Opinion ID: 4565511
Heading Depth: 1
Heading Rank: 1

Heading: Appellants’ FLSA Claims Against BFBD

Text: The FLSA defines “employee” as “any individual employed by an employer.” 29 U.S.C. § 203(e)(1). “In light of the definition’s circularity, courts have endeavored to distinguish between employees and independent contractors based on factors crafted to shed light on the underlying economic reality of the relationship.” Saleem v. Corp. Transp. Grp., Ltd., 854 F.3d 131, 139 (2d Cir. 2017). Accordingly, in Brock v. Superior Care, Inc., we enumerated five factors that bear on whether workers are employees or independent contractors: “(1) the degree of 3 control exercised by the employer over the workers, (2) the workers’ opportunity for profit or loss and their investment in the business, (3) the degree of skill and independent initiative required to perform the work, (4) the permanence or duration of the working relationship, and (5) the extent to which the work is an integral part of the employer’s business.” 840 F.2d 1054, 1058–59 (2d Cir. 1988). The “ultimate concern” behind these factors “is whether, as a matter of economic reality, the workers depend upon someone else’s business for the opportunity to render service or are in business for themselves.” Id. at 1059. In analyzing the first Superior Care factor, the district court concluded that Bimbo “did not control [Appellants] directly and closely enough to render their relationship an employer-employee relationship.” 2019 WL 2866168, at . We agree, and several key facts support the district court’s conclusion. First, Appellants controlled the overall scope of their delivery operations. They could purchase additional territories, sell their territories to other Independent Operators (“IOs”), or even enter into arrangements whereby one IO keeps the proceeds from selling to a customer in an area, but another IO retains the distribution rights to that area. Schrufer took advantage of all of these options, modifying his territory and sales proceeds several times while he was an IO. 4 Second, Appellants were not required to deliver Bimbo products personally, and they could hire employees to substitute for them as needed. Both Franze and Schrufer hired assistants without any oversight from Bimbo, and in some cases, IOs hired others to run their businesses entirely. As we explained in Saleem, the ability to hire others to run the business is evidence of the type of “considerable independence and discretion” that supports a finding of independent contractor status. 854 F.3d at 143. Third, BFBD imposed no minimum-hour requirements on Appellants, who were free to set their weekly schedules, subject only to designated pickup and delivery times based on BFBD’s warehouse hours and customer requirements. In Saleem, we also singled out schedule flexibility as a factor weighing in favor of independent contractor status because setting one’s own hours demonstrates a lack of control by the putative employer and initiative on behalf of the worker. See id. at 146–48. In response to these facts indicating Bimbo’s lack of control, Appellants argue that the non-compete provision in their distribution agreements prevented them from driving routes and carrying products for competing companies. In Saleem, we specifically pointed to the fact that the black-car drivers in that case drove for other car services as a fact indicating the defendants’ minimal control 5 over the plaintiffs. See 854 F.3d at 141. If there were fewer facts demonstrating Bimbo’s lack of influence over Appellants’ businesses, the non-compete clause – combined with the fact that Appellants solely carried Bimbo’s products – might be of more consequence. But Appellants’ control over their distribution territories, ability to hire others, schedule flexibility, and lack of day-to-day oversight ultimately lead us to conclude that the economic reality was that Bimbo did not exercise significant control over Appellants’ businesses. In assessing the second Superior Care factor – which focuses on “the workers’ opportunity for profit or loss and their investment in the business,” Superior Care, 840 F.2d at 1058 – we consider whether workers have “control over essential determinants of profits in the business,” Saleem, 854 F.3d at 145 (internal quotation marks and brackets omitted). Moreover, a worker’s “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.” Id. at 144 (internal quotation marks omitted). Here, there is no question that Appellants made significant investments in, and had ample opportunity to profit from or lose money on, their businesses. To purchase their delivery routes, Franze and Schrufer paid $148,000 and $98,034, 6 respectively, without any financial assistance from Bimbo. Investment costs of this sort “constitute a substantial financial outlay” that weighs in favor of independent contractor status. Id. at 144–45. Appellants bore significant risk when they made these up-front investments, and they had ample opportunity for profit or loss when they ultimately sold those distribution rights. Appellants respond that they lacked control over their opportunities for profit or loss because of Bimbo’s direct sales efforts to chain stores and institutional customers. But as the district court observed, even if Bimbo “had the bargaining power with larger customers,” Appellants “could have grown their sales with smaller customers,” with whom they could exercise greater freedom in negotiating prices. 2019 WL 2866168, at . And even with relatively fixed prices for larger clients, the overall value of Appellants’ businesses primarily depended “on their own business judgment and foresight” in modifying their territories and managing day-to-day costs, “which suggests that they bore the risks of their decisions.” Id. at . Taken together, Appellants’ substantial investments in their businesses, coupled with their ability to solicit new (albeit smaller) customers and modify their territories to increase profits, weigh in favor of finding that they were independent contractors. 7 For many of the same reasons discussed in relation to Appellants’ opportunities for profit or loss, the third Superior Care factor – “the degree of skill and independent initiative required to perform the work” – favors independent contractor status because Appellants’ distribution businesses required substantial independent initiative and business management skills not provided by Bimbo. Appellants are correct that courts in this Circuit have generally found that the ability to drive vehicles and make deliveries is not the sort of “specialized skill” that favors a finding of independent contractor status. See Saleem v. Corp. Transp. Grp., Ltd., 52 F. Supp. 3d 526, 541–42 (S.D.N.Y. 2014) (collecting cases). But as Appellants testified, operating their businesses required more than the ability to drive; their success depended on their ability to increase sales, build customer relationships, effectively identify the popularity of different products, hire and train employees, and manage profits and losses. So by modifying the scope of their businesses and “by deciding how best to obtain business from . . . clients, [Appellants’] profits increased through their initiative, judgment, or foresight – all attributes of the typical independent contractor.” Saleem, 854 F.3d at 144 (internal quotation marks and alterations omitted). The fourth Superior Care factor, “the permanence or duration of the working 8 relationship,” also favors a finding that Appellants are independent contractors. Although Appellants point to the length of their relationships with Bimbo, like the black-car drivers in Saleem, this was “entirely of [Appellants’] choosing.” Saleem, 854 F.3d at 147. As in Saleem, the economic reality of Appellants’ freedom to buy and sell their distribution rights therefore weighs in favor of finding that they were independent contractors. The final Superior Care factor addresses “the extent to which the [putative employees’] work is an integral part of the employer’s business. Superior Care, 840 F.2d at 1059. Without citing to any evidence in the record, the district court found that Appellants were not integral to Bimbo’s business because “Bimbo’s primary business model was based on bakery product manufacturing and sales to endmarket consumers.” 2019 WL 2866168, at . But even if that were Bimbo’s business model, we do not see how a model involving “sales to end-market consumers” could function without distributors that carry a company’s product to those consumers. In addition, the district court made no attempt to distinguish between BFBD and BBUSA in making this determination. Nevertheless, even assuming that Appellants were integral to BFBD’s business, this conclusion does not affect the overall balance of the Superior Care 9 factors. BFBD’s lack of control over Appellants, Appellants’ substantial opportunity for profit and loss in their businesses, and the entrepreneurial skills required to keep those businesses afloat all support the district court’s conclusion that Appellants were not BFBD’s employees under the FLSA.