FedEx could be liable for hundreds of millions of dollars in drivers’ operating expenses and wages.
By 24/7 Staff
August 27, 2014
Today, the Ninth Circuit Court of Appeal ruled that a class of 2,300 individuals working for FedEx Ground was misclassified as independent contractors instead of employees.
As a result, FedEx may owe its workforce of drivers hundreds of millions of dollars for illegally shifting to them the costs of such things as the FedEx branded trucks, FedEx branded uniforms, and FedEx scanners, as well as missed meal and rest period pay, overtime compensation, and penalties.
The case, known as Alexander v. FedEx Ground, covers employees in California from 2000 - 2007. The ruling can be found on the Leonard Carder website at leonardcarder.com.
Judge Fletcher’s majority opinion was very clear on the question of whether these workers are employees or independent contractors, stating “We hold that plaintiffs are employees as a matter of law under California’s right-to-control test.”
The court’s decision is the most recent in a series of cases that have methodically proven that FedEx Ground’s independent contractor model is built on the legal fiction that its drivers are in business for themselves. The Ninth Circuit decisively rejected that claim.
The court’s finding in Alexander that drivers in California are covered by California’s workplace protection statutes not only impacts one of FedEx Ground’s largest workforces but could influence the outcome in over two dozen cases nationwide in which FedEx Ground drivers are challenging the legality of their independent contractor classification.
Millions of packages are delivered every day across the state under the control, direction, and supervision of FedEx Ground. In addition, many trucking companies have been operating under a similar model in which they classify their drivers as independent contractors.
“FedEx Ground built its business on the backs of individuals it labelled as independent contractors, promising them the entrepreneurial American Dream,” said Leonard Carder Attorney Beth A. Ross who is a national leader on cases covering the exploitation of workers by mischaracterizing them as independent contractors. “However, as Judge Trott said in his concurring opinion, not all that glitters is gold.”
FedEx now requires its so-called contractors in California to hire a secondary workforce of FedEx drivers, who do the same work as the plaintiffs under the same contract. The Alexander decision calls into question FedEx’s strategy of making plaintiffs the middle men between the secondary workforce of drivers and FedEx.
“We have heard of many instances where the secondary drivers are earning such low wages that they have to rely on public assistance to make ends meet,” said Ross.
Background on the everyday experience for FedEx Ground drivers includes:
- FedEx Ground drivers were required to pay out of out of pocket for everything from the FedEx Ground branded trucks they drove (painted with the FedEx Ground logo) to fuel, various forms of insurance, tires, oil changes, maintenance, etc. as well as their uniforms, scanners and even workers compensation coverage.
- In some cases workers were required to pay the wages of employees who FedEx Ground required them to hire to cover for them if they were sick or needed a vacation, to help out during the Christmas rush, and in some cases to drive other FedEx Ground trucks.
- After paying these expenses, a typical FedEx driver makes less than employee drivers at FedEx Ground’s competitors like UPS, and receives none of the employee benefits, like health care, workers compensation, paid sick leave and vacation, and retirement.
- In addition, their employment was subject to the whims of FedEx management and FedEx Ground’s decisions on staffing and routes left the employee drivers stuck with expensive long-term truck leases on FedEx branded trucks.
The drivers’ attorney Beth Ross added, “Nationally, thousands of FedEx Ground drivers must pay for the privilege of working for FedEx 55 hours a week, 52 weeks a year. Today, these workers were granted rights and benefits entitled to employees under California law.
To be clear, the Ninth Circuit exposed FedEx Ground’s independent contractor model as unlawful.”
Among the noteworthy elements to emerge from the litigation, FedEx Ground’s practices take advantage of workers and are anti-competitive. FedEx Ground’s so-called “contractors” do the same work as UPS and U.S. Postal Service drivers for substantially less pay and without benefits.
This plays out in two distinct ways. FedEx Ground saves money and harms drivers and the public by avoiding employment taxes and workers’ compensation insurance, and complying with all other workplace protections.
Ross added, “This ruling will have seismic impact on this industry and the lives of FedEx Ground drivers in California.”
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The court maintains that independent contractors operating in California from 2000-2007 and Oregon from 1999-2009 were employees according to the panel’s interpretation of state laws.
“We fundamentally disagree with these rulings, which run counter to more than 100 state and federal findings – including the U.S. Court of Appeals for the D.C. Circuit – upholding our contractual relationships with thousands of independent businesses,” said FedEx Ground Senior Vice President and General Counsel Cary Blancett. “The operating agreement on which these rulings are based has been significantly strengthened in recent years, and we look forward to continuing to work with service providers across our network to provide customers the industry’s most reliable service.”
The court held that those independent contractors operating in California from 2000-2007 and Oregon from 1999-2009 were employees according to the panel’s interpretation of state laws. The model that the court reviewed is no longer in use. Since 2011, FedEx Ground has only contracted with incorporated businesses, which treat their drivers as their employees. FedEx Ground will seek review of these decisions, including review by the entire Ninth Circuit.
Jerry Hempstead, president of Hempstead Consulting, said he expects FedEx to be put up big fight.
“It’s too expensive for them not to oppose this,” he said in an interview. “All the appeals have yet to run out, and I can see this remaining in the legal system for some time yet.”
In light of legal and regulatory developments in several states, FedEx Ground has taken a number of steps in recent years to enhance its operating agreements with the independent businesses that contract with the company to provide transportation services.
Company spokesmen said that as the latest step in this ongoing effort, FedEx Ground will transition to new independent service provider (ISP) agreements in the states of California, Oregon, Washington, and Nevada.
Currently, FedEx Ground contracts with more than 550 businesses that provide pickup and delivery service in California. Those businesses averaged nearly $500,000 in revenue last year, with nearly 50 of them topping $1 million or more in earnings.
“Small businesses are the foundation and growth engine of the U.S. economy, and we are proud of our long-standing contractual relationship with these service providers – each of which agrees to treat their personnel as employees and to comply with all applicable federal and state laws,” said FedEx Ground Vice President of Contractor Relations Sean O’Connor. “We remain committed to maintaining a business model that has been proven successful for our customers, service providers, and shareowners.”