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Doty shoots down med-transport firm’s defense that drivers aren’t integral
A Minnesota U.S. District Court judge has granted summary judgment to the federal government in a labor dispute over a medical transportation company’s “independent contractors.”
Some of the evidence and arguments that Eden Prairie-based Travelon offered to demonstrate that its drivers weren’t employees proved “unreliable,” and “frankly, absurd,” U.S. District Court Judge David S. Doty found.
His Aug. 9 ruling grants summary judgment to the U.S. Department of Labor and declares that Travelon’s 21 drivers are, in fact, employees. All are thus owed overtime pay, while 11 drivers are owed additional money because Travelon failed to pay them a minimum wage, the judge ruled.
Doty’s ruling orders Alpha & Omega USA, Inc., which does business as Travelon, to pay the drivers $254,628.20 in total back wages and liquidated damages. Owner Viktor Cernatinskij was found to be jointly and severally liable.
The judge further enjoined the company from withholding back wages or violating federal minimum wage, overtime or record-keeping laws. It must also properly classify all current and future drivers as employees and pay them accordingly, the judge ruled.
The company’s Bloomington-based attorney, Michael J. Minenko, did not reply to an email seeking comment about a potential appeal.
Trump-era Labor Secretary Eugene Scalia filed civil action against Alpha & Omega USA and Cernatinskij in 2020. The department accused the company of violating the federal Fair Labor Standards Act (FLSA). The action was later taken over by President Joe Biden’s Labor secretary, Martin J. Walsh.
The suit alleged that the company, which transports elderly and disabled patients to medical appointments, misclassified drivers as independent contractors. It sought recovery of unpaid minimum wage and overtime, liquidated damages equal to those unpaid wages, plus injunctive relief.
Both parties filed motions for summary judgment. The company’s was denied on Aug. 9. The secretary’s was granted.
It’s clear from his 36-page order’s second footnote that Cernatinskij and his company tried Doty’s patience. Attached to the heading “Background,” the footnote reads:
“Defendants make many unsupported, misleading and refuted factual assertions in their briefing. Because they are unreliable, the court will not include them in the background section.”
Cernatinskij is the founder, sole owner and chief executive officer of Travelon—a company with annual revenues exceeding $500,000—and he claims to be its only employee. However, his sister, Maria Cernatinschi, is its registered agent and has dispatched for the company for 20 years, “with no other employment.” The company also has another dispatcher, the judge writes.
In the company’s July 2 reply to a motion from the Labor secretary opposing Travelon’s summary judgment request, attorney Minenko asserts that the Labor Department can’t meet its burden to show that drivers were Cernatinskij’s employees.
In part, Minenko’s reply claims, drivers are not “an integral part” of the transport company’s business. It reads:
“As a provider of leased wheelchair accessible vans and dispatch services to special transportation service drivers, Travelon is an intermediary company that supports the drivers’ transportation businesses; it is not a transportation company that employs drivers. The service rendered by the drivers is not an integral part of Travelon’s business of leasing vans and selling dispatch subscriptions.”
The document also claims that Travelon lacks sufficient control over its workers to be considered “an employer” and that its drivers, as independent contractors, are “free under the independent contractor agreements with Travelon to branch out on their own.”
Among its other arguments, the written reply maintained that drivers “have complete freedom” to work as many hours as they wish, and that workers’ relationships with the company lack the kind of permanency required to be classified as employees. If they want to be more economically successful, the reply says, they need only work harder.
“The totality of the circumstances demonstrates that the drivers were independent contractors and not employees of defendants,” the company’s July 2 filing says.
In analyzing the six factors that courts must evaluate to determine whether “the economic reality of the arrangement” constitutes an employer/employee relationship, Doty knocks down Travelon’s arguments one by one.
First, Doty finds, drivers are not just integral to Cernatinskij’s business—they are central.
“Specifically,” he writes, “clients pay Travelon to drive them to and from their medical appointments. Without drivers, Travelon would be unable to provide those services to clients and would not generate revenue.”
The idea that the company only provides dispatching and vehicle leasing services to its drivers, and is merely the intermediary between drivers and clients, is belied by the record, the judge finds, adding:
“Defendants’ argument that their drivers are somehow not integral to their business is disingenuous and, frankly, absurd.”
The “degree of control” factor also weighs in favor of the secretary’s claim, Doty ruled, because defendants exercised “meaningful” control over economic aspects of the business.
For example, dispatchers assigned trips to drivers. The company limited the geographic scope of those trips and pressured drivers to take trips even if they wished to decline. Drivers were not given access to an app that might tell them if other trips were available and they could only accept trips assigned by Travelon dispatchers.
Additionally, the company constantly monitored drivers’ whereabouts with GPS tracking devices, dictated break times and instructed drivers how long they had to wait for appointment no-shows before they could move on. “In other words, defendants controlled nearly every significant aspect of the drivers’ work,” Doty writes.
The judge almost openly scoffs at the company’s claim that it lacked knowledge that its drivers worked more than 40 hours so shouldn’t be liable for FLSA overtime violations.
Travelon and Cernatinskij required drivers to submit weekly trip logs that tracked the drivers’ start and end times, he found. It orchestrated their daily work schedules, directed all their movements and consistently pushed them to work nearly 12-hour days, Doty found. He writes:
“Defendants should have known—and almost surely did know—that drivers worked overtime and, therefore, violated the FLSA’s overtime compensation requirements.”
Other factors, too, weighed in favor of drivers’ employee status, the judge found. For example, while drivers might nominally have been allowed to work for other companies, Doty found that in all practicality that was impossible.
That’s because special transportation services (STS) drivers must register with the state and obtain a MNDOT number. To work for more than one company, a driver would need to maintain both separate insurance and get their own MNDOT number, separate from the one that Travelon maintains. But MNDOT rules forbid providers from having two numbers, Doty found. So Travelon drivers could not individually register themselves as STS providers to work anywhere else.
“As a matter of economic reality,” he writes, “drivers did not work for other competitors or clients and, in fact, due to MNDOT restrictions, could not do so.”
Other factors—the degree of skill required to do the job, workers’ investments in equipment and the permanency of their relationship to the company—also favor employment status, the judge ruled.
On the issue of permanency, for example, the judge found that 19 of the company’s 21 drivers drove for Travelon for more than a year. Several worked there for more than five years, and one did for more than a decade.
The mere fact that drivers signed independent-contractor agreements with Travelon was not dispositive, Doty ruled. In fact, because those agreements included automatic 180-day renewal clauses, workers’ relationship to the company were apparently indefinite. So the contracts actually favor the conclusion that drivers were employees, the judge found.
“In sum,” he writes, “all six factors favor employee status. The court therefore finds that the drivers were employees of Travelon as a matter of law.”
Therefore, he ruled, back wages, overtime and liquidated damages are owed by the company to its drivers.
Doty noted that Cernatinskij and his company were sued by seven drivers in 2016—a case that settled out of court after U.S. District Court Judge Paul A. Magnuson denied Travelon’s summary judgment motion. Because the company made no discernible change to its business practices after that case, Doty ruled Monday, an injunction was necessary.
Flurry of litigation
The decision arrives amid a flurry of “gig economy” litigation challenging many companies’ practice of classifying workers as independent contractors.
In mid-July, for example, a federal judge in Denver gave preliminary approval to a class-action FLSA lawsuit against two oil and gas companies, which classified its safety consultants as independent contractors.
A suit filed in California’s Central U.S. District Court in early July against Taco Bell corporate parent Yum! Brands charges the company failed, under the federal Employee Retirement Income Security Act, to provide retirement benefits to workers allegedly misclassified as an independent workers.
In 2020, the California attorney general and city attorneys from Los Angeles, San Diego and San Francisco sued Uber and Lyft; a state appellate court later upheld a preliminary injunction prohibiting them from classifying their drivers as independent contractors. But in November 2020, California voters overwhelmingly approved a ballot initiative that allows the companies to avoid treating their workers as employees.
Gregg M. Corwin, a Hopkins labor-law attorney not involved in the Travelon litigation, said the litigation is symptomatic of a legal, regulatory and business landscape in flux. It’s not known if or how Congress might react to those changes, he said. Nor is the scale of change that the Biden administration might bring to bear on his National Labor Relations Board and Labor Department well understood.
At some point, Corwin said, the U.S. Supreme Court will probably have to step in and settle matters. But until that happens, he said, he doesn’t put much stock in the results of a single case like the Travelon decision—a case he thinks likely will be appealed.