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Be Careful Classifying Employees and Independent Contractors

TIADA recently learned that the Texas Workforce Commission (TWC) has been auditing dealers regarding the employment status of persons who deliver vehicles to and from the auction. One dealer that utilized independent contractors (and even had paperwork on file indicating the independent status of each driver) was later informed by the TWC that the delivery drivers he used were deemed to be his employees and the dealer would be responsible for unemployment taxes and penalties in connection with the amounts paid to the drivers.

Be careful how you classify employees and independent contractors. Unless you send bona fide employees to the auction on your behalf, be careful to let independent contractors remain “independent” to perform their tasks. Some steps to help contracted drivers retain an independent status include the following:
  • The drivers are free to negotiate their rates.
  • The dealership does not reimburse a driver for expenses—the drivers were responsible for purchasing their tolls (if applicable), meals, drinks, snacks, lodging.
  • A driver is free to refuse any job offered. 
  • No minimum number of jobs is required. 
  • A driver can subcontract his work with notice to the dealership and the subcontractor had to provide his driver's license and proof of insurance to the dealership. 
  • Each driver sets his own hours. 
  • The dealership does not assign a start or completion time—only when a customer expected delivery of a vehicle by a certain date and time. 
  • The driving route is determined by the driver, not the dealership. 
  • The dealership does not have a dress code for the drivers. 
  • The drivers are not subject to the dealership employee's policies and procedures. 
  • Drivers could bring along a guest as a passenger. 
  • The drivers were not prevented from performing this same service for other dealerships, and most did.
TIP: It is ok to have a no-smoking rule and a requirement that the driver provide a valid driver's license and proof of insurance. However, drivers should control how they performed each delivery.

Auto dealers can be successful when defending against claims by TWC regarding incorrect employee status. An Order and Final Judgment was filed and signed by Judge Dustin Howell in the cause of action styled Mercer Nissan. Inc. v. Texas Workforce Commission, Cause No. D- 1 -GN- 16-002161 (98th Dist. Ct., Travis County, Tex. May 8, 2018) regarding dealer trade drivers as independent contractors. The judge ruled that the dealer-trade drivers performing services for the dealership were not in “employment” and were properly classified by the dealership as independent contractors. As a result of the judge's ruling, no unemployment taxes should have been assessed and a refund is ordered by TWC to Mercer Nissan, Inc.

This action was filed May 19, 2016, as required, in Travis County. Texas. As is known by every motor vehicle dealer, a dealer trade driver is used to transport vehicles between dealerships as well as auctions. A driver is only used on an “as needed” basis. Mercer maintained a list of drivers who provided this same service to other dealerships in the area and contacted a driver when a dealer trade or auction pick-up demanded. After a bench trial on March 26, 2018, and the submission of briefs, Judge Howell ruled that the Mercer's drivers are independent contractors.

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