Employee or Independent Contractor? The Excel Direct Case

Michael GrossmanAugust 15, 2016 9 minutes

News broke the other day of a settlement in the case of Villalpando v. Excel Direct Inc. et al. The case involves a group of truck drivers and Excel Direct a trucking company that claims the truckers were independent contractors. The truckers saw things differently, given the many hoops they had to jump through at the behest of Excel Direct, and felt that they were actually treated like employees. Earlier this year, the court hearing the case ruled that the truckers were in fact employees. The two sides have since reached a settlement agreement for $13.5 million.

For the most part, the issues raised in this case concern labor and contract law, which fall outside of our normal area of concern, truck accident and personal injury law. However, the legal questions raised in this case, as well as the business practices of Excel Direct have repercussions beyond this particular case.

What is the difference between and employee and an independent contractor?

For many, the question, "What is the difference between an employee and an independent contractor?" is mere legal semantics. However, the legal consequences of the distinction have a profound effect on how we interact with one another.

Some companies seek to classify as many employees as possible as "independent contractors" for several reasons. First, there are financial benefits to having an employee classified as an independent contractor. The matching employer contribution to Social Security is the most obvious example. Employers pick up half the tab when it comes to paying for an employee's Social Security, while independent contractors are on the hook for the whole amount. Classifying an employee as an independent contractor places the entire burden of this cost on the employee, not only for social security, but also for medical care and retirement.

Another consideration is liability. Since employees further an employer's interest, employers face liability in the event that an employee injures another person. The reason for this is the application of the legal doctrine of respondeat superior, which literally translates to "let the master answer." The thinking behind respondeat superior is that it is the employer who benefits the most from what an employee does. The employer exercises a large degree of control over how their employees go about accomplishing their work. Therefore, the employer is in the best position to prevent accidents and injuries to their employees and others.

If you think about it for a second, absent an employer's interests, few people would do what they do when they are working. Even fewer would do things in the same manner, without employer intervention. It stands to reason then if people are doing things for someone else, the way someone else wants them to be done, they are carrying out their employer's goals and interests, not their own and the person whose interests are being furthered should not only gain from an employee's labor, but also stand to lose when someone gets injured.

When injuries occur, the law holds the employer accountable. But what if the employee wasn't really an employee? This may seem like a silly question, but it is the "eureka! moment" for many business owners who seek to miss-classify their employees as independent contractors.

Unlike employees, independent contractors generally provide their own equipment, set their own hours, and contract to do business with whomever they choose. They control how the work is done. For instance, many homeowners contract with someone to repair their roofs. For a set amount of money, a contractor and their employees come out and fix what needs fixing. The homeowner isn't buying material; They don't demand that the work be performed in a specific manner; and they don't have liability for work-related injuries.

By contrast, the owners of the roofing company purchase the supplies and direct the work. In the event of a work injury, they're the ones who are on the hook for making sure their worker is taken care of. The homeowner just writes a check.

Contractors play a vital role in our economy. Each and every one of us take advantage of the services contractors provide all the time, even when we don't realize it. If you stop by a gas station to fill up and grab a bag of corn nuts, you're entering into a contract with the business that owns the gas station. You give them money: They give you gas and corn nuts. You don't really have any control over what the attendants do, how much they make, or providing them with a safe work environment. Relative to you, they are a contractor, which means you cannot be held liable for their actions.

One of the common questions that we ask new hires at Grossman Law Offices (not the attorneys, they know the answer), is "If you come to work here and we make you sign a piece of paper that says you are being contracted for a certain job at the firm, does that make you an independent contractor?" Invariably, people, before they learn about the law, will say that it does. Each time they answer they are incorrect.

The piece of paper is meaningless because the firm still tells everyone when to come in, where to work, what to work on. It is those behaviors that determine whether or not someone is an employee or an independent contractor. Still, there are people who start businesses every day in this country, people who have that "eureka! moment" and think to themselves that "it's so much easier to work with contractors than employees, so why don't I just contract out the work for all of my business?"

One such company was Excel Direct. This theory is great, as long as you can live with your contractors providing their own equipment, training, and getting the task accomplished on their terms. The problem is that many companies want the benefits of independent contractors, but still want to have the control they would have over employees. Once that control is asserted, like it was in the case of Excel Direct and its truck drivers, those independent contractors are effectively employees and companies owe legal duties to employees.

Villalpando v. Excel Direct Inc. et al

This case hinged around the contention of truck drivers for Excel Direct that they were employees, not independent contractors.

Excel Direct contracts the shipment of goods from warehouses to on-site locations for companies such as Crate & Barrel. According to court documents, they structured their business to employ independent contractors to do the actual work. However, rather than contracting with truly independent truckers, Excel Direct would arrange for their "contractors" to purchase vehicles through vendors of their choosing and then deduct the costs of the truck from money paid out to the truckers.

Rather than requiring general training or a specific level of competency in its drivers, Excel Direct allegedly required its truckers to complete a two-week safety course that the company chose. Most disturbingly, Excel Direct was accused of not giving drivers proper rest breaks and encouraging drivers to drive in an unsafe manner.

Not all of these allegations pertained directly to the plaintiff's issues regarding their status as employees. Upon hearing the truckers' evidence, the court determined that the truckers were employees of Excel Direct. Before the damages phase of the trial could commence, the two sides reached a settlement agreement for $13.5 million. That amount has been accepted by the court pending a fairness hearing in December.

Why Villalpando v. Excel Direct Inc. et al matters

There are several important questions that fell outside the scope of this lawsuit. These questions pertain to potential personal injury aspects of Excel Direct's operations. They include:

Is The Statute of Limitations Tolled?

The majority of Excel Direct's business took place within California, therefore California law would govern many of the legal questions than can arise from this settlement. From the court's findings in the case, it could be argued that Excel Direct was engaged in a civil conspiracy to misrepresent their employees as independent contractors.

This is not a matter of legal technicalities or "dirty lawyer tricks." By the reasonable person standard, Excel Direct should have known that the degree of control they were exercising over their truckers made them employees, not independent contractors. As a result they would be responsible for compensation for workers who were injured on the job and who injured others.

Of course, the majority of these questionably business practices took place between 2008 and the present time. Under California law, personal injuries have a two-year statute of limitations. This means that as a general rule, if an injury occurred more than two years ago and the victim has not filed suit, their claim simply vanishes.

However, since Excel Direct had employees that it was passing off as independent contractors, it is quite likely that those injured employees and people they may have injured could not have known about Excel Direct's potential liability. In instances where deception has taken place, like it appears to have taken place in this case, the statute of limitations can be tolled, or paused. While this would be a matter for the courts in California to decide, anyone whose accident happened during the time when Excel Direct was engaged in their civil conspiracy would have a compelling argument for the statue of limitations to be tolled.

Businesses are not allowed to conspire to skirt the law. It should not be hard to argue that Excel Direct's main reason for classifying employees as contractors was to shield the company from potential liability. When a business engages in deception to skirt the law, it can be enough to restart the statute of limitations to the time when the victim became aware of the company's deception.

How Does the Ruling Affect Injured Excel Direct Employees?

This part depends on how the settlement agreement is worded. If the plaintiffs release Excel Direct from all liability arising from their miss-classification of employees, then workers who may have been injured on the job will only be entitled to whatever they receive under the settlement.

If on the other hand, the settlement only covers the issues raised in the lawsuit, then under California law, injured workers would be able to pursue Excel Direct for the entire cost of their injuries. Excel Direct may also be subject to massive fines, as much as $100,000 per employee, for not providing workers' compensation benefits. It should be noted that this is a fine, so the money would likely go to the state and not the injured workers.

If a work injury occurred within the last two years, then the worker would still have time to pursue a work injury claim without concerns over the statute of limitations. If on the other hand, the injury is happened between 2008 and 2014, then the injured worker would first need to argue that the statute of limitations should be tolled. Should a court agree to toll the statute of limitations, then the case could proceed like any other work injury case.

How Are Those Injured by Excel Direct Drivers Affected?

This are is much murkier, but would be worth looking into if someone was injured by an Excel Direct driver. While these drivers were operating as pseudo-contractors, they still would have had to comply with federal and state insurance requirements. The federal requirement for a commercial vehicle is at least $750,000 in insurance. Further, and it wouldn't be surprising given how they ran their business, Excel Direct could have required drivers to pay for and carry coverage that protected Excel Direct in addition to the driver.

If the insurance indemnified (protected) Excel Direct, then anyone who was injured by an Excel Direct driver would have likely released both the driver and Excel Direct from further liability if they accepted a settlement in their case. If it did not, then just as Excel Direct may have outstanding work injury liability, they may be on the hook for injuries their employees caused.

Even in the event that Excel Direct is indemnified, it could be argue that whatever settlements were reached with those hurt by employees of the company are not valid, because the exact nature of Excel Direct's relationship was concealed from those who may have been injured.

In any case, there are enough ramifications from this court decision, that any injury which an Excel Direct driver has caused since 2008 is worth looking into again to ensure that the victim received full compensation and Excel Direct was held accountable for any negligence on their part.

The Excel Direct Case in the Larger Picture

Many times personal injury attorneys are accused of creating bogeymen and portraying the head of every company as a conniving villain. While some attorneys may view the world in this way, the fact of the matter is that a large majority of businesses follow the rules and are solid members of the community.

In contrast, many in the business community would deny that there is ever anyone who operates their business in a nefarious way. In their eyes, every business owner is the salt of the earth trying to carve out their own way in the world. Of course, court records would contradict this point of view, since the vast majority of lawsuits are between businesses, not individuals. The Excel Direct case shows that this view isn't particularly accurate.

The reality is somewhere between these two extremes. Just as it is silly to think that every business operator is a bad person, who will cheat employees and the public just to make money, it is equally ridiculous to think there are not bad actors in the business community.

The Excel Direct case is the perfect example of a bad actor. In order to save money and shield themselves from liability, Excel Direct misclassified its truckers as independent contractors, when they exercised control over them like employees.

It would be naive to think Excel Direct is the only company in the United States to behave in such a manner. In fact, the attorneys at Grossman Law Offices deal with issues, like those raised in the Excel Direct case, every day.

Wouldn't it be nice if an employer could have the benefit of employees without all of the hassle? Some employers mistakenly believe that independent contractors are the answer to all of their problems.

The reality is that our laws are far more resilient than even the most clever attempts to evade them. When it comes to determining whether a worker is a contractor or an employee, a company's actions speak much louder than any piece of paper or words. If they treat a worker like an employee, then most likely the law considers that worker to be an employee, regardless of what a company says.