Court Tells FedEx Its Drivers Are Employees, Not Under-Compensated Contractors

Thursday, August 28, 2014

FedEx workers look like employees and act like employees, so they can’t be classified as contractors to avoid paying them overtime and benefits.

At least that’s what a three-judge panel of the U.S. Ninth Circuit Court of Appeals decided Wednesday. The ruling (pdf), which restores a class-action lawsuit and kicks it back to a lower court, runs counter to similar decisions across the country and will be appealed to the full 11-member court.

Corporations claim the contractor system empowers workers as small-businesses operators. Critics say it’s a duplicitous way to avoid paying payroll taxes, workers’ compensation and other benefits while shifting costs to workers.

Barry Leibowicz, an attorney and professor of accounting and information systems at Queens College in New York, wrote 9,693 words for the CPA Journal about independent contractors in 2011 and introduced his “complex answer” to how they differ from employees by admitting it is “a question that often has no definitive answer.”

The complexity of the law and competing judicial applications of it have facilitated a decades-long move to reclassify employees as independent contractors to avoid legal and social obligations. It’s a great corporate cost-cutter whose popularity continues to grow as the labor force is redefined.

In the case of FedEx, 2,300 drivers in California, between 2000 and 2007, had to dress in a FedEx uniform, meet FedEx grooming standards, and drive a truck (sometimes there’s) festooned with the FedEx logo. FedEx said they were contractors, ineligible for overtime and other goodies.

Judge William Fletcher, writing for the court, disagreed:

“The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx's appearance standards. FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx's consent.”

The case grew out of a series of similar lawsuits filed in 40 states from 2003 to 2009. They were consolidated into multidistrict litigation (MDL) proceedings, which allowed a single court to process claims that relied on common proof and apply it to different class-actions.

The U.S. District Court for the Northern District of Indiana (the MDL court) tossed a bunch of the claims, including California’s. The California decision was reversed by the appellate court.

Both parties agreed on most of the facts and that California law controlled the case. The FedEx Operating Agreement (OA) was regarded by all, including the court, as the controlling document defining worker status. FedEx said the document clearly labeled them “contractors.”

The court cited California law and implied that claim was a tad dishonest: “[T]he label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.”

The OA describes in detail how FedEx dictates every aspect of job performance, just as it would if drivers were employees. Although there are some secondary factors, like taking on additional routes or hiring helpers, they appear to be employees by all appearances.

California’s right-to-control test put FedEx clearly in control as an employer, the court said, and the lower court was wrong to consider as more important that drivers “own and operate distinct businesses, own multiple routes, and profit accordingly.”

FedEx says it doesn’t use the old OA anymore and is now in full compliance with California law.

–Ken Broder


To Learn More:

Reversal by 9th Circuit in FedEx Overtime Case (by Tim Hull, Courthouse News Service)

Thousands of California FedEx Drivers Have Been Exploited by Corporate Execs, Court Rules (by Steven Rosenfeld, Alternet)

U.S. Court Clears FedEx Ground Drivers to Pursue Wage, Benefit Claims (by Amanda Becker, Reuters)

Independent Contractor or Employee? (by Barry Leibowicz, The CPA Journal)

Dean Alexander et al v. FedEx Ground Package System (U.S. Ninth Circuit Court of Appeals) (pdf)

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