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Court Rejects Choice of Law in Driver Agreements

Because states have varying rules regarding whether a person is an independent contractor or an employee, employers should be cautious when making that designation.

March 8, 2012
Related Topics: Miscellaneous Legal Issues, Legal
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Fernando Ruiz, a California driver for Affinity Logistics Corp., signed "independent truckman's" agreements and equipment lease agreements with Affinity that characterized Ruiz and other drivers as "independent contractors."

The agreement specified that disputes would be governed by Georgia law. Ruiz filed a lawsuit in California alleging that Affinity misclassified drivers as independent contractors, failed to pay them overtime as required by the Fair Labor Standards Act and California law, and deprived them of other legally required payments.

The U.S. District Court for the Southern District of California applied California law and held that, since Affinity was incorporated and maintained its business in Georgia, that state's law would control resolution of Ruiz's claims. Applying Georgia law, which presumes independent contractor status, the court held that Ruiz was an independent contractor and, therefore, not entitled to the protections of California law applicable to the employment relationship.

The U.S. Court of Appeals for the 9th Circuit reversed and remanded the district court's ruling. That court held that California law required the trial court to reject application of Georgia law where doing so would be contrary to a fundamental California policy, and to consider if California had a materially greater interest than Georgia in the dispute.

The 9th Circuit said that "Georgia law also is in direct conflict with a fundamental California policy that seeks to protect its workers." The court then remanded the case to the trial court to apply California law in determining whether the drivers are independent contractors or employees. Ruiz v. Affinity Logistics Corp., 9th Cir., No. 10-55581, (Feb. 8, 2012).

IMPACT: Because states have varying rules regarding whether a person is an independent contractor or an employee, employers should be cautious when making that designation.

James E. Hall, Mark T. Kobata and Marty Denis are partners in the law firm of Barlow, Kobata & Denis, with offices in Los Angeles and Chicago. To comment, email editors@workforce.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

Workforce Management, March 2012, p. 8 -- Subscribe Now!

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