Lorenz-Schneider Co., Inc.

National Labor Relations Board - Board Decisions

Apr 25, 1973

203 N.L.R.B. 217 (N.L.R.B. 1973)

LORENZ-SCHNEIDER CO.
Lorenz-Schneider Co., Inc . and Independent
Routemen 's Association , Petitioner. Case 29-
RC-1980
April 25, 1973
DECISION ON REVIEW
BY CHAIRMAN MILLER AND MEMBERS FANNING AND
PENELLO
On October 3, 1972, the Regional Director for Re-
gion 29 issued a Decision and Direction of Election
in the above-entitled proceeding in which he directed
an election in the Petitioner's requested unit of dis-
tributors, finding, contrary to the Employer's conten-
tion, that they are its employees and not independent
contractors. Thereafter, in accordance with Section
102.67 of the National Labor Relations Board Rules
and Regulations, Series 8, as amended, the Employer
filed a timely request for review of the Regional
Director's decision on the grounds, inter alia, that in
finding the distributors involved not to be indepen-
dent contractors he departed from officially reported
precedent and made findings of fact which are clearly
erroneous.
By telegraphic order dated January 23, 1973, the
National Labor Relations Board granted the request
for review insofar as it related to the status of the
distributors. Thereafter, the parties filed briefs on re-
view.
Pursuant to the provisions of Section 3(b) of the
National Labor Relations Act, as amended, the Na-
tional Labor Relations Board has delegated its au-
thority in this proceeding to a three-member panel.
The Board has considered the entire record in this
case with respect to the issues under review, including
the briefs on review, and hereby affirms the Regional
Director's Decision and Direction of Election,' with
the following additions:
Contrary to the Employer's contention, the case of
Gold Medal Baking Co., Inc., 199 NLRB No. 132, is
factually distinguishable. In that case, certain individ-
uals who had a prior history of representation as driv-
er-salesmen employed by the company but who had
each signed distributorship agreements with the com-
pany in the course of unsuccessful negotiations for a
new contract were found to have terminated their
employee status and become independent contractor
i The Regional Director 's findings and conclusions with respect to the
status of the distributors are excerpted from his Decision and attached hereto
as an appendix His findings of fact are substantially supported by the record
except with respect to the finding that the Employer permits the distributors
to carry only its products . The record establishes that it permits them to sell
noncompetitive products ; the extent of such sales is undisclosed
217
distributors of the company's bakery products. In
finding that the company had not reserved to itself
control of the means by which the distributors sold
and delivered products, the Board noted, inter alia,
that they were not required by the company to adhere
to suggested resale prices to retailers (only 10 percent
of which were chain stores) and that they carried out
their responsibilities under the distributorship agree-
ments without supervision by the company.
In marked contrast, here, the Employer , as fran-
chised dealer for a number of snack food manufactur-
ers, effectively controls the prices at which the
distributors resell to retailers , most of which are chain
stores;2 it requires compliance with a 10-page booklet
entitled "Procedures for Operating Independent Dis-
tributor Routes";' and it employs distributor repre-
sentatives who in a number of ways, as found by the
Regional Director, oversee the operations of the dis-
tributors.4 We find, therefore, that despite the change
in the Employer's method of product distribution
2 The Employer's practice is to segregate chain stores and independent
stores into separate routes. The distributors who have chain store routes,
about 28 to 30 individuals , are required by the Employer to abide by prices
negotiated between the stores and the manufacturers of the Employer 's prod-
ucts. The Employer's control in this area is absolute , since the chain stores
pay the distributors through the Employer rather than directly and the Em-
ployer computes the distributors ' profits on their sales solely on the basis of
the negotiated prices. With respect to the distributors who have independent
store routes , the Employer substantially controls their prices through the
frequent advertisement in trade publications of price discounts on the distrib-
utors' merchandise . At times the discounts are stated as a percent , at others
they are stated as a specific price below the regular price . Although the
Employer's vice president , Kenneth Price , stated that the distributors were
free to refuse to offer the discounts (as to which it admittedly does not consult
them prior to advertising), he also stated that in instances in which they
attempted to refuse the discounts , their customers retaliated by refusing to
make further purchases and thereby effectively forced them to grant the
discounts.
7 While some of the provisions in the book of procedures appear only
hortatory, the Employer has enforced compliance with certain of them as
well as with provisions that are mandatory . For example , although provision
19 indicates that shelving for merchandise is "available at the [Employer's]
warehouse . . . if desired ," the Employer requires distributors to install
additional shelving in their stores if their customers demand it and has
installed the shelving itself where distributors refused to do so . There are also
examples of enforcement of mandatory provisions . Provision 22 states,
"Stores must be served at least once each week , and ... as many more times
each week as is necessary to keep the stands , racks and gondolas adequately
supplied with fresh merchandise." In one instance in which two distributors
refused because of a dispute with the Employer to make deliveries on their
route for a period of a few days and thus left them undersupplied with
merchandise , the Employer had its employees break the padlocks on the
distributors ' trucks , fill them with merchandise , and make deliveries to the
appropriate stores.
Each distributor representative generally oversees 10 routes . They visit
the distributors ' stores frequently to check on a variety of matters affecting
the distributors' sales, including the promptness with which the distributors
remove stale merchandise from the shelves, the adequacy and effective loca-
tion of shelving and promotional material , and the merit or lack thereof in
store managers' complaints regarding services rendered. When the represent-
atives meet with the distributors , which they do on the average of once each
3 weeks, they discuss the distributors ' route operations and instruct them
regarding how to more properly service their accounts . As the Regional
Director noted, the representatives report distributors ' noncompliance with
their instructions to the Employer 's general sales manager for further action.
The representatives have a direct financial interest in seeing that their instruc-
tions are complied with, since the Employer pays them bonuses for increases
in sales they help the distributors achieve.
203 NLRB No. 45
218 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
whereby it required its route salesmen to execute dis-
tributorship agreements , the Employer has not relin-
quished control over the means by which the
distributors carry out their responsibilities under the
agreements.
Accordingly, the case is remanded to the Regional
Director for the purpose of conducting an election
pursuant to his Decision and Direction of Election, as
modified herein , except that the payroll period for
determining eligibility shall be that immediately pre-
ceding the date of issuance of this Decision . [Excelsior
footnote omitted from publication.]
APPENDIX
The Employer is a key distributor of snack foods
for the five counties of New York City and Nassau
and Suffolk Counties . The primary facilities in ques-
tion are located in New Hyde Park , New York and
Riverhead , New York with several of the individuals
in question operating from another privately owned
warehouse . Prior to 1967, the individuals in question
were called route salesmen and were concededly em-
ployees of the Employer . At that time route salesmen
and warehousemen were represented by Local 802,
International Brotherhood of Teamsters , Chauffeurs,
Warehousemen & Helpers of America , herein called
Local 802 . In 1967 , the route salesmen became distrib-
utors with the concurrent change in status set forth
below, and Local 802 ceased representation of them,
although it did continue to represent the Employer's
warehousemen.
There are currently 52 distributors in the proposed
unit . Some of these men were employed as route sales-
men for the Employer prior to 1967. In 1967, they
purchased their routes from the Employer making
large initial down payments . The total purchase price
was based upon the average week's sales of the route
multiplied by a given factor . Other distributors who
joined the Employer later similarly purchased their
routes, either from the Employer or from other dis-
tributors who wanted to sell.
The distributors themselves may sell their routes at
any time , either to the Employer or to a third party,
provided only that a third party purchaser must be
approved by the Employer . The agreement between
the Employer and the distributor sets forth the formu-
la by which the price for any such re-sale must be
computed . The record indicates , however , that this
provision has not been enforced in regard to sales to
third persons and that in practice distributors have
been allowed to sell for whatever price they can get.
Persons seeking to buy available distributorships di-
rectly from the Employer are interviewed by the gen-
eral manager after filling out several forms , including
a standard form application for employment. They
sign an interim agreement providing for a 60 day pro-
bationary period during which either party may
change its mind with no forfeiture save that, if the
individual has already been trained by the Employer
and he changed his mind , he must pay a sum of mon-
ey for said training . During this probationary period,
the individual is taken on the route he will ultimately
buy, by a distributor representative whose function is
to oversee a given number of assigned routes. The
trainee is shown where the stores on the route are
located and how to service them properly.
At the end of 60 days the Employer and the individ-
ual enter into a formal agreement by which the indi-
vidual purchases the route from the Employer. He
signs a promissory note and the Employer retains a
chattel mortgage for the unpaid balance of the pur-
chase price . By the terms of this agreement , the dis-
tributor agrees , inter alia, to maintain accurate route
books and customer books , follow the book of compa-
ny procedures , and use his best efforts to procure sales
and new accounts for the franchised products of the
Company without regard to fixed or bounded territo-
ry. The agreement may be terminated by the Employ-
er for failure to make payment under the promissory
note , for handling competitors ' products, for wilful
neglect of customers , for dishonesty , or for several
other technical infractions enumerated therein. The
current agreements are not terminable at will by ei-
ther party , although the first agreements entered into
by six of the distributors in 1967 did bind the Employ-
er to repurchase the routes upon 30 days' notice from
the distributors . The Agreements also specifically
state that it is the intent of the parties that the distrib-
utors are independent contractors and not employees.
By the terms of the agreement , the profit of the
distributors is to be approximately 20 percent, less
rebates for those distributors who service chainstore
routes . The distributors are free to establish their
gross profits , however , in that they may increase the
number of customers , either by soliciting new, open
accounts or buying individual stops from other dis-
tributors . Both chain store and independent store dis-
tributors are free to solicit any open accounts except
for new chain stores which are opened by the Employ-
er and either sold to the distributors or given as a
replacement to one who had serviced a store in the
chain which had closed . The only restrictions on solic-
iting new accounts are that the distributors may not
solicit outside the seven-County area serviced by the
Employer nor solicit accounts serviced by other dis-
tributors for the Employer or by Yorkshire Foods, a
related company.
It is clear from the record that there is no day-to-
LORENZ-SCHNEIDER CO. 219
day supervision of the distributors by the Employer.
The distributors can arrange the order and frequency
with which they service stops as long as they service
them at least once a week. They have no set hours of
work and can take days off without permission. They
can take vacations at their own convenience. The dis-
tributors can hire their own vacation replacements or
the Employer will provide substitutes to service routes
upon request, for a set fee. Distributors are not re-
quired to wear any uniform or to report to the ware-
houses by any given time save only that the warehouse
has certain hours of operation within which the dis-
tributors must pick up any goods they want, whether
for immediate use or to store in their own warehouse
facilities.
The Employer does not withhold tax, nor does it
provide unemployment or other benefits for distrib-
utors. All the distributors drive trucks painted with
the name of Wise Potato Chips, the primary manufac-
turer of goods sold by the Employer. Fourteen of the
trucks are distributor-owned, having been bought ei-
ther from outside truck dealers or from Schneider
Trucks, Inc., herein called Schneider, a subsidiary of
the Employer. The rest of the trucks are leased either
from Schneider or from outside firms. There is no
requirement that the distributors use one type of ar-
rangement in preference to another, except that
Schneider has stopped renting to Riverhead-based
distributors and has given these men the option of
purchasing their trucks or renting elsewhere when
their current leases run out. Most of the distributors
garage their trucks at the Company premises for a
monthly fee, although they are not required to do so
(except that the leasing arrangement with Schneider
provides for the trucks to be kept overnight at a ga-
rage consented to by Schneider). The Schneider lease
also calls for the trucks to be used only on weekdays
and on the snack food route of the lessee.
Except for the two individuals who store goods in
their own warehouse facilities, the distributors put in
order slips daily for the items they need the following
day. The Employer sets the price it will charge the
distributors. The price the' distributors get from a
chain store also has been set, by agreement between
the manufacturer, i.e., Wise, and the buyer for the
chain. The Employer asserts that prices for the inde-
pendent customers are a matter for the individual
distributor to determine, although it admittedly has
suggested prices. The witnesses for the Petitioner state
that they are told what prices to charge. Additionally,
some packages carry a retail price on them and adver-
tisements placed by the manufacturers in trade pub-
lications offer a reduction in the normal price for
certain promotional purposes. Finally, memoranda
have been sent out by the Employer to the distributors
telling them all to charge the same price lest the Em-
ployer and/or the distributors be charged with viola-
tion of uniform pricing regulations. Thus, it is clear
that a very limited amount of leeway is available to
the distributors in setting prices.
The distributors who service chain stores do not
collect any money. The chain stores pay the manufac-
turer directly, the latter forwards the money to the
Employer, and the Employer pays these distributors
their profits. The distributors who service indepen-
dent stores generally are paid cash by their customers.
They then pay the Employer for the goods they order
according to the terms set in their individual agree-
ments with the Employer. Any loss due to bad checks
or due to any credit given by the distributor without
specific authorization from the Employer falls upon
the distributor.
As mentioned above, the Employer employs indi-
viduals known as distributor representatives who
oversee a certain number of distributor routes. Most
of these individuals were admittedly supervisors be-
fore the routes were sold in 1967. As such, they occa-
sionally rode with the people under their supervision
to check their work. Since the change-over they no
longer regularly ride with the distributor. However,
the record indicates that they do go to the various
customers' stores to check up on the display of mer-
chandise , to see if sufficient merchandise is on the
shelves and to ascertain generally what sort of job the
distributor is doing. On at least one occasion, a dis-
tributor has seen the distributor representative follow-
ing him on his route in a car and going into each stop
after he left it. The distributor representatives have
called distributors into their office to tell them that a
store was not being properly handled and to tell them
how to more properly service an account. If no im-
provement is shown, the distributor representatives
report the situation to the general sales manager for
further action. Distributors have received letters from
the general sales manager, notifying them that com-
plaints have been received about their service and
warning that, if the store refuses to deal with that
distributor, the account will be lost to the distributor
with no remuneration.
The record reveals that only one distributor has
ever had his route taken away from him. This individ-
ual lost his route as result of dishonesty. Insofar as
loss of individual stops is concerned, the record shows
that the Employer does not take them away from an
individual but that, in cases where a store refuses to
deal with a distributor, the Employer will look to see
who is at fault. If they determine that it was the
customer's fault, they will "protect" the account for
their distributor, i.e., no one else can solicit that ac-
count. If, however, the Employer determines that the
220 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
loss was the fault of the distributor, the account may
be declared "open" and can be solicited by any one
else, with no compensation to the distributor who had
the account.
The Board has frequently held that , in determining
the status of persons alleged to be independent con-
tractors, the Act requires application of the "right of
control" test, stating that, where the person for whom
the services are performed retains the right to control
the manner and means by which the result is to be
accomplished, the relationship is one of employment,
rather than that of independent contractor. The reso-
lution of this question depends upon the facts in each
case , and no one factor is determinative.'
On the basis of the foregoing and the entire record,
I am satisfied that the distributors are not indepen-
dent contractors, although I am aware that the evi-
dence discloses certain factors which are usually
associated with independent contractor status. Thus,
distributors purchase their trucks, set their own hours
of work, and the Employer dyes not make any payroll
deductions from them. On the other hand, the Em-
' Borden, Inc, 192 NLRB 31, 181 NLRB 109, El Mundo, Inc, 167 NLRB
760
ployer leases the majority of trucks, and restricts the
use of these trucks to company business, requires the
distributors to carry only its products, unilaterally es-
tablishes the price it charges the distributors, assists
them in the solicitation of accounts, decides when
customers shall be "lost" by distributors, instructs dis-
tributors on how to service accounts, and retains the
right to terminate the agreement under certain cir-
cumstances of which it is the sole judge. Although
there is evidence that the distributors do sell or trade
their routes, the Employer still effectively controls
such sale by reversing the right to reject any applicant,
and by setting down the monetary formula by which
said sale shall be transacted. In addition, while the
distributors may set their own prices to independent
customers , it is clear that the prices can vary only by
a few cents and that the Employer is concerned with
any variance.
In sum , then, all of the record evidence indicates
that the distributor's compensation is not controlled
only by his own efficiency and efforts, but is effected
substantially by the decisions and actions of the Em-
ployer, whether they be in the form of suggestions and
requests or by direct orders. Accordingly, I find the
distributors to be employees of the Employer.