Indiana Supreme Court: Driver for Large Vehicle Transportation Matching Service Properly Classified as Independent Contractor

Resolving split decisions among Indiana Court of Appeals panels, the Indiana Supreme Court ruled on January 23, 2019, that a transportation matching service properly classified a driver as an independent contractor.  Q.D.-A, Inc. v. Indiana Department of Workforce Development. In so holding, the court provided potentially valuable insight into Indiana’s ABC test that may prove helpful to employers with independent contractor drivers.

Background

In Q.D.-A, a former driver for Q.D.-A filed for unemployment compensation with the Department of Workforce Development (DWD). Q.D.-A contracted with drivers to transport recreational and other non-towable vehicles, from manufacturers to dealerships and buyers.  After determining Q.D.-A had not paid unemployment taxes for the applicant driver, the DWD determined the driver should have been classified as an employee.

An administrative law judge (ALJ) affirmed the DWD’s decision, but the Indiana Court of Appeals reversed, holding that the driver – who provided his own equipment, determined his own hours, negotiated his pay per trip, and could even outsource his work to other drivers – was an independent contractor. In a 5-0 decision, the Indiana Supreme Court agreed.1

Q.D.-A’s Administrative Challenge

The Indiana Unemployment Compensation Act presumes a worker is an employee unless the employer can satisfy the so-called “ABC test”: (A) the worker is free from the employer’s control and direction; (B) the worker performs a service outside the usual course of the employer’s business; and (C) the worker receives a commission or operates an independently established trade, occupation, or profession.

The ALJ found Q.D.-A did not satisfy the first two prongs of the ABC test. Specifically, the ALJ found Q.D.-A controlled the driver because it provided a two-day orientation to its independent contractors to train them on federal regulations, and required them to take a driving test. The ALJ further reasoned that the driver performed work within Q.D.-A’s usual course of business because the company provided for transportation and the drivers provide that transportation.

Indiana Court of Appeals and Supreme Court Reverse Administrative Decision

Both the Indiana Court of Appeals and the Indiana Supreme Court rejected the ALJ’s analysis. The Supreme Court concluded that the driver, “expressly understood and agreed” he was an independent contractor when he executed the contract, and had “total control over how – and even if – he completed his work.”  The driver could refuse jobs without repercussions, work for competitors, and negotiate his per-trip pay. Notably, the court found Q.D.-A did not have control over the driver simply because it provided training on federal regulations the driver was required to follow independent of his relationship with Q.D.-A.2

The court next found the driver performed an activity outside Q.D.-A’s usual course of business, reasoning that Q.D.-A’s business was to arrange for transportation while the driver’s business was to actually provide that transportation. As the middleman, Q.D.-A connected the driver to the customers and did not provide the drive-away service itself. Because the ALJ unreasonably concluded Q.D.-A failed to satisfy the ABC test, the court reversed the decision.

Takeaway for Businesses Operating in Indiana

The court’s decision could have a much larger application.  First, the court found Q.D.-A did not exert control over the drivers by training them in the federal government transportation requirements.  Thus, businesses in Indiana do not fail the ABC test or lose the right to use independent contractors simply because the contractors are required to comply with federal regulations.  

Second, a key factor for the court was identifying the transportation-sharing business as a middleman that provided a service other than that directly offered by the contractor.  This finding is useful for other on-demand business models that are similarly the “middlemen” that facilitate others to provide the service and do not employ the service providers.   

It remains to be seen how the Indiana courts will analyze those arguments, but Q.D.-A is a step forward in the law’s approach to the ever-evolving landscape of the gig economy. 


See Footnotes

1 The Indiana Supreme Court granted the DWD’s petition to transfer to resolve a split between the Court of Appeals finding in Q.D.-A and Company v. Indiana Dep’t of Workforce Dev., 86 N.E.3d 204, 209 (Ind. Ct. App. 2017) (holding that an administrative law judge’s conclusion that a drive-away driver was an employee was reasonable).

2 2019 Ind. LEXIS 33, at *10 (citing Local 777, Democratic Union Org. Comm., Seafarers Int'l Union of N. Am., AFL-CIO v. NLRB, 603 F.2d 862, 875 (1978) (noting “[g]overnment regulations constitute supervision not by the employer but by the state.”)

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.