CWS 3.0: February 8, 2011 - Vol. 3.4

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Legal Eagle: Drivers Are Contractors After All

In what is seen as a big win for users of independent contractors, an Indiana district court ruled that current and former drivers of FedEx Ground Package System Inc. were correctly classified by the company as independent contractors. In the case, In re FedEx Ground Package System Inc. Employment Practices Litigation, the drivers claimed in a consolidated multidistrict litigation that FedEx Ground's misclassification of their status resulted in violations of numerous state wage and hour laws. 

In August 2010, the court had ruled that the drivers used by the company were properly classified as independent contractors under Kansas law. In the December decision -- which addressed 42 cases from multiple states -- the court ruled on all other pending cases in the consolidated action. 

Arguments

FedEx has been facing such litigation for a few years -- in various jurisdictions and various cases. In one notable ruling, Estrada v. FedEx Ground Package Sys. Inc., the California Court of Appeal found that "single work area" drivers of the same company were employees. Plaintiffs in the case before the Indiana court argued that the California ruling set a precedent, but the Indiana court was not persuaded. 

The judge said the Estrada court's finding of employee status applied to a limited category of drivers, while the multidistrict proceeding included not only "single work area" drivers, but also drivers who owned multiple delivery routes servicing FedEx Ground. 

The plaintiffs also argued that the amount of weight given to an earlier finding -- an operating agreement between FedEx Ground and each driver -- clearly expressed a mutual intent to create an independent contractor relationship. The court conceded that laws of every state at issue in the multidistrict proceeding required a look beyond the text of a contract in determining whether an individual is an employee or an independent contractor. However, the plaintiffs' argument was rejected because the operating agreement had been only one of the factors the court had considered in reaching its ruling.  

The judge further dismissed the drivers' argument that FedEx Ground assigned them heavy workloads that were consistent with their being employees: "Numerous cases across the states reviewed by the court indicate that 'so much work within so much time' doesn't, by itself, indicate employee status -- subcontractors often agree to get a job done within a specified time."

Matter of Control

Finally, it was emphasized that the "weightiest factor" in distinguishing an independent contractor from an employee is the right to control. The court's ruling that the drivers were independent contractors came down to the distinction between control of means and control of results. 

In most states, control of results doesn't indicate employee status, while control of means used to achieve those results does. Acknowledging that drawing a line between the two is not easy, the court concluded that the "controls reserved to FedEx were results-oriented: FedEx provides work to and pays contractor-drivers to provide the specific result of timely and safely delivered packages to FedEx customers."

The court emphasized that its decision was supported by the fact that Kansas law was typical of the state law at issue in the remaining cases before the court. The court said its Kansas ruling and decisions on the remaining actions "take into consideration all the circumstances of the FedEx/driver working relationship and concluded that customer-based constraints on the drivers are results-oriented controls that don't indicate employee status." 

This is a big win for companies utilizing independent contractor drivers. Though this will not be the end of the litigation FedEx faces, an adverse finding could have meant hundreds of millions of dollars in potential liability. 

Companies using independent contractors should review any IC operating agreements and contracts to ensure that the relationship is clear. Further, be sure to tailor any directives regarding your independent contractor's performance so that your guidance specifically targets the results of the worker's performance and not the means or methods of how the contractor performs his or her job. While it may be tricky to make this distinction, this could make the difference between a court ruling employee status or not.

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