Transportation Executive Summary: Seventh Circuit Eviscerates Choice of Law Provision and Concludes Drivers Are Not Independent Contractors
Recently, the United States Court of Appeals for the Seventh Circuit ruled on a case styled as Johnson v. Diakon Logistics, 44 F.4th 1048 (7th Cir. 2022). As will be discussed below, the Court held that a choice of law provision in the parties’ agreement was invalid and determined that the drivers were, in fact, independent contractors under Illinois law. Consequently, deductions from their wages was improper.
Facts and Procedural History
Diakon Logistics, a national third-party logistics company, was hired by Innovel Solutions, Inc., to deliver furniture and appliances from warehouses to customers’ homes. Diakon hired truck drivers to perform these deliveries. Diakon made drivers sign contracts called “Service Agreements.” The contracts classify drivers as independent contractors. The contracts also had a choice-of-law provision for Virginia, the state of Diakon’s principle place of business. In other words, the agreement, as drafted, called for the application of Virginia law to any dispute between the parties. The contracts authorized Diakon to deduct fees and penalties from the drivers’ pay. Plaintiffs, Timothy Johnson and Darryl Moore, were two of the drivers who signed the agreements. The two were Illinois citizens and worked out of Innovel’s Illinois warehouse which delivered merchandise in Illinois, Indiana, and Missouri.
In 2016, the plaintiffs sued Diakon in federal court alleging that Diakon misclassified them as independent contractors when they were employees under Illinois law and such misclassification led to Diakon improperly deducting their pay. Plaintiffs’ claims rested on the Illinois Wage Payment and Collection Act’s definition of “employee.” Plaintiffs sought reimbursement on behalf of a class of drivers in Illinois who signed the Service Agreements with Defendant. The district court certified a class of delivery drivers under Fed R. Civ. P. 23(b)(3), but entered summary judgment for the defendant, stating that the choice-of-law clauses required Virginia law to be applied. The case was appealed.
Court Analysis
On appeal, plaintiffs maintained that Diakon waived the choice of law provisions. Plaintiffs claim the defendant first argued that state-law claims were preempted, and it was not until the summary judgment ruling that the defendant raised the choice of law clauses directly. Plaintiffs argued that defendant’s conduct amounted to an admission that Illinois law controls. The district court noted that defendant always maintained that Illinois law does not apply, either because of federal preemption or it being inapplicable otherwise. The district court further noted that defendant considered choice-of-law defenses early on. After assurances from plaintiffs’ counsel that plaintiffs did not considered the defense waived, defendant decided not to amend it’s answer to include the choice-of-law provision. Defendant also mentioned the choice-of-law provision when opposing the class certification. The Circuit agreed with the district court and held that the choice-of-law provision was not waived.
Turning to the Service Agreements, the Court ultimately held that qualifying as an “employee” under the Illinois Wage Payment and Collections Act (“Act”) has little to do with the contract language. Illinois courts often disregard contractual language classifying works as contractors or consultants. Courts look to the Act itself. The Service Agreements are irrelevant in the Court’s analysis of who is considered an employee. Consequently, the Virginia choice of law provision would be invalid under Illinois law because whether a person is an employee is governed by the language of the Act—not the parties’ contract.
The same is true for the plaintiffs’ claims to wages. The Act controls payment for work in Illinois regardless of whether other parts of the parities’ relations are governed by other states. While the contracts create certain obligations, defendant’s duty to make proper deduction from the drivers’ wages comes from the Act, not the contracts. The choice of-law provision would not impact plaintiffs’ claims under the Act.
Consequently, the appellate court reversed and remanded to the district court to proceed on the merits of the wage claims.
For more information
Contact John F. Fatino for more information about trucking and transportation matters at 515-288-6041. Nathan Britton, Drake Law School J.D. candidate, assisted in the preparation of these materials.