Classifying workers as ‘independent contractors' (ICs) allows businesses to pass on the costs of running the business to workers. This ploy, however, did not fool the United States Court of Appeal when it ruled against FedEx Ground Package System, Inc. (FedEx) in one of the most important cases to come out in 2014 concerning the correct classification of workers as ICs.
As a central part of its business, FedEx contracts with drivers to deliver packages to its customers. The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx's appearance standards. FedEx tells drivers which packages to deliver on certain days and certain 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. FedEx contends its drivers are independent contractors under California law. The drivers contend they are employees.
The court sided with the FedEx drivers and ruled that the drivers were employees as a matter of law. This law states that the principal 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. The court reasoned that FedEx's "necessary control" over the drivers is "powerful evidence" that the drivers should be classified as employees.
It does not matter that drivers signed agreements stating they were ICs, or that FedEx called their drivers ICs. True IC status is defined by law, not by the company's classification or the worker's agreement. As was noted by the concurring judge in the case: “Abraham Lincoln reportedly asked, ‘If you call a dog's tail a leg, how many legs does a dog have?' His answer was, ‘Four. Calling a dog's tail a leg does not make it a leg.'” The judge concluded that labeling the drivers ‘independent contractors' in FedEx's operating agreement does not conclusively make them so. . . . Although our decision substantially unravels FedEx's business model, FedEx was not entitled to ‘write around' the principles and mandates of California Labor Law.”
FedEx's misclassification of its drivers as ICs allowed FedEx to avoid paying overtime, providing leave to care for ailing family members, or contributing to Social Security, Medicare, or workers compensation or unemployment insurance. With the court's ruling, the drivers now have greater rights and protections.
Workers classified as independent contractors should carefully examine the nature of their working relationship with their principal or employer. If they are really employees, they are entitled to back wages and reimbursements for expenses which should have been paid by the employer.