The Rocky Mountain Employer


Labor & Employment Law Updates


Last month, the Second Circuit Court of Appeals (“Second Circuit”)[1] dismissed black-car franchisees’ claims for overtime pay under the Fair Labor Standards Act (“FLSA”), holding the franchisees were independent contractors.[2] The decision shows that courts will recognize and enforce independent contractor relationships where the proper agreements and structure are in place throughout the duration of the working relationship.

The Saleem Decision

The plaintiff drivers in Saleem were franchisees of a black-car and limousine company, CTG.  The franchisees had access to CTG’s customer base and an opportunity to be assigned driving opportunities by CTG dispatchers.  In exchange, franchise owners paid a franchise fee, and drivers paid a percentage share of each ride to CTG. CTG negotiated all rates with its customers and supplied dispatch technology. CTG customers paid drivers using vouchers, which the drivers then turned in to CTG for reimbursement.

Drivers could choose how they wanted to secure fares: for example, they could wait in line at high volume client locations or respond to calls dispatched on the CTG mobile app. Drivers determined when and how often to drive, and could accept or decline jobs offered to them.

Drivers were required to obtain their own taxi license, insurance, and car, for which they were responsible for the upkeep. They were given a “Rulebook,” setting forth certain required standards of conduct for the franchise.[3]

The Franchise Agreements included language that the franchisee is not an employee or agent, but a subscriber to the services offered by CTG. The Agreements did not prohibit drivers from working for other franchises, or on their own, driving non CTG customers.  In fact, most of the driver plaintiffs actually did drive for other competitor companies as well, even switching back and forth between franchises throughout the day. The drivers invested significant amounts into their own cars and related activities for use in working for these franchises, and filed taxes as independent contractors claiming large business deductions.

Based on this and other evidence, the court in Saleem concluded that drivers independently determined: (1) the manner and extent of their affiliation with CTG; (2) whether to work exclusively for CTG, or to provide rides for rivals, or develop business of their own; (3) the degree they would invest in their driving businesses; and (4) when, where, and how regularly to provide rides for CTG customers. Accordingly, the court held the plaintiffs were not employees of CTG who were subject to the FLSA, but instead were “small business owners.” [4] 

Practical Takeaways

            Independent contractor classification cases are highly dependent on the specific facts of a case, and Saleem does not mean that all similar franchise relationships will pass muster. However, Saleem illustrates that in the proper circumstances, courts will honor the types of contract relationships that are so prevalent in the gig economy.

[1] The Second Circuit Court of Appeals hears appeals from federal courts in Connecticut, New York, and Vermont.

[2] Saleem v. Corp. Transp. Group, Ltd., 854 F.3d 131 (2d Cir. 2017).

[3] For example, the Rulebook forbid harassing customers or other drivers. Saleem, 854 F.3d at 135. Failure to follow the Rulebook could result in fines temporary suspension, or termination of the franchise agreement.

[4] See Saleem 854 F.3d at 149.