Location Takes Legal Precedence for Independent Contractors

Udders ‘R’ Us (“URS”) delivers milk to supermarkets in Southern California. It’s owned and controlled by a Georgia corporation. URS is run by that most dangerous of all professionals — someone who attended law school but never passed the bar.

Fred, this manager, had a tendency to approach problems as though he were still in law school. That strategy was fine until the real world rears its ugly head.

One thing practicing law teaches very quickly is that the truisms of law have little to do with reality. But Frank was undeterred.

URS needed more delivery drivers, but Fred was certain the head honchos from Atlanta would scream at hiring more employees. He envisioned the increased workers’ compensation premium and how much more the company health plan would cost as a result of bringing on more drivers.

This is to say nothing of the employer’s employment taxes and general liability insurance with all of these new personnel.

He was already behind the budget in sales, so adding more costs would directly impact the bottom line — profit. There was only a miniscule amount as it was. More employees meant no profit at all. No profit meant Fred would need a new job.

So, Fred took his law school diploma and drafted a “drivers’ independent contractor agreement.”

From his labor-law classes, he knew that California really didn’t like the independent-contractor concept, in which companies often designate workers as independent contractors to avoid actually putting people on payroll, covering workers’ compensation and paying for benefits.

The California Supreme Court has ruled that there is a fundamental California policy that seeks to protect its workers, especially in cases of whether a worker is considered an employee or an independent contractor.

Fred’s solution was to say in the contract that Georgia law applied, not California.

You see, in Georgia, if the contract designates the relationship between the parties to be one of principal and independent contractor, this designation is presumed to be true. Just the exact opposite of California.

Armed with this new drivers’ independent contractor agreement, Fred went on a recruiting binge, signing on dozens of new drivers. Everything went fine until Fred fired Bill, one of the newer drivers who had signed the contract. What Fred didn’t know was that Bill’s sister Sue (no, really that was her name), was a great class action attorney. The minute Sue heard how Fred had tried to dodge California’s public policy, she knew she had him.

Sue sued URS, alleging that the delivery company had violated numerous California labor laws. Fred retained a national labor-law firm, Hookum and Billum, which argued in court that the drivers and URS had agreed to apply Georgia law.

The court researched the issue and found the very recent case of Ruiz v. Affinity Logistics. That case was very helpful, as the fact pattern was almost exactly the same as the one involving Bill and URS.

In Ruiz, a Georgia corporation doing business in California hired drivers who were required to sign an independent-contractor agreement that had a provision that said that Georgia law controlled. The court in URS’ lawsuit ruled exactly as the court in Ruiz had.

The court decided that, even though the contract said Georgia law controlled the court would use California law. Inquiry into which state’s laws applied didn’t stop at whether the parties had agreed on one state versus another.

The court also knew it should consider “(1) whether applying Georgia’s law “is contrary to a fundamental policy of California,” and (2) “whether California has a materially greater interest than (Georgia) in resolution of the issue.”

These two criteria were summarily dealt with. The California Supreme Court had already voiced a fundamental public policy favoring employee status over independent contractor.

California clearly had a much greater interest in how to resolve the problem. While URS is a Georgia corporation, that was Georgia’s only connection with the case.

In California’s favor, all of the drivers were California residents, the work would be done in California, URS was based in California, and the contract was negotiated and signed in California.

The decision? California law wins. The drivers were employees and not independent contractors.

Not only did URS have to pay for all of those expenses Fred was trying to avoid, it also had to pay Bill’s legal fees and pay a large sum to get out of the case. Needless to say, Fred’s now looking for some place else to practice law without a license. ©

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