained delivery drivers in California for its freight forwarding, custom brokerage, and pickup and delivery lines of business. The contract that these delivery drivers signed provided that the parties intended to form a vendor/vendee relationship and recited that “[n]either Contractor nor any of its employees or agents shall be considered to be employees” of EGL. The contract further stated that the drivers “shall exercise independent discretion and judgment to determine the method, manner and means of performance of its contractual obligations.” Either party could terminate the agreement on 30 days notice, but otherwise the contract was automatically renewed. The contract also provided that any dispute between the drivers and EGL was to be decided under Texas law.

Undeterred by this language, some drivers sued EGL in California, seeking to apply various California Labor Code provisions applicable to employees to obtain, among other benefits, overtime, expense reimbursement, and meal break premium pay. EGL relied on the choice of Texas law provision in its contract and argued the parties’ relationship should be construed in line with the stated intention in the contracts. The district court agreed and granted the motion for summary judgment.

On appeal, the Ninth Circuit rejected the choice of law argument. According to the Court, the drivers’ claims did not arise out of the contract, did not involve interpretation of the contract terms, or otherwise require that any contract exist at all. Instead, the drivers’ claims simply arose out of the California Labor Code. Therefore, California law governed the question of whether the drivers were employees, even though the contract said otherwise.

Applying California law, the Ninth Circuit concluded that the drivers clearly were employees, not independent contractors. Among other things, the Court stated that the company told drivers what deliveries to make and when to show up each day for work, and exercised control over their vacations as well as any passengers who might ride along with them. Further, the drivers did not appear to work for multiple clients, but rather worked exclusively for EGL. Moreover, EGL’s own manuals informed the drivers that they had “the key role in the shipping process” and were EGL’s “largest sales force” – representations that underscored their essential role in the regular business of EGL.

Although this ruling does not prevent EGL from marshalling other facts to prove its case at trial, it does demonstrate the challenges businesses face when attempting to establish an independent contractor relationship. While a strong contract remains essential, businesses must pay equal attention to the reality of the relationship they establish to be sure that independent contractors are being given the discretion and freedoms necessary to meet the law’s requirements.

This entry was written by Alison Hightower.