FedEx to Pay $228 Million in Independent Contractor Misclassification Settlement

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Things that $228 Million will buy:

LeBron James’s waterfront mansion in Miami, listed for $15 million
– A 710-year old copy of the Magna Carta, sold in 2007 for $21.3 million
– The Oakland A’s, sold in 2005 for $180 million
– Three personal submarines, at $2 million each; and
Tivi Island in Fiji (yes, the whole island), available for $5 million.

Or you can settle a lawsuit.

That’s how much FedEx just agreed to pay to settle a California class action brought by FedEx Ground drivers who claimed they had been misclassified as independent contractors. The settlement covers approximately 2,300 drivers in California only, and covers the time period 2000-07 only. It does not resolve the myriad of other misclassification lawsuits that have been filed by FedEx Ground drivers in other states, many of which remain pending in trial courts or on appeal.

In 2010, it looked as if FedEx Ground had the case won. A district court dismissed the drivers’ claims, finding that they had been properly classified as contractors. But in 2014, the Ninth Circuit Court of Appeals breathed new life into the drivers’ claims, finding that they were misclassified and should have been treated as employees.

The Ninth Circuit focused more on appearance than substance (it’s California, remember), placing heavy emphasis on the fact that in the operating agreement between FedEx and the drivers, FedEx retained the right to control the physical appearance of drivers, including hair and facial hair requirements; the physical appearance of vehicles, including the color, logo, and internal shelf arrangements; the drivers’ use of their vehicles when not delivering FedEx packages; the drivers’ workloads; and the reconfiguration of drivers’ territories.

The Ninth Circuit conceded, but considered less important, the fact that the company retained limited control over precise routes or the sequence in which packages were delivered. The court also conceded that the company allowed drivers to retain assistants, but the court deemed this factor to be of little help to the company, since it retained the right to reject the assistants and required them to comply with various requirements it imposed.

With the lawsuit revived, FedEx would soon need oxygen. Or a personal submersible. Or a private island getaway.

But instead, FedEx settled. This $228 million compromise, which has not yet been approved by the district court, will be among the largest misclassification settlements ever, if not the largest ever. As reflected above, it resolves only claims in California through 2007, and while the company has since changed its operating agreements, its business model is still being contested.

Bottom line: The law is getting less, not more, settled in the area of independent contractor misclassification, leading to unpredictable and at times expensive consequences.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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