Franze v. Bimbo Bakeries USA, Inc.

19-2275
Franze v. Bimbo Bakeries USA, Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit,
held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
City of New York, on the 15th day of September, two thousand twenty.
PRESENT: ROBERT D. SACK,
RICHARD C. WESLEY,
RICHARD J. SULLIVAN,
Circuit Judges.
_____________________________________________
Nicholas Franze, on behalf of themselves, and of
all similarly situated individuals;
George Schrufer, Jr., on behalf of themselves, and
of all similarly situated individuals,
Plaintiffs-Counter-Defendants-Appellants,
v. No. 19-2275-cv
Bimbo Bakeries USA, Inc.;
Bimbo Foods Bakeries Distribution, LLC,
FKA Bimbo Foods Bakeries Distribution, Inc.,
FKA George Weston Bakeries Distribution, Inc.,
Defendants-Counter-Claimants-Appellees. *
______________________________
FOR PLAINTIFFS-COUNTER- RANDY J. PERLMUTTER, Kantrowitz,
DEFENDANTS-APPELLANTS: Goldhamer & Graifman P.C.,
Chestnut Ridge, NY (Orin Kurtz,
Gardy & Notis, LLP, New York, NY,
Sam B. Smith, Kantrowitz,
Goldhamer & Graifman P.C.,
Chestnut Ridge, NY, on the brief).
FOR DEFENDANTS-COUNTER- DAVID B. SALMONS, Morgan, Lewis &
CLAIMANTS-APPELLEES: Bockius, Washington, DC (Michael J.
Puma, Morgan, Lewis & Bockius,
Philadelphia, PA, on the brief).
Appeal from a judgment of the United States District Court for the Southern
District of New York (Nelson S. Román, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is
AFFIRMED.
Plaintiffs-Counter-Defendants-Appellants Nicholas Franze and George
Schrufer, Jr., on behalf of a class of similarly situated individuals (“Appellants”),
* The Clerk of Court is directed to amend the caption as set forth above.
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appeal from a July 10, 2019 opinion and order of the United States District Court
for the Southern District of New York (Román, J.) granting summary judgment in
favor of Defendants-Counter-Claimants-Appellees Bimbo Bakeries USA, Inc.
(“BBUSA”) and Bimbo Foods Bakeries Distribution, LLC (“BFBD”) (collectively,
“Bimbo”) on Appellants’ Fair Labor Standards Act (“FLSA”) and New York Labor
Law (“NYLL”) claims. In essence, Appellants – who were (and may still be)
delivery drivers of baked goods for Bimbo – contend that the district court erred
in concluding that they were independent contractors and not Bimbo employees.
We assume the parties’ familiarity with the underlying facts, the procedural
history of the case, and the issues on appeal.
I. Appellants’ FLSA Claims Against BFBD
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
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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 *8. 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.
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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
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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,
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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 *7. 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 *8. 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.
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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
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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 end-
market consumers.” 2019 WL 2866168, at *10. 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
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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.
II. Appellants’ NYLL Claims Against BFBD
After granting summary judgment in favor of Bimbo on Appellants’ FLSA
claims, the district court also granted summary judgment on Appellants’ state-law
NYLL claims. The record is silent regarding whether diversity jurisdiction would
support Appellants’ NYLL claims. But even if supplemental jurisdiction is the
only basis for supporting Appellants’ NYLL claims, the district court did not abuse
its discretion in refusing to dismiss those claims after deciding Appellants’ federal
claims on the merits. See Kroshnyi v. U.S. Pack Courier Servs., Inc., 771 F.3d 93, 102
(2d Cir. 2014) (holding that the district court did not abuse its discretion in
exercising supplemental jurisdiction over state labor law claims after dismissing
FLSA claims, where “discovery had been completed, dispositive motions had been
submitted, and the case would soon be ready for trial”).
In determining whether a worker is an employee or an independent
contractor under the NYLL, courts consider the factors outlined in Bynog v. Cipriani
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Grp., Inc., namely: “whether the worker (1) worked at his own convenience,
(2) was free to engage in other employment, (3) received fringe benefits, (4) was
on the employer’s payroll and (5) was on a fixed schedule.” 1 N.Y.3d 193, 198
(2003). Although these factors are similar to those considered under the FLSA
inquiry, the focus of the Bynog test is slightly different: “the critical inquiry in
determining whether an employment relationship exists [under the NYLL]
pertains to the degree of control exercised by the purported employer over the
results produced or the means used to achieve the results.” Id.
We have already discussed all factors relevant to the NYLL inquiry except
whether Appellants received fringe benefits or were on Bimbo’s payroll.
Appellants concede that Bimbo “did not provide [Appellants] with benefits or put
them on their payroll,” but they argue that these factors should not weigh against
them because it is precisely Bimbo’s failure to pay benefits or characterize them as
employees that is being challenged. While this argument has some merit,
Appellants themselves “claimed expenses and took deductions from their taxes for
tens of thousands of dollars in business expenses for their distributorships.” 2019
WL 2866168, at *3. Under New York law, “the manner in which the relationship
is treated for income tax purposes is certainly a significant consideration,”
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although “it is generally not singularly dispositive.” Gagen v. Kipany Prods., Ltd.,
812 N.Y.S.2d 689, 691 (3d Dep’t 2006). Thus, while Appellants can hardly be
faulted for claiming tax benefits associated with independent contractor status, as
that was how Bimbo labeled their relationship, the third and fourth Bynog factors
do still weigh against them.
As IOs, Appellants set their own schedules (Factor 5) and worked at their
own convenience (Factor 1). And although Appellants did not generally work for
any companies other than Bimbo or carry other companies’ products, the
distribution agreements made clear that they were free to engage in other
employment (Factor 2). Most importantly, Bimbo exercised a minimal “degree of
control” over Appellants’ day-to-day operations and the ultimate success of their
distributorships. Bynog, 1 N.Y.3d at 198. All five Bynog factors therefore weigh in
favor of concluding that Appellants were independent contractors, not BFBD’s
employees, under the NYLL.
III. Appellants’ FLSA and NYLL Claims Against BBUSA
Although it is not entirely clear from its opinion, the district court also
appears to have held that Appellants were not BBUSA’s employees under the
FLSA or NYLL. The district court refers to BFBD and BBUSA, collectively, as
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“Bimbo” throughout its opinion, and it held that “the economic reality of the
relationship between [Appellants] and Bimbo is that [Appellants] were
independent contractors” under the FLSA. 2019 WL 2866168, at *11. The district
court nevertheless went on to hold that, because BBUSA was not a “joint employer
with BFBD[,] . . . all claims against BBUSA [were dismissed] as a matter of law.”
Id.
The district court’s opinion appears to confuse two issues related to
employer status. As we explained in Zheng v. Liberty Apparel Co., we apply “two
different tests to determine whether an employment relationship exists” under the
FLSA. 355 F.3d 61, 66 (2d Cir. 2003). One test examines whether an entity is an
employee’s “joint employer,” and it applies when it is undisputed that the worker
is already employed by one entity, but there is a question over whether that
worker is also employed by the putative employer. See id. at 67 & n.2. The other
test – the Superior Care test – has “been used primarily to distinguish independent
contractors from employees” because it “help[s] courts determine if particular
workers are independent of all employers.” Id. at 67–68. This case involves only
that second question – whether Appellants were independent of both BFBD and
BBUSA – so whether BBUSA is a “joint employer” is ultimately irrelevant.
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Nevertheless, Appellants do not point to any facts that meaningfully
distinguish their relationship with BBUSA from their relationship with BFBD.
Thus, for the same reasons that BFBD was not Appellants’ employer under either
the FLSA or the NYLL, BBUSA was also not their employer.
* * *
We have considered the remainder of Appellants’ arguments and find them
to be without merit. Accordingly, the judgment of the district court is AFFIRMED.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
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