The Ninth Circuit Says FedEx Drivers are Employees not Contractors
Many companies have built profitable businesses by making independent contractors, rather than employees, the backbone of their business model—and FedEx Ground Package System, Inc. (FedEx Ground) is one of the most prominent companies to have done so. But last month, Fed Ex Ground was dealt a severe blow when the Ninth Circuit Court of Appeals ruled in Alexander v. FedEx Ground Package System, Inc. that Fed Ex Ground had misclassified its delivery employees as independent contractors.
Independent contractors—including freelancers, consultants, temps, etc.—are persons who contract to perform work for a business and have the right to do so according to their own means and methods. This means that the business engaging the independent contractor can control only the results of the work, not the manner in which the work is performed.
The use of independent contractors has become common in many industries as it provides businesses with significant flexibility and cost savings. Independent contracting has become popular among some, who prefer freedom and opportunity as an independent contractor rather than being an employee. But there are others, who would prefer to be employees because of the accompanying employee benefits that independent contractors do not receive as part of their compensation.
So what does an employer like FedEx Ground gain if a worker is classified as an independent contractor rather than an employee? Quite frankly, a lot.
For example, if a worked is deemed to be an employee, then an employer like FedEx Ground is required to:
- Make Social Security and Medicare contributions,
- Pay unemployment and workers’ compensation premiums,
- Provide health insurance and other benefits available only to employees, and
- Pay overtime, minimum wage and employee expenses according to company
policy and relevant laws.
In addition, employees are entitled to the protection of many state and federal laws which do not apply to independent contractors. Consequently, employers must not only ensure that the individual performing services has been properly classified, employers must also ensure that they have complied with those laws governing wages, benefits and overtime. Non-compliance with these laws exposes the employer to potential lawsuits, fines and civil and criminal penalties.
On the flipside, independent contractors are not entitled to company health benefits, overtime pay, unemployment insurance, etc., and do not receive the protection of many laws aimed at protecting employees. This may be a fair trade if they are allowed the freedom, flexibility and opportunities that go along with being an independent contractor. But what happens if these independent contractors are subject to the restrictions placed upon employees while receiving none of the benefits of being an employee? For obvious reasons, this can be a lose-lose proposition.
For years, FedEx Ground delivery drivers have contended that they were unlawfully misclassified as independent contractors. They have brought a series of lawsuits in different jurisdictions attempting to force FedEx Ground to not only classify them as employees, but also, have sought damages for back pay and lost benefits. These lawsuits met with mixed success. The drivers have enjoyed a few victories, suffered some losses and reached several settlements. Dozens of similar worker misclassification cases are still pending.
The Alexander v. FedEx Ground Package System, Inc. case represents the biggest victory yet for FedEx Ground drivers.
This area of the law is subjective and uncertain. The criteria used to determine whether a worker should be classified as an independent contractor or an employee differs widely between jurisdictions. This would partly explain why the FedEx Ground drivers have been successful only in some jurisdictions.
The consistent inquiry by most courts and administrative bodies is whether the hiring party has the right to control the manner and means by which a worker accomplishes work. In applying this criteria, however, the court can take dozens of factors into account.
The three-judge panel of the Ninth Circuit, in reaching its conclusion that the drivers in California were employees and not independent contractors, looked at all the controls that FedEx Ground had in place regarding the manner and means by which its drivers performed their jobs. The Ninth Circuit noted that the drivers were required to purchase uniforms and equipment from FedEx; that there were truck outfitting requirements, schedules and service area routes; and restrictions on how and when helpers could be hired and used. In totality, the court concluded that FedEx Ground had sufficient controls in place that supported a finding that the drivers were employees and not independent contractors.
The FedEx Ground drivers’ successful challenge to the misclassification should be encouraging to persons who feel they have been similarly misclassified. The Alexander decision will probably be the impetus to more class action challenges.
FedEx Ground now faces substantial liability for lost wages and benefits that will be claimed by those employees who were found to have been misclassified. It has also put the company in the position of either having to continue to defend numerous lawsuits, relinquish a great deal of control over its drivers and/or change its business model.
Many companies using independent contractors are being forced by lawsuits to make similar decisions. Federal and state authorities are launching their own crackdown on misclassification of employees as independent contractors. That will be the subject of our next post on this subject.
If you are an independent contractor who feels misclassified by an employer, contact Kilgore & Kilgore today. Our employment law attorneys are ready to evaluate your situation to determine if you have a valid case. Call us today at (214) 969-9099 or email dem@kilgorelaw.com to set up a free review of the facts of your case with a Dallas employment lawyer.