A recent court case issued by a federal district court in Vermont (Provencher v. Bimbo Bakeries U.S.) emphasizes the distinction between independent contractors and employees under the Vermont Employment Practices Act (the “Act”). Wishing for an entitlement to overtime pay, certain bakery products distributors claimed, pursuant to the Act, that they should be deemed employees of a manufacturer rather than independent contractors. Despite the manufacturer’s attempt to create an independent contractor relationship between the parties through its Distribution Agreement, the Court’s decision turned upon the meaning of “wages” and “services rendered” under the Act.

Bimbo Bakeries, USA (“Bimbo”), bakes and distributes baked goods and snack food products to retail customers. The Distributors stock and deliver baked goods in certain grocery stores and other retail establishments on behalf of Bimbo and Bimbo’s corporate affiliates. The Distributors at issue all alleged that they work more than forty (40) hours per week and that they should be entitled to overtime pay. Bimbo’s business model is structured so that Distributors deliver Bimbo products to retailers within a specified timeframe. The Distributors are also tasked with removing stale or rejected products and organizing products on the shelves at certain grocery stores and other retail establishments. Notably, Distributors alleged that Bimbo negotiates with retailers directly to set nearly all the terms of the distribution transaction, including pricing, service and delivery requirements, shelf space and display, and content of the retailers’ print advertising with respect to the products. As such, the Distributors argued that Bimbo’s business model stripped them of their ability to “effectively control the profitability of their work.”

The relationship between Bimbo and the Distributors is governed by contracts designated as Distribution Agreements (the “Agreements”). Under the terms of the Agreements, Distributors purchase distribution rights in specific geographic areas. The Agreements outline the terms of the distribution relationship, including that product sales from Bimbo to Distributors are generally made on credit. Under this arrangement, Distributors remit the purchase price that they paid for the products into a settlement account on a weekly basis and then they resell the baked goods to retails at a higher price. Bimbo then typically purchases the invoices from Distributors and credits Distributors’ settlement accounts with the amount of the invoice, deducting costs for equipment, insurance, and other business expenses. This arrangement allowed Distributors to receive compensation directly from Bimbo each week. Further, the Agreements provide that it is “expressly understood that Distributor has no claim, or any right under any circumstances, to any benefits or other compensation currently paid by [Bimbo] to employees …”

The Act governs the payment of wages to employees and further terms “wages” as “all renumeration payable for services rendered by an employee, including salary, commissions, and incentive pay.” (21 V.S.A. §341(5)). Bimbo argued that, in order to succeed on the claim for improper wage deductions under the Act, Distributors were required to prove (1) that they were actually employees, and (2) that they were paid wages for services rendered. The court examined what it means for a payment to be “rendered” for a “service.” The Vermont Supreme Court had previously decided that “wages” are synonymous with “earnings.” See Tanzer v. MyWebGrocer, Inc., 203 A.3d 1186 (Vt. 2018).

The court determined that there were two relevant factors when determining whether Bimbo was making payment to the Distributors for services rendered: (1) whether the compensation at issue is awarded because of the employee’s service, or because of the growth and financial success of the employer, and (2) whether the employer has discretion regarding whether to award the compensation. The court held both of these factors to be present in this case because the Distributors provide a service to Bimbo for which they are directly compensated and because the Agreements provide that Bimbo will, “at the request of” the Distributors, purchase the retailers’ invoices from Distributors and pay Distributors from the settlement account. The court held that these facts supported the assertion that the Distributors were paid wages for services rendered.

This case is another reminder that courts often will look beyond the terms of any contracts that govern the provisioning of services by individuals — or the terms parties may use for those relationships — and instead apply their own tests to the relationship.