863 To Go, Inc. v. Dept. of Labor, 2014 VT 61
By Andrew Delaney
You’ve got to pay to play. So says the Vermont Employment Security Board with some backup from the SCOV.
Here’s an interesting business model. Start a corporation that offers food-delivery services from area restaurants that don’t have their own drivers. But try not to actually “employ” drivers. Instead, have drivers go through an independent agency, use their own cars, and let them choose whether or not to take an assignment. The logistics aren’t particularly complicated—the bottom line is that “approved drivers”—approved through the third-party agency—have access to the delivery provider’s website and can pick up assignments as they see fit.
Drivers don’t take orders. Their responsibilities are limited to delivering food and collecting cash if payment hasn’t been made in advance. The delivery provider handles most of the backend logistics—taking orders, getting the orders to participating restaurants, paying the restaurants, etc.
Drivers “cash out” at corporation’s office at the end of the night. They pay for the food and a fixed delivery charge. They keep any cash tips. In turn, the third-party agency (presumably) pays a per-delivery charge to the drivers.
Seems like a pretty good idea? Somebody thought it was and did exactly that in Burlington. Since Burlington is a college town, you have a “healthy” market and a steady supply of drivers most likely. Also, because you don’t “employ” the drivers, they’re not really employees and you avoid all those pesky regulations and stuff, right?
So corporation (or employer if you wish) figured that it didn’t have to pay into the unemployment system for the drivers. Corporation was wrong. After a field audit, “the Unemployment Insurance and Wage Division of the Vermont Department of Labor assessed an unemployment compensation contribution against [corporation] for wages paid to 136 individual drivers over twelve quarterly periods.”
If I’m not mistaken, that’s three years’ worth of contributions to the unemployment system. Ouch.
So corporation asked for a hearing, and got one before an administrative law judge, who ruled in favor of the Department. Next, the Vermont Employment Security Board upheld that decision. Corporation appealed directly to the SCOV.
The SCOV’s review of Employment Security Board decisions is “highly deferential.” Facts stand unless clearly erroneous, and conclusions of law stand if reasonably supported by the findings of fact. Additionally, the SCOV defers to the Board’s “interpretations of the statutes it is charged with administering.” In other words, the Board has to really go off the rails before the SCOV will be inclined to overturn a Board decision.
Vermont’s definition of employment is very broad, and anyone who is employed is entitled to unemployment compensation benefits. So, all employers have to pay in to the unemployment-compensation system for all their employees.
Interestingly, though corporation initially argued that its drivers were self-employed, it abandoned that argument on appeal to the Employment Security Board. Instead, corporation argued that its drivers were “direct sellers” and that’s the only issue on appeal to the SCOV.
What’s a direct seller? Well, there’s a statutory definition, with three qualifying requirements (if you click the link, you have to scroll three-quarters of the way down the page to subsection (6)(C)(xxi)). Essentially, “direct seller” means a person who: (1) does home sales or sells in locations other than traditional retail establishments; (2) almost all the person’s pay is directly related to sales or other output, not hours worked; and (3) has a written contract with the person for whom services are performed providing that the person will not be treated as an employee for tax services. What we’re talking about here is door-to-door salespeople, more or less.
So what did the Employment Security Board do with that? It ruled that the drivers weren’t selling anything, because corporation handles all the sales; it likened the drivers to couriers, whom the Board “have repeatedly found to be employees rather than independent contractors.”
The SCOV agrees. There’s an entertaining discussion of the finer legal points of ordering a pizza, but I’m not stealing the SCOV’s thunder—click on the link and read the opinion. The point is that the “delivery driver plays no discernible role in creating the contract of sale.” The drivers simply deliver food—they don’t “sell” anything.
Now, on the second and third factors, corporation has a point and the Department of Labor even concedes that corporation has a point, but it’s a moot point ‘cause drivers aren’t selling anything, and the SCOV isn’t “buying” corporation’s argument (couldn’t help myself—sorry).
So that’s the deal. An “employee” is very broadly defined, and that can mean a big bill from the Department of Labor if you don’t pay in to the unemployment-compensation system. Sorry, Burlington-based college kids—delivery may’ve just gotten a little more expensive.
By Andrew Delaney
You’ve got to pay to play. So says the Vermont Employment Security Board with some backup from the SCOV.
Here’s an interesting business model. Start a corporation that offers food-delivery services from area restaurants that don’t have their own drivers. But try not to actually “employ” drivers. Instead, have drivers go through an independent agency, use their own cars, and let them choose whether or not to take an assignment. The logistics aren’t particularly complicated—the bottom line is that “approved drivers”—approved through the third-party agency—have access to the delivery provider’s website and can pick up assignments as they see fit.
Drivers don’t take orders. Their responsibilities are limited to delivering food and collecting cash if payment hasn’t been made in advance. The delivery provider handles most of the backend logistics—taking orders, getting the orders to participating restaurants, paying the restaurants, etc.
Drivers “cash out” at corporation’s office at the end of the night. They pay for the food and a fixed delivery charge. They keep any cash tips. In turn, the third-party agency (presumably) pays a per-delivery charge to the drivers.
Seems like a pretty good idea? Somebody thought it was and did exactly that in Burlington. Since Burlington is a college town, you have a “healthy” market and a steady supply of drivers most likely. Also, because you don’t “employ” the drivers, they’re not really employees and you avoid all those pesky regulations and stuff, right?
So corporation (or employer if you wish) figured that it didn’t have to pay into the unemployment system for the drivers. Corporation was wrong. After a field audit, “the Unemployment Insurance and Wage Division of the Vermont Department of Labor assessed an unemployment compensation contribution against [corporation] for wages paid to 136 individual drivers over twelve quarterly periods.”
If I’m not mistaken, that’s three years’ worth of contributions to the unemployment system. Ouch.
So corporation asked for a hearing, and got one before an administrative law judge, who ruled in favor of the Department. Next, the Vermont Employment Security Board upheld that decision. Corporation appealed directly to the SCOV.
The SCOV’s review of Employment Security Board decisions is “highly deferential.” Facts stand unless clearly erroneous, and conclusions of law stand if reasonably supported by the findings of fact. Additionally, the SCOV defers to the Board’s “interpretations of the statutes it is charged with administering.” In other words, the Board has to really go off the rails before the SCOV will be inclined to overturn a Board decision.
Vermont’s definition of employment is very broad, and anyone who is employed is entitled to unemployment compensation benefits. So, all employers have to pay in to the unemployment-compensation system for all their employees.
Interestingly, though corporation initially argued that its drivers were self-employed, it abandoned that argument on appeal to the Employment Security Board. Instead, corporation argued that its drivers were “direct sellers” and that’s the only issue on appeal to the SCOV.
What’s a direct seller? Well, there’s a statutory definition, with three qualifying requirements (if you click the link, you have to scroll three-quarters of the way down the page to subsection (6)(C)(xxi)). Essentially, “direct seller” means a person who: (1) does home sales or sells in locations other than traditional retail establishments; (2) almost all the person’s pay is directly related to sales or other output, not hours worked; and (3) has a written contract with the person for whom services are performed providing that the person will not be treated as an employee for tax services. What we’re talking about here is door-to-door salespeople, more or less.
So what did the Employment Security Board do with that? It ruled that the drivers weren’t selling anything, because corporation handles all the sales; it likened the drivers to couriers, whom the Board “have repeatedly found to be employees rather than independent contractors.”
The SCOV agrees. There’s an entertaining discussion of the finer legal points of ordering a pizza, but I’m not stealing the SCOV’s thunder—click on the link and read the opinion. The point is that the “delivery driver plays no discernible role in creating the contract of sale.” The drivers simply deliver food—they don’t “sell” anything.
Now, on the second and third factors, corporation has a point and the Department of Labor even concedes that corporation has a point, but it’s a moot point ‘cause drivers aren’t selling anything, and the SCOV isn’t “buying” corporation’s argument (couldn’t help myself—sorry).
So that’s the deal. An “employee” is very broadly defined, and that can mean a big bill from the Department of Labor if you don’t pay in to the unemployment-compensation system. Sorry, Burlington-based college kids—delivery may’ve just gotten a little more expensive.
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