Oregon Supreme Court Rules That Taxi Drivers are Not Independent Contractors
Misclassifying individuals as employees or independent contractors can affect a company’s obligations for payroll withholding and unemployment insurance, as a recent Oregon case illustrates.
By Jess Johannesen, SALT manager
Whether your business is a new startup or a mature, established company, you likely utilize both employees and independent contractors. The appropriate classification impacts your company’s obligations, such as withholding payroll taxes and paying unemployment insurance for those individuals deemed to be employees. States may adopt rules similar to the federal ones, or they may establish their own criteria to determine the appropriate classification. On Dec. 10, 2015, the Oregon Supreme Court issued an opinion in a case in which a taxi company’s drivers were held to be employees rather than independent contractors.  Consequently, the taxi company was liable for unemployment insurance taxes on the wages earned by the drivers during the period in question.
In that case, the Oregon Employment Department (the “Department”) assessed Broadway Cab, LLC (“Broadway”) for unemployment insurance taxes on the earnings of taxi drivers affiliated with Broadway. One of the arguments that Broadway made was that the drivers were independent contractors. The relevant facts of the case involve a “Driver Agreement” that Broadway required drivers to sign in order to be included on the company’s list of approved drivers. Drivers paid Broadway a driver agreement fee as well as a vehicle fee. The drivers were not required to drive their taxicabs for a minimum number of hours, but there were daily maximum hour limits imposed. The drivers were required to pay the weekly fees to Broadway regardless of whether they decided to drive a taxi during the week, but the drivers were entitled to keep any cash or other payments received for fares that exceeded the weekly dues to Broadway.
Oregon rules provide that unemployment insurance tax is due on payments for services in an employment relationship unless the individual is shown to be an independent contractor.  An independent contractor is then defined to be a person who provides services for remuneration and meets four additional criteria, including that the person is “customarily engaged in an independently established business.”  The court focused on this requirement which requires that three of the following five criteria are met:
- The person maintains a business location that is either (a) separate from the business location of the person for whom the services are provided OR (b) that is in a portion of the person’s residence and that portion is used primarily for business;
- The person bears risk of loss;
- The person provides contracted services for two or more different people within a 12-month period or otherwise routinely engages in advertising and marketing reasonably calculated to obtain new contracts;
- The person makes significant investment in the business; and
- The person has authority to hire and fire people to assist in providing the services. 
In this case, Broadway did not maintain that its drivers met (3) or (1)(b). Therefore, in order to prove that the drivers were not independent contractors by process of elimination, the Court only needed to find that the drivers did not meet two other criteria, the first being (1)(a) and the second being (5). 
With regard to (1)(a), Broadway argued that the driver’s work “location” is his or her vehicle which is separate from Broadway’s business location. The Court held that because Broadway’s business was to provide taxicab services throughout Portland, it follows that Broadway’s business was located not only at its administrative offices but also in the field where taxicabs were operating. Accordingly, even if the driver’s businesses were indeed their vehicles, those vehicles were not separate from Broadway’s business or work location. Therefore, the Court held that the drivers did not meet this requirement.
With regard to (5), Broadway argued that it did not restrict its drivers from hiring their own employees and subcontractors to assist in the operation of the taxicab business. Broadway cited a provision in its Driver Agreement that granted drivers the authority to hire professionals (such as mechanics, accountants and tax professionals) to assist in their taxicab businesses. The Court concluded that “the services” referred to in that provision are the driving services provided to Broadway and not the administrative services provided to any taxicab or other business. A separate provision of the Driver Agreement disallowed persons other than approved drivers (who had themselves entered into a Driver Agreement) from driving vehicles on Broadway’s approved vehicle list. Therefore, the Court held that the drivers did not meet this requirement.
The taxpayer ultimately was required to pay the outstanding unemployment insurance tax since the Court held that the drivers were not independent contractors. While this case highlights one of the consequences of misclassifying individuals as employees vs. independent contractors, this case only applies to Oregon’s process for making such determinations. Each state will have its own set of rules to determine who are employees and who are independent contractors, and Aprio’s SALT team has experience assisting companies in evaluating the state tax rules involved in such an analysis in order to minimize exposures due to a misclassification.
This article was featured in the January 2016 SALT Newsletter. To view the newsletter, click here.
 Broadway Cab LLC v. Employment Department, SC S062715, 358 Or. 431 (12/10/2015).
 ORS §657.040(1).
 ORS §670.600(2). Two other criteria addressed being properly licensed, and the last required that the person be free from direction and control over the means and manner of providing the services (other than the right of the payer to specify a desired result). If the person fails any one of the four criteria, he or she cannot be an independent contractor.
 ORS §670.600(3).
 At that point, the drivers would not have met criteria (1), (3) and (5), and therefore could not be classified as independent contractors because they were not “customarily engaged in an independently established business.”
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