Bakery Delivery Drivers Press for Employee Status in 2nd Circuit

A federal appeals court in Manhattan will consider whether a bakery company’s delivery drivers are employees, in a case challenging an independent contractor model that’s used in many industries and could be coming to the gig economy.

The U.S. Court of Appeals for the Second Circuit will hear oral argument today in the drivers’ bid to revive their misclassification lawsuit against Bimbo Foods Bakeries Distribution, a subsidiary of the multinational bakery conglomerate Grupo Bimbo. A New York federal court threw out the lawsuit in 2019.

The case gives the Second Circuit the opportunity to weigh in on how federal and New York wage law treats the employment status of drivers who work for companies under arrangements to distribute their products. A key difference in employment status is that employees—but not independent contractors—are covered by laws governing minimum wage and overtime, anti-discrimination protections, union organizing, unemployment and disability benefits, and other workplace rights.

Beyond the bakery industry and other companies that distribute goods through owner-operator drivers, the case also could have implications for the employment status of passenger and delivery drivers who have a franchisee-franchisor relationship with app-based companies. Uber Technologies Inc. is considering licensing its brand to independently operated franchises in response to a California law that could force it to reclassify its drivers as employees.

The drivers suing Bimbo are attempting to “undermine” the independent contractor model that rewards drivers for their entrepreneurship with flexibility and independence, the U.S. Chamber of Commerce, National Association of Manufacturers, and two baking industry groups said in a brief backing Bimbo.

“Such hostility toward independent contractor relationships is unjustified as a matter of law as well as policy,” the business organizations said.

But illegally applied independent contractor schemes permit companies to save costs, depress wages, and rob drivers of legal protections, the National Lawyers Guild, National Employment Lawyers Association, and other plaintiff-side legal groups said in a brief supporting the drivers.

“These companies that have franchise or distributorship models make drivers pay tons of money to have a job,” said Harold Lichten, of Lichten & Liss-Riordan, who authored the legal groups’ brief. “And once the drivers pay their expenses, they end up making what a delivery driver would make.”

Loss in Lower Court

The case stems from Nicholas Franze and George Schrufer’s class and collective action against Bimbo, which they brought in 2017 on behalf of other drivers who distributed the company’s products in New York. The drivers alleged that they were misclassified under the Fair Labor Standards Act and New York law. They won conditional certification on an FLSA collective of about 800 drivers.

Bimbo contracts with drivers to sell and distribute bakery products along defined routes, but it retains the authority to set prices, the drivers said. The distribution agreements also included non-compete clauses preventing them from delivering other companies’ goods, they said.

U.S. District Judge Nelson Román tossed the lawsuit last year. The judge applied a five-factor test to determine whether the drivers were employees under the FLSA, which looks at elements such as how much control the company has over workers, the workers’ opportunity for profit and loss, and the skill necessary to do the job.

On the control factor, for example, Román said it was the delivery clients and not Bimbo that exerted the most power over the drivers. The non-compete clause was too narrow to establish Bimbo’s control because it only prevented drivers from delivering for competing brands, he said.

The drivers didn’t qualify as employees under New York state law, which uses a slightly different legal test than the FLSA that puts more emphasis on company control, Román said.

Battling Precedents

“We believe that there’s ample precedent to have the Second Circuit reverse the lower court’s decision,” said the drivers’ attorney, Randy Perlmutter of Kantrowitz, Goldhamer & Graifman.

In particular, Perlmutter pointed to a New York state court decision finding that a Bimbo delivery driver was an employee under state unemployment compensation law. That 2018 ruling found the company exercised enough supervision, direction, and control over the driver to be his employer.

But Bimbo argued in its brief that the unemployment decision has no bearing on the drivers’ employment status under state or federal wage law.

Controlling precedent in the Second Circuit, such as its 2017 decision in Saleem v. Corporate Transportation Group, requires the district court’s decision to be upheld, the company said.

The drivers voluntarily chose the regions and stores they had exclusive rights to sell products to when they entered into their distribution agreements, showing that they weren’t under Bimbo’s control, the company said.

Like the franchise agreements at issue in the Saleem ruling, the drivers’ agreements explicitly designated them as independent contractors, Bimbo said. And although it wasn’t a requirement, one of the named plaintiffs formed a corporation to operate his business, the company said.

Bimbo’s attorney, Michael Puma of Morgan Lewis & Bockius, didn’t respond to requests for comment.

A Second Circuit panel of U.S. Circuit Judges—Robert Sack, Richard Wesley, and Richard Sullivan—will hear the case. Sack was appointed by Bill Clinton, while Wesley and Sullivan were tapped by George W. Bush and Donald Trump, respectively.

The case is Franze v. Bimbo Foods, 2d Cir., No. 19-02275, Oral argument 9/10/20.