Worker Classification of Delivery Person

P was a member of the International Brotherhood of Teamsters, Bakery Drivers Local Union No. 952 (Local 952). He delivered baked goods provided by IBC, a company in the business of baking and delivering baked goods to customers. Ps deliveries were subject to the terms and conditions of a collective bargaining agreement between Local 252 and IBC.

P was required to wear a uniform bearing IBCs name and was referred to by IBC as a route sales driver. He drove an IBC-owned truck, for which IBC provided maintenance and gasoline. P had no investment in the businesss facilities or equipment. Normally, he would punch a time clock on arrival and at the end of his workday. IBC assigned its customers and sales territory to P. P had no ownership interest in the goods he delivered; all customer invoices were issued in IBCs name.

Under the union agreement, P received a base salary plus commissions, based on the net sales of goods delivered to IBC customers. IBC could discharge P for certain infractions specified in the union agreement. IBC provided P with paid holidays, vacations, and sick and funeral leave. In addition, it provided him with severance pay, a pension and healthcare benefits. Normally, Ps sales route was based on driver seniority. IBC reported Ps compensation from his activity as W-2 wages.

Analysis

P claims that he is not an employee. Sec. 3121(d)(2) defines an employee as any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an employee. Sec. 3121(d)(1), (3) and (4) describe statutory employees whose employment status does not generally depend on common-law principles. One such category in Sec. 3121(d)(3)(A) is an agent-driver or commission-driver engaged in distributing meat products, vegetable products, fruit products, bakery products, beverages (other than milk), or laundry or dry-cleaning services, for his principal. If P can show that he falls within that definition and that he is not a common-law employee, he will be entitled to use Schedule C to report his income and deductions.

P also contends he is a direct seller under Sec. 3508, which affords nonemployee status to certain statutorily defined classes of activities. Generally, a direct seller is a person engaged in the trade or business of either selling consumer products in the home (as opposed to a permanent retail establishment), or delivering or distributing newspapers or shopping news. Also, remuneration must be related to sales, rather than to the number of work hours. Finally, services must be performed pursuant to a written contract that provides that the person is not treated as an employee for Federal tax purposes.

P does not come within the rather narrow definition of a direct seller. He appears to partially meet the second test for remuneration based, in part, on sales, as opposed to hours worked. However, the union contract did not provide that he was not to be treated as an employee for those services for Federal tax purposes.

If P is a common-law employee, he cannot rely on the statutory exception for agent-drivers; see Ewens & Miller, Inc., 117 TC 263 (2001). On the basis of the terms of the union agreement between IBC and Local 952, and the other aspects of the petitioners relationship with IBC, the control factor indicates an employer-employee relationship. However, IBCs right to discharge P is not significant, because IBC, P or both would each have the option to terminate their relationship, regardless of whether it was one of employment or agency.

P and IBCs relationship is, in substantial part, governed by the agreement between the union and IBC, which provides for a relationship more akin to that of an employer-employee (common law) than that of a self-employed individual or an agent, as contended by petitioner. Thus, P is a common-law employee of IBC and is not entitled to classification as a statutory employee under Sec. 3121(d)(3)(A).

Dennis J. Krause, TC Memo 2003-10