Martin Walsh v. Alpha & Omega USA, Inc. ( 2022 )

United States Court of Appeals
For the Eighth Circuit
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No. 21-2961
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Martin J. Walsh, Secretary of Labor, United States Department of Labor
Plaintiff - Appellee
v.
Alpha & Omega USA, Inc., doing business as Travelon Transportation;
Viktor Cernatinskij, an individual
Defendants - Appellants
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Appeal from United States District Court
for the District of Minnesota
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Submitted: March 17, 2022
Filed: July 14, 2022
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Before GRASZ, STRAS, and KOBES, Circuit Judges.
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GRASZ, Circuit Judge.
The United States Secretary of Labor (“Secretary”) sued Alpha & Omega
USA, Inc., d/b/a Travelon Transportation and its owner (together “Travelon”) for
violating the Fair Labor Standards Act (FLSA). The district court granted summary
judgment in favor of the Secretary. Travelon appeals, arguing the district court erred
in granting the Secretary’s motion. Because there are genuine disputes of material
fact, we reverse the district court’s grant of summary judgment in favor of the
Secretary and remand for further proceedings.
I. Background
Viktor Cernatinskij is the founder, sole owner, and chief executive officer of
Travelon. Travelon is a Minnesota corporation that facilitates non-emergency
medical transportation—known as special transportation services (“STS”)—in the
Minneapolis–St. Paul area. Travelon is registered with the Minnesota Health Care
Programs (MHCP) and the Minnesota Department of Transportation (MNDOT).
Travelon hires drivers to transport patients to and from medical appointments.
Travelon provides equipment such as vans and electronic tablets to drivers and pays
for costs such as internet service and insurance for the vans. Customers pay Travelon
for the transportation services, and Travelon distributes the entire sum paid by the
customers to the drivers. Drivers are then responsible for paying Travelon weekly
expenses such as a dispatch fee, 35% of the commissions generated by the drivers’
weekly trips (when the drivers’ weekly income exceeds $300), insurance fees,
vehicle lease fees, vehicle maintenance fees, and a tablet rental plus added costs for
any additional gigabytes of data used. Travelon generates its revenue from these
fees paid by the drivers.
Travelon’s dispatch service assigns trips to drivers through an application
called “MediRoutes” on the drivers’ tablets. The app monitors the drivers’ GPS
locations and their availability. Dispatch also encourages drivers to notify dispatch
when they are available to take trips. Dispatch then assigns a trip to the driver and
provides instructions through the app such as pick-up/drop-off times and locations.
Drivers set their own schedules and can change their schedules daily. Travelon,
however, only provides dispatch services 5:00 a.m.–6:00 p.m. Monday–Friday, and
5:00 a.m.–4:00 or 5:00 p.m. on Saturdays.
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Travelon classifies its drivers as independent contractors and pays them as
such. After investigating Travelon’s FLSA compliance, however, the Department
of Labor’s Wage and Hour Division determined Travelon’s drivers were employees.
The Secretary sued Travelon and Cernatinskij on behalf of twenty-one drivers,
alleging the drivers were employees and that Travelon violated the FLSA by failing
to pay the minimum wage to eleven drivers, failing to pay overtime to twenty-one
drivers, and failing to maintain proper time records.
The parties filed cross motions for summary judgment. The district court
granted summary judgment in favor of the Secretary and denied Travelon’s
summary judgment motion. The district court held Travelon’s drivers were
employees and that Travelon had violated the FLSA by failing to pay drivers
minimum wage and overtime and not complying with the FLSA’s recordkeeping
requirements. The district court awarded damages in accordance with the
Secretary’s computation of back wages which it found were reasonable. The district
court also awarded liquidated damages because Travelon failed to show good faith
and reasonable grounds for believing it was not in violation of the FLSA.
II. Analysis
Travelon appeals the district court’s grant of summary judgment in favor of
the Secretary. Specifically, Travelon argues the district court erred in classifying the
drivers as employees under the FLSA, in calculating backpay, and in its award of
liquidated damages. Because we conclude there are genuine issues of material fact
as to whether an employment relationship existed between Travelon and its drivers,
we need only address this first issue.
A. Employer/Employee Relationship under FLSA
The FLSA defines an “employer” as “any person acting directly or indirectly
in the interest of an employer in relation to an employee[,]” 29 U.S.C. § 203(d), an
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“employee” as “any individual employed by an employer[,]” § 203(e)(1), 1 and
“employ” as “to suffer or permit to work,” § 203(g). This broad definition of employ
“stretches the meaning of ‘employee’ to cover some parties who might not qualify
as such under a strict application of traditional agency law principles.” Karlson v.
Action Process Serv. & Priv. Investigations, LLC, 860 F.3d 1089, 1092 (8th Cir.
2017) (quoting Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992)).
When an employment relationship is in question, many courts decide whether
workers are independent contractors or employees by applying the multi-factor
“economic realities” test. Id. The parties, as well as the district court, followed these
courts and used the economic realities test here. 2 We assume without deciding that
the economic realities test is appropriate in determining whether a worker is an
employee or independent contractor under the FLSA. This test examines six factors
regarding the economic realities of the working relationship: (1) “the degree of
control exercised by the alleged employer over the business operations;” (2) “the
relative investments of the alleged employer and employee;” (3) “the degree to
which the alleged employee’s opportunity for profit and loss is determined by the
employer;” (4) “the skill and initiative required in performing the job;” (5) “the
permanency of the relationship;” and (6) “the degree to which the alleged
employee’s tasks are integral to the employer’s business.” Id. at 1093.
1
The statutory definition of employer and employee provides certain
exceptions not applicable here. See 29 U.S.C. § 203(d) and (e)(1)–(4).
2
The FLSA’s definition of “employ,” which is to “suffer or permit to work,”
29 U.S.C. § 203(g), was borrowed from early child-labor laws. See Rutherford Food
Corp. v. McComb, 331 U.S. 722, 728 (1947). Our job in interpreting statutes is to
determine what statutes meant “at the time of enactment,” Tanzin v. Tanvir, 141 S.
Ct. 486, 491, 493 (2020), which in this case would require looking back at analogous
provisions in these older child-labor laws. By examining their meaning, it might
become clear whether the six-factor economic-realities test accurately reflects the
suffer-or-permit-to-work definition from the FLSA.
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B. Standard of Review
Travelon argues the district court erred in granting summary judgment for the
Secretary because there are issues of material fact as to whether an employment
relationship existed between Travelon and its drivers. We review a district court’s
grant of summary judgment de novo, “viewing the ‘facts and inferences . . . in the
light most favorable to the nonmoving party.’” Vandewarker v. Cont’l Res., Inc.,
917 F.3d 626, 629 (8th Cir. 2019) (quoting Kiemele v. Soo Line R.R. Co., 93 F.3d
472, 474 (8th Cir. 1996)). The moving party bears the burden of showing “that there
is no genuine dispute as to any material fact and [it] is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). “Where the record taken as a whole could
lead a rational trier of fact to find for the nonmoving party, there is a genuine issue
for trial.” Gray v. FedEx Ground Package Sys., Inc., 799 F.3d 995, 999 (8th Cir.
2015).
While the precise nature of the working relationship—as examined by means
of the factors—involves questions of fact, the “ultimate question of ‘[w]hether or
not an individual is an “employee” within the meaning of the FLSA is a legal
determination rather than a factual one.’” Karlson, 860 F.3d at 1092–93 (alteration
in original) (quoting Donovan v. Trans World Airlines, Inc., 726 F.2d 415, 417 (8th
Cir. 1984)). In practice, disputed factual issues that may affect this legal
determination can be submitted to the jury as special jury questions. See id. at 1093–
94; see also Eighth Circuit Model Jury Instruction (Civil) 16.00 and 16.06.
Here, the district court resolved the case by granting summary judgment to
the Secretary, thus indicating there were no material factual disputes. We disagree.
Viewing the evidence in the light most favorable to Travelon, issues of material fact
remain as to the working relationship between Travelon and its drivers. Specifically,
Travelon has offered evidence from which a rational trier of fact could find the
“control,” “profits and losses,” and “integral to business” factors weigh in favor of
the drivers being independent contractors. For this reason, we remand the case so
these factual disputes can be resolved by the ultimate trier of fact.
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1. Control
Examination of the control factor of the economic realities test reveals
genuine disputes exist preventing summary judgment. In general, this factor
considers the alleged employer’s right to control the way work is performed. See,
e.g., Razak v. Uber Techs., Inc., 951 F.3d 137, 145 (3d Cir. 2020), cert. denied, 141
S. Ct. 2629 (2021); Acosta v. Off Duty Police Servs., Inc., 915 F.3d 1050, 1060 (6th
Cir. 2019); McFeeley v. Jackson St. Ent., LLC, 825 F.3d 235, 241 (4th Cir. 2016).
Such control can be demonstrated in several ways. For example, the district court
here found Travelon exercised control by assigning trips, pressuring drivers to accept
trips offered by dispatch, regulating the times at which drivers could provide
services, requiring the drivers to obtain permission to take a break, tracking drivers
through GPS location monitoring, and requiring drivers to submit travel logs.
Indeed, other courts have used similar manifestations of control to determine the
degree of control the alleged employer had over its workers. See Razak, 951 F.3d at
146 (considering whether Uber sets hours for drivers when evaluating degree of
control); Parrish v. Premier Directional Drilling, L.P., 917 F.3d 369, 381 (5th Cir.
2019) (considering whether workers were free to accept or reject projects, whether
workers were required to ask permission to leave, and where and when workers
needed to report for duty); Off Duty Police Servs., 915 F.3d at 1060–61; Acosta v.
Paragon Contractors Corp., 884 F.3d 1225, 1235 (10th Cir. 2018); McFeeley, 825
F.3d at 241–42 (considering workers’ ability to determine their own schedules,
mandatory guidelines during working hours, ability to set fee for services, and ability
to perform services at other establishments).
The district court improperly engaged in fact finding concerning these details,
however, and did not consider the evidence in the light most favorable to Travelon.
For example, there is competing evidence as to whether drivers could reject trip
assignments. The Secretary argues Travelon pressured drivers to accept assignments
by calling drivers regularly when they were off work. The Secretary also notes
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driver Konstantin Derevyanko testified that, although there were no direct threats
made if a driver declined a trip, he sensed Travelon was unhappy if he declined trips.
But there is also evidence Travelon allowed drivers to decline trip
assignments. Both Cernatinskij and Maria Cernatinschi—Travelon’s long-time
dispatcher—testified that drivers were allowed to turn down trips without any
penalization. And Derevyanko testified that, on two or three occasions, he declined
trips that were offered to him. This competing evidence requires the weighing of
evidence and ultimately making a credibility determination—a role reserved for the
trier of fact. Nunn v. Noodles & Co., 674 F.3d 910, 914 (8th Cir. 2012) (“Credibility
determinations, the weighing of the evidence, and the drawing of legitimate
inferences from the facts are jury functions, not those of a judge, whether he is ruling
on a motion for summary judgment or for a directed verdict.”) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).
Likewise, there is a genuine dispute as to the extent of control Travelon had
over the drivers’ hours. It is undisputed Travelon generally provided dispatch
services only between 5:00 a.m. and 6:00 p.m. Monday through Friday, and 5:00
a.m. and 4:00 or 5:00 p.m. on Saturday.
This fact, however, must be weighed by the trier of fact with other relevant
evidence. For example, Cernatinskij testified drivers were able to set their own
schedule and could change their schedule daily. Cernatinschi also testified drivers
could tell dispatch their preferred start and end times for their shifts. Additionally,
she testified that dispatch never scheduled drivers outside of their preferred hours.
These facts show the drivers exercised a level of autonomy in determining their work
hours creating a genuine dispute as to Travelon’s degree of control.
Common sense may also come into consideration. Travelon provides non-
emergency medical transportation. Drivers can operate anytime dispatch services
are available, which include all normal non-emergency business hours. The fact
Travelon does not have dispatch on duty at 3:00 a.m. is not surprising given that
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non-emergency medical appointments would be rare at such hours. Again, viewing
the evidence in the light most favorable to Travelon, a rational trier of fact could find
the drivers’ abilities to set their own schedules during working hours demonstrate a
lack of control. See Razak, 951 F.3d at 146 (precluding summary judgment where
Uber demonstrated it lacked the right to control when its drivers must drive). Thus,
the jury’s involvement is necessary to resolve this factual dispute.
2. Profits and Losses
The profits and losses factor also illustrates genuine issues of material fact are
still in dispute. Under this factor, courts generally consider whether workers had
control over profits and losses depending on their “managerial skill.” See, e.g.,
Verma v. 3001 Castor, Inc., 937 F.3d 221, 231 (3d Cir. 2019); Off Duty Police Servs.,
915 F.3d at 1059. A worker exercising managerial skills such as setting his own
hours and rates along with the ability for the worker to earn additional income
through his own initiatives indicate control over profits and losses. See Razak, 951
F.3d at 146; Verma, 937 F.3d at 231; Scantland v. Jeffry Knight, Inc., 721 F.3d 1308,
1317 (11th Cir. 2013). In other words, facts demonstrating that a worker can use
“his managerial skill to ‘improve his efficiency such that he c[an] complete more’
jobs” weigh in favor of independent contractor status. Off Duty Police Servs., 915
F.3d at 1059 (alteration in original) (quoting Keller v. Miri Microsystems LLC, 781
F.3d 799, 813 (6th Cir. 2015)).
It is undisputed Travelon set the drivers’ rates and facilitated trip assignments
given to drivers through the MediRoutes driving app. These facts demonstrate
Travelon limited the drivers’ opportunity for profit or loss. See Razak, 951 F.3d at
146–47 (stating Uber limited its drivers’ opportunities for profit or loss by deciding
the fare, which driver receives trip requests, whether to refund or cancel a
passenger’s fare, and the driver’s territory).
But Travelon has also demonstrated facts that suggest the drivers were able to
earn additional income through their own initiatives. For example, Cernatinskij
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stated that drivers could transport multiple customers at a time to make trips more
profitable. See id. at 146 (noting drivers’ abilities to determine “when, where, and
how to utilize the Driver App to obtain more lucrative trip requests and to generate
more profits” evidenced independent contractor status). Drivers could also
maximize their profit by using their own vehicles and tablets rather than leasing from
Travelon.
Moreover, the parties offer competing testimony over whether drivers could
provide services independent of their work for Travelon. Cernatinschi testified that
at least three drivers have provided medical transportation on their own and not
through Travelon. These drivers also provided non-medical transportation using the
vans leased from Travelon without using Travelon or Cernatinschi’s dispatching
services. Cernatinskij, however, testified that it would be impossible for drivers to
provide STS on their own or for another provider while also driving for Travelon.
Thus, a factual dispute remains as to whether drivers could provide services
independently to generate more profit. See id. at 147 (considering Uber drivers’
abilities to drive for competitors a material fact in determining the opportunity for
profit or loss).
A rational fact finder could find the drivers are able to transport multiple
customers, use their personal vehicles, and perform services independent of their
work with Travelon which would ultimately affect whether this factor weighs in
favor of an independent contractor relationship between Travelon and its drivers.
Thus, a trier of fact needs to weigh the competing evidence to resolve these factual
disputes.
3. Integral to Business
Lastly, genuine disputes of material fact remain as to whether drivers are
integral to Travelon’s business. This factor turns “on whether workers’ services are
a necessary component of the business.” Paragon Contractors, 884 F.3d at 1237
(quoting Baker v. Flint Eng’g & Constr. Co., 137 F.3d 1436, 1443 (10th Cir. 1998)).
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Here, the Secretary argues the drivers are integral to Travelon’s business. The
Secretary points to evidence that Travelon refers to itself as an STS provider, is
registered with Minnesota as an STS provider, and that Travelon’s customers depend
on Travelon’s drivers to perform services.
But Travelon seeks to distinguish itself from actual STS providers. Travelon
describes itself as an “intermediary company that supports the drivers’ transportation
businesses” that only makes revenue by leasing vehicles and equipment to drivers
and selling dispatch subscriptions. Travelon bills customers for the STS but then
pays drivers the entire amount collected from the customers for the trip. Drivers
then must pay Travelon the various fees discussed earlier associated with leasing the
vehicle, dispatch fees, tablet rental, and insurance fees. Thus, Travelon’s revenue is
generated entirely from the drivers—not the passengers.
Whether Travelon is indeed an STS provider or merely a technology company
that supports the drivers’ STS businesses is a disputed material fact that must be
resolved. See Razak, 951 F.3d at 147 n.12 (holding evidence underlying Uber’s
argument “that it is a technology company that supports drivers’ transportation
businesses, and not a transportation company that employs drivers” raised a genuine
issue of material fact precluding summary judgment). A rational trier of fact could
find Travelon’s characterization of its business model persuasive, thus finding the
drivers are not integral to Travelon’s business. For this reason, the district court
erred in concluding the drivers were integral to Travelon’s business as a matter of
law.
In sum, the award of summary judgment was premature. While the Secretary
has shown evidence supporting an employment relationship between Travelon and
its drivers, Travelon has also shown evidence of an independent contractor
relationship. These competing narratives must be resolved before the district court
makes its legal conclusion as to whether an employment relationship existed
between Travelon and its drivers.
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III. Conclusion
For the reasons set forth above, we reverse the district court’s summary
judgment order and remand for proceedings consistent with this opinion.
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