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Governmental Regulation Alone Does Not Create an Employer-Employee Relationship



Callahan v. City of Chicago - Seventh Circuit Court of Appeals


Facts:  Between January 2009 and August 2011, Melissa Callahan ("Callahan") drove a taxi in Chicago.  Although Callahan did not own her own taxi or medallion (that authorizes the driver to operate a taxi in Chicago), she leased them.  According to Callahan, her net proceeds averaged less than the minimum wage.  

Callahan brought an FLSA claim against the City of Chicago ("City") on the grounds that the City must make up the difference.  (For purposes of this analysis, we will look at her second reasoning why the City should be liable:  The City's regulations on taxi drivers were so extensive, the City must be treated as her employer.

At the lower court level, summary judgment was granted in the City's favor as to Callahan's minimum wage claims on the grounds that the City was not her employer simply by acting as a regulator.  

Holding:  The Court of Appeals began its analysis with the definition of "employ" and noted that the City permitted Callahan to drive her cab.  Callahan argued there was evidence that taxis were a vital part to the city operating (by way of taking people to/from the airports, driving them to restaurants, movies, shows, etc) and because the City gained from having taxis operating, the City was every taxi driver's employer and therefore subject to the FLSA.  

The Court dismissed this argument as an "extravagant claim" on the grounds that restaurants, retail shops, hotels, and hospitals, among other enterprises were vital to the city and would therefore have to be afforded FLSA protections.

As for the fact that the City regulated the taxi industry, that alone was found to not create an employer-employee relationship.  Even viewed in the harshest context, even if the City's regulations were found to be extensive, that does not make the government an employer of a regulated party.

Judgment:  The Seventh Circuit Court of Appeals affirmed the lower court's granting of summary judgment in favor of the City of Chicago on the grounds that the fact that the City regulated the taxi industry did not make it an employer of Callahan and therefore subject to the FLSA.

The Takeaway:  This was one of the more interesting cases I have come across in regard to FLSA issues in recent memory.  Callahan's argument that because the City of Chicago heavily regulated the taxi industry, an employer-employee relationship was created, was a novel argument.  I do not recall having seen this type of argument in the FLSA context before.  

With that being said, as novel as the argument was, I think the Court got this one right.  The simple fact that the government regulates an industry should not result in an employer-employee relationship being formed.  Think of it this way:  The Court was wise to point out that if this were the case, other industries (such as hotels, retail, etc) that are regulated by the government could be subject to FLSA claims by workers in those industries.  This is a slippery slope argument that is actually realistic.  The big takeaway here:  Governmental regulation alone does not create an employer-employee relationship!

Majority Opinion Judge:  Judge Easterbrook

Date:  February 17, 2016

Opinion:  hr.cch.com/ELD/CallahanChicago021716.pdf

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