Opinion ID: 4159704
Heading Depth: 3
Heading Rank: 3

Heading: Investment and Return

Text: Regardless whether they actually purchased a franchise, the record also shows that Plaintiffs invested heavily in their driving businesses — another indication that they were “in business for themselves.” Superior Care, 840 F.2d at 1059. In the economic reality test, “large capital expenditures” — as opposed to “negligible items, or labor itself” — are highly relevant to determining whether an individual is an employee or an independent contractor. Dole, 875 F.2d at 810; see also id. at 810–11 (deeming “annual investment of $400 in tools or equipment” to be “negligible”); cf. Berger Transfer & Storage v. Cent. States, Se. & Sw. Areas Pension, 85 F.3d 1374, 1378 (8th Cir. 1996) (affirming finding of independent contractor status under common law agency test in part because “[t]he owner‐ 28 operators were responsible for . . . purchasing and maintaining the leased equipment, [and] paying operating expenses such as fuel and repairs”). In assessing such expenditures, we ask whether the alleged employee made financial commitments in an attempt to generate a “return on . . . investment.”29 Dole, 875 F.2d at 811; see, e.g., Silk, 331 U.S. at 716 (affirming truck‐drivers’ independent contractor status when they, inter alia, “own[ed] their trucks”). Here, Plaintiffs indisputably did. In disclosures to the New York State Attorney General, each Franchisor Defendant presented an “estimated initial investment” to be expected in acquiring a franchise. See, e.g., J.A. 1817–20. One Franchisor Defendant estimated expenses for an individual purchasing a franchise as totaling between $68,838 and $89,038.30 J.A. 1817–20. Such sums constitute a substantial financial While “investment in the business” is, itself, indicative of independent 29 contractor status, Dole, 875 F.2d at 810, it also gives rise to other economic realities relevant to the FLSA “employee” inquiry. “The capital investment factor is,” for example, “interrelated to the profit and loss consideration.” Sec’y of Labor, U.S. Dep’t of Labor v. Lauritzen, 835 F.2d 1529, 1537 (7th Cir. 1987). Economic investment, by definition, creates the opportunity for loss, but investors take such a risk with an eye to profit. In addition, a personal stake can create incentives for the exercise of “independent initiative,” see Superior Care, 840 F.2d at 1058–59, so as to recover one’s investment. 30 The NYC 2‐Way franchise disclosure statement, by way of example, lists the following expenses: 29 outlay on Plaintiffs’ part, even beyond the purchase or rental of the franchise itself, and in essential facets of Plaintiffs’ business operations: vehicle acquisition,31 fuel, repair, and maintenance, license, registration, and insurance fees, and tolls, parking, and tickets. CTG did not provide reimbursements for  Initial franchise fee: $40,000  Vehicle: $15,000–$33,000  Smart phone: $350–$500  Installation fee (for dispatch system app): $500  Security deposit (returned at end of franchise agreement): $5,000  Administrative fee: $1,000  Training fee: $250  TLC vehicle license fee: $550  New York vehicle registration inspection fee and tax stamp: $473– $523  Liability insurance: $5,500–$7,500 per year  Magnetic window signs: $150  Gasoline: $65 per tank J.A. 1817–20. Asterisks denote payments made to NYC 2‐Way, with all other payments notably going to third parties. In addition, drivers paid weekly fees of $56 or $80, depending on whether they were a “sole proprietor” and operating on a single shift or, instead, they “operated [a] double‐shift[].” J.A. 1341. To be sure, not all Plaintiffs spent this projected amount; some may have opted for franchise arrangements which entailed a smaller upfront payment with greater recurring fees. Plaintiffs who rented franchises avoided paying this upfront fee altogether, although the record shows that they made other, significant investments in, inter alia, their vehicles, license and registration, fuel, maintenance, and repairs. 31 Some drivers purchased their vehicles, while others rented. 30 these expenses,32 never mind for discretionary investment in business cards, advertising, or other ventures designed to attract customers. Because Plaintiffs were free under their franchise agreements to branch out on their own, or to drive for other, competing black‐car companies, the degree to which these expenditures yielded returns was a function not only of CTG’s network, but also of the business acumen of each Plaintiff, who thus had significant control over “essential determinants of profits in [the] business.”33 All franchise agreements contained the following language: “Franchisee shall 32 be solely responsible for all fees, taxes, charges, fines, inspections, repairs, summonses, and all other aspects involving Franchisee and Franchisee’s vehicle.” J.A. 3408–09. 33 Indeed, seven black‐car franchisees filed an amicus brief emphasizing their “freedom” as “entrepreneurs,” and arguing that finding they were employees would jeopardize “the future viability of their investment in black car franchises.” Br. for Amici Curiae Mark Malchikov et al. in Support of Appellees and in Favor of Affirmance 2, 9. To be sure, compensation on a piecework basis has sometimes been likened to “wages,” rather than a return on investment. Mr. W Fireworks, 814 F.2d at 1050–51. But see Freund, 185 F. App’x at 783 (per curiam) (plaintiff, deemed an independent contractor by the lower court, “was almost entirely compensated by the job and not the hour; therefore, by accepting more jobs, performing his work more efficiently and hiring employees, he could earn greater sums of money”). Because we evaluate the “totality of the circumstances,” however, the form of payment does not dictate a finding of employee status. In Herman, for instance, the Fifth Circuit determined that the district court did not err in finding courier delivery drivers, “compensated on a commission basis,” and for whom “customer volume and the amount charged to customers” were “control[led]” by the entity, to be independent contractors. 161 F.3d at 304–05. The Herman panel concluded that, despite these facts, other factors supported the district court’s conclusion that the couriers were independent contractors. The couriers, inter alia, “set their own hours and days of work and [could] 31 Dole, 875 F.2d at 810. Further, while Plaintiffs ultimately all chose to affiliate with the Franchisor Defendants, their investments were valuable — and likely necessary — even had they chosen to affiliate with a different black‐car dispatch base. Thus, Plaintiffs’ expenditures created the platform for a black‐car business that could be operated throughout the tri‐state area, whether for Defendants or otherwise, again suggesting Plaintiffs were independent contractors, and not employees.