California Truck Drivers Reach $9.5 Million Settlement in Misclassification Suit

In California and across the country, truck drivers are at risk of being misclassified as independent contractors. This has negative implications for drivers’ taxes and workplace protections, as independent contractors are not subject to the same workplace regulations or protections as employees. For workers in labor-intensive jobs, such as truck drivers, this can cause serious issues.

But truck drivers in California have recently made strides forward in advocating for their employment status. Tired of losing out on prime benefits reserved for workers who hold the ‘employee’ classification, California truck drivers mobilized against misclassification by launching a lawsuit against popular freight transportation company XPO Logistics.

As of December 10, 2021, XPO Logistics agreed to pay $9.5 million in a settlement with California truck drivers in a move that many truck drivers have lauded as “fair” and “exemplary.” The settlement comes nearly three years after California truck drivers originally took action against the company.

Many truck drivers lamented that their misclassification prevented them from taking adequate breaks and being reimbursed for job-related charges. In addition, like many independent contractors, they had to pay self-employment taxes instead of having employers pay payroll taxes on wages. This tax benefit is one reason why employers try to take advantage of mischaracterized workers for their own financial benefit.

The IRS has created a classification test to help mitigate this problem. The test helps determine whether a worker should be classified as an employee or an independent contractor on the basis of three factors: behavioral control, financial control, and permanency of relationship.

These factors have their own sub-questions. For instance, employers have a greater degree of behavioral control over employees than independent contractors, who often take assignments on their own schedule. Employers also typically have more financial control over employees than independent contractors, as employees are paid a standard wage and independent contractors are paid on a project-to-project basis with flat fees. Finally, the permanency factor inquires into the length of the relationship. Employees are usually hired for long periods of time to fill vacancies in organizations. Independent contractors, on the other hand, are engaged to complete specific tasks, with the completion of the task marking the end of the relationship.

While there are numerous other factors that can be used to determine the proper classification of working relationships, the IRS three-factor test is a useful starting point.

Updates will be posted to this blog as the matter progresses. The case caption for the lawsuit is Arrellano et al. v. XPO Logistics Port Servs. LLC et al., Case No. 2:18-cv-08220, filed in the United States District Court for the Central District of California.

The legal team at Miller Shah LLP has significant experience representing employment matters. If you have any questions regarding this subject or this post, please contact John Roberts (jcroberts@millershah.com) or Alec Berin (ajberin@millershah.com). The firm can also be reached toll-free at (866) 540-5505.

Miller Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. The firm is an active member of Integrated Advisory Group (www.iaginternational.org), which provides clients access to excellent legal and accounting resources around the globe. For more information about the firm, please visit https://www.millershah.com/.

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