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The New Endangered Species: Independent Contractors

By Leslie Bottomly
December 21, 2015

Last week the Oregon Supreme Court held that taxi cab drivers are employed by the cab company and are not independent contractors for purposes of the unemployment tax.    

In Broadway Cab LLC v. Employment Department, the Court first applied the Employment Department statute that defines "employment" as "service for an employer" that is "performed for remuneration." ORS 657.030(1). The Court held that the facts supported the conclusion that the cab company and drivers were in an employment relationship. First, although the drivers weren't required to drive any particular hours for the cab company, as a practical matter they had to drive in order to pay the large fees they owed for the privilege of driving. Second, although the passengers paid the drivers and not the cab company, the services were nonetheless performed for the cab company, not just for the passengers. The Court rejected the notion that pay must come directly from the employer, drawing a comparison to newspaper distributor arrangements that have been held to be employment despite the fact that subscribers, not the newspaper, paid the distributor. 

After concluding that the relationship was one of employment, the Court next analyzed whether the cab drivers fit within the independent contractor exemption under the Employment Department test. This test requires, among other elements, that the individual is customarily engaged in an independent business as shown by meeting three of five listed criteria.

The Court discussed only two of the criteria: whether the cab drivers maintained a separate business location, and whether they could hire and fire others to perform the services. The Court rejected the cab company's argument that the taxi cabs each consisted of the driver's separate business location. Instead, the Court held that the cab company was in the business of providing cab service and, therefore, the cabs were part of the cab company's business location, wherever they may be.  Next, the Court held that because each driver signed an agreement giving the cab company the authority to determine who drove the cab, the drivers did not have the required authority to hire and fire others.

Although the wording of the statute defining employment has not changed, the Oregon Supreme Court's decision is part of a trend among courts and administrative agencies to apply a narrow interpretation of the independent contractor classification.