May 31, 2023 – Drivers who delivered packages for Amazon in their own vehicles while using an Amazon smartphone app are employees for purposes of Wisconsin’s unemployment insurance benefits (UIB) scheme, the Wisconsin Court of Appeals has ruled.
In Amazon Logistics, Inc. v. Labor and Industry Review Commission, 2022AP13 (April 6, 2023), the Court of Appeals District IV held that Amazon Logistics, Inc. (Amazon) had satisfied only five categories out of nine for determining whether a worker is an independent contractor for UIB purposes, while state law requires it to satisfy at least six.
Flex Program Uses App
Amazon uses individual drivers to deliver packages under a program called Amazon Flex.
Amazon requires drivers to download a smartphone app and sign a contract which the company refers to as an “independent contractor terms of service.”
Drivers use their own vehicles to make deliveries. The Amazon Flex contract requires the drivers to have insurance on their vehicles.
Drivers use the app to view available delivery blocks, which are usually two- or four-hours long. Amazon pays drivers a fee for each delivery block they complete.
Upon choosing a delivery block, the app directs a driver to the Amazon warehouse in Milwaukee, where the driver is directed to a rack of packages. At the rack, the driver scans the packages using the app and loads them into his or her vehicle.
The app then gives the driver a suggested delivery route, but the driver is free to disregard the route.
In 2018, the state Department of Workforce Development (DWD) audited Amazon and determined that all but of two of the approximately 1,000 audited drivers qualified as employees under Wis. Stat. section 108.02(12).
As a result, the DWD determined that Amazon owed the state $205,436.45 in unemployment insurance, taxes, penalties, and interest, because Amazon hadn’t reported the drivers as employees during portions of 2016, 2017, and 2018.
Amazon appealed the audit determination. An administrative law judge (ALJ) upheld the determination; Amazon appealed to the Labor and Industry Review Commission (LIRC).
LIRC concluded that Amazon had met only one of the nine factors and upheld the ALJ. Amazon appealed to the Waukesha County Circuit Court, which reversed LIRC.
Factors Met by Amazon
Writing for a three-judge panel, Judge Michael Fitzpatrick concluded that Amazon had met only five of the nine factors required under section 108.02(12).
On the second factor, Fitzpatrick reasoned, Amazon had shown that the drivers performed most of the services at a location of their own choosing and used their own equipment or materials in performing the services.
Judge Fitzpatrick concluded that while the drivers did not maintain their own offices, they: 1) chose the routes used to deliver the packages; and 2) performed most of their services while driving those routes.
“The undisputed facts demonstrate that the bulk of each [driver’s] services for Amazon Logistics involved the transportation of packages from the pick-up location to multiple delivery destinations along a route chosen by the [driver],” Judge Fitzpatrick wrote.
Fitzpatrick also reasoned that the drivers incurred most of the expenses related to the services they performed under the contract, the fourth factor.
“LIRC found that the [drivers] were responsible for all expense associated with the services they performed – i.e., the costs associated with the [drivers’] smartphones and vehicles,” Judge Fitzpatrick wrote.
Amazon met the fifth factor – whether the drivers were subject to a monetary penalty for unsatisfactory work – because of the indemnification clause in the contract, Fitzpatrick reasoned.
LIRC argued that the indemnification clause failed to specify what would happen if a driver performed unsatisfactory work, leaving only a breach of the service standards listed elsewhere in the contract to count as unsatisfactory work.
But that argument missed the mark because it relied on a too-narrow conception of “unsatisfactory work,” Judge Fitzpatrick explained.
“The Agreement sets forth ‘work’ obligations of the [drivers] not only by describing the ‘Service Standards’ that the delivery partners must follow but also by describing in the indemnification provision conduct that triggers the [drivers’] obligation to defend and indemnify Amazon Logistics,” Fitzpatrick wrote.
Judge Fitzpatrick also concluded that Amazon had shown that the drivers: 1) may realize a profit or loss under the contract; and 2) had recurring business liabilities or obligations (their smartphone and vehicle expenses), the seventh and eighth factors, respectively.
Factors Not Met by Amazon
Fitzpatrick concluded that Amazon failed to prove that the drivers advertised or otherwise affirmatively held themselves out as being in business, the first factor.
Amazon argued the drivers did so merely by registering with the app and notifying Amazon that they were available to make deliveries.
But Judge Fitzpatrick wrote that drivers “use the Flex app only to communicate with Amazon Logistics, and not to advertise or offer their services to the wider public or third parties seeking delivery services.”
“With the Flex app, the delivery partners were entirely dependent on Amazon Logistics to offer opportunities to provide delivery services, and the [drivers] could not use the Flex app to solicit other delivery opportunities from the public or Amazon.com customers.”
Fitzpatrick also concluded that Amazon failed to prove that the drivers were not dependent on Amazon regarding the delivery services they performed, the ninth factor.
Judge Fitzpatrick pointed out that under court of appeals precedent, a worker is likely not economically dependent if he or she performs services and then performs similar services for another.
Amazon argued that one of its area managers testified that many drivers arrived at the warehouse in vehicles bearing sticker signs for other delivery companies including Uber, Lyft, and GrubHub.
But LIRC had found that testimony not credible, Fitzpatrick pointed out, and the Court of Appeals would not disturb that finding.
Judge Fitzpatrick also concluded that Amazon failed to meet the third factor (the individual operates under multiple contracts with one or more employing units) and sixth factor (the services performed by the individual don’t directly relate to the employment unit retaining his or her services).