Last month we blogged about two Ninth Circuit opinions that deemed FedEx Ground drivers to be employees rather than independent contractors under California and Oregon law. Last week the Kansas Supreme Court joined them, applying Kansas law to reach the same conclusion in Craig v. FedEx Ground System, Inc. (Oct 3, 2014).
While the Ninth Circuit tends to lean pro-employee in its decisions, Kansas is decidedly more conservative. The Kansas Court’s decision, therefore, may prove more influential to other courts across the country, as independent contractor misclassification cases continue to populate their dockets.
All three cases are appeals from a December 2010 trial court decision that had mostly upheld the FedEx Ground model of treating its delivery drivers as independent contractors. In Re FedEx Ground Package System, Inc., 758 F.Supp.2d 638 (N.D. Ind. 2010). That 2010 decision, which analyzed the drivers’ status under multiple laws across 26 states, had held that the drivers were independent contractors under the laws of 23 states and employees under three. The appeals from that case are now being heard by various appellate courts, which are applying different tests and different standards based on which state’s laws they are interpreting. So far, the appellate decisions are trending toward deeming the drivers to be employees, thereby reversing the original 2010 decision.
The Kansas Supreme Court held that under Kansas wage payment law, a 20-factor test must be applied to determine whether drivers are employees or independent contractors. The 20-factor test is similar, but not identical, to the 20-factor test that the Internal Revenue Service formerly used to analyze employment under the Internal Revenue Code. The Kansas test incorporates aspects of common law right-to-control tests and aspects of the economic realities test used under the Fair Labor Standards Act, but places the “primary focus” on an employer’s right of control.
Although the Kansas test is different than the California and Oregon tests applied in the Ninth Circuit decisions, the result was the same. Applying these 20 factors, the Kansas Supreme Court determined that “FedEx has established an employment relationship with its delivery drivers but dressed that relationship in independent contractor clothing.”
The Operating Agreement signed by all drivers included several provisions that typically weigh in favor of independent contractor status, including that drivers owned their own delivery trucks, paid most of their own costs, and operated their routes without direct supervision. The Court spent much of its opinion analyzing the Operating Agreement, but ultimately determined that other facts of the relationship were more important than these contract terms. The Court ruled that the company retained enough control over the drivers’ daily activities that the drivers had to be deemed employees under Kansas law. The “most fundamental principle,” the Court wrote, “is that form should not be elevated over substance, e.g., if a worker is hired like an employee, dressed like an employee, supervised like an employee, compensated like an employee, and terminated like an employee, words in an operating agreement cannot transform that worker’s status into that of an independent contractor.”
The Bottom Line: The Craig decision, issued by a moderate-to-conservative court, should heighten the concern of companies who classify their delivery drivers as independent contractors.
