Friday, June 28, 2013

Opinion: Frivolous Lawsuits a Growing Threat to Our Industry

Most people in our business get up every day to do the right thing for our clients, our community and our employees. We try to operate within the myriad of laws that now govern what we do, from local transportation ordinances to Federal DOT Regulations. This magazine is filled each month with articles about companies around the U.S. growing and making a positive impact in their communities.

As an industry, I think we all want to see professionalism and integrity raised to a new level in this new economy, because stakes are high and profit margins are razor thin. Certainly this magazine, the National Limousine Association and most state associations I have encountered preach professionalism and educate operators on how to run and grow their businesses legally and ethically.

However, I am writing this article because there is a critical issue that permeates our industry; it threatens our very survival and negatively affects every one of us, from owners to drivers. It is an epidemic problem whose ravages I thought I had “inoculated” my business, Ambassador Limousine from, back when I started in 2007. But I was mistaken. The serious issues I am telling you about are the frivolous labor lawsuits and labor actions taken by state and federal agencies for misclassifying drivers and failing to pay them properly and within the law.

Since 2007, I have attended almost every industry trade show and voraciously read every magazine that targets every kind of ground transportation, and the topic is always a discussion point—yet many operators ignore it and think “it does not apply to me.”

I am not an academic, a legal scholar or a high-priced labor attorney. But I speak from having more experience in this area than I wish I had, because this subject has been my sole focus for the last year, as I have been settling a matter that could have caused my business to close, and which has cost me several hundred thousand dollars in legal bills.

Here’s the problem: Operators who classify their drivers as “independent contractors,” who in the eyes of the law should absolutely be classified as employees, are the biggest targets of these lawsuits. They have the largest bull’s eye on their backs. However, those of us who operate a purely “employee driver only” model are not immune either, for reasons I will explain.

There is a harsh reality of the times we live in, the regulatory environment we are governed by, and the economy we do business in—none of us are immune to this growing problem. Small or big, corporation or privately owned, you are a target.

We live in a time where frivolous lawsuits permeate the landscape—from cases about coffee being too hot to sub sandwiches being too short. Every morning lawyers get up and go to work for the sole purpose of filing and fighting these lawsuits with the same vigor we do to grow our businesses, and we, the small business owners, are some of their biggest targets. Lawyers who used to focus on “slip and fall” accident cases and asbestos cases have taken up a new gauntlet—filing lawsuits against employers for worker’s compensation, overtime pay, pay and benefits violations for misclassified workers. Make no mistake—they don’t care whether you are McDonald’s or XYZ Limo. They look at the assets you have and they want them as their legal fees.

For the first time in many years, the lawyers seemingly have as their allies many state agencies and certainly a federal government that supports their efforts under the guise of “protecting employees’ rights.” I am here to tell you these lawsuits have as much to do with protecting employees’ rights as cold medicine does curing a gunshot wound.

Lawyers actively search for livery companies that misclassify workers as independent contractors and usually find these companies when an upset driver calls them. The definition of the “independent contractor” relationship and the definition of an “employee” are set in federal law by two federal entities: The Internal Revenue Service and the Federal Department of Labor. Where you operate in the U.S. has no bearing on how you classify your workforce.

There are very mild differences between how these federal agencies define the two relationships. In the case of a company that owns a variety of vehicles, with both airport transfers and as-directed work, the method of classifying our driver labor is crystal clear. If the worker is being told when and where to report, is given all of his assignments, and activity is controlled and managed by the company throughout the day (given more or less assignments), and he is driving a company asset, then without any exception, he is your employee.

It does not matter what you have the driver sign for a contract or work agreement, how you pay them, what you call the pay (as in commission or wages) or whether you mandate they enroll in NICA (if you don’t know what that is you don’t need to know because it is not legal). The degree of control we exercise over our drivers largely mandates this relationship as an employer/employee relationship. As such, they must earn minimum wage, they must be paid overtime, and the employer must withhold and match their taxes weekly. Overtime, compensable breaks versus what constitutes “work” is where some operators get into trouble, even if they do properly classify drivers as employees.

So is there a way to legally classify drivers as independent contractors? Not while operating a traditional black car or limousine service. Having said that, there is a method of classifying drivers as independent contractors legally, and it is referred to as the “taxi exemption.” Basically, this is a relationship in which you lease a vehicle to a driver by the day, week or month, and all drivers in your company have this plan. Then, you let them market themselves and get their own trips in addition to what trips you“offer” them. You must allow them to turn down work, get their own trips, collect cash, and govern their own hours. This should also include letting them work for other companies so that they completely control themselves and have the ability to earn a profit or create a loss (this makes a huge difference to the IRS and FDL).

There is a reason this is called the “taxi exemption,” and frankly it is difficult to manage it in the by-reservation luxury ground transportation business and still deliver excellent service while holding drivers accountable. // LD

Written by Ken Lucci

Ken Lucci started Ambassador Limousine in July of 2007, and has successfully grown the business from two sedans into a multi-million dollar operation with 50 vehicles, from sedans to motorcoaches. Today, Ambassador Limousine ranks among the largest fleets in the industry, and has achieved annual revenue that places the company in the top 10 percent in the country, in annual sales.


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