While this may provide benefits in the form of saved time and money, using contractors can also pose a significant risk if done improperly. FedEx found this out this hard late last month, when a federal appeals court ruled that thousands of delivery drivers the company had claimed were independent contractors were actually employees, meaning the company may be on the hook for hundreds of millions of dollars in unpaid overtime.
How can you avoid the potential pitfalls of hiring contractors? Here are three legal lessons for employers from the FedEx case:
You can't call someone a contractor but treat him like an employee. At the heart of FedEx's case was the company's designation of drivers as contractors, but policies that treated the drivers like employees. Simply calling an employee a contractor isn't sufficient. If you are classifying someone as a contractor, be sure you treat him like one.
Have a solid contractor agreement. If you decide to work with contractors, be sure to have them sign a specific and comprehensive contractor agreement. In the event of a dispute regarding the worker's classification, the better the contractor agreement, the greater the likelihood that you will be able to successfully defend calling the worker a contractor.
Working with a contracting company may be a good idea. Even before the ruling in their case, FedEx shifted its approach to hiring contractors by working with contracting companies, which can mitigate much of the risk inherent in hiring contractors. According to FedEx, the company now contracts with 8,200 independent service providers who in turn employ more than 32,500 people in the United States and Canada.
If you have legal questions regarding the use of contractors, an experienced employment attorney can explain your options and ensure your contractor agreement complies with state and federal law.