GERALD SMITH, SAMIR RADY, and FLORENTINO FIGUEROA on behalf of themselves and all others similarly situated, Plaintiffs, v. CARDINAL LOGISTICS MANAGEMENT CORPORATION, a North Carolina Corporation, and Does 1 through 100, inclusive, Defendants.
Case No. 07-2104 SC
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
August 19, 2009
UNITED STATES DISTRICT JUDGE
ORDER DENYING DEFENDANT‘S MOTION FOR PARTIAL SUMMARY JUDGMENT
The present matter comes before the Court on the Motion for Partial Summary Judgment (“Motion“), filed by Defendant Cardinal Logistics Management Corporation (“Cardinal” or “Defendant“). Docket No. 91. Plaintiffs Gerald Smith, Samir Rady, and Florentino Figueroa (collectively “Plaintiffs“) filed an Amended Opposition and Defendant submitted a Reply.1 Docket Nos. 116, 120. For the following reasons, the Court DENIES the Motion.
A. Factual Background
Cardinal is a North Carolina corporation that provides, in part, truck delivery services to The Home Depot in California. Hostetler Decl. ¶¶ 2-4.2 Cardinal hired Plaintiffs as indepеndent contractors. Mem. in Supp. of Mot. at 3. Plaintiffs assert they were misclassified by Cardinal, and that they were really employees. First Am. Compl. (“FAC“), Docket No. 25, ¶¶ 1-8.
As part of Cardinal‘s recruitment process, Cardinal provided Plaintiffs with Worksheets that detailed a driver‘s estimated gross revenue or earnings, estimated operating expenses or equipment charges that would be deducted from gross revenue, and estimated net revenue or earnings. See Merklein Decl. ¶¶ 6-11, Ex. 1 (“Earnings Worksheet Class A Daycab“), Ex. 2 (“Earnings Worksheet Reno, NV“), Ex. 3 (“Earnings Worksheet San Francisco, CA“).3 The estimated operating expenses included charges for leasing a truck, maintenance, various forms of insurance, and fuel. See Earnings Worksheet Class A Daycab; Earnings Worksheet Reno, NV; Earnings Worksheet San Francisco, CA.
After Plaintiffs began performing transportation services, Cardinal provided them with weekly Settlement Sheets detailing the gross compensation earned, the deducted expense items, and the net
Under Cardinal‘s compensation system, the primary category of earnings was the rate paid per delivery. Card Decl.4 Ex. 1 (“Dep. of Brian Farris“) at 58:11-60:12; Figueroa Settlement Sheet; Rady Settlement Sheet; Smith Settlement Sheet. Payments for deliveries were identified on Plaintiffs’ Settlement Sheets by labels such as “Flatbed stops,” “Full truckload,” or “Difficult Stop.” Dep. of Brian Farris at 58:11-60:12; Figueroa Settlement Sheet; Rady Settlement Sheet; Smith Settlement Sheet. Plaintiffs were also paid for “Delay” time, for “Carry In,” if they had to carry flooring or drywall into а customer‘s home, and for “Out of Area” miles. Dep. of Brian Farris at 62:15-64:16. If a driver worked a full six-day week, he or she was paid “Exclusive Use” pay. Id. at 64:17-65:23. Drivers were also paid a “Fuel Surcharge” based on
At the end of the Settlement Sheets, there are “Settlement Deductions” that were deducted from drivers’ taxable earnings. The deductions include a “Tractor Lease” payment, deductions for fuel that was purchased using a “Comdata” card provided by Cardinal, and deductions for truck maintenance, occupational and accident insurance, liability insurance, accounting services, and insurance for forklifts, which was referred to as “Bobtail Insurance.” See Figueroa Settlement Sheet; Rady Settlement Sheet; Smith Settlement Sheet; see also Dеp. of Brian Farris at 92:24-93:11, 99:9-102:12, 103:19-25. In addition to these weekly deductions, money was sometimes deducted from Plaintiffs’ Settlement Sheets for uniforms, merchandise damage, and property damage claims. Dep. of Brian Farris at 104:1-3, 109:22-110:20.
B. Procedural Background
Plaintiffs filed the present class-action lawsuit in California State Superior Court. Notice of Removal, Docket No. 1, Ex. A. Cardinal remоved the case to this Court. Id. Plaintiffs assert the following causes of action against Cardinal: (1) failure to reimburse for employee expenses in violation of
III. LEGAL STANDARD
Entry of summary judgment is proper “if the pleadings, the discovery and disсlosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.”
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A. Employer‘s Duty to Reimburse Expenses
In Gattuso v. Harte-Hanks Shoppers, Inc., the Supreme Court of California considered whether Harte-Hanks Shopper, Inc., a corporation that preрares and distributes advertising booklets and leaflets, could satisfy its obligation to reimburse outside sales representatives for their automobile expenses by paying them higher base salaries and higher commission rates than it paid to inside sales representatives. 42 Cal. 4th 554, 559-60 (2007). The court noted that Section 2802 “is designed to prevent employers from passing their operating expenses on to their employees.” Id. at 562. The Court held that an employer may satisfy this statutory reimbursement obligation by paying an increased salary or commission. Id. at 559.
The court endorsed three different ways employers can satisfy the reimbursement obligation for work-required use of an employee‘s automobile: the “actual expense method,” the “mileage reimbursement method,” and the “lump-sum method.” Id. at 568-571. The court noted that providing the employee with a lump-sum
an employer may satisfy its statutory business expense reimbursement obligation under section 2802 by paying employees enhanced compensation in the form of increases in base salary or commission rates, prоvided the employer establishes some means to identify the portion of overall compensation that is intended as expense reimbursement, and provided also that the amounts so identified are sufficient to fully reimburse the employees for all expenses actually and necessarily incurred.
B. Cardinal‘s Compensation System and Section 2802
Cardinal wants the Court to assume “for рurposes of this motion” that Plaintiffs are employees. Mem. in Supp. of Mot. at 1 n.1. Cardinal argues that even if Plaintiffs are employees, summary judgment should be entered against Plaintiffs on their Section 2802 claim because based on the Earnings Worksheets and the Settlement Sheets, the drivers can identify the portion of compensation attributable tо expense reimbursement, and they have been fully reimbursed for their necessary expenses. Id. at 1, 8-
One problem for Cardinal‘s argument is that the amounts that Cardinal claims are expense reimbursements appear on the Earnings Worksheets and Settlement Statements as expense deductions. See Earnings Worksheet Class A Daycab; Earnings Worksheеt Reno, NV; Earnings Worksheet San Francisco, CA; Figueroa Settlement Sheet; Rady Settlement Sheet; Smith Settlement Sheet. Cardinal contends that these deductions can be construed as reimbursements because when it initially determined how much drivers would be compensated for their services, it combined an estimate of what a driver would earn in the gеographic area -- a “Target 1099” -- and an estimate of a driver‘s expenses. Mem. in Supp. of Mot. at 3-4; Farris Decl. ¶¶ 4-5.5 In other words, in determining the drivers’ rates of compensation, Cardinal factored in their projected expenses. See Dep. of Brian Farris at 108:20-109:21; Farris Decl. ¶ 5. Hence, according to Cardinal, Plaintiffs’ compensation structure was specifically enhanced to pay them for their necessary and reasonable expenses, and based on the Earnings Worksheets and the Settlement Sheets, Plaintiffs can differentiate between wages and expense reimbursements. Mem. in Supp. of Mot. at 10-11.
The Court finds that this compensation system does not satisfy the test for expense reimbursement established by the California Supreme Court in Gattuso. Under Cardinal‘s system, there was no up-front, lump-sum payment that included a means of
Furthermore, there are questions of fact as to whether the rates of compеnsation were sufficient to fully reimburse drivers for all necessary expenses. The testimony about how drivers’ expenses were taken into account when setting the rates of compensation is less than clear. See Farris Dep. at 49:18-51:3; 81:5-83:12; 89:24-92:23. Cardinal‘s rates of compensation were based in part on its need to provide a competitive bid to Home Depot. See id. at 77:7-78:6; 86:24-88:23. Deductions were made for expenses like property and merchandise damage, but these expenses were not factored in when determining drivers’ rates of compensation. Opp‘n at 20-21; Farris Dep. at 109:22-110:20. The Court DENIES Cardinal‘s request for summary judgment in its favor on Plaintiffs’ Section 2802 claim.
Cardinal contends thаt the Court should find, as a matter of law, that its drivers’ vehicle lease payments are not recoverable under Section 2802. Mem. in Supp. of Mot. at 13-16. In Estrada v. FedEx Ground Package System, Inc., the California Court of Appeal affirmed the trial court‘s finding that FedEx drivers were employees, not independent contractors, for purposes of determining the drivers’ right to reimbursement of their expenses. 154 Cal. App. 4th 1, 10-13 (Ct. App. 2007). The Estrada court went on to determine that FedEx was not required, under California law, to reimburse drivers for the costs of their trucks, as opposed to the costs of operating their trucks. Id. at 25.
The court of appeal made this determination based on its evaluation of Interpretive Bulletins, Opinion Letters, and a Manual issued by the Departmеnt of Industrial Relations, Division of Labor Standards Enforcement (“DLSE“). Id. at 21-25. In a January 1985 Interpretive Bulletin, the DLSE stated:
an applicant for employment may be required, as a condition of employment, to furnish his/her own automobile or truck to be used in the course of employment, regardless of the amount of wages paid. Under Labor Code Section 2802, an employer who requires an employee to furnish his/her own car or truck to be used in the course of employment would be obligated to reimburse the employee for the costs necessarily incurred by the employee in using the car or truck in the course of employment.
Mem. in Supp. of Mot. Ex. G (“Bulletin 84-7“) at 2.
In Estrada, the court noted that there was some tension between Bulletin 84-7, and an Opinion Letter issued by the DLSE оn January 2, 1997. 154 Cal. App. 4th at 22-23. In the 1997 Opinion
The Estrada court considered, and rejected, the argument that the 1997 Opinion Letter clarifiеd and superceded Bulletin 84-7. Id. The court determined that a 2002 Update of the DLSE Enforcement Policies and Interpretations Manual, IWC Order No. 9-2001, other DLSE Opinion Letters, and a 2005 Commentary all support the position that it is lawful for an employer to require employees to provide their own vehicles as a condition of employment, provided that the employer fully reimburses the employees for the costs of operating or using those vehicles. Id. at 23-25. The Estrada court affirmed the trial court‘s finding that FedEx drivers were not entitled to reimbursement for expenses relating to purchasing or leasing a vehicle for purposes of performing pick up and delivery services. Id. at 21-22.
Here, prior to a determination that Cardinal‘s drivers are
Nevertheless, prior to a determination that Cardinal‘s drivers are employees, the Court is not willing to engage in hypothetical speculation about whether the lease payments in this case are or are not reimbursable. The better course is to proceed to trial, where a fuller record will afford a more substantial basis for decision. See, e.g. Anderson v. Hodel, 899 F.2d 766, 770-71 (9th Cir. 1990). The Court DENIES Cardinal‘s request for summary judgment in its favor on the question of whether it is required to reimburse Plaintiffs for the cоsts of leasing their trucks.
For the reasons stated herein, the Court DENIES Defendant‘s Motion for Partial Summary Judgment.
IT IS SO ORDERED.
Dated: August 19, 2009
UNITED STATES DISTRICT JUDGE