Last Friday, October 14, a group of 17 “agency operators” for jointly-owned Avis Rent a Car and Budget Rent a Car filed a class action class action complaint in California alleging that the rental car agencies misclassified them as independent contractors (ICs) instead of employees. Although the agency operators acknowledge that they each signed “Agency Operator Agreements” that classified them as ICs, the lawsuit alleges that, in practice, Avis and Budget exercised “total control” over each agency operator in the following ways:
- each rental location belonged to or was rented by Avis or Budget;
- the plaintiffs made no initial investment to become an agency operator;
- Avis and Budget provided all the rent, uniforms, services, machinery, equipment, and written material;
- the defendants “completely controlled the manner and means of the rental vehicle process”;
- Avis and Budget dictated the hours the locations would be open, and controlled the manner in which the material would be distributed or displayed to the public;
- the agency operators were “supervised and managed” by the defendants, given performance goals, and given written warnings “in the same manner they would [as] an employee”;
- Avis and Budget directed and controlled the nature of the work performed by the plaintiffs and required them to fill out paperwork and report the rentals by computer to Avis and Budget; and
- the agency operators were subject to Avis and Budget’s right to terminate the agency operators “at will”.
The plaintiffs also allege that they worked hours in excess of 40 in a workweek without overtime pay owed to them as employees, and that Avis and Budget illegally deducted expenses from their pay, failed to pay them termination pay, failed to allow and pay for meal and rest periods, and failed to pay them fringe benefits.
Notably, the plaintiffs did not allege a violation of California’s new Independent Contractor Law that prohibits “willful misclassification” of employees as ICs. That law was enacted five days before the lawsuit was filed.
While many types of functions can be structured and documented in a manner consistent with a lawful and legally compliant IC business model, the allegations in this lawsuit indicate that these rental car companies may not have structured, documented, or put their IC models into practice in a manner that complies with the law. Of course, Avis and Budget have not yet filed an Answer to the Complaint and the evidence may show that they fully complied with the relevant laws by creating and maintaining a legitimate IC relationship with their agency operators. Other rental car companies and comparable types of businesses that are structured in large part on an IC model should take heed of this lawsuit and others like it and promptly:
- assess their level of compliance with federal and state laws for each state in which they operate, and
- enhance their IC compliance regardless of whether they are structured properly.
All too often, these types of businesses have failed to either properly document their relationships with their ICs in a manner consistent with the factors used by the courts and federal and state administrative agencies to determine a worker’s status, and/or overlooked the need to put into place and maintain practices and procedures that are consistent with a genuine IC relationship.
Pepper Hamilton’s Independent Contractor Compliance Practice Group uses its proprietary IC Diagnostics™ tools including its 48 Factors-Plus Analytics™ and IC Compliance Scale™ to advise companies how they can enhance their independent contractor compliance using a number of alternative compliance methods: bona fide restructuring, use of a knowledgeable and experienced staffing company to manage the workers, or reclassification. Companies that properly re-structure, re-document, and implement updated practices can enhance their IC business model and thereby minimize or eliminate exposure to class action lawsuits for misclassification liability under federal and state laws.