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Contractor Status in Peril; Are You Prepared?

Volume 2, Issue 17
September 15, 2014
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Contractor-Status-in-Peril-Are-You-Prepared-e1411567378213You may not face the same legal predicament as FedEx Ground regarding misclassification of independent contractors, but there is much you can learn from FedEx’s  recent unhappy experiences.

On Aug. 27 a three-judge panel of the Ninth Circuit Court of Appeals reversed a lower court finding that FedEx Ground delivery drivers in California and Oregon were independent contractors. This was the latest round in a series of court decisions since a blizzard of lawsuits began in 2007. Some decisions upheld contractor status, while others resulted in settlements in different states.

The ruling only applies to drivers for the company’s FedEx Ground unit, formed in 1998 when FedEx acquired RPS Inc., the old Roadway Package Service division that provided B2B deliveries instead of residential services.

Complicating matters, this Ninth Circuit ruling deals with a 2010 decision by a federal district court in dozens of misclassification cases lumped together in a multi-district litigation. That earlier decision granted summary judgment in favor of FedEx Ground in 42 lawsuits brought in 27 states, but only two of those cases – one in California, involving 2,300 drivers, and another in Oregon involving 360 drivers – fall under the Ninth Circuit’s jurisdiction.

The Ninth Circuit ruling hinged on its review of the FedEx Ground contract (called the Operating Agreement) the company enters into with each of its drivers, along with company written policies. After doing so, the three judges concluded that the drivers were employees and not independent contractors under California and Oregon laws.

The company said it would appeal the decision. Over the years it has settled in suits in other states rather than pursue protracted litigation, including a $5.8 million settlement in Maine last March.

Regardless of the outcome, the writing is on the wall: The ground is shifting under the foundations of independent contractor status, and the more control a company exerts over its drivers, the more likely it is that it will face a case like this.

These lawsuits are part of a long-running campaign by unions attacking independent contractor status.

For years the Teamsters have pressed for the end of owner-operator recognition for drayage drivers at West Coast ports, which if successful could add an estimated 100,000 drivers to its membership rolls.

Unions also have sought help in this effort from friendly state and federal agencies, and state legislatures controlled by the union-dominated Democrat Party have adopted narrower definitions of contractor status, including in New York and New Jersey.

Most warehouse and trucking operations would not found in violation the same way as FedEx Ground was, but you may want to take a closer look at how the court found that company exerted too much control over its drivers.

This included FedEx Ground controlling drivers’ appearance and behavior, including clothing from hats down to their shoes and socks, hair and hygiene, and behavior around customers. FedEx also dictates vehicle appearance and dimensions, including package shelf dimensions and materials.

The company also exerts highly detailed control over drivers hours, including structuring workloads so they must work 9.5-11 hours every working day.

In addition, FedEx Ground stipulates that drivers are not supposed to leave their terminals in the morning until all their packages are available, and they must return to the terminals no later than a specified time. If drivers want their vehicles loaded, they must leave them at the terminal overnight.

As different as your independent contractor agreement may be from this, lawyers at the firm of Pepper Hamilton LLP warn you to take heed.

“IC agreements and policies and procedures that are not drafted in a state-of-the-art manner, free from language that can be used against the company, can cause businesses that use ICs to face class action litigation or regulatory audits or enforcement proceedings they may be able to otherwise avoid,” they said.

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