All Access Coach Leasing, LLC v. McCord

Session August 17, 2021

Appeal from the Chancery Court for Davidson County No. 19-377-II Anne C. Martin, Chancellor

An agency determined that a tour bus leasing company mischaracterized its tour bus drivers as independent contractors rather than employees, for the purposes of unemployment taxes. The company sought review in chancery court, which affirmed the agency's determination. Because there is substantial and material evidence to support the agency's determination, we affirm the trial court.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

Brett R. Carter, Nashville, Tennessee, for the appellant, All Access Coach Leasing, LLC.

Herbert H. Slatery, III, Attorney General and Reporter; Andrée Sophia Blumstein, Solicitor General; Kristen Kyle-Castelli, Senior Counsel, for the appellee, Tennessee Dept. of Labor and Workforce Development.

J. Steven Stafford, P.J., W.S., delivered the opinion of the court, in which Kenny Armstrong and Carma Dennis McGee, JJ., joined.

OPINION

J. STEVEN STAFFORD, JUDGE

Factual and Procedural History

All Access Coach Leasing, LLC ("Appellant") is a tour bus leasing company that rents buses to music entertainers ("clients" or "tours"). Appellant maintains a pool of drivers that it can call on when a client leases a bus and needs a driver. If the client already has his or her own driver, the driver still has to qualify through Appellant to drive, pursuant

to federal safety regulations. Some drivers are assigned to specific buses and get the first opportunity to drive for tours that lease those buses. The drivers are free to decline offers for work from Appellant and to work for other companies. Appellant either bills clients for the drivers' services or clients pay the drivers directly. Drivers have to carry their own tools for minor maintenance, though it appears that Appellant bears the responsibility of addressing more major maintenance issues. Drivers coordinate routes and other location details with the tours directly. They primarily coordinate and communicate only with the tours once they take the bus off Appellant's property, unless, for example, there is a major maintenance issue.

Appellant provides drivers with 1099 tax forms and does not pay for drivers' meals or lodging costs unless they are a product of a bus breakdown. Procedures that drivers are required to follow, both under the law and Appellant's own policies, are outlined in a driver's handbook created by Appellant ("the handbook") and provided to the drivers. According to one of the drivers, it is a Department of Transportation ("DOT") requirement for drivers to carry an annual driver's manual. The procedures drivers need to follow include completing a pre-trip inspection of the bus; stocking the bus with supplies before departure, which Appellant does not reimburse drivers for but the clients might; and completing a post-trip checklist upon return from tour, including noting mechanical work the bus needs. Some of these tasks are completed on Appellant's premises.

The Tennessee Department of Labor and Workforce Development ("the Department")^[1] conducted a payroll audit of Appellant, determining in February 2018 that Appellant had misclassified the drivers of its buses as independent contractors in 2015, 2016, and the first two quarters of 2017. The determination was based on certain payroll reporting requirements under the Tennessee Employment Security Law, Tenn. Code Ann. §§ 50-7-101 et seq. (the "Security Law"), and corresponding rules and regulations. Consequently, the Department assessed $13, 792.85 against Appellant in unpaid taxes, plus interest. Appellant submitted a request for review and redetermination to the Director of Employer Accounts Operations for the Department.

The redetermination decision found that five cleaners who provided services to Appellant were not employees.^[2] As to the bus drivers, the redetermination affirmed the original decision. The redetermination decision explained, inter alia, that the drivers were employees under both the common law test, referenced in section 50-7-207(b)(2)(B) of the Security Law, and the so-called "ABC test," contained in section 50-7-207(e), as explained further infra.

Appellant appealed the redetermination decision to the Appeals Tribunal ("the Tribunal"). An appeal hearing in front of a Hearing Officer was held on October 24, 2018. At the hearing, the following people testified for Appellant: Eric Blankenship, co-owner of Appellant; Luke McKnight, who had been driving for Appellant for seven years; Paul Grant, who had been driving for Appellant for eleven years; and Charlie Sherman, who drives buses for Appellant and other companies. Hugh Howell, a bus driver who had worked with Appellant for fifteen years, and Trenton Hitchens, who worked as a driver for Appellant from September 2014 through February 2016, testified for the Department.^[3]

Mr. Blankenship testified, inter alia, that the drivers are responsible for ensuring the validity of some of their own qualifications, including their licenses. He explained that Appellant provides information on the applicable federal law to drivers at an annual safety meeting for all drivers that is required by the DOT. However, Mr. Hitchens testified that the annual meeting was not technically mandatory, but if a driver did not attend he would usually not get work. And Mr. Sherman testified, inter alia, that he had only been able to attend one of the annual safety meetings. Additionally, Mr. Blankenship testified that Appellant provides gifts and bonuses to the drivers at the annual meetings. Mr. McKnight and Mr. Hitchens corroborated this, with Mr. Hitchens testifying that he received separate 1099's for the gifts. Mr. Howell also testified that awards were handed out at the annual meetings. In contrast, Mr. Grant testified, inter alia, that Appellant did not hand out gifts or bonuses at the annual meetings.

Mr. Blankenship further testified that the drivers' daily rate is set at the annual meeting between drivers and Appellant, or, alternatively, drivers can negotiate annual salaries with clients. Some of the drivers testified that they can otherwise negotiate their pay directly with tours. Mr. Blankenship also stated that drivers have discretion to charge additional fees, such as a fee for towing a trailer behind the bus. Mr. Howell, on the other hand, testified that Appellant has a standard daily pay rate it sets for drivers of $400.00 per day, with $30.00 extra if they have to pull a trailer, and he did not remember conversations about setting pay rates at the annual meetings.

Mr. Blankenship also claimed that Appellant is not involved in replacing drivers unless a client requests a new driver, in which case the first driver is responsible for the cost of his replacement. However, Mr. Howell answered affirmatively when asked if Appellant could remove and replace him if Appellant thought he was not performing his duties satisfactorily, though he seemed to think the only reason something like that would happen is if a tour complained. Similarly, Mr. Hitchens testified, inter alia, that Appellant had the power to replace drivers if it felt they were not performing duties as expected, and he was replaced and also replaced other drivers himself on some occasions. He said that on one occasion, Appellant replaced him with another driver, unbeknownst to the tour he was

driving for, because he questioned Appellant's failure to fulfill its responsibility to test-drive buses after they had major mechanical work done.

Mr. Howell further testified, inter alia, that he considers himself as owning and operating his own independently established business and possesses a business license (but it is not clear if he was referring to his driving for Appellant or to the other, unrelated businesses that he operates). He also stated that Appellant does not carry liability insurance on him and, to his knowledge, worker's compensation is not available to him. When asked if he signed an independent contracting agreement when he first started working for Appellant, Mr. Howell stated that he was not sure, but he thought that he did. On the other hand, Mr. Hitchens did not consider himself as owning or operating his own business and did not advertise his bus driving services to the general public. Additionally, Mr. McKnight testified, inter alia, that he started an S-corporation through which his wages are run, in order to limit his liability. And Mr. Grant answered no when asked if Appellant provides him with business cards.

Mr. Sherman estimated that he had driven "65 percent for [Appellant] and 45 [percent]" of his time for other companies that year. Mr. Howell testified that he drives approximately at least half of the time for Appellant compared to other companies. Mr. Hitchens stated that, prior to being replaced, he only drove for Appellant, and that Appellant "didn't want their drivers working for anybody but [Appellant]."

The Tribunal Hearing Officer reversed the redetermination decision, finding that Appellant's workers are not employees under either the common law or ABC tests. The Department appealed the Tribunal's decision to the Department's Office of Administrative Review. The Commissioner of Labor and Workforce Development's Designee ("the Designee") rendered a decision on the appeal, reversing the Tribunal's decision in an order dated February 1, 2019 and finding that the drivers are employees under the common law test and the ABC test.

In March 2019, Appellant petitioned for judicial review of the Designee's determination that Appellant's drivers are employees in the Davidson County Chancery...