Lorenz Schneider Co., Inc. v. N.L.R.B.

• Decision Date: 30 April 1975
• Docket Number: D,Nos. 289,290,s. 289
• Parties: 89 L.R.R.M. (BNA) 2235, 76 Lab.Cas. P 10,846 LORENZ SCHNEIDER CO., INC., Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent. ockets 74-1336, 74-1495.
• Court: U.S. Court of Appeals — Second Circuit

Page 445

517 F.2d 445

89 L.R.R.M. (BNA) 2235, 76 Lab.Cas. P 10,846

LORENZ SCHNEIDER CO., INC., Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent.

Nos. 289, 290, Dockets 74-1336, 74-1495.

United States Court of Appeals, Second Circuit.

Argued Jan. 16, 1975.

Decided April 30, 1975.

Marvin Dicker, New York City (Howard L. Ganz, Howard Lichtenstein, Kalman I. Nulman, and Proskauer, Rose Goetz & Mendelsohn, New York City, of counsel), for petitioner.

Peter J. Carre, Washington, D. C., (Peter G. Nash, Gen. Counsel, N. L. R. B., John S. Irving, Deputy Gen. Counsel, Patrick Hardin, Associate Gen. Counsel, Elliott Moore, Deputy Associate Gen. Counsel, and Robert Sewell, Washington, D. C., of counsel), for respondent.

Before WATERMAN, FRIENDLY and GURFEIN, Circuit Judges.

FRIENDLY, Circuit Judge:

We are again required to review one of the National Labor Relations Board's (NLRB) case-by-case determinations whether the relationship between a business enterprise and other persons is that of employer and employee or falls within the exclusion of "any individual having the status of an independent contractor" which Congress added to § 2(3) of the National Labor Relations Act (NLRA) in the Taft-Hartley Act in reaction to NLRB v. Hearst Publications, Inc., 322 U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170 (1944). See NLRB v. United Insurance Co., 390 U.S. 254, 256, 88 S.Ct. 988, 19 L.Ed.2d 1083 (1968). ¹

The proceedings here followed a familiar pattern. The case began on April 26, 1972, with a petition for representation of all of the "driver-salesmen" of Lorenz Schneider Co., Inc. (Schneider) "working out of 2000 Plaza Avenue, New Hyde Park, New York, and at Riverhead, New York", by Independent Routemen's Association (IRA). After a hearing the Regional Director issued a decision and direction of election on October 3, 1972. The Board granted Schneider's request for review but in a brief opinion, 203 N.L.R.B. 217 (1973), approved the Regional Director's decision. In May, 1973, the IRA won the election and was certified as the distributors' exclusive bargaining representative but Schneider refused to recognize it. There followed an unfair labor practice proceeding under § 8(a)(5) and (1) in which the General Counsel was granted summary judgment. Schneider has petitioned to review the ensuing order, 209 N.L.R.B. No. 16 (Feb. 22, 1974, as amended Feb. 27, 1974), and the Board has cross-petitioned for enforcement.

Schneider is a "key dealer" for manufacturers of a large number of well-known snack foods which it is franchised to sell in the five counties of New York City and in Nassau and Suffolk Counties. It maintains two warehouses, one in New Hyde Park and the other in Riverhead on Long Island. The customers, which are all retail outlets, fall into two general classes chain stores and independents. The business of the persons here in question is the sale to these retail outlets of snack foods which they have purchased at one of Schneider's warehouses, either directly after such purchase or in some instances after storage in warehouses of their own.

Prior to 1967 these individuals were called route salesmen and were represented, along with the warehousemen, by Local 802, International Brotherhood of Teamsters, Chauffeurs, Warehousemen & Helpers of America (Local 802); the terms and conditions of their employment were thus prescribed by a collective bargaining agreement. Under that agreement they were guaranteed a basic weekly wage and also received a percentage commission on sales, monthly bonus payments dependent upon their average weekly sales but with a certain minimum bonus payment being guaranteed regardless of actual sales attained, paid sick days, holiday and vacation pay, and other fringe benefits characteristic of the employer-employee relationship. They were required to work a five day week, to wear Schneider uniforms, and to use Schneider trucks. They were forbidden to sell any items other than those designated by Schneider and were often accompanied on their rounds by a Schneider supervisor. Concededly they were employees within § 2(3).

During the 1967 collective bargaining negotiations with Local 802, Schneider proposed that it be given the right to sell its customer routes to the salesmen, who would then become independent contractor-distributors. This proposal was apparently one of the factors which led Local 802 to call a lengthy strike. Ultimately Local 802 agreed that Schneider might offer the routes to the salesmen. Most of them bought routes and ceased to be represented by Local 802; a few remained as salesmen and, along with the warehousemen, continued to be so represented.

Thereafter Schneider set about negotiating the distributorship agreements with the route salesmen who had opted for that course. They were represented by counsel acting for all as well as, apparently in some instances, by their individual counsel.

The individual agreements between Schneider and the distributor ² gave the latter the exclusive right to sell and deliver products to a designated group of retail accounts; he was free to develop other accounts within Schneider's large franchise area, without regard to territory, although he could not service new chain store accounts these were either sold to distributors or given as a replacement to a distributor who had serviced a store in the chain which had closed or any account which was currently serviced by another of Schneider's distributors or a related company. The purchase price of the route was calculated by a formula that was dependent upon the average weekly sales on the particular route which had been realized in the past year. These prices generally exceeded $20,000. The agreement set the terms of payment, including a substantial down payment the smallest of which thus far provided apparently has been $4,500 plus an interest bearing note secured by a chattel mortgage. The agreement contained language expressly disclaiming the relationship of employer and employee and affirming that of independent contractor. Within the constraints detailed below, the distributor was free to sell products not supplied by Schneider. ³ The distributor could resell the route to third parties but only after approval of that party by Schneider and on the same terms and conditions as those on which it had been purchased. ⁴ In the event of the distributor's death, unless a member of the family could operate the route, the estate was required to sell it to a third party or assign it to Schneider, again on the same terms. Neither party could terminate the agreement except for cause as therein defined. So far as concerns defaults by the distributor, the principal items were failure to make the payments due on the promissory note; the handling of items, in addition to those purchased from Schneider, which were in direct competition with those so purchased or were unauthorized by chain or co-operative stores; ⁵ wilful neglect in failing properly to serve customers; any act deemed "dishonest" to a customer or to Schneider; and failure to turn over various funds and records. There was no requirement that the distributor work any specified number of days or hours. He was free to take time off and to indulge in vacation as he pleased, with the right to engage replacements or to hire Schneider employees for a fee if they were available, subject only to a provision that if he became incapacitated for more than 90 days and was unable to supply a replacement, Schneider had a right of repurchase on the same terms and conditions as the initial purchase. Finally, the agreement provided that the distributor would abide by Schneider's "Book of Procedures for Operating Distributor Routes", of which more hereafter. ⁶

The trucks used by the distributors are provided by them. Some are distributor-owned, having been purchased either from dealers or from a Schneider subsidiary. The others are leased some from the Schneider subsidiary and some from outside firms. A leased truck can only be operated on weekdays and only in the regular course of snack food sales in the distributor's designated territory. Most of the distributors garage their trucks at night at Schneider's premises but there is no requirement about this save that trucks leased from the Schneider subsidiary must be kept at a garage to which it consents. The trucks are painted with the name of Wise Potato Chips, the primary manufacturer of Schneider's goods. So far as the independent stores are concerned, the distributors make their own determination whether to insist on payment in cash, or to accept a check or extend credit; in either of the latter events they proceed at their own risk in the absence of specific authorization from Schneider. The distributors' profit is the difference between their buying prices from Schneider and their selling prices less the cost of doing business. They receive no bonuses or fringe benefits. No withholding is made for income or unemployment tax.

Just as there is no serious dispute with respect to the facts, there can be little concerning the proper legal standard. The Supreme Court said in NLRB v. United Insurance Co., supra, 390 U.S. at 256, 88 S.Ct. at 990, that under the 1947 amendment, "there is no doubt that we should apply the common-law agency test here in distinguishing an employee from an independent contractor." See Restatement of Agency (2d) § 220 (1958). In Herald Company v. NLRB, 444 F.2d 430, 432-33 (2 Cir.), cert. denied, 404 U.S. 990, 92 S.Ct. 532, 30 L.Ed.2d 541 (1971), we approved the Board's more specific formulation in News Syndicate Co., Inc., 164 N.L.R.B. 422, 423 (1967):

In determining the status of persons alleged to be independent contractors the Board has consistently held that the Act required application of the 'right of control' test. Where the one for whom the services are performed retains the right to control the manner and means by which the result is to be accomplished, the...