FedEx Ruling: Form, Rather Than Label, Determines Independent Contractor Status - In House
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FedEx Ruling: Form, Rather Than Label, Determines Independent Contractor Status

Independent contractor or actual employee? An employee gets Fair Labor Standards Act protections, including overtime and benefits. Independent contractors get, well, their salary. The appeal of contractors then, is obvious for big companies like FedEx.

Unfortunately, as FedEx just learned, often it's not the label that matters -- it's the substance of the relationship. The Ninth Circuit just held that FedEx drivers, which are labeled "independent contractors," aren't independent at all. FedEx determines their route, the color of their van, their uniform, and even their appearance -- a relationship that, in practice, looks a lot more like an employer-employee arrangement.

However, the company isn't backing down just yet. After winning in numerous other courts across the nation, it seems likely that FedEx will appeal the Ninth Circuit's panel's opinion to a full en banc panel or higher.

Not So Independent

After spending pages reviewing the vast amount of control FedEx maintains over working hours, delivery routes, and drivers' conduct, Judge William Fletcher, writing in separate opinions dealing with California and Oregon drivers, noted:

"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."

Additionally, even though drivers provide their own vehicles, the trucks have to meet FedEx's stringent specifications list, which includes size, shelving, and of course, "vehicles must be painted 'FedEx white,' a specific shade of Sherwin-Williams paint."

Right to Control Tests

Though the two opinions apply each state's own laws, the general principle is this: if you exercise enough control over an "independent" contractor, that person becomes an employee.

Oregon's test, found in Stamp v. Dep't of Consumer & Bus. Servs., weighs four factors: "(1) direct evidence of the right to, or exercise of, control; (2) the furnishing of tools and equipment; (3) the method of payment; and (4) the right to fire."

California's test, as most things in California law tend to be, is more complicated. The Borello "test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired." There is also a laundry list of factors that indicate the nature of the service relationship, such as the occupation, skill required, provider of the tools, method of payment, and the intent of the parties, amongst other factors.

Under either test, all three judges were sure that the relationship here crossed the line into employer-employee status, rather than the "independent contractor" label contained in the parties' agreement.

Lesson for Employers

While it may be tempting to call employees "independent contractors," or to use FedEx's new strategy (hiring "subcontractor" companies to employ the drivers), employers should do so with caution. For FedEx, according to the opinion, drivers were regularly working between 9.5 and 11 hours per day. If this ruling stands, FLSA applies and back overtime pay is due for thousands of past employees.

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