Two recent court cases are of some interest to all. The first deals with who is or is not an independent contractor. Although related to truck drivers, it is significant because of the huge outsourcing efforts by major air carriers and others. It could have application in other areas as well. The second case deals with FAA enforcement. This case affords relief to certain certificate holders (pilots, mechanics, repair facilities, etc.) that have allowed their default to be taken suspending or revoking their certificates.
Independent contractor or employee?
Do you have a choice?
Estrada, Morgan and Roberts vs. FedEx Ground, BC 210130, California Superior Court, Los Angeles
For many years companies have experimented with claiming that certain employees are independent contractors when performing services for them rather than employees. In most cases the companies saved money when their workers were classified as contractors rather than employees. There is, as we all should know, a significant difference.
For openers, contractors are most likely non-union people and will remain that way so long as their status remains as contractor. The company does not have to deal with a union therefore saving a large amount of money for union administration costs. In addition, they avoid paying state unemployment insurance taxes, employment training, taxes for disability, personal income taxes, and avoid collecting withholding taxes and union dues. Workers’ compensation premiums are an added cost. In total these can add up to a huge amount of money.
Historically, many of these cases dealing with employee or contractor status have to do with truck drivers. Some of the earliest decisions on the issue were among trucking companies and their drivers and subcontractors. The freight company typically did not own the trucks which are furnished under contract to them. Where the company also furnished the permits to the drivers to travel specific routes, and an accident occurred, the freight company was usually held liable. Insurance coverage today generally takes care of accident problems.
The case on the point that is currently in litigation, and was decided recently, involves FedEx and its delivery drivers in its ground operation. When FedEx decided to compete with UPS and others in the ground delivery arena as well as flight, it acquired a trucking company called RPS and continued that company’s practice of dealing with delivery drivers as independent contractors. This practice has now been challenged in courts throughout the country. All the cases have been joined in a single class action.
The case went to trial in Los Angeles and a judgment was rendered for the plaintiff drivers and against FedEx. It was dated and signed by the court on Dec. 19, 2005. FedEx, needless to say, has appealed the decision. The appeal is pending.
The money
The drivers were granted reimbursement for their expenses of operations from the date of signing their operating agreement with FedEx. There were slightly more than 200 claimants in this case and the awards ranged from as low as $500 up to $100,000. Attorney fees and costs in a total amount of $12,373,875 were awarded. This included basic attorney fees and out-of-pocket expenses. This was doubled in accord with the law. The drivers were also entitled to recover their court costs of $35,173. As one can see, this was no small potatoes case, hence the appeal by the defendant.
But, the key important element for the drivers, outside of the money gained, is the fact that they now have to be classified as employees from their initial date of hire. The state of California wants its share also. The California Employment Development Department says it is owed $510,400 for unpaid unemployment insurance taxes, $19,443 for employment training taxes, $891,432 disability taxes, and unpaid income tax in the amount of $5,875,790. An administrative appeal of this assessment was denied. This denial is currently under further appeal by FedEx.
Certified mail:
Will personal service of notice be required?
Chin Yi Tu vs. NTSB and Federal Aviation Administration, 9th U.S. Court of Appeals, No. 04-76454, San Francisco
In our July 2006 issue of AMT, we discussed the possible effect of a Supreme Court case (Jones vs. Flowers) on FAA certificate actions against mechanics, pilots, and other certificate holders. The case was concerned with a man who failed to respond to certified mail informing him that his house taxes were not paid and that he could lose his house if he did not pay. To make a long story short, he did not pay and lost his house to one Flowers at an auction sale. He sued to recover his house. Jones lost in all the lower courts and finally appealed to the U.S. Supreme Court. The court found in his favor, the court stated: “when a mailed notice of a tax sale is returned unclaimed, a state must take additional reasonable steps to attempt to provide notice to the property owner before selling the property, if it is practicable to do so.”
The Supreme Court returned his house to him based on the fact that the state tax people did not take adequate reasonable steps to inform him of the need to pay the delinquent taxes or lose his home.
The court stated further that even though the tax people require residents to keep their address current with the tax collector (like the FAA does) this requirement did not offer an excuse for the state for failing to take additional simple and reasonable steps to provide notice to the homeowner. (It did not provide an excuse to the FAA as well.)
FAA enforcement cases
FAA enforcement cases are very similar regarding notice. Certificated airmen and repair facilities are required to keep their mailing address current.
When a pilot, mechanic, or shop certificate is suspended or revoked by default, the FAA is exerting extraordinary power to deny one the ability to earn a living. This is also similar in effect to the taking of one’s house, as in the Flowers case.
As we predicted, what appears to be the first FAA case where Jones vs. Flowers has been applied has now come down from the 9th U.S. Court of Appeals in San Francisco.
Chin Yi Tu appealed the FAA decision, suspending his pilot’s license by default. His case was briefed and on file before the decision in the Jones case. After Jones was decided, the 9th Circuit Court of Appeals applied its effect to the Tu case and decided in favor of Tu and sent his case back for a hearing on the merits of his defense. Tu won his appeal case based on the decision in Jones, even though Jones had not been decided at the time of his appeal filing. The 9th Circuit applied the rule of Jones on its own. The Circuit said that, like the tax people in Jones, the FAA provided constitutionally defective notice to Tu regarding his certificate suspension.
The FAA in the initial mailings, had sent both certified mail and regular mail notices to Tu’s current mailing address. It stated that he must appeal within 20 days or lose his license. The certified mail was returned unclaimed and the FAA suspended his pilot’s certificate. The FAA knew at this time that previously sent certified mail had been returned on two occasions as refused or unclaimed. In addition, knowing that certified mail was ineffective to reach Tu, the FAA had sent correspondence leading up to the suspension order by first class mail. First class mail worked. Tu did respond to the first class mail. Nevertheless, the FAA sent the final order suspending Tu’s license — starting the 20-day appeal deadline to run, again by certified mail.
This was returned to the FAA as unclaimed. The FAA did not mail the final suspension order by regular first class mail.
Later, after the 20-day period to appeal his suspension had run, the FAA then reverted to sending Tu letters demanding he surrender his pilot’s license. These were sent by both regular and certified mail.
The court noted that when the FAA was really interested in getting notice to Tu it sent notice by regular mail not certified mail.
The court cited a previous 9th Circuit case in support of its decision: A reasonable agency actually desirous of notifying an individual of his right to be heard would not resort to a “mechanical adherence” to the minimum form of notice authorized by regulation in the very instance when timely notice is most crucial.” Dobrata vs. INS, 9th Circuit, 2002.
The court obviously felt and in fact suggested in a footnote at the end of the case that because of the cavalier and confusing action by the FAA, Tu should petition for attorney fees and costs in accord with the Equal Access to Justice Act, 28 USC s. 2412. The court said that the FAA’s persistent use of certified mail when it knew it would not reach Tu and its continued defense of its position in litigation after such knowledge was brought home to it, may well constitute such government action that would allow recovery of fees and costs.
When federal court judges get irritated with the conduct of federal agencies, they tend to come down on the side of the citizen litigant and against the agency. It is difficult to figure out why in this case the FAA used different mailings to inform Tu of his problem when simple regular mail would have sufficed . . . and it knew it!
Please send your comments or questions to [email protected].
Stephen P. Prentice is an attorney whose practice involves FAA-NTSB issues. He has an Airframe and Powerplant certificate and is an ATP rated pilot. He worked with Western Airlines and the Allison Division of GMC in Latin America, servicing commercial and military overhaul activities and is a USAF veteran. E-mail: [email protected]
