1012-00004 · Stonefield Logistics Group · Factual Investigation & Analysis

flsa-economic-reality-test-memorandum.docx DOCUMENT Finance & Banking

22 / 35 ← → ✕

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

MEMORANDUM

FROM: James Underwood, Lead Associate, and Devon Archer, Working Associate, Calderwood & Harkness LLP

TO: Bernard Crawford, Responsible Partner, and Renata Vasquez, Billing Partner, Calderwood & Harkness LLP

DATE: May 20, 2025

RE: Driver Classification Analysis — FLSA Economic Reality Test; Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC, U.S. District Court for the Northern District of Texas, Dallas Division

CLIENT: Stonefield Logistics Group Inc.

MATTER NO.: 1012-00004

Right-click to update Table of Contents

I. Executive Summary

The purpose of this memorandum is to analyze whether the approximately 1,187 delivery drivers that Stonefield Logistics Group Inc. ("SLG" or the "Company") has classified as independent contractors pursuant to Independent Contractor Operating Agreements ("ICOAs") would likely be deemed employees under the Fair Labor Standards Act's ("FLSA") "economic reality" test. This analysis is undertaken in connection with the recently filed collective action, Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex.), and is intended to provide the engagement team with a candid assessment of the Company's litigation risk on the threshold classification question.

On April 30, 2025, named plaintiff Marcus Delano filed an FLSA collective action against SLG, alleging that the Company has misclassified its delivery drivers as independent contractors rather than employees, thereby depriving them of overtime compensation in violation of 29 U.S.C. § 207(a). Delano seeks unpaid overtime wages on behalf of himself and approximately 1,200 similarly situated drivers who performed delivery services for SLG during the three-year limitations period. Plaintiff's counsel has estimated potential damages in the Complaint at approximately $73,958,409.00, inclusive of liquidated damages under 29 U.S.C. § 216(b). While we believe that figure reflects certain aggressive assumptions, it is within a plausible range based on our preliminary analysis of pay records and hours data.

The Fifth Circuit applies a six-factor economic reality test to determine whether a worker is an "employee" or an "independent contractor" under the FLSA. The six factors are: (1) the degree of control exercised by the alleged employer; (2) the worker's opportunity for profit or loss; (3) the worker's investment in equipment or materials; (4) the degree of skill required for the work; (5) the permanence of the working relationship; and (6) the extent to which the service rendered is an integral part of the alleged employer's business. No single factor is dispositive; rather, the inquiry is guided by the totality of the circumstances.

Our bottom-line assessment is that SLG's classification of its delivery drivers as independent contractors presents moderate-to-high risk under the FLSA economic reality test. Three of the six factors — the degree of control exercised by SLG, the permanence of the working relationships, and the integral nature of the drivers' services to SLG's core business — weigh meaningfully in favor of a finding of employee status. The skill factor is largely neutral but tilts slightly toward employee status. The two factors that provide the strongest support for independent contractor classification — the opportunity for profit or loss and the drivers' investment in their own vehicles — are not without significant vulnerability, particularly when subjected to the relative-investment analysis and the Fifth Circuit's skepticism of profit-or-loss arguments in contexts where the alleged employer controls pay rates and work volume.

This analysis is based on the following sources: (a) the ICOA terms across all three versions in circulation during the relevant limitations period (v1.0 (2018), v2.0 (August 2020), and v3.0 (January 2023)); (b) operational descriptions provided by SLG management during our in-person interviews conducted on May 6–8, 2025, including interviews with Trevor Sandoval (VP of Operations), Karen Lund (Director of Driver Relations), and Dennis Faulkner (Hub Manager at Fort Worth HUB-01); (c) RouteSync dispatch data produced by the Company covering the period from January 2022 through April 2025; (d) GPS telematics records for the named plaintiff, Marcus Delano, and a sample of fifty additional drivers selected across six hubs; and (e) SLG pay records for all 1,187 drivers who signed ICOAs during the relevant FLSA limitations period (April 30, 2022, through the present).

II. Background

A. Company Overview

Stonefield Logistics Group Inc. is a Delaware-incorporated, Texas-headquartered transportation and logistics company specializing in three principal service lines: last-mile delivery, regional freight, and white-glove delivery services. The Company was founded in 2011 by Gregory Stonefield and originally operated as a single-hub regional delivery provider servicing the Dallas–Fort Worth metropolitan area. Over the following eight years, SLG expanded organically into a multi-hub operation covering major metropolitan areas across the South Central United States.

In July 2019, Ridgepoint Capital Partners Fund III, LP ("Ridgepoint") acquired a 72% equity stake in SLG for approximately $285 million. Ridgepoint is a middle-market private equity firm headquartered in Houston, Texas, with a focus on business services and logistics portfolio companies. The remaining 28% equity is held by management rollover investors, including Gregory Stonefield (12%), who continues to serve as Chairman of the Board but is no longer involved in day-to-day operations. Since the Ridgepoint acquisition, SLG has continued to expand its geographic footprint and has significantly increased its driver network.

SLG currently operates fourteen distribution hubs located across Texas (Dallas, Fort Worth, Houston, San Antonio, Austin, El Paso), Oklahoma (Oklahoma City, Tulsa), Louisiana (New Orleans, Baton Rouge, Shreveport), and Arkansas (Little Rock, Fayetteville). Each hub is managed by a Hub Manager who oversees daily operations, including driver dispatch, route management, and performance monitoring. The Fort Worth facility, designated HUB-01, is SLG's largest hub and serves as the operational center for the Dallas–Fort Worth region.

For fiscal year 2024, SLG reported revenue of $312.7 million and EBITDA of $28.4 million. The Company's revenue is generated almost entirely through the delivery services performed by its driver network, with supplemental revenue from logistics consulting and warehouse management services accounting for less than 4% of total revenue.

SLG currently engages approximately 1,450 delivery drivers across its fourteen hubs, all of whom are classified as independent contractors. During the relevant FLSA limitations period — which, under the three-year willful-violation statute of limitations asserted by plaintiff, runs from April 30, 2022, through the present — 1,187 unique drivers signed ICOAs with SLG and performed delivery services during some or all of that period.

B. The ICOA Framework

SLG's relationship with its delivery drivers is governed by the Independent Contractor Operating Agreement ("ICOA"), a template contract originally drafted in 2018 by Pennfield & Daye LLP, a Fort Worth-based employment law firm that advised SLG on independent contractor classification matters at the time. Pennfield & Daye has since been replaced as SLG's employment counsel; the engagement of Calderwood & Harkness LLP for this litigation was authorized by Ridgepoint's general counsel, Danielle Chen, in coordination with SLG's in-house counsel, Robert Whitfield.

Three versions of the ICOA have been in circulation during the relevant limitations period:

ICOA v1.0 (2018). This is the original template prepared by Pennfield & Daye. It establishes the fundamental terms of the driver-Company relationship, including per-delivery compensation, vehicle requirements, and the independent contractor classification. Notably, ICOA v1.0 does not contain an arbitration clause or a class/collective action waiver. Named plaintiff Marcus Delano signed ICOA v1.0 in March 2021.

ICOA v2.0 (August 2020). The first revision to the template, prepared by Pennfield & Daye in consultation with SLG management. ICOA v2.0 includes updated subcontracting provisions — specifically, it adds a requirement for "prior written approval" of any substitute driver or subcontractor and introduces vehicle specification requirements (cargo van or box truck, model year 2015 or newer, passed SLG safety inspection). Like v1.0, ICOA v2.0 does not contain an arbitration clause or a class/collective action waiver.

ICOA v3.0 (January 2023). The second and most recent revision, prepared by Calderwood & Harkness LLP following our initial engagement as litigation counsel in November 2022. ICOA v3.0 incorporates an arbitration clause with a class/collective action waiver, requiring that all disputes arising under or related to the ICOA be resolved through binding arbitration under the Federal Arbitration Act ("FAA") on an individual basis. ICOA v3.0 also includes an updated non-compete provision (twelve months, fifty-mile radius from the driver's assigned hub). Approximately 640 of the 1,187 drivers in the relevant-period population signed ICOA v3.0. The enforceability of the arbitration clause is addressed separately in our memorandum dated May 15, 2025.

Notwithstanding the differences among the three versions, the following key provisions are substantively consistent across all ICOAs and are most relevant to the classification analysis:

• Independent Contractor Classification. Each ICOA expressly states that the driver is engaged as an independent contractor and not as an employee, and that the driver is responsible for all self-employment taxes, insurance, and benefits.

• Per-Delivery Compensation. Drivers are compensated on a per-delivery basis at rates set by SLG. Rates range from $14.50 to $38.00 per delivery, depending on package weight, delivery distance, and delivery type (standard last-mile versus white-glove). Drivers do not receive hourly wages, salaries, or benefits. Per-delivery rates are set unilaterally by SLG and are not subject to negotiation.

• Mandatory Use of Stonefield-Branded Materials. All drivers are required to wear SLG-branded uniforms and identification badges and to display SLG vehicle placards on their personal vehicles at all times while performing deliveries.

• Route Assignment Through RouteSync. Deliveries are assigned to drivers through SLG's proprietary dispatch platform, RouteSync. RouteSync generates optimized delivery routes based on geographic proximity, delivery priority, and driver availability. Drivers do not independently solicit customers or negotiate delivery terms.

• Mandatory Delivery Windows. The ICOAs require that all deliveries be performed within a daily delivery window of 7:00 AM to 8:00 PM, Monday through Saturday. Drivers may select which days within this window they wish to be "available," but once they indicate availability, they are expected to accept and complete assigned deliveries.

• Minimum Acceptance Rate. Drivers are required to maintain an 85% delivery acceptance rate per rolling thirty-day period. Falling below this threshold triggers a "performance review" and may result in reduced delivery assignments or, in cases of sustained non-compliance, termination of the ICOA.

• GPS Tracking. All drivers are required to install and maintain an SLG-provided GPS telematics device on their vehicles during all operating hours. SLG monitors driver location in real time through the telematics system.

• Vehicle Requirements. Drivers must provide their own vehicles (cargo van or box truck, model year 2015 or newer) and bear all vehicle-related costs, including fuel, maintenance, repairs, commercial vehicle insurance, registration, and depreciation. All vehicles must pass an SLG safety inspection prior to service commencement and at annual intervals thereafter.

• Non-Compete Clause. Upon termination of the ICOA, drivers are subject to a non-compete restriction of twelve months within a fifty-mile radius of their assigned hub. This provision was present in modified form in earlier versions (six months in v1.0 and v2.0) and was extended to twelve months in v3.0.

• Mandatory Training. Drivers must complete sixteen hours of initial safety and customer-service training prior to beginning deliveries and four hours of quarterly refresher training thereafter. All training is provided by SLG.

• Subcontracting. Drivers are nominally permitted to subcontract their delivery obligations, but only with the prior written approval of SLG. As discussed in detail below, such approvals are rarely, if ever, granted. Named plaintiff Delano alleges he received zero subcontracting approvals during his 3.5-year tenure, and Karen Lund confirmed during her May 7, 2025, interview that subcontracting approvals have been "extremely rare" across the organization, with no more than a "handful" granted company-wide in the past three years.

C. Named Plaintiff Marcus Delano

Marcus Delano is a thirty-four-year-old resident of Fort Worth, Texas, who performed last-mile residential delivery services for SLG from approximately March 2021 through September 2024, operating out of HUB-01 (Fort Worth). Delano signed ICOA v1.0 (the 2018 version) at the commencement of his engagement with SLG. Critically, ICOA v1.0 does not contain an arbitration clause or a class/collective action waiver, which means Delano's individual claims are not subject to arbitration.

According to Delano's allegations in the Complaint — which are substantially corroborated by the GPS telematics and RouteSync data we have reviewed — Delano regularly worked between fifty-five and sixty-five hours per week, with an average of approximately fifty-eight hours per week over the course of his engagement. These hours include time spent loading packages at HUB-01 each morning, driving delivery routes, performing deliveries, returning to the hub for additional loads, and completing end-of-day administrative tasks (scanning, reconciliation, and vehicle maintenance).

Based on SLG pay records, Delano's average weekly gross pay during calendar year 2023 was $1,247. Dividing this by his average weekly hours of fifty-eight yields an effective hourly rate of approximately $21.50 per hour ($1,247 ÷ 58 = $21.50). Plaintiff's overtime damages theory proceeds as follows: under the FLSA, the overtime rate is calculated at one-and-one-half times the regular rate, yielding an overtime rate of $32.25 per hour ($21.50 × 1.5). For each week in which Delano worked fifty-eight hours, he performed eighteen hours of overtime (58 − 40 = 18). The unpaid overtime premium per week is calculated as 18 hours × ($32.25 − $21.50) = 18 × $10.75 = $193.50.

Plaintiff's counsel has extrapolated this per-driver weekly figure across the putative collective to arrive at the total potential exposure of approximately $73,958,409.00 (inclusive of an equal amount in liquidated damages under 29 U.S.C. § 216(b)). We note that this calculation rests on certain assumptions — including that all 1,187 drivers worked comparable overtime hours and that the three-year willful-violation limitations period applies — that SLG may challenge in the course of litigation. Nonetheless, the magnitude of the potential exposure is significant and warrants careful attention.

D. Legal Standard

The FLSA defines "employee" broadly as "any individual employed by an employer," 29 U.S.C. § 203(e)(1), and defines "employ" as "to suffer or permit to work," 29 U.S.C. § 203(g). The Supreme Court has long recognized that these definitions represent the broadest definition of "employment" in any federal statute. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992) (noting the breadth of the FLSA's definition); Rutherford Food Corp. v. McComb, 331 U.S. 722, 728–29 (1947) (holding that contractual labels are not determinative and that courts must examine the "economic reality" of the relationship). The economic reality test, as adopted by the Fifth Circuit, requires courts to look beyond the label affixed by the parties in their contract and examine the substantive nature of the working arrangement. See Hopkins v. Cornerstone Am., 545 F.3d 338, 343 (5th Cir. 2008); Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1043 (5th Cir. 1987).

The Fifth Circuit applies a six-factor test to determine whether a worker is an employee or an independent contractor under the FLSA:

1. The degree of control exercised by the alleged employer over the manner in which the work is performed;

2. The worker's opportunity for profit or loss depending on his or her managerial skill;

3. The worker's investment in equipment or materials required for the work, or employment of helpers;

4. The degree of skill required for the work;

5. The permanence of the working relationship; and

6. The extent to which the service rendered is an integral part of the alleged employer's business.

See Hopkins, 545 F.3d at 343; Brock, 814 F.2d at 1043; Thibault v. BellSouth Telecomms., Inc., 612 F.3d 843, 845–46 (5th Cir. 2010). No single factor is dispositive, and the ultimate determination rests on the totality of the circumstances. Hopkins, 545 F.3d at 343. The burden rests on the plaintiff to demonstrate the existence of an employment relationship, but courts have consistently recognized that the FLSA's remedial purpose warrants a liberal construction in favor of coverage. See Tony & Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290, 296 (1985).

Additionally, the Department of Labor issued a final rule on independent contractor classification under the FLSA, effective March 11, 2024. 89 Fed. Reg. 1638 (Jan. 10, 2024). The 2024 DOL rule rescinded the prior 2021 rule (which had emphasized only two "core factors" — control and opportunity for profit or loss) and reinstated a totality-of-the-circumstances analysis consistent with the economic reality test as historically applied by the courts. While the DOL's regulatory guidance does not bind the courts in their interpretation of the FLSA's statutory text, it may be cited by plaintiff's counsel as persuasive authority, and courts in the Fifth Circuit have historically given weight to the DOL's interpretive positions. We anticipate that the 2024 rule will be referenced in plaintiff's briefing, and we should be prepared to address it.

III. Factor-by-Factor Analysis

A. Factor 1: Degree of Control Exercised by Stonefield

The degree of control exercised by the alleged employer over the manner in which the worker performs the services is the most frequently cited factor in the economic reality analysis. The Fifth Circuit has emphasized that this inquiry focuses not only on whether the employer actually exercises control, but also on whether the employer retains the right to control the manner and means of the worker's performance. See Brock, 814 F.2d at 1046; Hopkins, 545 F.3d at 343–44. The control factor examines the totality of the employer's oversight of the worker's day-to-day activities, including scheduling, work assignments, quality standards, performance monitoring, and the imposition of consequences for non-compliance.

1. Control Indicators Favoring Employee Status. Our review of the ICOAs, RouteSync dispatch data, GPS telematics records, and management interviews reveals a substantial degree of control exercised by SLG over its drivers. The following indicators are particularly significant:

Route Assignment via RouteSync. SLG's proprietary dispatch platform, RouteSync, assigns daily delivery routes to drivers with limited driver discretion. Drivers do not independently solicit customers, negotiate delivery terms, or determine their own delivery schedules. Instead, RouteSync generates optimized routes based on geographic proximity, delivery priority, and driver availability, and pushes those routes to drivers each morning. While drivers may request route modifications through their hub manager, Trevor Sandoval confirmed during his May 6 interview that such requests are "generally discouraged" and are accommodated only in cases of vehicle breakdown or personal emergency. RouteSync data for the sample period indicates that over 94% of deliveries completed by the fifty sampled drivers were performed on routes generated and assigned by the platform, with fewer than 6% reflecting any driver-initiated modification.

Mandatory Delivery Windows. The ICOAs require all deliveries to be performed within a daily delivery window of 7:00 AM to 8:00 PM, Monday through Saturday. This is not merely a guideline; it is a contractual obligation. Drivers who wish to work outside these hours — for example, to accommodate a personal schedule — are unable to do so under the ICOA framework. While drivers may select which days within the Monday-through-Saturday window they wish to be "available," the practical effect is that SLG determines the temporal parameters within which all work must be performed. This is functionally equivalent to an employer setting work shifts.

Minimum Acceptance Rate. The 85% minimum delivery acceptance rate per rolling thirty-day period significantly constrains drivers' ability to decline assigned work. A driver who falls below this threshold is subject to a "performance review," which Karen Lund described during her May 7 interview as a "counseling session" followed by a thirty-day corrective action period. Sustained non-compliance may result in reduced delivery assignments or ICOA termination. The practical effect of this provision is that drivers must accept at least eighty-five out of every one hundred assigned deliveries, leaving only minimal discretion to decline work based on personal preference, route undesirability, or pay insufficiency.

Mandatory Uniforms and Branding. All drivers are required to wear SLG-branded uniforms, display SLG identification badges, and affix SLG vehicle placards to their personal vehicles at all times while performing deliveries. SLG provides these materials at no cost to the driver, but compliance is mandatory. This requirement serves to present the driver to the public as a representative of SLG — not as an independent business operator — and reinforces the employer's control over the worker's appearance and professional presentation.

GPS Tracking. SLG requires all drivers to install and maintain an SLG-provided GPS telematics device on their vehicles during all operating hours. The telematics system transmits real-time location data to SLG's operations center, enabling hub managers and dispatch coordinators to monitor driver location, route adherence, and delivery timing throughout the workday. Dennis Faulkner confirmed during his May 8 interview that he routinely reviews telematics data to assess driver performance and has contacted drivers mid-route to redirect them when GPS data indicates route deviation. This level of real-time monitoring is more consistent with employer oversight of an employee than with a hands-off relationship with an independent contractor.

Customer-Service and Safety Training. The ICOAs require drivers to complete sixteen hours of initial training and four hours of quarterly refresher training, all provided by SLG. Training covers SLG's delivery protocols, customer interaction standards, safety procedures, use of SLG equipment (scanners, RouteSync platform), and brand presentation expectations. The mandatory nature and substantial scope of this training suggest that SLG controls not only what work is done but how it is done — a hallmark of employer control.

Equipment Provision. While drivers provide their own vehicles, SLG furnishes several key pieces of operational equipment, including handheld barcode scanners, RouteSync mobile application credentials, and GPS telematics hardware. These are not optional tools; they are required components of the work process. The provision of such equipment further demonstrates SLG's control over the means and methods of delivery execution.

Penalties for Poor Performance. Drivers who receive customer complaints, fail to meet delivery time windows, or accumulate negative performance metrics are subject to consequences including reduced delivery assignments, mandatory additional training, and potential ICOA termination. Karen Lund confirmed that SLG maintains a "Driver Scorecard" system that tracks on-time delivery percentage, customer satisfaction ratings, and acceptance rates, and that drivers with consistently low scores are placed on "performance improvement plans." This performance management infrastructure closely resembles an employment relationship.

Inability to Negotiate Rates. Drivers have no ability to negotiate per-delivery rates. The rate schedule ($14.50 to $38.00 per delivery) is set unilaterally by SLG and is non-negotiable. Drivers cannot charge premiums for difficult deliveries, expedited service, or other value-added services. They accept the rate offered or decline the delivery. This absence of pricing discretion is a significant control indicator.

Subcontracting Restrictions. While the ICOAs nominally permit subcontracting, the requirement of "prior written approval" functions as a near-total prohibition. Karen Lund confirmed that subcontracting approvals have been "extremely rare" company-wide, and named plaintiff Delano alleges he was never granted a subcontracting approval during his 3.5-year tenure. The practical inability to delegate work to a substitute is a strong indicator of employer control.

2. Control Indicators Favoring Independent Contractor Status. In fairness, several aspects of the arrangement provide some support for independent contractor classification on the control factor:

Drivers retain the ability to decline individual delivery assignments, subject to the 85% minimum acceptance rate. While this discretion is constrained, it is not entirely illusory — a driver who maintains an acceptance rate above 85% has some latitude to decline unfavorable deliveries.

The ICOAs do not prohibit concurrent engagement with competing delivery services. Drivers are free to perform delivery work for other platforms (such as Ashbury Corporation, Aldermere Enterprises, or other last-mile providers) during non-SLG hours or on days when they are not available on the SLG platform. The post-termination non-compete restricts competitive work only after the ICOA relationship ends; it does not apply during the term of the agreement.

Drivers use personal vehicles, which they own or lease at their own expense. SLG does not provide vehicles, does not make vehicle payments, and does not reimburse vehicle-related expenses. The use of personal assets is a traditional marker of independent contractor status.

Drivers are not required to work every day within the Monday-through-Saturday delivery window. They select which days to mark themselves as "available" on the RouteSync platform. While practical and financial pressures may incentivize daily availability, the ICOA does not mandate a minimum number of available days per week.

Finally, our interviews revealed some hub-level variation in how control provisions are implemented. Dennis Faulkner at HUB-01, for example, described a relatively informal management style, stating that he "tries to give drivers as much flexibility as possible" and that he rarely contacts drivers mid-route unless a customer has reported an issue. Other hub managers may exercise tighter control. This variation is a double-edged sword: it may support an argument against conditional certification on "similarly situated" grounds, but it also suggests that the degree of control exercised by SLG varies by hub, with some hubs exercising greater control than others.

3. Risk Assessment — Factor 1. Rating: Weighs in favor of employee status (high risk).

The degree of control SLG exercises over its delivery drivers is substantial and pervasive. The combination of centralized route assignment through RouteSync, mandatory delivery windows, GPS-based real-time monitoring, uniform and branding requirements, mandatory training, performance-metric consequences, unilateral rate-setting, and near-total restriction on subcontracting collectively create a control framework that closely resembles an employment relationship. The nominal ability to decline individual deliveries is significantly constrained by the 85% acceptance threshold, which functions as a de facto requirement to accept the vast majority of assigned work.

Fifth Circuit courts have found similar control structures indicative of employee status in delivery-driver classification cases. See, e.g., Hopkins v. Cornerstone Am., 545 F.3d 338, 344 (5th Cir. 2008) (finding control factor favored employee status where company controlled workers' schedules, monitored performance, and required compliance with company standards); Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1046 (5th Cir. 1987) (finding that the right to control, rather than the actual exercise of control, is determinative). While the drivers' use of personal vehicles and nominal ability to work for competing platforms provide some counterweight, they are insufficient to overcome the weight of the control indicators favoring employee status.

We rate this factor as presenting high risk to SLG's classification position.

B. Factor 2: Opportunity for Profit or Loss

The second factor examines whether the worker has a genuine opportunity to affect his or her profit or loss through the exercise of managerial skill, initiative, or business judgment. See Thibault, 612 F.3d at 846; Hopkins, 545 F.3d at 344. This factor looks beyond mere fluctuations in earnings attributable to working more or fewer hours and focuses on whether the worker exercises the kind of entrepreneurial decision-making that characterizes an independent business. Id.

1. Indicators Favoring Employee Status. Several aspects of SLG's arrangement with its drivers limit the drivers' opportunity for profit or loss in ways that suggest employment rather than independent contracting:

Drivers are paid a fixed per-delivery rate set unilaterally by SLG. They have no ability to negotiate rates, charge premiums for difficult or expedited deliveries, or develop independent pricing structures. A driver who completes a standard last-mile delivery receives $14.50 regardless of whether that delivery involved significant effort (e.g., a heavy package on the third floor of a walkup apartment) or minimal effort (e.g., a small package left at a front door). This uniformity of compensation is characteristic of employment.

The volume of deliveries available to any given driver is controlled by RouteSync dispatching. Drivers cannot independently generate additional business from SLG's customers, solicit new customers, or expand their service territories beyond the routes assigned by the platform. A driver who is highly efficient and completes assigned routes quickly does not have the ability to independently seek out additional deliveries — additional work is available only if RouteSync assigns it.

The 85% minimum acceptance rate and route-assignment structure leave little room for entrepreneurial decision-making about which deliveries to prioritize for profitability. A driver cannot, as a practical matter, decline low-margin deliveries in favor of higher-margin ones without risking a performance review. This constraint significantly limits the kind of managerial judgment that characterizes independent contracting.

There is no meaningful ability for drivers to reduce costs to increase their profit margin beyond basic vehicle maintenance decisions (e.g., choosing a less expensive fuel station, performing minor repairs personally rather than hiring a mechanic). These are not the kinds of entrepreneurial cost-management decisions that typically distinguish independent contractors from employees.

2. Indicators Favoring Independent Contractor Status. The opportunity-for-profit-or-loss factor provides the strongest available argument for SLG's classification position. Several aspects of the arrangement suggest some degree of entrepreneurial opportunity:

Drivers bear the risk of significant vehicle expenses, including fuel, maintenance, insurance, depreciation, and repairs. These costs are not trivial. Based on SLG's internal estimates and industry data, a driver operating a cargo van incurs approximately $800 to $1,200 per month in vehicle-related expenses (excluding vehicle acquisition costs). A driver who manages these costs effectively — for example, by maintaining the vehicle carefully to avoid costly repairs, selecting fuel-efficient routes, or negotiating favorable insurance rates — can improve his or her profit margin. This exposure to both upside and downside vehicle economics is a hallmark of independent contractor status.

Drivers who work more efficiently — completing assigned routes faster — can theoretically complete more deliveries in a given day and earn more per day. While the marginal return on efficiency is limited by the availability of additional RouteSync assignments, there is some correlation between driver speed and daily earnings.

Drivers are permitted to work for other delivery platforms simultaneously, during non-SLG hours or on off days. This ability to diversify income sources across multiple platforms creates potential for multi-platform entrepreneurial engagement. SLG records indicate that a subset of drivers — the precise number is still being analyzed and will be the subject of a separate memorandum dated June 30, 2025 — have simultaneously engaged with competing delivery platforms such as Ashbury Corporation and other regional carriers.

Drivers who select availability on peak-demand days (e.g., holidays, promotional events) or who accept a higher proportion of white-glove deliveries ($38.00 per delivery versus $14.50 for standard last-mile) exercise some economic judgment that can affect their earnings. While this discretion is constrained, it is not entirely absent.

3. Risk Assessment — Factor 2. Rating: Mixed; slight lean toward independent contractor status (moderate risk).

The opportunity for profit or loss is the strongest factor supporting SLG's classification position, and it is the one on which the defense should focus its evidentiary development. The drivers' bearing of substantial vehicle costs and the ability to work for multiple delivery platforms demonstrate some entrepreneurial opportunity that distinguishes the arrangement from a pure employment relationship. If we can develop strong evidence of multi-platform engagement — showing that a meaningful percentage of drivers simultaneously worked for competing delivery services — this factor could provide significant support for the independent contractor classification.

However, the argument is not without vulnerability. The inability to set rates, the limited control over delivery volume, and SLG's dominance of the typical driver's available work hours (average fifty-eight hours per week for Delano, and we expect similar averages across many drivers) undercut the notion that drivers are exercising genuine entrepreneurial judgment. Courts in the Fifth Circuit have looked skeptically at "opportunity for profit" arguments where the alleged employer controls the pay rate and work volume, finding that "the opportunity to earn more by working more is not the same as the opportunity for profit through managerial skill." See Hopkins, 545 F.3d at 344–45. The DOL's 2024 final rule similarly emphasizes that "an opportunity to earn more from working more hours is not the same as an opportunity for profit or loss" and that the relevant inquiry is whether the worker exercises "initiative" or "managerial skill" that affects economic success. 89 Fed. Reg. at 1659.

We rate this factor as presenting moderate risk to SLG's classification position, with a slight lean toward independent contractor status.

C. Factor 3: Worker's Investment in Equipment or Materials

The third factor considers the worker's investment in equipment, materials, or helpers required for the work, as compared to the alleged employer's investment in its own business. See Brock, 814 F.2d at 1044–45; Thibault, 612 F.3d at 846. The Fifth Circuit has emphasized that this is a relative investment analysis: the relevant comparison is not whether the worker has made any investment, but whether the worker's investment is significant relative to the employer's overall investment in the business infrastructure that enables the work to be performed. Id.

1. Indicators Favoring Independent Contractor Status. The most significant indicator favoring independent contractor status on this factor is the drivers' investment in their own vehicles. The ICOAs require drivers to provide their own cargo van or box truck (model year 2015 or newer, passed SLG safety inspection), and drivers bear all vehicle-related costs. Based on market data and SLG's vehicle specification requirements, the estimated cost of a qualifying vehicle ranges from approximately $25,000 for a used cargo van in acceptable condition to $55,000 or more for a newer box truck. This is a substantial capital investment by any measure.

In addition to the vehicle acquisition cost, drivers bear ongoing vehicle-related expenses, including fuel (estimated at $400–$700 per month depending on route length and fuel prices), maintenance and repairs ($150–$300 per month on average), commercial vehicle insurance ($200–$350 per month), registration fees, and depreciation. These expenses collectively represent a significant financial commitment and exposure to loss.

Drivers also bear the cost of their own cell phones and data plans, which they use for communication with hub managers and for operating the RouteSync mobile application.

2. Indicators Favoring Employee Status. Notwithstanding the drivers' vehicle investment, several considerations cut against SLG's position on this factor:

SLG provides key operational equipment necessary for the performance of the work, including handheld barcode scanners, RouteSync mobile application credentials and supporting software infrastructure, and GPS telematics hardware. These items are furnished at no cost to the drivers and remain the property of SLG. Without these SLG-provided tools, drivers could not perform their delivery functions.

SLG provides branded uniforms, identification badges, and vehicle placards at no cost to the drivers. While these items have relatively low individual cost, their provision by SLG reinforces the employer-employee dynamic.

Most significantly, SLG provides the core business assets necessary for the work to exist in the first place: the customer base, the dispatch infrastructure (RouteSync platform), the delivery logistics network, marketing and brand identity, customer contracts, and the fourteen-hub distribution infrastructure. Without these assets, the drivers' personal vehicles would have no deliveries to make. The drivers' investment in a vehicle, while substantial in absolute terms, is a basic tool of the trade — analogous to a construction worker's investment in personal tools — rather than a capital investment in an independent business enterprise.

Under the relative-investment analysis applied by the Fifth Circuit, the comparison is between the individual driver's investment and SLG's overall investment in its business infrastructure. SLG operates fourteen distribution hubs, has invested millions of dollars in the RouteSync technology platform, maintains a sales and marketing apparatus, holds customer contracts with major retailers and e-commerce companies, and employs a corporate staff to manage logistics, accounting, human resources, and compliance. The aggregate enterprise-level investment dwarfs any individual driver's vehicle expenditure, and the Fifth Circuit has held that this relative disparity favors employee status. See Brock, 814 F.2d at 1044–45 (emphasizing the relative nature of the investment comparison).

3. Risk Assessment — Factor 3. Rating: Slight lean toward independent contractor status (moderate risk).

The driver's vehicle investment is real and significant, and it provides a meaningful argument for independent contractor status. This is not a case where the alleged employer provides all tools and equipment; the drivers' personal financial commitment to their vehicles is substantial and distinguishes this case from many misclassification scenarios. However, courts have repeatedly cautioned that a worker's investment in basic tools of the trade — including vehicles — is less probative of independent contractor status when the alleged employer provides the core business infrastructure, customer relationships, and technology platforms that make the work possible. Under the Fifth Circuit's relative-investment analysis, SLG's enterprise-level investment in its fourteen-hub network, RouteSync platform, customer contracts, and corporate infrastructure far exceeds any individual driver's vehicle expenditure.

We rate this factor as presenting moderate risk to SLG's classification position, with a slight lean toward independent contractor status.

D. Factor 4: Degree of Skill Required

The fourth factor considers whether the work requires specialized skills, initiative, judgment, or foresight that are characteristic of an independent business. See Hopkins, 545 F.3d at 344; Brock, 814 F.2d at 1045. Courts have distinguished between work requiring "specialized skill" — such as professional services, skilled trades, or technical expertise — and work that requires only general training and can be performed by workers of ordinary ability. The former is more consistent with independent contractor status; the latter with employment.

1. Analysis. Last-mile delivery driving, as performed by SLG's drivers, does not require specialized skills, advanced training, or professional certifications beyond a valid driver's license and the ability to safely operate a cargo van or box truck. No Commercial Driver's License ("CDL") is required for the vehicle types used by SLG's drivers, as the gross vehicle weight ratings of qualifying vehicles fall below the CDL threshold. The work involves picking up packages at a distribution hub, driving to residential or commercial delivery addresses along an assigned route, scanning packages, obtaining delivery confirmation (signature or photo), and returning to the hub.

The fact that SLG itself provides sixteen hours of initial training and four hours of quarterly refresher training further supports the conclusion that the work is trainable rather than skilled. If the work required specialized expertise, the training would be unnecessary — or, conversely, a driver would bring pre-existing skills to the engagement. Here, SLG trains drivers in its own methods, protocols, and systems, which indicates that the company controls the manner in which the work is performed and that the required skills can be taught to workers of ordinary ability.

SLG's white-glove delivery service involves furniture assembly and in-home placement, which requires somewhat greater skill than standard last-mile delivery. However, this additional training is also provided by SLG and does not rise to the level of "specialized skill" in the sense contemplated by the economic reality test. Assembly of flat-pack furniture and placement of appliances are tasks of moderate complexity that do not require professional certification, apprenticeship, or advanced technical training.

Drivers do not exercise independent judgment in business decisions, marketing, or customer acquisition. They do not develop business strategies, set prices, hire employees, maintain independent brands, or make the kinds of strategic decisions characteristic of an independent business operator. While plaintiff's counsel will likely argue that this absence of independent business judgment underscores employee status, SLG may argue that drivers exercise "entrepreneurial skill" in optimizing their routes and managing their vehicle expenses. We view this argument as available but thin, particularly given the RouteSync-dictated routing that minimizes driver discretion over route optimization.

2. Risk Assessment — Factor 4. Rating: Neutral to slight lean toward employee status (low-moderate risk).

The relatively low skill level required for last-mile delivery driving and SLG's provision of substantial training both suggest an employment relationship. However, this factor is generally considered less important in the overall economic reality analysis and is unlikely to be outcome-determinative in either direction. Courts in the Fifth Circuit have treated the skill factor as a relatively minor consideration in the totality-of-the-circumstances analysis, and the outcome of this case will turn primarily on the other five factors. We rate this factor as presenting low-to-moderate risk to SLG's classification position.

E. Factor 5: Permanence of the Working Relationship

The fifth factor examines the permanence and duration of the working relationship between the worker and the alleged employer. See Hopkins, 545 F.3d at 344; Thibault, 612 F.3d at 846. A permanent, continuous, exclusive relationship is more indicative of employment, while a temporary, project-based, or intermittent relationship is more consistent with independent contracting. Id. Courts look not only at the duration of the engagement but also at its continuity, exclusivity, and the parties' mutual expectations regarding the ongoing nature of the relationship.

1. Indicators Favoring Employee Status. Named plaintiff Marcus Delano worked for SLG for approximately 3.5 years, from March 2021 through September 2024. This is a lengthy, continuous engagement that is far more consistent with an employment relationship than with the episodic, project-based engagements characteristic of independent contracting.

Delano's experience is not atypical. While we are still conducting a comprehensive analysis of driver tenure data across the 1,187 relevant-period drivers, preliminary indications from SLG's human resources records suggest that the average driver tenure exceeds eighteen months, with a significant subset of drivers maintaining continuous engagements of two years or longer. Karen Lund noted during her interview that SLG has "very loyal drivers" and that the company "values long-term relationships." While this sentiment may reflect genuine positive regard for the drivers, it also reinforces the permanence of the relationships in a manner that cuts against independent contractor classification.

The ICOA is structured as an ongoing agreement without a fixed term or project-based scope. It is terminable at will by either party, which is functionally identical to an at-will employment relationship. There is no provision for engagement on a project-by-project basis, no defined deliverable that would trigger automatic termination upon completion, and no expectation of a finite engagement duration.

The twelve-month, fifty-mile non-compete clause (expanded from six months in earlier ICOA versions) further reinforces the permanence and exclusivity of the relationship. By restricting drivers' ability to perform similar work for competing delivery companies within a fifty-mile radius of their assigned hub for twelve months after termination, SLG effectively binds drivers to the relationship during its term (since leaving would trigger a lengthy competitive restriction) and discourages departure. This type of restrictive covenant is far more common in employment relationships than in independent contractor arrangements.

Additionally, the 85% minimum acceptance rate and the performance review process create de facto ongoing employment expectations. A driver who consistently meets or exceeds the acceptance threshold expects to continue receiving delivery assignments on an ongoing basis; a driver who falls below it faces consequences, including potential termination. This performance management infrastructure mirrors the employer-employee paradigm of ongoing performance evaluation, corrective action, and potential termination for cause.

2. Indicators Favoring Independent Contractor Status. The ICOAs are terminable at will by either party without cause, which provides some theoretical flexibility and is not inconsistent with independent contracting arrangements that may also be terminable at will.

Drivers are technically free to cease providing services at any time without contractual penalty (other than the non-compete restriction), and some drivers have done so. Turnover data, when fully analyzed, may show that a subset of drivers had shorter tenures or worked intermittently during the relevant period.

Hub-level data may reveal variation in driver turnover rates across the fourteen hubs, which could support an argument that some driver relationships are less permanent than others. Dennis Faulkner noted that HUB-01 has experienced "moderate turnover" over the past two years, with some drivers leaving after six months or less.

3. Risk Assessment — Factor 5. Rating: Weighs in favor of employee status (high risk).

The long average tenure, at-will but continuous nature of the relationship, non-compete restrictions, and ongoing performance management structure all suggest a permanent working relationship consistent with employment. The Fifth Circuit has repeatedly found that relationships extending over multiple years with consistent, full-time-equivalent hours strongly support employee status under this factor. See Hopkins, 545 F.3d at 344 (considering the duration and continuity of the working relationship); Brock, 814 F.2d at 1044 (noting that "permanence of the relationship" is a relevant indicator of employment). The at-will terminability of the ICOAs is not a significant counterweight, as at-will employment is the default rule in Texas and across the Fifth Circuit.

We rate this factor as presenting high risk to SLG's classification position.

F. Factor 6: Integral Nature of the Service to the Alleged Employer's Business

The sixth factor considers whether the service rendered by the worker is an integral part of the alleged employer's business. See Brock, 814 F.2d at 1045; Thibault, 612 F.3d at 846. This factor asks whether the work performed is a core, essential component of the employer's business operations, or a peripheral, ancillary activity that supports but does not define the employer's enterprise. Work that constitutes the primary revenue-generating activity of the business is almost always found to be integral.

1. Analysis. Stonefield Logistics Group Inc. is a last-mile delivery, regional freight, and white-glove delivery company. Delivery driving is not a peripheral or ancillary function of SLG's business — it is the core, revenue-generating activity that defines the Company's business model and sustains its operations. SLG exists to deliver packages and freight from distribution hubs to end customers. Every dollar of its $312.7 million in FY 2024 revenue (excluding the less-than-4% attributable to consulting and warehouse management) was generated through the delivery services performed by its driver network.

SLG does not employ a separate workforce of delivery drivers as W-2 employees. The approximately 1,450 currently engaged drivers — all classified as independent contractors — constitute SLG's entire delivery workforce. There is no parallel employee driver force performing the same function. If the independent contractor drivers ceased performing deliveries, SLG would have no means of fulfilling its customer contracts and would be unable to operate its business in any meaningful sense.

This structural reality is reinforced by the presentation of drivers to the public. SLG's customers interact with drivers wearing SLG-branded uniforms, displaying SLG identification badges, and driving vehicles bearing SLG placards. From the customer's perspective, the driver is SLG. The Company's brand identity and customer experience are entirely dependent on the performance of its delivery drivers.

It is difficult to articulate a meaningful argument that delivery driving is not integral to SLG's business. Any such argument would require SLG to characterize its drivers as performing a function ancillary to some other core business activity — but there is no other core activity. SLG is a delivery company, and its drivers deliver.

2. Risk Assessment — Factor 6. Rating: Weighs strongly in favor of employee status (high risk).

This factor is the most unfavorable for SLG's classification position and offers the least room for counterargument. Delivery driving is indisputably integral to SLG's business, and the Fifth Circuit consistently finds this factor in favor of employee status when the workers perform the core function of the company's business. See Brock, 814 F.2d at 1045 (finding that fireworks retailers were integral to the employer's fireworks business); Hopkins, 545 F.3d at 344 (considering whether the workers' services were "an integral part of the business"). There is no credible argument available to SLG on this factor, and we should not expend significant resources attempting to develop one. Instead, our strategy should focus on emphasizing the factors that provide stronger support for the independent contractor classification (primarily Factors 2 and 3) and arguing that the totality of the circumstances, taken as a whole, supports contractor status despite the unfavorable assessment on Factor 6.

We rate this factor as presenting high risk to SLG's classification position.

IV. Totality of the Circumstances — Overall Risk Assessment

A. Summary of Factor Ratings

The following table summarizes our assessment of each factor in the six-part economic reality test:

B. Overall Risk Rating

Based on the totality of the circumstances, we assess the overall risk that a court would find SLG's drivers to be employees under the FLSA economic reality test as moderate-to-high.

Three of the six factors — the degree of control (Factor 1), the permanence of the working relationship (Factor 5), and the integral nature of the drivers' services to SLG's business (Factor 6) — clearly weigh in favor of employee status. These three factors collectively present a substantial challenge to SLG's classification position, as they address the most foundational elements of the employer-employee relationship: whether SLG directs how the work is done, whether the relationship is ongoing and continuous rather than episodic, and whether the work performed is essential to SLG's core business.

One additional factor — the skill required for the work (Factor 4) — leans slightly toward employee status, though it is neutral enough that it is unlikely to be outcome-determinative.

The two factors that provide the most meaningful support for SLG's independent contractor classification — the opportunity for profit or loss (Factor 2) and the worker's investment in equipment (Factor 3) — are the strongest cards in SLG's hand and should be the primary focus of our evidentiary development. However, as discussed above, both factors are subject to significant qualification. The opportunity-for-profit-or-loss argument is undercut by SLG's unilateral rate-setting, control over delivery volume, and the limited entrepreneurial discretion available to drivers. The investment argument, while supported by the drivers' significant vehicle expenditures, is weakened under the Fifth Circuit's relative-investment analysis, which compares the individual driver's investment to SLG's enterprise-level investment in its fourteen-hub infrastructure.

The Fifth Circuit has held that no single factor is dispositive and that courts must consider the totality of the circumstances. Hopkins, 545 F.3d at 343. However, in cases with factual profiles similar to this one — involving delivery drivers with employer-controlled routing, mandatory branding, GPS tracking, limited pricing discretion, long-term tenure, and integral business function — courts in the Fifth Circuit and across the country have frequently found employee status. We are not aware of a decision in this circuit finding independent contractor status on materially comparable facts, though we acknowledge that the analysis is inherently fact-intensive and that favorable distinctions may be developed through discovery.

C. Comparison to Key Fifth Circuit Precedent

Our assessment is informed by a review of analogous Fifth Circuit decisions addressing worker classification under the economic reality test:

Hopkins v. Cornerstone America, 545 F.3d 338 (5th Cir. 2008), is the leading Fifth Circuit case on the economic reality test and establishes the analytical framework this court will apply. In Hopkins, the Fifth Circuit reversed a summary judgment for the employer, finding genuine issues of material fact as to whether insurance salespersons were employees or independent contractors. The court emphasized the employer's control over scheduling, training, and performance monitoring and held that contractual labels are not dispositive. While the facts of Hopkins involved a different industry, the court's emphasis on the totality of the control indicators is directly applicable here.

Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042 (5th Cir. 1987), is a seminal Fifth Circuit decision finding that fireworks stand operators were employees despite their contractual classification as independent contractors. The court emphasized the integral nature of the operators' services to the employer's business, the employer's control over operating hours and locations, and the limited entrepreneurial opportunity available to the operators. The structural parallels to SLG's driver arrangement are significant.

Thibault v. Harborline Partners LLC, 612 F.3d 843 (5th Cir. 2010), addressed the classification of cable installation technicians and provides both favorable and unfavorable precedent. The court found independent contractor status based in part on the technicians' significant investment in tools and equipment and their ability to hire helpers. SLG may argue by analogy that its drivers' vehicle investment supports contractor status, but the Thibault technicians had greater entrepreneurial discretion — including the ability to hire and manage employees — than SLG's drivers, who are effectively precluded from subcontracting.

We should also be prepared to address decisions from outside the Fifth Circuit that plaintiff's counsel may cite, including the Ninth Circuit's decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018) (adopting the ABC test under California law), and the First Circuit's decision in Baystate Alternative Staffing, Inc. v. Herman, 163 F.3d 668 (1st Cir. 1998). While these cases arise under different legal standards, they reflect a broader judicial trend toward scrutinizing the classification of delivery drivers as independent contractors.

Additionally, we note that the DOL's 2024 final rule on independent contractor classification (effective March 11, 2024, 89 Fed. Reg. 1638) adopted a totality-of-the-circumstances analysis consistent with the economic reality test and rescinded the prior 2021 rule that had emphasized only two "core factors" (control and opportunity for profit or loss). While the 2024 rule does not bind the courts in their FLSA analysis, it may be cited by plaintiff's counsel as persuasive authority, and courts have historically given some deference to the DOL's interpretive positions on FLSA questions. The 2024 rule's emphasis on examining the totality of the circumstances — and its explicit rejection of an approach that would privilege certain factors over others — is consistent with plain

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: James Underwood, Lead Associate, and Devon Archer, Working Associate, Calderwood & Harkness LLP
TO: Bernard Crawford, Responsible Partner, and Renata Vasquez, Billing Partner, Calderwood & Harkness LLP
DATE: May 20, 2025
RE: Driver Classification Analysis — FLSA Economic Reality Test; Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC, U.S. District Court for the Northern District of Texas, Dallas Division
CLIENT: Stonefield Logistics Group Inc.
MATTER NO.: 1012-00004
Right-click to update Table of Contents
I. Executive Summary
The purpose of this memorandum is to analyze whether the approximately 1,187 delivery drivers that Stonefield Logistics Group Inc. ("SLG" or the "Company") has classified as independent contractors pursuant to Independent Contractor Operating Agreements ("ICOAs") would likely be deemed employees under the Fair Labor Standards Act's ("FLSA") "economic reality" test. This analysis is undertaken in connection with the recently filed collective action, Delano v. Stonefield Logistics Group Inc., Case No. 3:25-cv-01847-RBC (N.D. Tex.), and is intended to provide the engagement team with a candid assessment of the Company's litigation risk on the threshold classification question.
On April 30, 2025, named plaintiff Marcus Delano filed an FLSA collective action against SLG, alleging that the Company has misclassified its delivery drivers as independent contractors rather than employees, thereby depriving them of overtime compensation in violation of 29 U.S.C. § 207(a). Delano seeks unpaid overtime wages on behalf of himself and approximately 1,200 similarly situated drivers who performed delivery services for SLG during the three-year limitations period. Plaintiff's counsel has estimated potential damages in the Complaint at approximately $73,958,409.00, inclusive of liquidated damages under 29 U.S.C. § 216(b). While we believe that figure reflects certain aggressive assumptions, it is within a plausible range based on our preliminary analysis of pay records and hours data.
The Fifth Circuit applies a six-factor economic reality test to determine whether a worker is an "employee" or an "independent contractor" under the FLSA. The six factors are: (1) the degree of control exercised by the alleged employer; (2) the worker's opportunity for profit or loss; (3) the worker's investment in equipment or materials; (4) the degree of skill required for the work; (5) the permanence of the working relationship; and (6) the extent to which the service rendered is an integral part of the alleged employer's business. No single factor is dispositive; rather, the inquiry is guided by the totality of the circumstances.
Our bottom-line assessment is that SLG's classification of its delivery drivers as independent contractors presents moderate-to-high risk under the FLSA economic reality test. Three of the six factors — the degree of control exercised by SLG, the permanence of the working relationships, and the integral nature of the drivers' services to SLG's core business — weigh meaningfully in favor of a finding of employee status. The skill factor is largely neutral but tilts slightly toward employee status. The two factors that provide the strongest support for independent contractor classification — the opportunity for profit or loss and the drivers' investment in their own vehicles — are not without significant vulnerability, particularly when subjected to the relative-investment analysis and the Fifth Circuit's skepticism of profit-or-loss arguments in contexts where the alleged employer controls pay rates and work volume.
This analysis is based on the following sources: (a) the ICOA terms across all three versions in circulation during the relevant limitations period (v1.0 (2018), v2.0 (August 2020), and v3.0 (January 2023)); (b) operational descriptions provided by SLG management during our in-person interviews conducted on May 6–8, 2025, including interviews with Trevor Sandoval (VP of Operations), Karen Lund (Director of Driver Relations), and Dennis Faulkner (Hub Manager at Fort Worth HUB-01); (c) RouteSync dispatch data produced by the Company covering the period from January 2022 through April 2025; (d) GPS telematics records for the named plaintiff, Marcus Delano, and a sample of fifty additional drivers selected across six hubs; and (e) SLG pay records for all 1,187 drivers who signed ICOAs during the relevant FLSA limitations period (April 30, 2022, through the present).
II. Background
A. Company Overview
Stonefield Logistics Group Inc. is a Delaware-incorporated, Texas-headquartered transportation and logistics company specializing in three principal service lines: last-mile delivery, regional freight, and white-glove delivery services. The Company was founded in 2011 by Gregory Stonefield and originally operated as a single-hub regional delivery provider servicing the Dallas–Fort Worth metropolitan area. Over the following eight years, SLG expanded organically into a multi-hub operation covering major metropolitan areas across the South Central United States.
In July 2019, Ridgepoint Capital Partners Fund III, LP ("Ridgepoint") acquired a 72% equity stake in SLG for approximately $285 million. Ridgepoint is a middle-market private equity firm headquartered in Houston, Texas, with a focus on business services and logistics portfolio companies. The remaining 28% equity is held by management rollover investors, including Gregory Stonefield (12%), who continues to serve as Chairman of the Board but is no longer involved in day-to-day operations. Since the Ridgepoint acquisition, SLG has continued to expand its geographic footprint and has significantly increased its driver network.
SLG currently operates fourteen distribution hubs located across Texas (Dallas, Fort Worth, Houston, San Antonio, Austin, El Paso), Oklahoma (Oklahoma City, Tulsa), Louisiana (New Orleans, Baton Rouge, Shreveport), and Arkansas (Little Rock, Fayetteville). Each hub is managed by a Hub Manager who oversees daily operations, including driver dispatch, route management, and performance monitoring. The Fort Worth facility, designated HUB-01, is SLG's largest hub and serves as the operational center for the Dallas–Fort Worth region.
For fiscal year 2024, SLG reported revenue of $312.7 million and EBITDA of $28.4 million. The Company's revenue is generated almost entirely through the delivery services performed by its driver network, with supplemental revenue from logistics consulting and warehouse management services accounting for less than 4% of total revenue.
SLG currently engages approximately 1,450 delivery drivers across its fourteen hubs, all of whom are classified as independent contractors. During the relevant FLSA limitations period — which, under the three-year willful-violation statute of limitations asserted by plaintiff, runs from April 30, 2022, through the present — 1,187 unique drivers signed ICOAs with SLG and performed delivery services during some or all of that period.
B. The ICOA Framework
SLG's relationship with its delivery drivers is governed by the Independent Contractor Operating Agreement ("ICOA"), a template contract originally drafted in 2018 by Pennfield & Daye LLP, a Fort Worth-based employment law firm that advised SLG on independent contractor classification matters at the time. Pennfield & Daye has since been replaced as SLG's employment counsel; the engagement of Calderwood & Harkness LLP for this litigation was authorized by Ridgepoint's general counsel, Danielle Chen, in coordination with SLG's in-house counsel, Robert Whitfield.
Three versions of the ICOA have been in circulation during the relevant limitations period:
ICOA v1.0 (2018). This is the original template prepared by Pennfield & Daye. It establishes the fundamental terms of the driver-Company relationship, including per-delivery compensation, vehicle requirements, and the independent contractor classification. Notably, ICOA v1.0 does not contain an arbitration clause or a class/collective action waiver. Named plaintiff Marcus Delano signed ICOA v1.0 in March 2021.
ICOA v2.0 (August 2020). The first revision to the template, prepared by Pennfield & Daye in consultation with SLG management. ICOA v2.0 includes updated subcontracting provisions — specifically, it adds a requirement for "prior written approval" of any substitute driver or subcontractor and introduces vehicle specification requirements (cargo van or box truck, model year 2015 or newer, passed SLG safety inspection). Like v1.0, ICOA v2.0 does not contain an arbitration clause or a class/collective action waiver.
ICOA v3.0 (January 2023). The second and most recent revision, prepared by Calderwood & Harkness LLP following our initial engagement as litigation counsel in November 2022. ICOA v3.0 incorporates an arbitration clause with a class/collective action waiver, requiring that all disputes arising under or related to the ICOA be resolved through binding arbitration under the Federal Arbitration Act ("FAA") on an individual basis. ICOA v3.0 also includes an updated non-compete provision (twelve months, fifty-mile radius from the driver's assigned hub). Approximately 640 of the 1,187 drivers in the relevant-period population signed ICOA v3.0. The enforceability of the arbitration clause is addressed separately in our memorandum dated May 15, 2025.
Notwithstanding the differences among the three versions, the following key provisions are substantively consistent across all ICOAs and are most relevant to the classification analysis:
• Independent Contractor Classification. Each ICOA expressly states that the driver is engaged as an independent contractor and not as an employee, and that the driver is responsible for all self-employment taxes, insurance, and benefits.
• Per-Delivery Compensation. Drivers are compensated on a per-delivery basis at rates set by SLG. Rates range from $14.50 to $38.00 per delivery, depending on package weight, delivery distance, and delivery type (standard last-mile versus white-glove). Drivers do not receive hourly wages, salaries, or benefits. Per-delivery rates are set unilaterally by SLG and are not subject to negotiation.
• Mandatory Use of Stonefield-Branded Materials. All drivers are required to wear SLG-branded uniforms and identification badges and to display SLG vehicle placards on their personal vehicles at all times while performing deliveries.
• Route Assignment Through RouteSync. Deliveries are assigned to drivers through SLG's proprietary dispatch platform, RouteSync. RouteSync generates optimized delivery routes based on geographic proximity, delivery priority, and driver availability. Drivers do not independently solicit customers or negotiate delivery terms.
• Mandatory Delivery Windows. The ICOAs require that all deliveries be performed within a daily delivery window of 7:00 AM to 8:00 PM, Monday through Saturday. Drivers may select which days within this window they wish to be "available," but once they indicate availability, they are expected to accept and complete assigned deliveries.
• Minimum Acceptance Rate. Drivers are required to maintain an 85% delivery acceptance rate per rolling thirty-day period. Falling below this threshold triggers a "performance review" and may result in reduced delivery assignments or, in cases of sustained non-compliance, termination of the ICOA.
• GPS Tracking. All drivers are required to install and maintain an SLG-provided GPS telematics device on their vehicles during all operating hours. SLG monitors driver location in real time through the telematics system.
• Vehicle Requirements. Drivers must provide their own vehicles (cargo van or box truck, model year 2015 or newer) and bear all vehicle-related costs, including fuel, maintenance, repairs, commercial vehicle insurance, registration, and depreciation. All vehicles must pass an SLG safety inspection prior to service commencement and at annual intervals thereafter.
• Non-Compete Clause. Upon termination of the ICOA, drivers are subject to a non-compete restriction of twelve months within a fifty-mile radius of their assigned hub. This provision was present in modified form in earlier versions (six months in v1.0 and v2.0) and was extended to twelve months in v3.0.
• Mandatory Training. Drivers must complete sixteen hours of initial safety and customer-service training prior to beginning deliveries and four hours of quarterly refresher training thereafter. All training is provided by SLG.
• Subcontracting. Drivers are nominally permitted to subcontract their delivery obligations, but only with the prior written approval of SLG. As discussed in detail below, such approvals are rarely, if ever, granted. Named plaintiff Delano alleges he received zero subcontracting approvals during his 3.5-year tenure, and Karen Lund confirmed during her May 7, 2025, interview that subcontracting approvals have been "extremely rare" across the organization, with no more than a "handful" granted company-wide in the past three years.
C. Named Plaintiff Marcus Delano
Marcus Delano is a thirty-four-year-old resident of Fort Worth, Texas, who performed last-mile residential delivery services for SLG from approximately March 2021 through September 2024, operating out of HUB-01 (Fort Worth). Delano signed ICOA v1.0 (the 2018 version) at the commencement of his engagement with SLG. Critically, ICOA v1.0 does not contain an arbitration clause or a class/collective action waiver, which means Delano's individual claims are not subject to arbitration.
According to Delano's allegations in the Complaint — which are substantially corroborated by the GPS telematics and RouteSync data we have reviewed — Delano regularly worked between fifty-five and sixty-five hours per week, with an average of approximately fifty-eight hours per week over the course of his engagement. These hours include time spent loading packages at HUB-01 each morning, driving delivery routes, performing deliveries, returning to the hub for additional loads, and completing end-of-day administrative tasks (scanning, reconciliation, and vehicle maintenance).
Based on SLG pay records, Delano's average weekly gross pay during calendar year 2023 was $1,247. Dividing this by his average weekly hours of fifty-eight yields an effective hourly rate of approximately $21.50 per hour ($1,247 ÷ 58 = $21.50). Plaintiff's overtime damages theory proceeds as follows: under the FLSA, the overtime rate is calculated at one-and-one-half times the regular rate, yielding an overtime rate of $32.25 per hour ($21.50 × 1.5). For each week in which Delano worked fifty-eight hours, he performed eighteen hours of overtime (58 − 40 = 18). The unpaid overtime premium per week is calculated as 18 hours × ($32.25 − $21.50) = 18 × $10.75 = $193.50.
Plaintiff's counsel has extrapolated this per-driver weekly figure across the putative collective to arrive at the total potential exposure of approximately $73,958,409.00 (inclusive of an equal amount in liquidated damages under 29 U.S.C. § 216(b)). We note that this calculation rests on certain assumptions — including that all 1,187 drivers worked comparable overtime hours and that the three-year willful-violation limitations period applies — that SLG may challenge in the course of litigation. Nonetheless, the magnitude of the potential exposure is significant and warrants careful attention.
D. Legal Standard
The FLSA defines "employee" broadly as "any individual employed by an employer," 29 U.S.C. § 203(e)(1), and defines "employ" as "to suffer or permit to work," 29 U.S.C. § 203(g). The Supreme Court has long recognized that these definitions represent the broadest definition of "employment" in any federal statute. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992) (noting the breadth of the FLSA's definition); Rutherford Food Corp. v. McComb, 331 U.S. 722, 728–29 (1947) (holding that contractual labels are not determinative and that courts must examine the "economic reality" of the relationship). The economic reality test, as adopted by the Fifth Circuit, requires courts to look beyond the label affixed by the parties in their contract and examine the substantive nature of the working arrangement. See Hopkins v. Cornerstone Am., 545 F.3d 338, 343 (5th Cir. 2008); Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1043 (5th Cir. 1987).
The Fifth Circuit applies a six-factor test to determine whether a worker is an employee or an independent contractor under the FLSA:
1. The degree of control exercised by the alleged employer over the manner in which the work is performed;
2. The worker's opportunity for profit or loss depending on his or her managerial skill;
3. The worker's investment in equipment or materials required for the work, or employment of helpers;
4. The degree of skill required for the work;
5. The permanence of the working relationship; and
6. The extent to which the service rendered is an integral part of the alleged employer's business.
See Hopkins, 545 F.3d at 343; Brock, 814 F.2d at 1043; Thibault v. BellSouth Telecomms., Inc., 612 F.3d 843, 845–46 (5th Cir. 2010). No single factor is dispositive, and the ultimate determination rests on the totality of the circumstances. Hopkins, 545 F.3d at 343. The burden rests on the plaintiff to demonstrate the existence of an employment relationship, but courts have consistently recognized that the FLSA's remedial purpose warrants a liberal construction in favor of coverage. See Tony & Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290, 296 (1985).
Additionally, the Department of Labor issued a final rule on independent contractor classification under the FLSA, effective March 11, 2024. 89 Fed. Reg. 1638 (Jan. 10, 2024). The 2024 DOL rule rescinded the prior 2021 rule (which had emphasized only two "core factors" — control and opportunity for profit or loss) and reinstated a totality-of-the-circumstances analysis consistent with the economic reality test as historically applied by the courts. While the DOL's regulatory guidance does not bind the courts in their interpretation of the FLSA's statutory text, it may be cited by plaintiff's counsel as persuasive authority, and courts in the Fifth Circuit have historically given weight to the DOL's interpretive positions. We anticipate that the 2024 rule will be referenced in plaintiff's briefing, and we should be prepared to address it.
III. Factor-by-Factor Analysis
A. Factor 1: Degree of Control Exercised by Stonefield
The degree of control exercised by the alleged employer over the manner in which the worker performs the services is the most frequently cited factor in the economic reality analysis. The Fifth Circuit has emphasized that this inquiry focuses not only on whether the employer actually exercises control, but also on whether the employer retains the right to control the manner and means of the worker's performance. See Brock, 814 F.2d at 1046; Hopkins, 545 F.3d at 343–44. The control factor examines the totality of the employer's oversight of the worker's day-to-day activities, including scheduling, work assignments, quality standards, performance monitoring, and the imposition of consequences for non-compliance.
1. Control Indicators Favoring Employee Status. Our review of the ICOAs, RouteSync dispatch data, GPS telematics records, and management interviews reveals a substantial degree of control exercised by SLG over its drivers. The following indicators are particularly significant:
Route Assignment via RouteSync. SLG's proprietary dispatch platform, RouteSync, assigns daily delivery routes to drivers with limited driver discretion. Drivers do not independently solicit customers, negotiate delivery terms, or determine their own delivery schedules. Instead, RouteSync generates optimized routes based on geographic proximity, delivery priority, and driver availability, and pushes those routes to drivers each morning. While drivers may request route modifications through their hub manager, Trevor Sandoval confirmed during his May 6 interview that such requests are "generally discouraged" and are accommodated only in cases of vehicle breakdown or personal emergency. RouteSync data for the sample period indicates that over 94% of deliveries completed by the fifty sampled drivers were performed on routes generated and assigned by the platform, with fewer than 6% reflecting any driver-initiated modification.
Mandatory Delivery Windows. The ICOAs require all deliveries to be performed within a daily delivery window of 7:00 AM to 8:00 PM, Monday through Saturday. This is not merely a guideline; it is a contractual obligation. Drivers who wish to work outside these hours — for example, to accommodate a personal schedule — are unable to do so under the ICOA framework. While drivers may select which days within the Monday-through-Saturday window they wish to be "available," the practical effect is that SLG determines the temporal parameters within which all work must be performed. This is functionally equivalent to an employer setting work shifts.
Minimum Acceptance Rate. The 85% minimum delivery acceptance rate per rolling thirty-day period significantly constrains drivers' ability to decline assigned work. A driver who falls below this threshold is subject to a "performance review," which Karen Lund described during her May 7 interview as a "counseling session" followed by a thirty-day corrective action period. Sustained non-compliance may result in reduced delivery assignments or ICOA termination. The practical effect of this provision is that drivers must accept at least eighty-five out of every one hundred assigned deliveries, leaving only minimal discretion to decline work based on personal preference, route undesirability, or pay insufficiency.
Mandatory Uniforms and Branding. All drivers are required to wear SLG-branded uniforms, display SLG identification badges, and affix SLG vehicle placards to their personal vehicles at all times while performing deliveries. SLG provides these materials at no cost to the driver, but compliance is mandatory. This requirement serves to present the driver to the public as a representative of SLG — not as an independent business operator — and reinforces the employer's control over the worker's appearance and professional presentation.
GPS Tracking. SLG requires all drivers to install and maintain an SLG-provided GPS telematics device on their vehicles during all operating hours. The telematics system transmits real-time location data to SLG's operations center, enabling hub managers and dispatch coordinators to monitor driver location, route adherence, and delivery timing throughout the workday. Dennis Faulkner confirmed during his May 8 interview that he routinely reviews telematics data to assess driver performance and has contacted drivers mid-route to redirect them when GPS data indicates route deviation. This level of real-time monitoring is more consistent with employer oversight of an employee than with a hands-off relationship with an independent contractor.
Customer-Service and Safety Training. The ICOAs require drivers to complete sixteen hours of initial training and four hours of quarterly refresher training, all provided by SLG. Training covers SLG's delivery protocols, customer interaction standards, safety procedures, use of SLG equipment (scanners, RouteSync platform), and brand presentation expectations. The mandatory nature and substantial scope of this training suggest that SLG controls not only what work is done but how it is done — a hallmark of employer control.
Equipment Provision. While drivers provide their own vehicles, SLG furnishes several key pieces of operational equipment, including handheld barcode scanners, RouteSync mobile application credentials, and GPS telematics hardware. These are not optional tools; they are required components of the work process. The provision of such equipment further demonstrates SLG's control over the means and methods of delivery execution.
Penalties for Poor Performance. Drivers who receive customer complaints, fail to meet delivery time windows, or accumulate negative performance metrics are subject to consequences including reduced delivery assignments, mandatory additional training, and potential ICOA termination. Karen Lund confirmed that SLG maintains a "Driver Scorecard" system that tracks on-time delivery percentage, customer satisfaction ratings, and acceptance rates, and that drivers with consistently low scores are placed on "performance improvement plans." This performance management infrastructure closely resembles an employment relationship.
Inability to Negotiate Rates. Drivers have no ability to negotiate per-delivery rates. The rate schedule ($14.50 to $38.00 per delivery) is set unilaterally by SLG and is non-negotiable. Drivers cannot charge premiums for difficult deliveries, expedited service, or other value-added services. They accept the rate offered or decline the delivery. This absence of pricing discretion is a significant control indicator.
Subcontracting Restrictions. While the ICOAs nominally permit subcontracting, the requirement of "prior written approval" functions as a near-total prohibition. Karen Lund confirmed that subcontracting approvals have been "extremely rare" company-wide, and named plaintiff Delano alleges he was never granted a subcontracting approval during his 3.5-year tenure. The practical inability to delegate work to a substitute is a strong indicator of employer control.
2. Control Indicators Favoring Independent Contractor Status. In fairness, several aspects of the arrangement provide some support for independent contractor classification on the control factor:
Drivers retain the ability to decline individual delivery assignments, subject to the 85% minimum acceptance rate. While this discretion is constrained, it is not entirely illusory — a driver who maintains an acceptance rate above 85% has some latitude to decline unfavorable deliveries.
The ICOAs do not prohibit concurrent engagement with competing delivery services. Drivers are free to perform delivery work for other platforms (such as Ashbury Corporation, Aldermere Enterprises, or other last-mile providers) during non-SLG hours or on days when they are not available on the SLG platform. The post-termination non-compete restricts competitive work only after the ICOA relationship ends; it does not apply during the term of the agreement.
Drivers use personal vehicles, which they own or lease at their own expense. SLG does not provide vehicles, does not make vehicle payments, and does not reimburse vehicle-related expenses. The use of personal assets is a traditional marker of independent contractor status.
Drivers are not required to work every day within the Monday-through-Saturday delivery window. They select which days to mark themselves as "available" on the RouteSync platform. While practical and financial pressures may incentivize daily availability, the ICOA does not mandate a minimum number of available days per week.
Finally, our interviews revealed some hub-level variation in how control provisions are implemented. Dennis Faulkner at HUB-01, for example, described a relatively informal management style, stating that he "tries to give drivers as much flexibility as possible" and that he rarely contacts drivers mid-route unless a customer has reported an issue. Other hub managers may exercise tighter control. This variation is a double-edged sword: it may support an argument against conditional certification on "similarly situated" grounds, but it also suggests that the degree of control exercised by SLG varies by hub, with some hubs exercising greater control than others.
3. Risk Assessment — Factor 1. Rating: Weighs in favor of employee status (high risk).
The degree of control SLG exercises over its delivery drivers is substantial and pervasive. The combination of centralized route assignment through RouteSync, mandatory delivery windows, GPS-based real-time monitoring, uniform and branding requirements, mandatory training, performance-metric consequences, unilateral rate-setting, and near-total restriction on subcontracting collectively create a control framework that closely resembles an employment relationship. The nominal ability to decline individual deliveries is significantly constrained by the 85% acceptance threshold, which functions as a de facto requirement to accept the vast majority of assigned work.
Fifth Circuit courts have found similar control structures indicative of employee status in delivery-driver classification cases. See, e.g., Hopkins v. Cornerstone Am., 545 F.3d 338, 344 (5th Cir. 2008) (finding control factor favored employee status where company controlled workers' schedules, monitored performance, and required compliance with company standards); Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1046 (5th Cir. 1987) (finding that the right to control, rather than the actual exercise of control, is determinative). While the drivers' use of personal vehicles and nominal ability to work for competing platforms provide some counterweight, they are insufficient to overcome the weight of the control indicators favoring employee status.
We rate this factor as presenting high risk to SLG's classification position.
B. Factor 2: Opportunity for Profit or Loss
The second factor examines whether the worker has a genuine opportunity to affect his or her profit or loss through the exercise of managerial skill, initiative, or business judgment. See Thibault, 612 F.3d at 846; Hopkins, 545 F.3d at 344. This factor looks beyond mere fluctuations in earnings attributable to working more or fewer hours and focuses on whether the worker exercises the kind of entrepreneurial decision-making that characterizes an independent business. Id.
1. Indicators Favoring Employee Status. Several aspects of SLG's arrangement with its drivers limit the drivers' opportunity for profit or loss in ways that suggest employment rather than independent contracting:
Drivers are paid a fixed per-delivery rate set unilaterally by SLG. They have no ability to negotiate rates, charge premiums for difficult or expedited deliveries, or develop independent pricing structures. A driver who completes a standard last-mile delivery receives $14.50 regardless of whether that delivery involved significant effort (e.g., a heavy package on the third floor of a walkup apartment) or minimal effort (e.g., a small package left at a front door). This uniformity of compensation is characteristic of employment.
The volume of deliveries available to any given driver is controlled by RouteSync dispatching. Drivers cannot independently generate additional business from SLG's customers, solicit new customers, or expand their service territories beyond the routes assigned by the platform. A driver who is highly efficient and completes assigned routes quickly does not have the ability to independently seek out additional deliveries — additional work is available only if RouteSync assigns it.
The 85% minimum acceptance rate and route-assignment structure leave little room for entrepreneurial decision-making about which deliveries to prioritize for profitability. A driver cannot, as a practical matter, decline low-margin deliveries in favor of higher-margin ones without risking a performance review. This constraint significantly limits the kind of managerial judgment that characterizes independent contracting.
There is no meaningful ability for drivers to reduce costs to increase their profit margin beyond basic vehicle maintenance decisions (e.g., choosing a less expensive fuel station, performing minor repairs personally rather than hiring a mechanic). These are not the kinds of entrepreneurial cost-management decisions that typically distinguish independent contractors from employees.
2. Indicators Favoring Independent Contractor Status. The opportunity-for-profit-or-loss factor provides the strongest available argument for SLG's classification position. Several aspects of the arrangement suggest some degree of entrepreneurial opportunity:
Drivers bear the risk of significant vehicle expenses, including fuel, maintenance, insurance, depreciation, and repairs. These costs are not trivial. Based on SLG's internal estimates and industry data, a driver operating a cargo van incurs approximately $800 to $1,200 per month in vehicle-related expenses (excluding vehicle acquisition costs). A driver who manages these costs effectively — for example, by maintaining the vehicle carefully to avoid costly repairs, selecting fuel-efficient routes, or negotiating favorable insurance rates — can improve his or her profit margin. This exposure to both upside and downside vehicle economics is a hallmark of independent contractor status.
Drivers who work more efficiently — completing assigned routes faster — can theoretically complete more deliveries in a given day and earn more per day. While the marginal return on efficiency is limited by the availability of additional RouteSync assignments, there is some correlation between driver speed and daily earnings.
Drivers are permitted to work for other delivery platforms simultaneously, during non-SLG hours or on off days. This ability to diversify income sources across multiple platforms creates potential for multi-platform entrepreneurial engagement. SLG records indicate that a subset of drivers — the precise number is still being analyzed and will be the subject of a separate memorandum dated June 30, 2025 — have simultaneously engaged with competing delivery platforms such as Ashbury Corporation and other regional carriers.
Drivers who select availability on peak-demand days (e.g., holidays, promotional events) or who accept a higher proportion of white-glove deliveries ($38.00 per delivery versus $14.50 for standard last-mile) exercise some economic judgment that can affect their earnings. While this discretion is constrained, it is not entirely absent.
3. Risk Assessment — Factor 2. Rating: Mixed; slight lean toward independent contractor status (moderate risk).
The opportunity for profit or loss is the strongest factor supporting SLG's classification position, and it is the one on which the defense should focus its evidentiary development. The drivers' bearing of substantial vehicle costs and the ability to work for multiple delivery platforms demonstrate some entrepreneurial opportunity that distinguishes the arrangement from a pure employment relationship. If we can develop strong evidence of multi-platform engagement — showing that a meaningful percentage of drivers simultaneously worked for competing delivery services — this factor could provide significant support for the independent contractor classification.
However, the argument is not without vulnerability. The inability to set rates, the limited control over delivery volume, and SLG's dominance of the typical driver's available work hours (average fifty-eight hours per week for Delano, and we expect similar averages across many drivers) undercut the notion that drivers are exercising genuine entrepreneurial judgment. Courts in the Fifth Circuit have looked skeptically at "opportunity for profit" arguments where the alleged employer controls the pay rate and work volume, finding that "the opportunity to earn more by working more is not the same as the opportunity for profit through managerial skill." See Hopkins, 545 F.3d at 344–45. The DOL's 2024 final rule similarly emphasizes that "an opportunity to earn more from working more hours is not the same as an opportunity for profit or loss" and that the relevant inquiry is whether the worker exercises "initiative" or "managerial skill" that affects economic success. 89 Fed. Reg. at 1659.
We rate this factor as presenting moderate risk to SLG's classification position, with a slight lean toward independent contractor status.
C. Factor 3: Worker's Investment in Equipment or Materials
The third factor considers the worker's investment in equipment, materials, or helpers required for the work, as compared to the alleged employer's investment in its own business. See Brock, 814 F.2d at 1044–45; Thibault, 612 F.3d at 846. The Fifth Circuit has emphasized that this is a relative investment analysis: the relevant comparison is not whether the worker has made any investment, but whether the worker's investment is significant relative to the employer's overall investment in the business infrastructure that enables the work to be performed. Id.
1. Indicators Favoring Independent Contractor Status. The most significant indicator favoring independent contractor status on this factor is the drivers' investment in their own vehicles. The ICOAs require drivers to provide their own cargo van or box truck (model year 2015 or newer, passed SLG safety inspection), and drivers bear all vehicle-related costs. Based on market data and SLG's vehicle specification requirements, the estimated cost of a qualifying vehicle ranges from approximately $25,000 for a used cargo van in acceptable condition to $55,000 or more for a newer box truck. This is a substantial capital investment by any measure.
In addition to the vehicle acquisition cost, drivers bear ongoing vehicle-related expenses, including fuel (estimated at $400–$700 per month depending on route length and fuel prices), maintenance and repairs ($150–$300 per month on average), commercial vehicle insurance ($200–$350 per month), registration fees, and depreciation. These expenses collectively represent a significant financial commitment and exposure to loss.
Drivers also bear the cost of their own cell phones and data plans, which they use for communication with hub managers and for operating the RouteSync mobile application.
2. Indicators Favoring Employee Status. Notwithstanding the drivers' vehicle investment, several considerations cut against SLG's position on this factor:
SLG provides key operational equipment necessary for the performance of the work, including handheld barcode scanners, RouteSync mobile application credentials and supporting software infrastructure, and GPS telematics hardware. These items are furnished at no cost to the drivers and remain the property of SLG. Without these SLG-provided tools, drivers could not perform their delivery functions.
SLG provides branded uniforms, identification badges, and vehicle placards at no cost to the drivers. While these items have relatively low individual cost, their provision by SLG reinforces the employer-employee dynamic.
Most significantly, SLG provides the core business assets necessary for the work to exist in the first place: the customer base, the dispatch infrastructure (RouteSync platform), the delivery logistics network, marketing and brand identity, customer contracts, and the fourteen-hub distribution infrastructure. Without these assets, the drivers' personal vehicles would have no deliveries to make. The drivers' investment in a vehicle, while substantial in absolute terms, is a basic tool of the trade — analogous to a construction worker's investment in personal tools — rather than a capital investment in an independent business enterprise.
Under the relative-investment analysis applied by the Fifth Circuit, the comparison is between the individual driver's investment and SLG's overall investment in its business infrastructure. SLG operates fourteen distribution hubs, has invested millions of dollars in the RouteSync technology platform, maintains a sales and marketing apparatus, holds customer contracts with major retailers and e-commerce companies, and employs a corporate staff to manage logistics, accounting, human resources, and compliance. The aggregate enterprise-level investment dwarfs any individual driver's vehicle expenditure, and the Fifth Circuit has held that this relative disparity favors employee status. See Brock, 814 F.2d at 1044–45 (emphasizing the relative nature of the investment comparison).
3. Risk Assessment — Factor 3. Rating: Slight lean toward independent contractor status (moderate risk).
The driver's vehicle investment is real and significant, and it provides a meaningful argument for independent contractor status. This is not a case where the alleged employer provides all tools and equipment; the drivers' personal financial commitment to their vehicles is substantial and distinguishes this case from many misclassification scenarios. However, courts have repeatedly cautioned that a worker's investment in basic tools of the trade — including vehicles — is less probative of independent contractor status when the alleged employer provides the core business infrastructure, customer relationships, and technology platforms that make the work possible. Under the Fifth Circuit's relative-investment analysis, SLG's enterprise-level investment in its fourteen-hub network, RouteSync platform, customer contracts, and corporate infrastructure far exceeds any individual driver's vehicle expenditure.
We rate this factor as presenting moderate risk to SLG's classification position, with a slight lean toward independent contractor status.
D. Factor 4: Degree of Skill Required
The fourth factor considers whether the work requires specialized skills, initiative, judgment, or foresight that are characteristic of an independent business. See Hopkins, 545 F.3d at 344; Brock, 814 F.2d at 1045. Courts have distinguished between work requiring "specialized skill" — such as professional services, skilled trades, or technical expertise — and work that requires only general training and can be performed by workers of ordinary ability. The former is more consistent with independent contractor status; the latter with employment.
1. Analysis. Last-mile delivery driving, as performed by SLG's drivers, does not require specialized skills, advanced training, or professional certifications beyond a valid driver's license and the ability to safely operate a cargo van or box truck. No Commercial Driver's License ("CDL") is required for the vehicle types used by SLG's drivers, as the gross vehicle weight ratings of qualifying vehicles fall below the CDL threshold. The work involves picking up packages at a distribution hub, driving to residential or commercial delivery addresses along an assigned route, scanning packages, obtaining delivery confirmation (signature or photo), and returning to the hub.
The fact that SLG itself provides sixteen hours of initial training and four hours of quarterly refresher training further supports the conclusion that the work is trainable rather than skilled. If the work required specialized expertise, the training would be unnecessary — or, conversely, a driver would bring pre-existing skills to the engagement. Here, SLG trains drivers in its own methods, protocols, and systems, which indicates that the company controls the manner in which the work is performed and that the required skills can be taught to workers of ordinary ability.
SLG's white-glove delivery service involves furniture assembly and in-home placement, which requires somewhat greater skill than standard last-mile delivery. However, this additional training is also provided by SLG and does not rise to the level of "specialized skill" in the sense contemplated by the economic reality test. Assembly of flat-pack furniture and placement of appliances are tasks of moderate complexity that do not require professional certification, apprenticeship, or advanced technical training.
Drivers do not exercise independent judgment in business decisions, marketing, or customer acquisition. They do not develop business strategies, set prices, hire employees, maintain independent brands, or make the kinds of strategic decisions characteristic of an independent business operator. While plaintiff's counsel will likely argue that this absence of independent business judgment underscores employee status, SLG may argue that drivers exercise "entrepreneurial skill" in optimizing their routes and managing their vehicle expenses. We view this argument as available but thin, particularly given the RouteSync-dictated routing that minimizes driver discretion over route optimization.
2. Risk Assessment — Factor 4. Rating: Neutral to slight lean toward employee status (low-moderate risk).
The relatively low skill level required for last-mile delivery driving and SLG's provision of substantial training both suggest an employment relationship. However, this factor is generally considered less important in the overall economic reality analysis and is unlikely to be outcome-determinative in either direction. Courts in the Fifth Circuit have treated the skill factor as a relatively minor consideration in the totality-of-the-circumstances analysis, and the outcome of this case will turn primarily on the other five factors. We rate this factor as presenting low-to-moderate risk to SLG's classification position.
E. Factor 5: Permanence of the Working Relationship
The fifth factor examines the permanence and duration of the working relationship between the worker and the alleged employer. See Hopkins, 545 F.3d at 344; Thibault, 612 F.3d at 846. A permanent, continuous, exclusive relationship is more indicative of employment, while a temporary, project-based, or intermittent relationship is more consistent with independent contracting. Id. Courts look not only at the duration of the engagement but also at its continuity, exclusivity, and the parties' mutual expectations regarding the ongoing nature of the relationship.
1. Indicators Favoring Employee Status. Named plaintiff Marcus Delano worked for SLG for approximately 3.5 years, from March 2021 through September 2024. This is a lengthy, continuous engagement that is far more consistent with an employment relationship than with the episodic, project-based engagements characteristic of independent contracting.
Delano's experience is not atypical. While we are still conducting a comprehensive analysis of driver tenure data across the 1,187 relevant-period drivers, preliminary indications from SLG's human resources records suggest that the average driver tenure exceeds eighteen months, with a significant subset of drivers maintaining continuous engagements of two years or longer. Karen Lund noted during her interview that SLG has "very loyal drivers" and that the company "values long-term relationships." While this sentiment may reflect genuine positive regard for the drivers, it also reinforces the permanence of the relationships in a manner that cuts against independent contractor classification.
The ICOA is structured as an ongoing agreement without a fixed term or project-based scope. It is terminable at will by either party, which is functionally identical to an at-will employment relationship. There is no provision for engagement on a project-by-project basis, no defined deliverable that would trigger automatic termination upon completion, and no expectation of a finite engagement duration.
The twelve-month, fifty-mile non-compete clause (expanded from six months in earlier ICOA versions) further reinforces the permanence and exclusivity of the relationship. By restricting drivers' ability to perform similar work for competing delivery companies within a fifty-mile radius of their assigned hub for twelve months after termination, SLG effectively binds drivers to the relationship during its term (since leaving would trigger a lengthy competitive restriction) and discourages departure. This type of restrictive covenant is far more common in employment relationships than in independent contractor arrangements.
Additionally, the 85% minimum acceptance rate and the performance review process create de facto ongoing employment expectations. A driver who consistently meets or exceeds the acceptance threshold expects to continue receiving delivery assignments on an ongoing basis; a driver who falls below it faces consequences, including potential termination. This performance management infrastructure mirrors the employer-employee paradigm of ongoing performance evaluation, corrective action, and potential termination for cause.
2. Indicators Favoring Independent Contractor Status. The ICOAs are terminable at will by either party without cause, which provides some theoretical flexibility and is not inconsistent with independent contracting arrangements that may also be terminable at will.
Drivers are technically free to cease providing services at any time without contractual penalty (other than the non-compete restriction), and some drivers have done so. Turnover data, when fully analyzed, may show that a subset of drivers had shorter tenures or worked intermittently during the relevant period.
Hub-level data may reveal variation in driver turnover rates across the fourteen hubs, which could support an argument that some driver relationships are less permanent than others. Dennis Faulkner noted that HUB-01 has experienced "moderate turnover" over the past two years, with some drivers leaving after six months or less.
3. Risk Assessment — Factor 5. Rating: Weighs in favor of employee status (high risk).
The long average tenure, at-will but continuous nature of the relationship, non-compete restrictions, and ongoing performance management structure all suggest a permanent working relationship consistent with employment. The Fifth Circuit has repeatedly found that relationships extending over multiple years with consistent, full-time-equivalent hours strongly support employee status under this factor. See Hopkins, 545 F.3d at 344 (considering the duration and continuity of the working relationship); Brock, 814 F.2d at 1044 (noting that "permanence of the relationship" is a relevant indicator of employment). The at-will terminability of the ICOAs is not a significant counterweight, as at-will employment is the default rule in Texas and across the Fifth Circuit.
We rate this factor as presenting high risk to SLG's classification position.
F. Factor 6: Integral Nature of the Service to the Alleged Employer's Business
The sixth factor considers whether the service rendered by the worker is an integral part of the alleged employer's business. See Brock, 814 F.2d at 1045; Thibault, 612 F.3d at 846. This factor asks whether the work performed is a core, essential component of the employer's business operations, or a peripheral, ancillary activity that supports but does not define the employer's enterprise. Work that constitutes the primary revenue-generating activity of the business is almost always found to be integral.
1. Analysis. Stonefield Logistics Group Inc. is a last-mile delivery, regional freight, and white-glove delivery company. Delivery driving is not a peripheral or ancillary function of SLG's business — it is the core, revenue-generating activity that defines the Company's business model and sustains its operations. SLG exists to deliver packages and freight from distribution hubs to end customers. Every dollar of its $312.7 million in FY 2024 revenue (excluding the less-than-4% attributable to consulting and warehouse management) was generated through the delivery services performed by its driver network.
SLG does not employ a separate workforce of delivery drivers as W-2 employees. The approximately 1,450 currently engaged drivers — all classified as independent contractors — constitute SLG's entire delivery workforce. There is no parallel employee driver force performing the same function. If the independent contractor drivers ceased performing deliveries, SLG would have no means of fulfilling its customer contracts and would be unable to operate its business in any meaningful sense.
This structural reality is reinforced by the presentation of drivers to the public. SLG's customers interact with drivers wearing SLG-branded uniforms, displaying SLG identification badges, and driving vehicles bearing SLG placards. From the customer's perspective, the driver is SLG. The Company's brand identity and customer experience are entirely dependent on the performance of its delivery drivers.
It is difficult to articulate a meaningful argument that delivery driving is not integral to SLG's business. Any such argument would require SLG to characterize its drivers as performing a function ancillary to some other core business activity — but there is no other core activity. SLG is a delivery company, and its drivers deliver.
2. Risk Assessment — Factor 6. Rating: Weighs strongly in favor of employee status (high risk).
This factor is the most unfavorable for SLG's classification position and offers the least room for counterargument. Delivery driving is indisputably integral to SLG's business, and the Fifth Circuit consistently finds this factor in favor of employee status when the workers perform the core function of the company's business. See Brock, 814 F.2d at 1045 (finding that fireworks retailers were integral to the employer's fireworks business); Hopkins, 545 F.3d at 344 (considering whether the workers' services were "an integral part of the business"). There is no credible argument available to SLG on this factor, and we should not expend significant resources attempting to develop one. Instead, our strategy should focus on emphasizing the factors that provide stronger support for the independent contractor classification (primarily Factors 2 and 3) and arguing that the totality of the circumstances, taken as a whole, supports contractor status despite the unfavorable assessment on Factor 6.
We rate this factor as presenting high risk to SLG's classification position.
IV. Totality of the Circumstances — Overall Risk Assessment
A. Summary of Factor Ratings
The following table summarizes our assessment of each factor in the six-part economic reality test:
B. Overall Risk Rating
Based on the totality of the circumstances, we assess the overall risk that a court would find SLG's drivers to be employees under the FLSA economic reality test as moderate-to-high.
Three of the six factors — the degree of control (Factor 1), the permanence of the working relationship (Factor 5), and the integral nature of the drivers' services to SLG's business (Factor 6) — clearly weigh in favor of employee status. These three factors collectively present a substantial challenge to SLG's classification position, as they address the most foundational elements of the employer-employee relationship: whether SLG directs how the work is done, whether the relationship is ongoing and continuous rather than episodic, and whether the work performed is essential to SLG's core business.
One additional factor — the skill required for the work (Factor 4) — leans slightly toward employee status, though it is neutral enough that it is unlikely to be outcome-determinative.
The two factors that provide the most meaningful support for SLG's independent contractor classification — the opportunity for profit or loss (Factor 2) and the worker's investment in equipment (Factor 3) — are the strongest cards in SLG's hand and should be the primary focus of our evidentiary development. However, as discussed above, both factors are subject to significant qualification. The opportunity-for-profit-or-loss argument is undercut by SLG's unilateral rate-setting, control over delivery volume, and the limited entrepreneurial discretion available to drivers. The investment argument, while supported by the drivers' significant vehicle expenditures, is weakened under the Fifth Circuit's relative-investment analysis, which compares the individual driver's investment to SLG's enterprise-level investment in its fourteen-hub infrastructure.
The Fifth Circuit has held that no single factor is dispositive and that courts must consider the totality of the circumstances. Hopkins, 545 F.3d at 343. However, in cases with factual profiles similar to this one — involving delivery drivers with employer-controlled routing, mandatory branding, GPS tracking, limited pricing discretion, long-term tenure, and integral business function — courts in the Fifth Circuit and across the country have frequently found employee status. We are not aware of a decision in this circuit finding independent contractor status on materially comparable facts, though we acknowledge that the analysis is inherently fact-intensive and that favorable distinctions may be developed through discovery.
C. Comparison to Key Fifth Circuit Precedent
Our assessment is informed by a review of analogous Fifth Circuit decisions addressing worker classification under the economic reality test:
Hopkins v. Cornerstone America, 545 F.3d 338 (5th Cir. 2008), is the leading Fifth Circuit case on the economic reality test and establishes the analytical framework this court will apply. In Hopkins, the Fifth Circuit reversed a summary judgment for the employer, finding genuine issues of material fact as to whether insurance salespersons were employees or independent contractors. The court emphasized the employer's control over scheduling, training, and performance monitoring and held that contractual labels are not dispositive. While the facts of Hopkins involved a different industry, the court's emphasis on the totality of the control indicators is directly applicable here.
Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042 (5th Cir. 1987), is a seminal Fifth Circuit decision finding that fireworks stand operators were employees despite their contractual classification as independent contractors. The court emphasized the integral nature of the operators' services to the employer's business, the employer's control over operating hours and locations, and the limited entrepreneurial opportunity available to the operators. The structural parallels to SLG's driver arrangement are significant.
Thibault v. Harborline Partners LLC, 612 F.3d 843 (5th Cir. 2010), addressed the classification of cable installation technicians and provides both favorable and unfavorable precedent. The court found independent contractor status based in part on the technicians' significant investment in tools and equipment and their ability to hire helpers. SLG may argue by analogy that its drivers' vehicle investment supports contractor status, but the Thibault technicians had greater entrepreneurial discretion — including the ability to hire and manage employees — than SLG's drivers, who are effectively precluded from subcontracting.
We should also be prepared to address decisions from outside the Fifth Circuit that plaintiff's counsel may cite, including the Ninth Circuit's decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018) (adopting the ABC test under California law), and the First Circuit's decision in Baystate Alternative Staffing, Inc. v. Herman, 163 F.3d 668 (1st Cir. 1998). While these cases arise under different legal standards, they reflect a broader judicial trend toward scrutinizing the classification of delivery drivers as independent contractors.
Additionally, we note that the DOL's 2024 final rule on independent contractor classification (effective March 11, 2024, 89 Fed. Reg. 1638) adopted a totality-of-the-circumstances analysis consistent with the economic reality test and rescinded the prior 2021 rule that had emphasized only two "core factors" (control and opportunity for profit or loss). While the 2024 rule does not bind the courts in their FLSA analysis, it may be cited by plaintiff's counsel as persuasive authority, and courts have historically given some deference to the DOL's interpretive positions on FLSA questions. The 2024 rule's emphasis on examining the totality of the circumstances — and its explicit rejection of an approach that would privilege certain factors over others — is consistent with plain

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NO.: 1012-00004

Record

Parties

Dates

Amounts