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Doe v. Swift Transportation Co., Inc.

United States District Court, D. Arizona

January 5, 2017

John Doe 1, et al., Plaintiffs,
Swift Transportation Co., Inc., et al., Defendants.

          ORDER AND OPINION [RE: MOTIONS AT DOCKETS 771, 744, 751, 757, 763, 768, 820]



         At docket 771 the five named plaintiffs in this suit (“Plaintiffs”) filed a motion for partial summary judgment, asking the court to find that the contractor agreements they entered into with Defendant Swift Transportation Co., Inc. (“Swift”) constituted contracts of employment, which are exempt from the Federal Arbitration Act (“FAA”) and the Arizona Arbitration Act (“AAA”). Their statement of facts and supporting documents are filed at dockets 772 through 776. Defendants respond at docket 792, with their statement of facts at docket 797, and their supporting documents at dockets 793 through 795. Plaintiffs reply at docket 851. Defendants filed separate motions for partial summary judgment as to each of the named Plaintiffs at dockets 744, 751, 757, 763, and 768. Plaintiffs responded jointly to all motions at docket 608. Defendants filed separate replies. Oral argument was not requested and would not be of assistance to the court. As shown in the following discussion, this order has the effect of rendering moot Defendant's motion for reconsideration at docket 820.


         Swift is a motor carrier that is engaged in the interstate transportation of freight. Plaintiffs are truck drivers who each entered into a contractor operating agreement with Swift (the “Contractor Agreement(s)”).[1] Under each Contractor Agreement, the respective Plaintiff agreed to furnish “Equipment” and labor necessary for the transportation of freight, which would be furnished by Swift. The “Equipment” is a truck specifically identified in “Schedule A” of each Contractor Agreement with a unit number, year, make, and serial number. The Plaintiff is listed as the owner of the truck, Defendant Interstate Equipment Leasing (“IEL”) is listed as the financing entity, and Swift is identified as the operator of the truck.[2] Each Contractor Agreement refers to the signing Plaintiff as a “Contractor” and specifically states that he or she is an independent contractor, not an employee of Swift, and is responsible for determining “the method, means and manner of performing work and services” under the Contractor Agreement.[3] Each Contractor Agreement also contains a provision requiring that “all disputes and claims arising under, arising out of or relating to [the Contractor Agreement], including . . . any disputes arising out of or relating to the relationship created by the [Contractor Agreement]” be “fully resolved by arbitration.”[4]

         None of the Plaintiffs owned the “Equipment” before entering into the Contractor Agreement. Rather, on the same day, each Plaintiff also executed an “Equipment Leasing Agreement” with IEL (“IEL Lease”), wherein he or she agreed to lease the truck that is referred to in Schedule A of the Contractor Agreement.[5] Each IEL Lease provides in pertinent part that the lessee will fill out a form that authorizes Swift to deduct weekly lease payments owed to IEL under the lease from his or her earned compensation under the Contractor Agreement.[6] Each one also states that the lessee shall be in default under the lease in the event his or her Contractor Agreement with Swift is terminated and that in the event of default IEL may “declare the entire amount of unpaid rent then accrued and thereafter payable for all Equipment then leased . . . to be immediately due and payable.”[7]

         In 2009, Plaintiffs filed a complaint against Swift and IEL alleging various labor law claims and putting the status of the employment relationship between Plaintiffs and Swift at the heart of the lawsuit. Defendants moved to compel arbitration based on the terms of the Contractor Agreements, but Plaintiffs opposed arbitration based in part on § 1 of the FAA, which exempts “contracts of employment of . . . workers engaged in foreign or interstate commerce.”[8] By order dated September 30, 2010, the court granted Defendants' motion to compel arbitration and stay this action pending completion of arbitration. The court concluded that applicability of the exemption was a question for the arbitrator to decide in the first instance.[9]

         Plaintiffs subsequently filed a petition for writ of mandamus with the Ninth Circuit Court of Appeals. In their Petition, Plaintiffs argued that the district court committed clear error by “refusing to resolve their claim of exemption from arbitration under Section 1 of the [FAA] and Section 12-1517 of the Arizona Arbitration Act . . . before compelling arbitration pursuant to those acts.”[10] The Ninth Circuit concluded that a district court must first determine whether the agreement at issue is exempt as a contract of employment pursuant to § 1 before ruling on a motion to compel arbitration. It nonetheless denied Plaintiffs' petition for mandamus relief on the grounds that it was not satisfied that the district court committed clear error.

         After the Ninth Circuit's denial of mandamus, Plaintiffs requested that the court again reconsider its order compelling arbitration or, alternatively, to certify an interlocutory appeal under 28 U.S.C. § 1292(b). The court granted the request to certify an interlocutory appeal. On appeal, the Ninth Circuit stated that its opinion in Van Dusen I was the law of the circuit and remanded the case.[11]

         The court issued an order asking the parties to file a notice outlining what needed to be done to conclude the case. Defendants contended that the only thing to be done was for the court to review the four corners of the Contractor Agreements to determine if they were contracts of employment. Plaintiffs requested a comprehensive schedule for discovery needed to determine what facts bear on Plaintiffs' status as employees or independent contractors. The court concluded that Plaintiffs' approach was correct given its prior orders which indicated it thought that information outside the four corners of the Contractor Agreements was necessary to decide the issue and the Ninth Circuit's decisions did not instruct otherwise, and it set forth a scheduling and planning order in conformity with Plaintiffs' suggested schedule.[12] Defendants objected to the court's ruling, but the court maintained its decision to proceed with discovery after considering how other district courts have handled the issue and citing multiple cases where the courts have looked to the relationship of the parties in determining whether the contract is one of employment.[13] Defendants petitioned the Ninth Circuit for a writ of mandamus, challenging the district court's decision. The Ninth Circuit denied the request, with one judge on the panel issuing a dissenting opinion.[14]


         A. Identifying “Contracts of Employment”

         The issue before the court is whether Plaintiffs' Contractor Agreements are exempt from arbitration under § 1 of the FAA and § 12-1517 of the AAA. Section 1 of the FAA provides that the FAA does not apply to “contracts of employment” of transportation workers.[15] Section 12-1517 of the AAA “exempts all employer and employee employment agreements from the provisions of [the Act].”[16] When Defendants originally moved to compel arbitration, Plaintiffs opposed the motion arguing that because they were employees of Swift they were therefore exempt from arbitration under the FAA and the AAA. The court declined to consider the exemption issue when it originally compelled arbitration back in 2010. It concluded that the arbitrator needed to decide the exemption issue because such a decision would require an analysis of the Contractor Agreements and the IEL Leases, as well as consideration of Plaintiffs' working relationship with Swift and that, under the arbitration provision in the Contractor Agreements, issues of arbitrability and issues regarding the relationship of the parties were to be decided by an arbitrator. It declined to address the exemption issue in part because determining whether Plaintiffs' were exempt from arbitration based on an employee-employer relationship with Swift-as Plaintiffs requested- would overlap with the merits of plaintiffs' claims, which would exceed the proper role of a court in addressing threshold questions of arbitrability.[17]

         When reviewing this court's decision, the Ninth Circuit agreed with Plaintiffs' position that § 1 exemption is not a “question of arbitrability” that can be delegated to an arbitrator. Rather, the issue of exemption is a threshold question that the court is required to answer. The Ninth Circuit, however, recognized that it was a close call given “the law's repeated admonishments that district courts refrain from addressing the merits of an underlying dispute.”[18] This suggested to the court that the Ninth Circuit did not take issue with Plaintiff's position that exemption would turn on their employment status. Ultimately, the Ninth Circuit mandated that the court “determine whether the Contract Agreements between each appellant and Swift are exempt under § 1 of the FAA before it may consider Swift's motion to compel.”[19]

         On remand, over the objection of Defendants, the court maintained its position that its exemption analysis requires the court to consider the Contractor Agreement as a whole, as well as the lease and evidence of the amount of control exerted over Plaintiffs by Defendants. It indicated that determining exemption status will require the court to consider numerous fact-oriented details about how the contracts operated, such as the employer's right to control the work, the individual's opportunity to earn profits from the work, the individual's investment in equipment and material needed for the work, whether the work requires a specialized skill, and whether the work done by the individual is an integral part of the employer's business.[20] The court's decision to look to the parties' relationship, as well as the Contractor Agreements and IEL leases, was supported by numerous district court cases that framed the § 1 exemption issue in terms of a plaintiff's employment status.[21] The court set a case management schedule and provided the parties an opportunity to discover evidence that would affect the court's analysis.

         Defendants again petitioned the Ninth Circuit for a writ of mandamus ordering this court to vacate its case management order and decide the petition to compel arbitration without discovery or trial. The Ninth Circuit denied the request.[22] It did so after considering the requisite mandamus factors set forth in Bauman.[23] While it recognized that the issue of how to proceed when deciding a § 1 exemption issue was one of first impression, it found the other factors did not support mandamus relief-the Defendants could obtain relief on appeal after this court makes the decision about arbitration, there was no significant risk of prejudice, the district court did not commit clear error or an often-repeated error. Indeed, the Ninth Circuit concluded that “the issuance of a case management order is not only consistent with, but required by, the federal rules.”[24] It indicated that it could decide the issue of what to consider when deciding the exemption issue-an issue of first impression-on direct appeal after the court's “final order denying or compelling arbitration.”[25]

         In dissent, Judge Ikuta applied the factors differently and concluded that Defendants' petition for mandamus should be granted. In doing so, she concluded that this court had committed clear error and an error that has been often made by district courts considering the issue. She indicated her belief that the law requires that the court consider only the Contractor Agreements and decide whether they set forth terms and conditions of employment.[26] Judge Horowitz, while not joining in Judge Ikuta's dissent because he concluded mandamus was not necessary, did specifically indicate that he thought the issue should be decided on the terms and conditions of the agreements alone.[27]

         This court need not make a definitive ruling as to whether it must look at only the applicable contracts themselves to see if they set forth terms and conditions of employment or whether it can look outside the contracts at how the provisions of the contract operate in practice because, in either scenario, the Plaintiffs were operating under employment contracts.

         B. Four Corners of the Contractor Agreements

         As noted above, § 1 of the FAA excludes “contracts of employment” from the FAA. The dissenting opinion in Swift indicated that the court should take “a categorical approach that focuses solely on the words of the contract and the definition of the relevant category, ” which in this case is employment.[28] That is, the court should look to see if the contract at issue sets forth “terms and conditions of employment.”[29]Employment is generally determined by looking at the extent of the alleged employer's control, matters related to payment and opportunity for profit and loss, the workers' ability to operate as an autonomous business, the type of work and its relation to the alleged employer's work, and the length of the relationship.[30]

         Under the dissent's categorical approach, the court must look to see to what extent and how the terms and conditions in the Contractor Agreements bear upon the above-listed factors. Other terms and conditions related to employment are ones that prevent the worker from maintaining other employment without consent, require a worker to devote all time and ability working for the employer, or create a covenant not to compete after termination.[31]

         Looking solely at the Contractor Agreements, there are several terms and conditions that suggest an employment relationship:

Type of work: The terms of the contract make clear that Swift is in the business of transportation and Plaintiffs were doing the work of transporting on behalf of Swift. Swift's “central mission is the delivery of [freight] to customers; the drivers' job is to effectuate that purpose” and therefore the Plaintiff's work is “the very core of its business.”[32] This suggests an employment relationship.
Permanence: The Contractor Agreements, except for Plaintiff Sheer's, specify that the term of the agreement runs from the date of signing until December 31 of the same year, after which it automatically extends year to year unless terminated by either party.[33] The agreements do not contemplate an end to the service relationship-the terms show that Plaintiffs were not hired to perform a specific project or work for a defined period of time. A term of infinite duration is indicative of employee status.[34]
Control: The Contractor Agreements give Swift the right to terminate the agreements without cause on ten days notice.[35] A provision allowing termination at-will is indicative of the right to control the agent's activities and suggests an employment relationship.[36]
Control: Despite a provision that states Plaintiffs control the method and manner of their work, the terms of the Contractor Agreements nonetheless provide Swift with some control over Plaintiff's delivery schedule. The Contractor Agreements state that if a lease operator fails to properly and timely deliver a shipment and Swift determines in its sole discretion that the lease operator has failed to deliver a shipment, Swift has the right to temporarily take possession of lease operator's truck and complete the delivery and to require the driver to indemnify Swift for any costs and expenses incurred by Swift as a result.[37]
Control and opportunity for profit: Plaintiffs agreed to be paid on a per mile basis at a rate set forth in a schedule attached to each agreement, but Swift retained the right to decrease the rate per mile with 30 days notice.[38] Provisions providing the company unilateral control to change the terms of the agreement is a factor that weighs in favor of employment status.[39] Moreover, Swift controlled when and if it offered loads to Plaintiffs. That is, there was no agreement to provide a certain number of loads or to perform a specific delivery job. Therefore, under the terms of the agreements, Swift controlled load assignments and mileage rates, which in turn dictated how much Plaintiffs could earn.
Control: The Contractor Agreements require Plaintiffs to comply with “any [company] policy.”[40] Such a provision evinces a certain level of control over Plaintiffs' day-to-day work.[41]
Equipment: Plaintiffs were required to have a Qualcomm Communications system that is compatible with the company's equipment.[42] While Plaintiffs did not have to obtain that required system from Swift, all Plaintiffs nonetheless did so through a rental agreement that was attached and incorporated into their Contractor Agreements.[43]
Equipment and Operational Costs: The Contractor Agreement also offer leasing and cost-advancing options to Plaintiffs. In the agreements, Swift also retains the discretion to pay for certain items on behalf of Plaintiff and then deduct those payments from Plaintiffs' settlements.[44]Cost-advancing and leasing arrangements that allow drivers to operate are evidence of an employment relationship.[45]

         On the other hand, each Contractor Agreement contains provisions declaring that the signing Plaintiff operates as an independent contractor and not an employee of Swift. The applicable provision in the agreements require the signing Plaintiff “to determine the method, means and manner of performing work and service under [the agreement].”[46] Such a provision suggests that the parties intended to create an independent contractor relationship and that the Plaintiff would be able to have autonomy. The Contractor Agreements also state that Plaintiffs would not be entitled to workers' compensation benefits.

         There are also provisions in the Contractor Agreements enforcing the idea that Plaintiffs would have the right to daily autonomy and the opportunity to operate their own profitable trucking business. For example, each agreement states that the respective Plaintiff can turn down any loads tendered by Swift.[47] Each one also states that the Plaintiff cannot haul for another carrier while he or she is using the truck under Swift's operating authority, but if the Plaintiff removes and returns all indicia and documents relating to Swift's operating authority- “all identification devices, licenses and base plates pertaining to [Swift]”-then he or she can provide services to another carrier.[48] Each also provides that the Plaintiff can hire employees as long as the Plaintiff obtains the required amount of accident/hazard insurance.[49] The agreements make Plaintiffs responsible for all repairs and fuel costs, but the agreements state that Plaintiffs can use Swift's repair services and purchase fuel from Swift facilities or with Swift's credit.[50] Plaintiffs were not required to purchase or rent any equipment from Swift, but they could do so.[51] Indeed, as noted above, all Plaintiffs rented their required communications equipment from Swift through an addendum agreement to the Contractor Agreement. Plaintiffs were responsible for certain types of insurance, but they could purchase such insurance through Swift.[52]

         On the surface, these terms suggest that Plaintiffs had autonomy and support the idea that Plaintiffs had the opportunity to work for others and establish a distinct, profitable business. However, the Contractor Agreements and the terms that Plaintiffs agreed to therein cannot be read in isolation and do not provide the complete terms and conditions of their working arrangement. Each of the named Plaintiffs also executed an accompanying IEL lease on the same day as the Contractor Agreement. That is, the truck they were going to use to provide their driving services to Swift was a leased truck. For those contract drivers who had accompanying IEL leases, such as Plaintiffs, the lease provisions effectively curtail the provisions in the Contractor Agreements that provide for their autonomy and ability to operate as a distinct business.

         While the Contractor Agreements state that the respective Plaintiff can use his or her truck for other carriers, the accompanying leases refer to drivers working for one “Carrier” and that term is defined under the lease as Swift.[53] Pursuant to the IEL leases, each Plaintiff must have a Contractor Agreement with Swift, and the only provision related to payments indicates that rents must be paid by Swift on a weekly basis after it had deducted the requisite amount from the Plaintiff's earnings.[54] The lease also specifies a maximum number of miles that the Plaintiff can drive the leased truck per month and specifically contemplates that Swift will keep track of mileage:

[Plaintiff] agrees that the Rent is based upon normal wear and tear, and that [Plaintiff] shall drive the vehicle 11, 000 miles dispatched by Carrier, whether loaded or empty, or less per MONTH. . . . [Plaintiff] agrees to a charge of nine cents ($.09) for each mile driven in excess . . . . This Excess Mileage Charge shall be calculated monthly by subtracting the Standard Mileage from the same month's actual miles dispatched by Carrier, whether loaded or empty-based on Carrier's then most current version of its mileage guide- and multiplying by $0.09 cents per mile.[55]

         Therefore, when read in conjunction, contract drivers with accompanying IEL Leases, as a practical matter, had to drive for Swift.

         Under the terms of the IEL Leases, the ability of Plaintiffs to keep leasing their trucks was explicitly dependent on them maintaining their Contractor Agreements with Swift.[56] When read in conjunction with the at-will termination provision in the Contractor Agreements, Swift effectively had full control of the terms of the relationship. Swift could use the threat of the at-will termination provision to pressure Plaintiffs to agree to changes because termination would automatically put him or her in default, which, under the terms of the lease, had significant financial consequences for contract drivers-default by a Plaintiff meant that IEL could accelerate all remaining lease payments for the remainder of the lease and satisfy the debt out of the Plaintiff's bond, maintenance account, and settlements with Swift.[57]

         The lease provisions also limited the ability of the Plaintiffs to have a different driver operate the leased truck. A substitute driver could only be used if the Plaintiffs were “ill, disabled, or otherwise unable to drive the [truck].”[58] Moreover, in order to hire a substitute driver, Plaintiffs had to submit written notice for IEL's approval.[59]Plaintiffs therefore were not free to use their discretion to choose their own employees; generally an independent contractor would have the unrestricted right to hire its own employees.[60]

         Defendants argue that IEL is a separate company and that the terms of the IEL Leases should not be considered as part of Plaintiffs' Contractor Agreements with Swift. The court disagrees. The terms of the two agreements are explicitly entwined and clearly designed to operate in conjunction for those drivers who leased equipment from IEL for purposes of becoming contract drivers with Swift. As noted above, the IEL Leases provide that Plaintiffs are in default if their Contractor Agreements with Swift are terminated by Swift or Plaintiffs. In such an event, IEL is entitled to terminate the lease and accelerate all remaining lease payments for the remainder of the lease and satisfy the debt out of the Plaintiff's bond, maintenance account, and settlements with Swift.

         The leases require the respective Plaintiff to authorize and direct Swift to pay the rent due on the truck directly to IEL from the Plaintiff's earned compensation on a weekly basis:

[Plaintiff] shall execute an “Authorization and Assignment” (in the form attached hereto) in favor of [IEL] authorizing and directing the motor carrier (“Carrier”) with which [Plaintiff] has entered into [an] independent contractor operating agreement (“ICOA”)-which shall be Swift Transportation Co., Inc. -to deduct weekly the Overall Lease Payments from [Plaintiffs] earned and available settlement compensation under the ICOA and to electronically deliver all Overall Lease Payments to [IEL] within two business days of each Overall Lease Payment Date. [Plaintiff] shall supply [IEL] with a copy of [Plaintiff's ICOA . . . immediately upon its signing by all parties.[61]

         In turn, the authorization for deduction of weekly lease payments to IEL is specifically incorporated by reference into the Contractor Agreement.[62] The Contractor Agreements also reference Plaintiffs' indebtedness to IEL:

[Swift] and [Plaintiff] acknowledge that [Plaintiff] may have indebtedness or obligations to third parties whereby [Plaintiff], with the consent of [Swift], has agreed to have sums deducted from [Plaintiff's] settlements to satisfy such indebtedness or obligations. [Plaintiff] hereby authorizes [Swift] to deduct any such indebtedness or obligations from [Plaintiff's] settlements.[63]

         Schedule A to each Contractor Agreement acknowledges that the Plaintiff was leasing his truck and that he did, in fact, have indebtedness to a third party-IEL.[64] It is undisputed that both agreements were presented to Plaintiffs together and were unilaterally drafted by Swift's attorneys. It is also undisputed that IEL is a wholly-owned subsidiary of Swift that is publically traded as part of the Swift umbrella of companies, is located at the same location as Swift, and shares Swift's computer systems. Therefore, the contractual terms and conditions of Plaintiffs' agreements with Swift were set forth in both the Contractor Agreements and the IEL Leases and should be considered together when determining whether Plaintiffs operated under a contract for employment.

         In sum, looking at the terms and conditions of the Contractor Agreement and the terms and conditions of the IEL Leases, which essentially restricted the purported autonomy allowed in the Contractor Agreements, contract drivers who obtained their trucks through a lease with IEL, such as Plaintiffs, had contracts for employment that are therefore exempt from arbitration under the FAA and the AAA.

         C. Other Evidence

         The evidence presented from outside the four corners of the agreements also support the court's conclusion that Plaintiffs had employment contracts with Swift. The load assignment and payment structure limited Plaintiffs' autonomy and ability to maximize their profits. Defendants assert that Plaintiffs were paid by the job, on a per mile basis, and not by time spent at work. The fact that Plaintiffs were paid on a per mile basis and not based on time spent working does not make their compensation project-based. As noted above, the mileage rate was set by Swift, and Swift could unilaterally change it. Plaintiffs were not paid after completion of a specific job; rather, they received settlement payments on a weekly basis. Indeed, payment of Swift's employee drivers was set up similarly: Plaintiffs, as well as many other contract drivers, were paid per mile driven on a weekly basis just as they had been paid previously when they worked as employees for Swift.[65]

         Defendants argue that Plaintiffs were free to do as little or as much for Swift as needed to make a profit as an independent driver. Plaintiffs had much less control of their schedule than Defendants contend. Even though Plaintiffs were not explicitly required to work a set number of hours, the combination of the Contractor Agreements and the IEL Leases dictated a minimum amount of time Plaintiffs needed to drive for Swift in order to pay the weekly rent for the leased truck. The evidence shows that to make enough to pay rent and other costs out of their Swift earnings, Plaintiffs needed to drive 2, 100 to 2, 400 a week for Swift.[66] That is around the same mileage expected of Swift's employee drivers.[67] Plaintiffs' declarations show that they had to drive at least as many hours for Swift when driving as contract drivers as they had to drive when they were employees.[68] Swift provided a declaration from its CEO, David Barry, which states that “there are many instances where Owner Operators will not accept loads for weeks or even months at a time with no repercussion.”[69] However, he does not state that the owner operators he refers to are ones with IEL Leases like ...

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