When can giving or taking a ride go from transportation to risky trip

In the recent unpublished Appellate decision of Babekr v. XYZ Two Way Radio, N.J. Super. (App. Div. 2015), the NJ Appellate court affirmed that a chauffeur (Babekr) was an independent contractor rather than an employee. This ruling may have wide-ranging implications and may impact more than just the chauffer’s ability to collect workers’ compensation benefits.  In sum, this decision likely leaves the passengers at the mercy of the chauffer’s potentially inadequate insurance coverage and allows the larger organization (XYZ), which receives the largest benefit of the ride, to pass the insurance costs to the drivers.  With the advent and the increasing use of ride-sharing services,  both the drivers, whose personal auto insurance likely does not cover them for commercial use of their vehicles, and the passengers must take care and maintain vigilance in ensuring that they are properly protected from undue medical and financial risk.

While issuing the above decision, the court admitted that transporting passengers was an integral part of XYZ’s limousine business but determined that Babekr’s individual involvement was not of particular import.  In addition, the court found that XYZ exercised very little control over its drivers; they could work which ever hours they so choose, were free to work for whomever they wanted, and could return to work for XYZ by merely turning their on-board computer system on.  Furthermore, the petitioner was able to set his own hours, provided his own car and could not be terminated from his job.  Perhaps, most importantly, the court emphasized that the drivers were part owners of XYZ.  Accordingly, it was decided that Babekr’s relationship with XYZ did not meet the Compensation Act’s definition of “employee”, which is “synonymous with servant”.  Since only employees receive the benefits of the Compensation Act and independent contractors are not subject to the Act, Babekr’s compensation claim was deemed to have been properly dismissed.

Specifically, XYZ Limousine Services, was deemed to be a company made up of its 430 individual drivers, each of whom owned shares in the company, and 50 administrative personnel. The drivers of XYZ elect “board members,” who make the key decisions concerning the company’s operations. Passengers retain accounts with XYZ and pay their fares directly to their accounts.  XYZ then forwards the drivers a percentage of the fares from the clients’ accounts. XYZ does not deduct taxes and issues each driver a 1099 form. The only restrictions XYZ placed on the drivers were that they have to dress professionally and have a certain type of car.

Questions left unanswered by the Babekr case are as follows:

  • What if all or nearly all of Babekr’s income came from transporting XYZ’s passengers?
  • What type of insurance, if any, did XYZ provide to either its drivers or their passengers?
  • What would happen if the XYZ’s passenger was injured during the trip and how, if at all, would their injuries be compensated.
  • Would the court’s decision have been different if XYZ’s drivers’ were not shareholders of XYZ?

Historically, the reported cases universally hold that if Babekr was driving for a regulated livery business, he would have been covered by the NJ Workers’ Compensation Act. The issue here would seem to be an individual would have much more certainty of being properly protected if they decide to drive for or be a passenger of a regulated livery business. To do business otherwise may save a few cents in the short term but could lead to long-term medical care and other issues, which could lead to significant financial risk.

If you feel you have questions about this topic or if you may have been impacted by a situation like this; please feel free to contact the attorneys at Young & Perez through the many convenient methods provided for on this website or by calling us at 908.823.1212. At Young & Perez confidentiality, integrity, and professionalism have always been the cornerstone of our business and professional relationships.