Commentary: Is the Workers’ Compensation World Ready for Amazon’s New Package Delivery Business Model? The Answer Might Surprise You!
As I drove to a meeting in downtown Durham a few days ago, I noticed a procession of 15—I actually counted them—nice, shiny, well-appointed Mercedes-Benz Sprinter vans proceeding toward me. All emblazoned with Amazon’s branding and blue Prime logo, they seemed to be heading in unison either toward or away from a specific location. To be sure, I had seen some of the vans—or vans just like them—in my Durham neighborhood over the past few months, but the sight of the “spit and polish” caravan really piqued my interest. Later that day, I called a young business colleague who knows “All Things Durham” and “Most Things New” and I inquired as to what was going on. Seeing a potential workers’ compensation issue within most any context, I asked him, “Does Amazon actually employ all those drivers?”
Amazon Delivery Service
The young colleague allowed that the vans and their drivers are part of a delivery network being rolled out by Amazon in major metropolitan areas of the country, all in an effort to reduce Amazon’s dependence upon package-delivery stalwarts like FedEx, UPS, and the USPS (you can see some of Amazon’s online literature describing this new focus here). Discontent with being tethered to other delivery teams, Amazon has purchased more than 20,000 new Sprinter vans and, utilizing the Amazon logistics teams, has begun to contract with small business owners for what some in the business call “last-mile delivery.”
Amazon’s “Suite of Exclusive Deals”
According to the young colleague—and online Amazon literature—the Delivery Service Partners (“DSPs”) are actually in charge of hiring, training, and managing a “high-performing” team. They must do so, however, under the watchful eye of Amazon. Included within the DSP set-up is a suite of exclusive “deals:”
- The vans—typically 20 to 40 for each DSP—leased to the DSP by a leasing company set up specifically by Amazon;
- Special industrial-grade handheld devices to track deliveries;
- GPS systems to assist drivers with directions to the next delivery point;
- Uniforms, hats, and other paraphernalia to identify the drivers as part of a nation-wide team.
Use of these “deals” is, of course, not voluntary; if the business owner wants to be a DSP, he or she must accept the total package. They must also follow the protocols for delivery and customer service. If the DSP has 20 vans, he or she will need to hire 40 or more drivers, since the drivers work on a “four-days-on, four-days-off” basis. Each driver’s workday is geared to 10 hours; these are all full-time workers.
Amazon is Clear in its Intent: “The Drivers Don’t Work for Amazon”
In spite of the uniforms, the carefully branded vehicles, the intricate control of the details of the work (e.g., it appears that neither the DSPs nor the drivers may deliver packages for anyone other than Amazon), Amazon maintains that neither the DSPs nor the drivers are employed by Amazon. Instead, they are employed by whatever legal entity the DSP creates—typically an LLC—to perform the daily delivery business. The question remains, for workers’ compensation purposes, are the drivers nevertheless deemed to be Amazon employees?
Employee Status in Workers’ Compensation Law
As Dr. Larson wrote some years ago:
It is almost always said, both in the common law of master and servant and in workers’ compensation law, that the fundamental test of employment relation is the right of the employer to control the details of the work, and that all other tests are subordinate and secondary [Larson’s Workers’ Compensation Law, § 61.01].
Sometimes the rule is restated in the negative: An owner (i.e., a business such as Amazon) that desires to get work done without becoming an employer is entitled to as much control of the details of the work as is necessary to ensure that it gets the end result from the contractor that it bargained for. In other words, there may be control of the quality or description of the work itself, as distinguished from control of the person doing it, without going beyond the independent contractor relation [Larson, § 61.03].
Hmm, in the Amazon model, Amazon seems to have a considerable amount of control over “the person” doing the work. So the question remains: For workers’ compensation purposes, does it follow that Amazon is the driver’s employer?
Right to Control the “End Result”
Some early cases are illustrative. In one classic, Medford Lumber Co. v. Industrial Comm’n, 197 Wis. 35, 221 N.W. 390 (1928), a lumber company’s contract for the cutting of logs required that they be a certain length and that the trees be cut not more than a certain height from the ground. The company’s general manager went through the woods about once a week, and if the logs were too short, he would direct that they be cut longer. Such directions were held to be no more than necessary to ensure the agreed end result, and not to make the loggers employees. The “end result” detail may even be one of time or speed of work, if time is of the essence with regard to the independent contract. Thus, when a contract required the cutting of a particular stand of timber within 180 days, this detail was treated as part of the result contracted [Nash v. Meguschar, 228 Ind. 216, 91 N.E.2d 361 (1950), see Larson, § 61.03].
Generally speaking, courts have considered a number of factors in determining whether an employment relationship existed between a purported contractor and the worker. Courts have typically asked [see Larson, § Chs. 61, 62]:
- Who furnished the equipment?
- If leased, how much control does the contractor have over the lessor of the equipment?
- Does the contractor have the right to fire the particular worker?
- How is the work or service provided by the worker integral to the primary business of the contractor?
- Is the worker’s “employment” full-time and/or exclusive?
Early Cases of Taxi Drivers and Filling Station Operators Are Instructive
As noted just above, the furnishing of equipment by the contractor is a strong indication that the relationship between the contractor and the worker is one of employment and not independent status. In many of the early employment cases, the contractor attempted to get around that problem by not so much providing the worker with necessary equipment as leasing it to the worker, for an agreed upon periodic payment. Thus, oil companies often leased filling stations to so-called “independent” operators and taxi companies leased cabs (in this latter example, often on a daily basis). In most such instances, the courts had little difficulty looking through the scenario, noting the strong evidence of various forms of control (e.g. requirement that the employer’s name be displayed on the cab, the oil company’s logo on the station), with the result that an employment relationship was found to exist [see Larson § 61.07].
Substance over Form
While courts usually allow parties to contract freely between and among themselves, utilizing terms that are mutually agreeable to the parties, courts have not always been forgiving when the parties seem to be crafting language deliberately to avoid an employment relationship [Larson, § 63.01, et seq.]. That is to say, if it looks like a duck, and quacks like a duck, the fact that the parties have contractually agreed to call it a goose will not control.
Uber/Lyft Business Model Does Not Provide Clues as to How the Amazon Delivery Service Drivers Will be Classified
At first blush, one might see some parallel between Amazon’s Delivery Service and the Uber/Lyft business model, but the similarities soon disappear. True, Amazon’s DSP business and Uber/Lyft operations are heavily dependent upon technology. In the Amazon scenario, the packages are carefully arranged at the Amazon warehouse, all according to Amazon’s complex delivery route algorithms, so that the first packages to be delivered are loaded into the van last. Routes are constantly updated through GPS settings. The Amazon warehouse is signaled when each delivery has been made. Most of us are familiar with the sophisticated Uber/Lyft “apps” and other mechanisms by which those firms link drivers and riders.
One Huge Difference: Unlike with Uber, the Driver Doesn’t Have a Contract with Amazon
To my mind, there is at least one significant difference between the business model employed by Uber/Lyft and that being rolled out by Amazon for its DSPs: there is a true “employer” intermediary in the Amazon setup. That intermediary is the DSP. Much of the litigation between Uber drivers and Uber itself arises from the fact that although the driver contracts directly with Uber, Uber nevertheless seeks to distance itself from the employment arrangement. Uber is only providing technology, or so Uber’s representatives say. In other words, Uber argues the driver is an independent contractor, not its employee.
In its roll-out of the new delivery system, Amazon is making no such argument. It appears clear that the driver is an employee—he or she is just not an employee of Amazon. The employment contract exists between the driver and the DSP, who is required to maintain workers’ compensation insurance, provide at least basic employee benefits (i.e., health insurance) and, most significantly, pay the drivers on an hourly basis. Amazon’s use of an Intermediary—the DSP—is huge here and I think will make a significant difference in the amount of litigation Amazon faces over employee status.
One parenthetical note: If a DSPs workers’ compensation insurance policy were to lapse, it is entirely possible in a number of states that Amazon would be held liable for workers’ compensation benefits [see Larson, § 111.04].
Bottom Line: Workers’ Compensation Law is Well Suited for these New Business Models
I’ve been a part of the workers’ compensation arena now for some 43 years—the first ten representing comp carriers, the last 33 as an academic—and I am continuously impressed with the resiliency of “our law.” As “newfangled” as our world is, as “disruptive” as the business model de jour appears to be, the core definitions, rules, and exceptions within the typical state Workers’ Compensation Act still work remarkably well. So, while I was intrigued by the sight of 15 Amazon Prime vans heading toward me, I feel confident that the issues regarding those injuries and occupational diseases that arise out of and in the course of the employment will be appropriately handled from a legal standpoint. We can always argue over the level of benefits, but the rules themselves are robust.