Choice of Law Provision In Independent Contractor Agreement is No Guarantee That State’s Laws Will Be Applied

Diakon Logistics, Inc. coordinates delivery and installation of merchandise for retailers nationwide. Diakon, whose headquarters is in Virginia, engages truck drivers as independent contractors to perform those delivery services. Two drivers, who were Illinois citizens, provided such services from a retailer’s warehouse in Illinois and delivered goods to homes in Illinois. The two drivers filed a lawsuit in an Illinois federal court alleging violations of that state’s Wage Payment and Collection Act due to their alleged misclassification as independent contractors. Both drivers had signed independent contractor agreements containing a choice-of-law provision selecting Virginia law to govern the parties’ relations. A dispute arose over whether Illinois or Virginia law applied. 

Although the district court decided that Virginia law applied, the U.S. Court of Appeals for the Seventh Circuit reversed that decision and concluded: “Plaintiffs’ claims to undiminished wages arise from their work in Illinois, not from their contracts. The [Illinois Wage Payment and Collection] Act governs payment for work in Illinois regardless of what state’s law governs other aspects of the parties’ relations.” The editor of this blog was quoted in an August 29, 2022 article by Jon Steingart in Law360 Employment Authority about this case: “One key lesson from this Seventh Circuit decision is, don’t assume your choice of law provisions will govern in an independent contractor misclassification lawsuit. The court’s decision that Illinois law applies is especially significant because Illinois is also one of the few states whose test for independent contractor status is extremely challenging to meet for many industries.” Johnson v. Diakon Logistics Inc., No. 21-2886 (7th Cir. Aug. 17, 2022).