Employer Can Not Classify Employees as Independent Contractors in Certain Cases

Many times, it is to the benefit of a business to classify individuals who do work for it as independent contractors rather than employees. However, when a business dictates the means and manners by which tasks must be accomplished then the individuals do fall under the category of employees. In the case of Alexander v. FedEx Ground Package System, Inc., 765 F.3d 981 (9th Cir. 2014), a group of individuals who had worked for FedEx brought suit against the company based on the denial of benefits due to employees based on the argument that FedEx asserted the right-to-control their actions in carrying out the tasks assigned by FedEx, which meant that they were employees and not independent contractors.

The Facts of the Case

This case arises at a time when the government is taking a hard look at independent contractors versus employees. Many businesses have found themselves facing substantial costs to correct what government regulators see as misclassifications of employees. The Alexander case is an important example of how businesses can be impacted by changing legal standards. The case of Alexander v. FedEx Ground Package System, Inc. is a class action representing approximately 2,300 drivers who delivered packages for FedEx between 2001 and 2007. The action was based on claims for unpaid wages and reimbursements that should have been paid to the individuals as employees rather than independent contractors.

There was an agreement between these individuals and FedEx, which classified the drivers as independent contractors. This contract is known as the Operating Agreement. In addition to this agreement, there also were policies and procedures to which the individuals agreed. These factors played an important role in the outcome of the case.

The Legal Decision

The Ninth Circuit determined that the plaintiffs had been incorrectly designated as independent contractors rather than employees, meaning that more than 2,000 current and former FedEx drivers are entitled to various wages and expenses that had not been paid. In reaching its decision, the Ninth Circuit focused on the right-to-control test, which evaluates how much autonomy the individual has over the work and the manner and means in which the task is performed. The agreement between FedEx and the drivers stated that the individuals had control over their hours and how they traveled their routes. However, the reality was that FedEx exerted control over the hours that the drivers actually worked and dictated the service areas. In addition, FedEx exerted control over how the vehicles were maintained, the safety standards to which the drivers must adhere, and the uniforms that the drivers were to wear. Specifically, the Court found the following:

  • FedEx had the right to dictate the appearance of its drivers and exerted that right;
  • FedEx controls the state of the vehicles used to deliver packages, including how the vehicle is maintained, the display of the FedEx logo, and even the dimensions and interior design of the truck;
  • FedEx exerted control over the hours that the drivers worked, even though the Operating Agreement stated that the hours were at the discretion of the driver. The agreement mandated that the driver had to work 91/2 to 11 hours each work day, that they could not head out on the route until all packages
  • were available, and that they had to return by a certain time;
  • FedEx controls how the driver manages his or her route by dictating delivery times for specific customers; and
  • FedEx controls the standards to which the drivers must adhere.

The Court did not find FedEx’s argument persuasive when defendant stated that there were areas where the company did not exert control, specifically including the fact that drivers were able to delegate their tasks to other drivers, drive extra routes, or sell the designated route to another driver. The Court did note in response to this that FedEx had the right to refuse to permit a driver to sell a route or assume additional routes, as well as maintaining the right to reject certain replacement drivers based on a finding that they did not meet FedEx’s standards. In determining that the totality of the circumstances indicated that the individuals were employees and not independent contracts, the Court imposed many requirements on FedEx, including the provision of retirement and healthcare benefits provided to other employees, paid time off, vacation, and contributing to unemployment insurance and workers’ compensation for these individuals.

The Impact of the Case

It is important for many businesses that use independent contractors to take a hard look at the relationship with these individuals. Even though there is an agreement in place that designates the person as an independent contractor, a review of the totality of the circumstances may leave a business facing significant expenses from litigation and awards of unpaid wages and benefits. It is important to have any agreements drafted in a manner to avoid many of these consequences and to evaluate whether other steps can be taken to clarify working relationships.

Employment issues can arise quickly and may lead to significant consequences for employees and employers. In order to discuss this or other employment matters, contact the employment attorneys at Nassiri Law Group, practicing in Orange County, Riverside, and Los Angeles. Call 714-937-2020.