In a case with significant consequences for gig economy workers and businesses in the Commonwealth, the Virginia Court of Appeals ruled recently that Amazon Logistics, Inc. (Amazon) had misclassified Ronald Diggs, a Flex delivery driver, as an independent contractor, when, in fact, he was an Amazon employee. With the Court’s finding, Amazon now owes unemployment insurance taxes and penalties to the Commonwealth of Virginia not only for Diggs, but for all its similarly misclassified Flex delivery drivers.
So, What is an “Amazon Flex” Driver?
The Court of Appeals described Amazon’s Flex program as “an ‘Uber-like system’ of independent drivers who deliver Amazon packages.” How that worked for Diggs and other Amazon Flex drivers is described briefly below. But if you’re like me, though, you have likely seen a Flex driver in your neighborhood, driving their own personal vehicle, sans-Amazon markings, wearing an Amazon-issue safety vest, paired with an Amazon-logoed shirt, transporting Amazon-labeled packages to leave at your front door, looking a lot like an Amazon employee.
How Did the Case Wind Up in the Court of Appeals?
The genesis of the case is a long one, going back to July 3, 2019, when Diggs filed an unemployment claim with the Virginia Employment Commission (VEC). The VEC initially denied Diggs’ claim but ultimately determined that he was entitled to unemployment benefits because “the work [he] performed as a flex driver was employment as defined by the Virginia Unemployment Compensation Act (Act).” Amazon appealed the VEC’s decision to the Circuit Court of the City of Richmond, Virginia, which affirmed the VEC’s findings. Dissatisfied with the Circuit Court’s ruling, Amazon appealed again, this time to the Court of Appeals of Virginia.
What was Amazon’s Defense of its Classification of Diggs as an Independent Contractor?
The Court of Appeals summed up Amazon’s various arguments as a “claim that it does not issue instructions for when, where, or how Flex drivers work and that it maintains no right to require Flex Drivers to comply with such instructions. However, the Court concluded that VEC and Circuit Court had gotten it right: Amazon Flex drivers, including Diggs, were subject to a sufficient degree of control of their work by Amazon that was strongly suggestive of an employer-employee relationship applying the IRS’s 20-factor test used under the Act to “determine whether a “putative employer ‘exercise[s] sufficient control over the individual for the individual to be classified as an employee.’”
Amazon’s Extensive Control over Diggs was the Key.
“Control,” according to the Court of Appeals, is “the core” consideration in the 20-factor inquiry. All 20-factors are explained by the IRS here. An employer-employee relationship exists when the entity for which the services are performed “ha[s] the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished.” That description was an apt fit for the relationship between Amazon and its Flex delivery drivers, although Amazon maintained throughout the proceedings that Flex drivers were self-employed independent contractors.
Indicative of the extent of Amazon’s control over Diggs was that the company required him to perform Flex delivery services in a specific sequence. More specifically, the VEC found that Amazon required Flex drivers to: sign up for “blocks” of packages, with assigned start times; arrive at the Amazon facility at least 30 minutes before a delivery block; refrain from leaving for their route until released by Amazon; deliver all packages or return them to Amazon’s warehouse by no later than 9:00 p.m.; use a preset route for the delivery of packages; and not engage in negotiations with other drivers on a particular route or trade with other flex drivers to complete delivery blocks. Moreover, while Diggs used his own vehicle while working as a Flex Driver, he testified that he was told by the company that he “represented Amazon” while he was out there driving.
What Impact is the Court of Appeals Decision Expected to Have on Virginia Employers?
As noted above, the Court of Appeals described the Amazon Flex driver program as “an ‘Uber-like system’ of independent drivers who deliver Amazon packages.” For Virginia gig economy businesses that utilize a Flex-like arrangement in which workers provide services, facilitated through digital means, to the business on demand,” the message is clear: carefully evaluate those labor relations using the applicable IRS 20-factor test. Classifying workers over which the business exercises the kind of control that Amazon had over Diggs as independent contractors will typically violate the Act and subject the business to applicable unemployment payroll taxes and penalties imposed by the Act. As the Court of Appeals’ 32-page decision makes clear, worker classification is highly fact-intensive and can be exceedingly difficult for employers to get right.
Bean, Kinney & Korman’s employment law practice group works proactively with employers of all sizes, to craft a full range of employment policies and documents, including workforce audits, employment agreements, and independent contractor agreements, to meet the compliance challenges of all applicable federal, state, and local laws.
If you have questions about the Court of Appeals decision or need assistance, please contact Doug Taylor at (703) 525-4000 or email@example.com, or your current Bean, Kinney & Korman attorney.
This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.