ERIC R. BRANT v. SCHNEIDER NATIONAL, INC., et al.
No. 21-2122
United States Court of Appeals For the Seventh Circuit
ARGUED JANUARY 21, 2022 — DECIDED AUGUST 3, 2022
Aрpeal from the United States District Court for the Eastern District of Wisconsin. No. 20-cv-01049-WCG — William C. Griesbach, Judge.
Before HAMILTON and KIRSCH, Circuit Judges.*
“Schneider“). Schneider is engaged in the business of hauling freight and hires some drivers as employees, while bringing others on as purported independent contractors. Brant hauled freight for Schneider under an agreement that labeled him as an independent contractor in 2018 and 2019. Brant came to believe, however, that Schneider was engaged in a scheme to misclassify his employment status, and he filed this suit.
Brant claims that Schneider (i) violated minimum wage requirements under the federal
We reverse and remand for further proceedings. The district court erred by giving decisive effect to the terms of Schneider‘s contracts. In many areas of the law, the district court‘s approach would be sound, but not under the
I. Factual and Procedural Background
Schneider is a major motor carrier and in 2019 oversaw thousands of trucks in its freight business. Schneider hires most of its drivers as employees, but in 2020 it designated more than a quarter of its drivers as independent contractors. In the industry, such contractors are referred to as “owner-operators.” They frequently own their own trucks and drive for carriers as they choose. Owning a truck for hauling freight requires a significant capital investment, and Schneider sought to recruit drivers who had not independently made that investment by leasing Schneider‘s trucks to some drivers who would then drive for Schneider under contract. Brant became an “owner-operator” under such an arrangement with Schneider, and he worked for the carrier from December 2018 to August 2019.
Brant‘s relationship with Schneider involved two related contracts: (i) the Lease, under which he leased a relatively new Freightliner truck from Schneider; and (ii) the Operating Agreement, under which Brant would lease the truck back to Schneider and receive 65% of the gross revenue for shipments he hauled for Schneider. The Operating Agreement purported to give Brant substantial control over his work. It also included provisions permitting him to haul loads for other carriers and to hire other drivers to assist if he desired. He was also responsible for all operating expenses under this contract. Schneider retained sole discretion, however, to deny him permission to haul loads for other carriers. The Lease also depended in part on the continuation of the Operating Agreement. Termination of the Operating
Brant and Schneider provide starkly different accounts of Brant‘s actual work. Brant alleges that he struggled to haul enough profitable shipments to keep ahead of his operating costs and charges from Schneider. In his account, Brant was not able to exercise his independent expertise to increase his margins. He simply had to say yes to as many loads from Schneider as he could, even when they were highly undesirable. For example, Brant claims that during the week of May 2, 2019, he drove over 3,000 miles hauling five shipments for Schneider, and because of the expenses that Schneider deducted from his pay he received zero net pay. In Brant‘s view, the Operating Agreement and Lease were designed to misclassify him as an independent contractor, while Schneider controlled him in the manner of an employee without respecting his rights under federal and state employment laws.
Brant claims that at one point he sought to terminate the Operating Agreement and haul freight in his leased truck for another carrier. He alleges that Schneider demanded such a large security deposit to allow him to haul for another carrier that he was unable to afford it. Schneider eventually seized Brant‘s truck when he later terminated the Operating Agreement and could not pay the additional security deposit.
Schneider sees things differently, relying on the terms of the written contracts. Schneider explains that it extended credit to Brant that allowed him to lease а truck and operate his own independent business. In Schneider‘s view, Brant freely engaged to haul freight for the carrier and was free to accept or reject the shipments he was offered while retaining total operational control of his business. To Schneider, the Operating Agreement and Lease show that Brant was an independent contractor whom Schneider enabled to manage his own operations, to hire additional drivers, or to haul loads for other carriers.
Brant sued Schneider in July 2020, claiming violations of federal and state law. First, Brant alleged that Schneider failed to pay him the federal minimum wage that he was due as an employee under the FLSA. Second, he alleged that Schneider also failed to pay him the minimum wage required for an employee under Wisconsin law. Third, Brant alleged that his contracts with Schneider were void as unconscionable, and that Schneider unjustly enriched itself by retaining certain money deducted from his pay in violation of Wisconsin law. Fourth, Brant alleged that Schneider violated certain Truth-in-Leasing regulations requiring the disclosure of information to owner-operators, giving him a cause of action under
Before resolving whether Brant could proceed on his FLSA claim as a collective action under
II. Analysis
We review de novo a district court‘s dismissal for failure to state a claim
A. FLSA Claim
The Fair Labor Standards Act provides: “Every employer shall pay to each of his employees who in any workweek is engaged in commerce” the federal minimum wagе, which is now $7.25 per hour. See
Brant satisfies the latter point easily. For example, he alleges that during the week of May 2, 2019 he drove over 3,000 miles to deliver five shipments, but received no net pay for the week. Because Brant‘s complaint allows a plausible inference that he was underpaid during at least one workweek, he has stated a claim for minimum wage under the FLSA if we can plausibly infer from his complaint that he was an employee covered by the Act.
Under the FLSA, and with certain exceptions not at issue here, the definitions of key relevant terms are both broad and circular:
(d) “Employer” includes any person acting directly or indirectly in the interest of an employer in relation to an employee....
(e)(1) ... the term “employee” means any individual employed by an employer.
...
(g) “Employ” includes to suffer or permit to work.
The Supreme Court noted in 1947 that these definitions in the FLSA are broad and do not clarify how to address “problems as to the limits of the employer-employee relationship under the Act.” Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947); see also United States v. Rosenwasser, 323 U.S. 360, 362 (1945) (“A broader or more comprehensive coverage of employees within the stated categories would be difficult to frame.“). The common law also provides only limited guidance in marking the outer reaches of the FLSA‘s coverage. The Act was designed to reach working relationships
If we looked only at the face of Brant‘s contracts with Schneider, we would agree with the district court that Brant could not be deemed an employee. It is well established, however, that the terms of a contract do not control the employer-employee issue under the Act. We look instead to the “economic reality of the working relationship” to determine who is an employee covered by the FLSA. Simpkins v. DuPage Housing Authority, 893 F.3d 962, 964 (7th Cir. 2018); see also Rutherford Food, 331 U.S. at 729 (use of “independent contractor” label does not remove FLSA protections when work “follows the usual path of an employee“); Lauritzen, 835 F.2d at 1544-45 (Easterbrook, J., concurring) (“The FLSA is designed to defeat rather than implement contractual arrangements. If employees voluntarily contract to accept $2.00 per hour, the agreement is ineffectual.“). Workers are employees under the FLSA when “as a matter of economic reality [they] are dependent upon the business to which they render service.” Simpkins, 893 F.3d at 964, quoting Lauritzen, 835 F.2d at 1534.
This court generally applies the six-factor test set out in Lauritzen to determine whether economic reality indicates a worker is an employee. Simpkins, 893 F.3d at 964; Lauritzen, 835 F.2d at 1534-35. The Lauritzen factors are:
- the nature and degree of the alleged employer‘s control as to the manner in which the work is to be performed;
- the alleged employee‘s opportunity for profit or loss depending upon his managerial skill;
- the alleged employee‘s investment in equipment or materials required for his task, or his employment of workers;
- whether the service rendered requires a special skill;
- the degree of permanency and duration of the working relationship;
- the extent to which the service rendered is an integral part of the alleged employer‘s business.
No single factor is necessarily controlling—the ultimate cоnclusion on employee status is made by examining the totality of the circumstances. Simpkins, 893 F.3d at 964. We consider throughout our review of these factors the degree to which Brant was dependent on Schneider, with greater
dependence weighing in favor of an employer-employee relationship. Lauritzen, 835 F.2d at 1538.
1. Control
First, we consider the nature and degree of Schneider‘s control over the way that Brant performed his work. This control inquiry has roots far deeper than the
The Operating Agreement provided that the “Owner-Operator shall determine the manner, means and methods of performance of all Freight Transportаtion Services.” The Agreement included a variety of provisions purporting to grant the driver broad authority over his or her own work. It said Brant was free to choose which shipments to accept or reject, and even whether to take any loads at all. The Agreement permitted him to hire drivers to take some or all responsibility for a shipment. Brant was also required to bring his own truck, to select routes, to manage his schedule, to weigh and inspect shipments, and to pay for operating costs like fuel and taxes. Schneider argues that these terms in the Agreement show that Brant maintained a high degree of control over his work, consistent with his classification as an independent contractor.
But according to Brant‘s allegations, these contractual provisions did not reflect the economic reality of his work under Schneider and are not dispositive. See Simpkins, 893 F.3d at 964; Lauritzen, 835 F.2d at 1545 (Easterbrook, J., concurring). Brant alleges that Schneider “exercised complete control over all meaningful aspects of the transportation business in which Plaintiff ... worked.” As we will see, Brant alleges he was subject to significant monitoring and had little ability to exercise the limited rights for operational control of his work granted on the face of his contrаcts with Schneider. This alleged lack of genuine control over the conduct of his work weighs in favor of finding Brant was an employee.
Control Over Conduct: As a freight carrier, Schneider controlled advertising, billing, and negotiation with customers over the terms of shipment contracts. Brant alleges that Schneider‘s control also extended into the minutiae of how he worked and delivered his loads. Brant alleges he was held to the same operational standards and policies as employee-drivers for Schneider, including requirements for “personal appearance and demeanor,” “how to pick up and deliver loads,” and “how to hire extra help to assist with loading and unloading.” Allegations that a purported employer required workers to adhere to such formal policies and procedures can suggest employee status. See Schultz v. Capital Int‘l Security, Inc., 466 F.3d 298, 307 (4th Cir. 2006) (reversing defense verdict after bench trial; undisputed facts, including requirement that workers adhere to detailed standard operating procedures, showed employee status even when workers occasionally exercised independent judgment).
Monitoring: Schneider also retained the right to gather remotely and to monitor huge quantities of data about how drivers conducted their work, including: (i) “Owner-Oрerator‘s speed, hard braking incidents, collisions, and critical driving events;” (ii) “hours of service;” (iii) “engine operational data;” and (iv) “any other telematics data which may be captured.” The
Hiring Helpers: Schneider also argues that “Brant‘s ability to hire his own employees to transport freight weighs heavily in favor of the conclusion that he exercised control over the manner of performing his work consistent with an independent contractor.” Under the contracts, Brant could, at least in theory, hire another driver to assist with or to take over his shipments entirely. When a worker hires helpers to assist in а job, that fact weighs against employee status. See United States v. Silk, 331 U.S. 704, 719 (1947) (suggesting fact that truckers “hire their own helpers” supports independent contractor status under Social Security Act), abrogation in part recognized by Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 325 (1992) (noting abandonment of Silk‘s emphasis on construing term “employee” in the Social Security Act “in the light of the mischief to be corrected and the end to be attained“); see also Rutherford Food, 331 U.S. at 723 (“Decisions that define the coverage of the employer-employee relationship under the Labor and Social Security acts are persuasive in the consideration of a similar coverage under the Fair Labor Standards Act.“).2
The district court noted that it was “unaware” of an employer-employee relationship in which the employer would allow the employee to contract with a third party to perform the work. Brant v. Schneider Nat‘l, Inc., 2021 WL 179597, at *4 (E.D. Wis. Jan. 19, 2021), citing Derolf v. Risinger Bros. Transfer, Inc., 259 F. Supp. 3d 876, 880-81 (C.D. Ill. 2017) (finding terms of contracts between truck drivers and carrier weighed against employee status).
Brant‘s theoretical ability to hire help can bear little weight if it was not consistent with the economic reality of his control over his work. See Simpkins, 893 F.3d at 964 (reversing summary judgment deeming plaintiff to have been independent contractor). Brant alleges he was not able to take advantage of the ability to hire help becаuse Schneider maintained total control over the number, nature, and profitability of the shipments offered. The Operating Agreement also authorized Schneider to charge a variety of fees for each new driver hired by Brant. Fixed costs were high and margins tight for drivers under the Operating Agreement and Lease with Schneider,
and Brant alleges that “few, if any, other Drivers hired substitutes” for this reason. If Brant wanted to take the financial risk of hiring help, Schneider reserved “the right to arrange, at Owner-Operator‘s expense, to have a qualified third-party vendor monitor” the
Supply Equipment: Next, the requirement that Brant supply his own truck, or “Equipment,” does little to establish control over the conduct of the work because Brant leased his truck from Schneider itself. In Wisconsin, a vehicle lease transfers the right of possession and use of the vehicle to the lessee, which would ordinarily afford a significant amount of control over work done with the vehicle. See
Routes and Schedules: The Operating Agreement was also written to give Brant the ability to choose the route and schedule to follow when delivering a shipment, subject to an important caveat. Shipments had to be “timely” to meet the demands of Schneider‘s customers. This is not surprising, given the nature of the business. But Brant alleges that, due to Schneider‘s strict pick-up and delivery time requirements, “As a practical matter, Drivers had no choice with respect to the route.” The need to access fuel stops where it was pоssible to purchase fuel on Schneider‘s credit also constrained route choice. We agree with the Ninth Circuit that “the ability to determine a driving route is simply a freedom inherent in the nature of the work and not determinative of the employment relation.” Narayan v. EGL, Inc., 616 F.3d 895, 904 (9th Cir. 2010) (internal quotation marks omitted). Yet Brant alleges that the economics of his work constrained his route selection, so his nominal freedom to choose a route did not determine whether he controlled his labor.
In sum, regardless of some of the nominal rights granted under the written contracts, Brant alleges that Schneider imposed detailed control over the conduct of his work and enforced that control by monitoring his operations and collecting data on his driving. As a matter of economic reality, Brant alleges, he could not hire additional drivers to assist or take over shipments, did not bring his own truck to the work, and had no real ability to exercise choice over his schedule and routes. At least on the pleadings, this factor weighs in favor of finding Brant was an employee of Schneider.
2. Opportunity for Profit or Loss
Next, we consider the degree to which Brant‘s opportunity for profit or loss depended upon his managerial skill.
Lauritzen, 835 F.2d at 1535. This question gets to the heart of the economic relationship. In thеory, under the Operating Agreement and Lease, Brant had the ability to modulate the kind and volume of his work with Schneider, and could even pick up additional work from other carriers to add to his income. Brant had the ability to choose which Schneider shipments to haul, and in
Choosing Shipments: First, Brant alleges that he could not actually exercise the right to turn down shipments to select more profitable options. He says that Schneider offered him shipments without providing information about what alternatives might be offered or when, and the risk of failing to make enough money to cover Lease payments was too high for Brant to risk waiting for better shipments to become available. A failure to pay rent under the Lease would trigger a default, allowing Schneider to exercise a variety of potential remedies, including (i) terminating the Lease and demanding payment of the entire remaining amount of rent due for the Lease term; or (ii) requiring the driver to purchase the truck outright. “Drivers rarely exercised the option” to turn down a shipment because it was too risky. Brant was dependent on Schneider to pay his rent back to Schneider under the Lease. And as we will see, he alleges that Schneider did not actually permit him to drive for other carriers, giving more weight to his limited ability to adjust the profitability of the shipments he took from Schneider.
Brant further alleges that Schneider would not actually allow him to decline to haul particularly unprofitable shipments. He alleges that Schneider “regularly required that Drivers, including Plaintiff, move empty trailers from one location to another at rates that did not even cover the cost of fuel to accomplish the task.” Brant was told that Schneider “would terminate his contract if he refused to take these assignments.” Schneider characterizes this arrangement as “an ordinary feature of operating one‘s own business as an independent contractor.” We disagree because that one feature of the parties’ relationship cannot be considered in isolation. Under the overall arrangement, aсcording to plaintiff‘s allegations, the single biggest determinant of his profit for a workweek was not his managerial skill but Schneider‘s choice of loads to offer him—or to require him—to haul. As a matter of actual practice, Brant alleges, he simply had to take the loads that Schneider gave him as often as possible in the hopes of staying ahead of the pay deductions, rent, and costs.
Hauling for Other Carriers: Both Schneider and the district court emphasized Brant‘s contractual ability to haul loads for other carriers. Brant alleges he was similarly unable to take advantage of that theoretical right. First and most simply, Brant alleges that, despite the terms of the written contract allowing it, Schneider told him that it would not permit him to haul for other carriers. Even if Schneider changed its mind, it retained sole discretion to deny his request to haul freight for a different carrier. Schneider also reserved the right to arrange for third-party monitoring of compliance with federal safety regulations, at Brant‘s expense, during trips for other carriers.
Even if Brant requested and received approval to haul for another carrier and could have afforded to pay for third-party monitoring of his safety compliance, he would have been required under the Agreement to remove or cover Schneider‘s identification on his truck, and to display his own or the other carrier‘s information when applicable. Brant alleges more generally that Schneider‘s system for approving
More generally, Brant‘s exposure to potential loss through his relationship with Schneider does not necessarily indicate he was an independent contractor. Instead, it may show only that Schneider “chose to place this added burden on its operators.” Usery v. Pilgrim Equipment Co., 527 F.2d 1308, 1313 (5th Cir. 1976) (reversing summary judgment for employer and ordering relief for plaintiffs as employees).
In sum, Brant alleges that as a practical matter, he could not exercise his managerial skill to increase profits by selecting more profitable loads or by driving for other carriers when Schneider offered shipments with unfavorable terms. The complaint describes a relationship under which drivers like Brant had no realistic option other than to take the shipments that Schneider offered, even when they were unprofitable. He could not haul for other carriers and rеlied on Schneider to receive enough favorable shipments to make a profit. In other words, he was dependent on Schneider to make a profit or loss. This factor also weighs in favor of considering Brant to have been an employee of Schneider.
3. The Alleged Employee‘s Investment
Next, we consider Brant‘s potential investment in equipment or materials required for hauling the shipments, or his employment of workers. Lauritzen, 835 F.2d at 1535. As noted, Brant alleges he did not employ workers to aid him in hauling his shipments because he lacked control over the shipments on offer. Schneider argues that Brant invested heavily in his work by signing a costly lease for one of Schneider‘s trucks. His lease agreement required him to pay over $40,000 per year in rent. Schneider points to case law suggesting that a “driver‘s investment of a vehicle is no small matter.” Herman v. Express Sixty-Minutes Delivery Service, Inc., 161 F.3d 299, 304 (5th Cir. 1998).
Herman does not help Schneider‘s argument on this point. Although the Fifth Circuit ultimately affirmed for other reasons a judgment deeming those delivery drivers to be contractors, it found on similar facts about investments that the investment factor actually favored treating them as employees. 161 F.3d at 304. Schneider is correct that Brant spent large sums of money while hauling freight for Schneider on the truck lease, fuel, and equipment. But this investment was made with no up-front payment and depended entirely on Schneider‘s providing a truck, mobile computing platform, and other equipment by extending its own credit to Brant. In theory, perhaps, Brant could have obtained his own truck, computer, and other necessary equipment with no involvement from Schneider, but he did not do so.
Brant alleges that Schneider offered its truck leases with no down payment required, no payments during the first weeks of work, and no out-of-pocket investment by the drivers. Even the security deposit for the truck was deferred and paid in installments. Brant was totally dependent on Schneider‘s credit to operate, and he leased his truck back to Schneider under the Operating Agreement. This level of dependency on Schneider‘s credit and provision of equipment weighs in favor of employee status. See Max Trucking, LLC v. Liberty Mutual Ins. Corp., 802 F.3d 793, 805 (6th Cir. 2015) (affirming judgment after trial that drivers were employees under Michigan worker‘s compensation law because they were “effectively economically dependent on Max Trucking for
Brant alleges that he had the means to engage in the freight-hauling business only because Schneider advanced a truck, equipment, and many other resources up front on Schneider‘s own credit. Even though Brant was ultimately charged for these costs, his “disproportionately small stake in the [trucking] operation is an indication that [his] work is not independent of the defendants.” Lauritzen, 835 F.2d at 1537. The investment factor also weighs in favor of employee status.
4. Special Skill
Next, we consider whether special skills required to perform the work may indicate independent contractor status. Lauritzen, 835 F.2d at 1535. Excellence at any occupation can be said to require skills, but this inquiry is focused on specialized skills that set the independent contractor apart from other workers. Id. at 1537. As we noted in Lauritzen,
developing the specialized skill required to recognize which pickles to pick and when was “no different from what any good employee in any line of work must do. Skills are not the monopoly of independent contractors.” Id.
Similarly, when assessing whether women who operated laundry pick-up stations were employees of a laundry company, the Fifth Circuit emphasized that the basic business and organizational skills the women displayed to operate their stations were valuable, but “many successful employees need these same abilities and perform similar tasks.” Pilgrim Equipment, 527 F.2d at 1315
. Special skills weigh in favor of independent contractor status partly because independent contractors often develop relationships with many businesses based on expertise and can command higher rates through superior performance. See Baker v. Flint Eng‘g & Constr. Co., 137 F.3d 1436, 1443 (10th Cir. 1998). With these concepts in mind, an assessment of the skills Brant needed to haul freight for Schneider is inconclusive.Schneider leased Brant a truck that could weigh up to 40 tons with trailer and cargo and required him to provide “competent professional drivers” responsible for the operation and maintenance of the vehicle. Commercial truck-driving requires skills beyond those of automobile drivers, but the skills demanded by Schneider do not set Brant apart from the many other commercial truck drivers whom Schneider treats as employees. Brant also alleges that he performed his work according to the same procedures and standards required of Schneider‘s employee-drivers. Brant‘s talents “do not change the nature of [his] employment relationship with the defendants” so as to make him an independent contractor, but they also require more training and skill than may be demanded of many employeеs. Lauritzen, 835 F.2d at 1537. This factor is neutral at best for Schneider‘s position.
5. Permanency and Duration
Next, we ask whether the permanency and duration of the relationship indicates an employment relationship. Lauritzen, 835 F.2d at 1535. Brant alleges that he signed Operating Agreements that were “routinely renewed.” Schneider sent reminder notices to drivers who failed to sign a new contract promptly. Brant leased his truck from Schneider for 24 months,
Schneider notes that its Operating Agreements with Brant did not automatically renew, but again, we are interested in economic reality, not just contractual terms. See Simpkins, 893 F.3d at 964; Lauritzen, 835 F.2d at 1545 (Easterbrook, J., concurring). Automatic renewal would weigh more heavily in favor of employee status but is not required. As a matter of practice, Brant pleads, Schneider did renew its contract with him in January 2019. This indicates a relationship with enough duration to weigh in favor of employee status, though weakly. See Lauritzen, 835 F.2d at 1537 (affirming summary judgment finding employee status; harvesters’ temporary, exclusive working relationships that were renewed “year after year” showed relative permanency consistent with employment); see also Flint Engineering, 137 F.3d at 1442 (affirming summary judgment finding employee status; duration and permanence of riggers’ relationship with alleged employer indicated employee status, although riggers “rarely work for Flint more than two months at any one time, and rarely for more than three months during any twelve-month period“), citing Lauritzen, 835 F.2d at 1537.
6. Integral Part of Alleged Employer‘s Business
The last Lauritzen factor is the degree to which Brant‘s service was integral to Schneider‘s business. 835 F.2d at 1535. Schneider is a freight hauling company, and Brant alleges that he hauled shipments for Schneider in the same way as the company‘s employee-drivers. Schneider admits that this factor “likely weighs in Brant‘s favor.” We agree.
To sum up on the FLSA claim, we consider Brant‘s allegations about the economic reality of his working relationship with Schneider using the Lauritzen factors as applied to the totality of the circumstances, and we seek to gauge whether Brant was sufficiently controlled by and dependent upon Schneider to come within the protection of the FLSA as an employee. See Simpkins, 893 F.3d at 964; Lauritzen, 835 F.2d at 1538. No one Lauritzen factor is decisive, see Simpkins, 893 F.3d at 964, but five of the six factors, including control, weigh in favor of employee status, and the sixth is at best neutral. Based on facts alleged in the complaint, Brant had little true control over the conduct of his work and was totally dependent on Schneider to turn a profit. He was not able to exercise his theoretical contractual rights to hirе workers or to haul for other carriers. In short, Brant alleges facts allowing the plausible inference that he was so controlled by and dependent on Schneider that he must be considered an employee as a matter of economic reality. Id. Because Brant also alleges he was not paid the minimum wage during at least one workweek, he states a legally viable claim for minimum wage under the FLSA.
B. Wisconsin Minimum Wage Claim
Brant also alleges that Schneider violated Wisconsin‘s minimum wage law. Wisconsin has a longer history of regulating minimum wages than the federal government. It adopted a law requiring employers to pay a “living wage” to women and minors in 1913. William L. Crow, History of Legislative Control of Wages in Wisconsin, 16 Marq. L. Rev. 188, 192 (1932). Wisconsin has continued to update its minimum wage regulations. See, e.g., 2015 Wis. Act 55, § 3078gm; Historical Résumé of Minimum Wage Regulations in Wisconsin, Dep‘t of Workforce Dev., https://dwd.wisconsin.gov/er/laborstandards/minwageregs.htm
The district court consolidated the inquiries under the FLSA and Wisconsin minimum wage law, but we do not believe that is appropriate here. Some states expressly indicate that certain state minimum wage provisions should be interpreted to conform with the FLSA, see, e.g.,
Relevant here, Wisconsin law requires that “Every wage paid ... by any employer to any employee” be no less than the state minimum. See
Wisconsin‘s minimum wage law defines “employee” broadly and in reference tо the definition of “employer“:
(2)(a) “Employee” means every individual who is in receipt of or is entitled to any compensation for labor performed for any employer.
...
(3)(a) The term “employer” shall mean and include every person, firm or corporation, agent, manager, representative, contractor, subcontractor or principal, or other person having control or direction of any person employed at any labor or responsible directly or indirectly for the wages of another.
...
(8) “Wage” means any compensation for labor measured by time, piece, or otherwise.
Wisconsin courts do not appear to have addressed squarely the boundary between employee and independent contractor for minimum wage purposes. In the absence of an authoritative opinion from the Wisconsin Supreme Court, we interpret
Wisconsin defines employer and employee differently under its minimum wage law than in other labor and compensation contexts, such as worker‘s compensation,
Based on the text of
Brant also seeks compensation for unjust enrichment under Wisconsin law. Recovery for unjust enrichment is based not on breach of a contract but on “the moral principle that one who has received a benefit has a duty to make restitution where retaining such a benefit would be unjust.” Sands v. Menard, 904 N.W.2d 789, 798 (Wis. 2017), quoting Watts v. Watts, 405 N.W.2d 303, 313 (Wis. 1987). Brant cannot recover for unjust enrichment if he entered a valid contract with Schneider. Carroll v. Stryker Corp., 658 F.3d 675, 682 (7th Cir. 2011). As a threshold matter, Brant must plead facts allowing a plausible inference that the Operating Agreement and Lease were not valid. See Twombly, 550 U.S. at 570. Then, to make a claim for unjust enrichment, Brant must allege facts that if true would allow the plausible inference that (i) he conferred a benefit on Schneider; (ii) Schneider appreciated or had knowledge of the benefit; and (iii) Schneider accepted or retained the benefit under circumstances making it inequitable to do so. See Sands, 904 N.W.2d at 798.
1. Validity of the Contracts
Brant argues his contraсts with Schneider were not valid because they were unconscionable under Wisconsin law. Wisconsin describes unconscionability as “the absence of meaningful choice on the part of one of the parties, together with contract terms that are unreasonably favorable to the other party.” Wisconsin Auto Title Loans, Inc. v. Jones, 714 N.W.2d 155, 165 (Wis. 2006). To find a contract is unconscionable, there must be a combination of procedural and substantive unconscionability—one or the other alone is not enough. See id. at 164; Discount Fabric House of Racine, Inc. v. Wisconsin Tel. Co., 345 N.W.2d 417, 425 (Wis. 1984). “The more substantive unconscionability present, the less procedural unconscionability is required, and vice versa.” Wisconsin Auto, 714 N.W.2d at 165.
For procedural unconscionability, we consider factors that affected the formation of the contract and whether there was a “real and voluntary meeting of the minds.” Id. For substantive unconscionability, we consider factors that bear on the “reasonableness of the contract terms themselves.” Deminsky v. Arlington Plastics Machinery, 657 N.W.2d 411, 422 (Wis. 2003) (citation omitted).
Brant alleges the Operating Agreement and Lease were procedurally unconscionable because (i) on his own, he could not understand the long, complex documents, which were filled with lеgal terminology; (ii) Schneider prevented him from obtaining legal advice before signing to help him understand; and (iii) he was unable to negotiate the terms of the contracts if he had understood them. In Wisconsin, the factors to consider for procedural unconscionability include but are not limited to:
age, education, intelligence, business acumen and experience, relative bargaining power, who drafted the contract, whether the terms were explained to the weaker party, whether alterations in the printed terms would have been permitted by the drafting party, and whether there were alternative providers of the subject matter of the contract.
Wisconsin Auto, 714 N.W.2d at 166.
Brant has completed high school and some community college and online courses. The Operating Agreement and Lease consist of 80 and 30 pages, respectively, of dense legal prose. Brant alleges that the highly technical language of many of the contractual provisions was beyond his ability to understand without help and
Schneider argues that even if the Operating Agreement was procedurally unconscionable when Brant entered it, he signed a second Operating Agreement in early 2019, for which he had ample time to prepare. This is not a persuasive rebuttal. Brant‘s Lease of the truck lasted two years. When he signed the second Operating Agreement, he remained obligated under the Lease—if it was valid. Brant might have a weaker claim for procedural unconscionability for his second Operating Agreement, but that does not mean he cannot state a claim.
Next, Brant alleges that the Operating Agreement and Lease were substantively unconscionable. Under Wisconsin law, we assess substantive unconscionability by determining whether the contract terms are commercially reasonable or lie outside the limits of what is reasonable and acceptable. Wisconsin Auto, 714 N.W.2d at 166. This inquiry is done in light of the relevant commercial background. Id.
Brant alleges procedural unconscionability only relatively weakly, so he must allege a greater degree of substantive unconscionability than he would otherwise. 714 N.W.2d at 165. Brant points to several provisions of the Operating Agreement that have the intended effect of inoculating Schneider against potential financial harm from its own violation of federal and state employment law. The first purports, among other things, to require Brant to “defend, indemnify and hold harmless” Schneider for any legal liability arising out of, in part:
(ii) compliance or non-compliance with any applicable federal, state or local employment laws;
(iii) any employment issues relating to Owner-Operator or its agents or employees, including but not limited to, allegations of discrimination, retaliation, violations of public policy, failure to pay overtime or wages when due, failure to comply with any applicable federal, state or local law entitling eligible employees to meal and/or rest breaks....
Owner-Operator Operating Agreement at 22, Dkt. 71-2 (emphases added).
Schneider crafted this indemnity provision in broad terms that ostensibly shift to Brant himself any liability nоt only for Brant‘s violations of employment laws but also for its own employment law violations of any kind, even if Brant was the victim of Schneider‘s violations. Enactments of Congress and the Wisconsin legislature are not so easily defeated by such aggressive drafting of a contract. See, e.g., Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 740 (1981) (“FLSA rights cannot be abridged by contract or otherwise waived because this would ‘nullify the purposes’ of the statute and thwart the legislative policies it was designed to effectuate“); Brooklyn Savings Bank v. O‘Neil, 324 U.S. 697, 704 (1945) (“It has been held in this and other courts that a statutory right conferred on a private party, but affecting the public interest, may not be waived or released
Wisconsin law enforces some indemnity provisions that shift liability, such as for the indemnitee‘s own negligence, though these provisions must be presented conspicuously and will be construed strictly. See Deminsky, 657 N.W.2d at 420-23 (requiring purchaser of used machinery to indemnify seller for injury to purchaser‘s employee). But the provisions drafted by Schneider do more than assign risk for the indemnitee‘s torts in a private transaction. If these provisions in Schneider‘s contracts are valid, then Schneider and other companies can turn back the clock tо a time when low wages, long hours, workplace discrimination, and other forms of abuse were subject to relatively little regulation. Furthermore, Schneider may have little need to test the validity of these provisions through enforcement if they have the intimidating effect on employees that seems to have been intended.
The Operating Agreement contains an additional provision that is triggered if Brant is determined to be an employee of Schneider. When implemented, the Agreement would be rescinded and Brant would immediately owe Schneider all gross compensation received under the contract and would relinquish any rights to balances in escrow funds then owed to him by Schneider. Rescission of the Agreement also constitutes a default on the Lease unless Schneider exercises its sole discretion to approve the driver to enter a new contract with another carrier within five days. As explained above, defaulting on the Lease can lead to serious financial consequences.
These contractual provisions seem to have been designed to evade federal and state employment law, to nullify remedies under those laws, and to discourage workers from asserting their rights. The legal effeсt of these provisions, if any, may be limited by contract doctrines other than unconscionability. See, e.g., American Family Mut. Ins. Co. v. Cintas Corp. No. 2, 914 N.W.2d 76, 82–83 (Wis. 2018) (suggesting Wisconsin law may not enforce certain contract provisions that violate public policies to “protect a weaker party against the unfair exercise of superior bargaining power by another party“); In re F.T.R., 833 N.W.2d 634, 652 (Wis. 2013) (“A contract will not be enforced if it violates public policy.“); see also Kellogg v. Larkin, 3 Pin. 123, 135–37 (Wis. 1851) (noting “legislative enactment” is best evidence of “uncertain and fluctuating” limits of public policy in contract law).
Brant alleges a low degree of procedural unconscionability due to the complexity of the contracts and Schneider‘s efforts to deny Brant legal counsel to review them. The inference of substantive unconscionability based on the indemnity and rescission provisions discussed above is fairly strong. In combination, Brant alleges more than enough for us to infer plausibly that his contracts were so “unreasonably favorable” to Schneider that they were void as unconscionable. Wisconsin Auto, 714 N.W.2d at 165.
2. Unjust Enrichment
Again, to state a claim for unjust enrichment Brant must allege facts that, if true, would allow the plausible inference that (i) he conferred a benefit on Schneider; (ii) Schneider appreciated or had knowledge of the benefit; and (iii) Schneider accepted or retained the benefit under circumstances making it inequitable to do so. See Sands, 904 N.W.2d at 798. Schneider does not attempt to defend its indemnity and rescission provisions, and it addresses little of the substance of Brant‘s unconscionability argument. Brant clearly alleges that he conferred a benefit on
D. Truth-in-Leasing Claim
Finally, Brant also alleges that Schneider violated several federal regulations that can support a private right of action. The Department of Transportation regulates the activities of motor carriers like Schneider under the ICC Termination Act of 1995, Pub. L. No. 104-88,
The Truth-in-Leasing regulations are designed “to promote full disclosure between the carrier and owner-operator in the leasing contract, to promote the stability and economic welfare of the independent trucker segment of the motor carrier industry, and to eliminate or reduce opportunities for skimming and other illegal practices.” 43 Fed. Reg. at 29812. Brant alleges that Schneider violated three of these regulatory requirements, including the requirement (i) to make available certain documentation used to calculate Brant‘s pay; (ii) to provide documentation supporting deductions from his pay; and (iii) to specify the amount of any escrow fund required. See
Brant can sue Schneider for damages from these potential regulatory violations under
First, Brant alleges that Schneider violated
When a lessor‘s revenue is based on a percentage of the gross revenue for a shipment, the lease must specify that the authorized carrier will give the lessor, before or at the time of settlement, a copy of the rated freight bill, or, in the case of contract carriers, any other form of documentation actually used for a shipment containing the same information
that would appear on a rated freight bill.
(Emphases added.) This disclosure requirement protects owner-operators from unscrupulous carriers who might be tempted to hide such information, to underpay for the shipment, and to pocket the difference. Without the requirement that this information be made available before settlement, drivers like Brant might never know if they were being underpaid.
Brant alleges that the Operating Agreement—which contains the relevant lease provisions for this claim—did not disclose that this information would be available at or before settlement as required. His allegations add up to a violation of the regulation. However, Brant must also allege damages to state a claim under
Schneider argues that Brant fails to allege that any potential Truth-in-Leasing violations caused damages. In support of this argument against Brant‘s first Truth-in-Leasing claim, Schneider points to Stampley v. Altom Transport, Inc., 958 F.3d 580 (7th Cir. 2020). But Stampley was quite different as to both its facts and its procedural posture. In Stampley, the driver received computer-generated summaries of the rated freight bill when he was paid. Id. at 587. In contrast, Brant does not allege that he actually received these documents. In Stampley, the driver complained that his carrier did not include certain tank-wash charges billed to the customer in these computer-generated summaries. However, the lease he entered with his carrier included a provision waiving “all rights to contest the validity or accuracy of any/all payments” after 30 days. Because he did not contest any payments within 30 days, or request documentation to verify the computer-generated summaries he received of the rated freight bill, we enforced the contract and found his claim failed. Id. at 587–89. We also considered Stampley on appeal of the district court‘s grant of summary judgment, whereas Brant‘s claim comes to us on a motion to dismiss on the pleadings. Schneider‘s suggestion that Stampley forecloses Brant‘s damages argument under
Section 376.12(g) is a disclosure mandate that protects owner-operators by requiring that the lease disclose the availability of information useful to ensure the carrier does not shortchange the driver at settlement. The lease must specify when this information is to be made available, and then the carrier must provide it or be in breach of contract. Because Schneider did not clarify in the Operating Agreement when this information would be available—i.e., at or before settlement—Brant allegedly did not know that one of the significant disclosure protections provided him by the Truth-in-Leasing regulations was being violated.
There is no allegation that Schneider actually provided equivalent information from the rated freight bill аt or before the time of settling payment with Brant for a shipment. Instead, Brant alleges that Schneider “did not provide Plaintiff with copies of documents from which the rates and charges are computed,” and that Schneider “underpaid Plaintiff.” He further alleges that the failure to disclose the rated freight bill or equivalent information to him prevented him from contesting the alleged underpayment. This sufficiently alleges he was harmed by the violation for him to state a claim for relief under
Second, Brant alleges that he was harmed by Schneider‘s failure to provide information required to determine the validity of chargebacks deducted from his pay. Such chargebacks are governed by
The lease shall clearly specify all items that may be initially paid for by the authorized carrier, but ultimately deducted from the lessor‘s compensation at the time of payment or settlement, together with a recitation as to how the amount of each item is to be computed. The lessor shall be afforded copies of those documents which are necessary to determine the validity of the charge.
(Emphasis added.) Brant alleges that Schneider withdrew approximately $1,200 from his bank account, and when he contacted Schneider tо request information about the charge, he received nothing. Assuming, as we must, that these allegations are true, Brant states a claim for a violation of
Third, Brant alleges that Schneider did not disclose the amount of all escrow funds in the Operating Agreement and Lease in violation of
Brant has alleged legally viable claims for relief under the Fair Labor Standards Act, Wisconsin minimum-wage law, Wisconsin law of unjust enrichment, and the federal Truth-in-Leasing regulations. The judgment of the district court is REVERSED and the case is REMANDED for further proceedings consistent with this opinion.