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District Court Grants Class Status to FedEx Ground Drivers

Labor and Employment Update

October 24, 2007

Judge's Order May Signal Continued Erosion of Employers' Independent Contractor Arrangements

On October 15, 2007, a federal district judge in Indiana granted national class status to FedEx Ground delivery drivers who contend they function as employees and not as independent contractors as FedEx has claimed.  The drivers seek, among other things, the benefits FedEx provides to its employees, but has denied the drivers based on their purported status as independent contractors.  For businesses, the FedEx litigation is yet another indicator that independent contractor arrangements with workers are coming under increased scrutiny.

The decision allows approximately 14,000 current and 10,000 former drivers to join the class.  The drivers' claims for employee benefits under the Employee Retirement Income Security Act (ERISA) have been granted national class status.  Additionally, 102 drivers with state wage and hour and common law claims in Kansas have been granted class status.  FedEx plans an appeal to the U.S. Court of Appeals for the Seventh Circuit.  The district court, of course, has yet to address the merits of the drivers' claims.

Employers Face Sophisticated Challenges to Use of Independent Contractors

Companies have turned to independent contractor arrangements with workers for a variety of reasons.  In recent years, some groups of workers treated as independent contractors have legally challenged this status, claiming that they, in reality, function as employees and, therefore, are eligible to receive health, welfare, retirement and other benefits and legal protections granted to  employees.  The efforts of these groups have been bolstered through a series of enforcement actions initiated by the Internal Revenue Service and the Department of Labor.  Many of these cases have involved the granting of class certification to independent contractors.  Microsoft and Hewlett Packard are just a few of the well-known companies that have been the targets of class-action lawsuits over independent contractor status.

In the case of FedEx, the drivers' attorneys point to a number of aspects of their clients' relationship with FedEx as indicative of an employer-employee relationship.  For example, they emphasize FedEx had each driver sign an agreement that reserves to FedEx the right to determine (1) whether the truck used by the driver to drive his route is suitable; (2) the colors and the logo which the driver must use to mark the driver's truck; (3)  daily logs, inspection reports and shipping documents the driver must provide to FedEx; (4) whether a driver's personal appearance meets the 'consistent image' that FedEx wishes to project to customers; (5) whether the driver is meeting company standards of customer service through 'customer service rides' and other 'visits' with customers; and (6) the suitability of any supplemental drivers or helpers the contractor employs to substitute for the contractor when he or she needs a day off or some assistance. 

The drivers contend that these rules show FedEx exercised a degree of control over their work inconsistent with the notion of independent contractor status.

The FedEx litigation illustrates the importance of ensuring that workers whom employers classify as "independent contractors" are not actually functioning as employees under the criteria applied by courts and agencies.  Most importantly, employers should evaluate the degree of control they exercise over the workers' performance of their duties.  Also, a carefully crafted independent contractor agreement can assist in outlining the relationship.