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May 04, 2007
Cab Drivers: Employees or Independent Contractors

Are cab drivers independent contractors or employees? A state court recently looked at the factors relevant to that determination.

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What happened. Town Taxi is a Barnstable cab service with 30 drivers. It leases cabs to its drivers, using a lease agreement stating that the relationship of the parties is strictly lessor-lessee, not employer-employee, and requiring the drivers to acknowledge that they weren't eligible for unemployment benefits. Drivers choose their shifts, but the company keeps the cabs' gas tanks full and provides all insurance, maintenance, and repairs.

At the end of each shift, drivers give 50 percent of their fares to the company and keep the other half. They are allowed to do other paying jobs while driving their cabs. In fact, many drivers took on other jobs such as delivering newspapers, performing collection work, or working as home health aides. The company doesn't provide workers' comp insurance nor does it provide drivers with W-2 forms or Internal Revenue Service Form 1099s. But when a driver tried to collect unemployment, the Division of Unemployment Assistance decided that the cab drivers were employees. Town Taxi argued that they were independent contractors, and the case made its way into the state court system.

What the court said. Massachusetts General Laws Chapter 151A, Section 2, states that a worker's services are employment unless the business can meet all factors of a three-part test. The company must show that the services are performed (a) outside its control and direction; (b) outside of the usual course of business, OR outside all its places of business; and (c) as part of an independently established trade, occupation, or business.

On test (a), the company showed that the drivers were free to choose which shifts to work, were not obligated to respond to calls, and could engage in other employment on their shifts. Test (b) required that only one of its two prongs be met, and Town Taxi met the second one because the drivers' services were performed outside the company's business premises. On test (c) the company showed that taxi driving services are an independent enterprise: The drivers were free to find customers on their own and could do other jobs. The court ruled for Town Taxi. Commissioner of the Division of Unemployment Assistance v. Town Taxi of Cape Cod, Inc. Appeals Court of Massachusetts, No. 06-P-684 (3/12/07).

Point to remember: A company may not deem its workers independent contractors merely by having them sign an agreement denying the existence of an employer-employee relationship and stating that workers aren't eligible for unemployment. And Massachusetts law states that the failure to withhold federal or state taxes or to pay comp premiums may not be used to determine whether someone is an employee.

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