Ninth Circuit Reverses District Court, Rules FedEx Drivers in California and Oregon are Employees

by BakerHostetler
Contact

The brain teaser game, What am I? can keep kids and adults occupied for hours:

The more you take of me, the more I leave behind. What am I?
I have a face but no eyes, hands but no arms. What am I?
I disappear every time you say my name. What am I?

(Don’t worry. Answers are below.)

The less popular brain teaser game, Am I an independent contractor or an employee? can keep courts and lawyers occupied for years.

Last week the Ninth Circuit issued a pair of decisions in the nearly-decade long misclassification dispute between FedEx and its drivers, with the Court of Appeals ruling that drivers in California and Oregon are FedEx employees, not independent contractors. Alexander et al. v. FedEx Ground Package Sys., Inc. (California); Slayman et al. v. FedEx Ground Package Sys., Inc. (Oregon).

The Big Picture

The driver-as-independent-contractor model has been under attack for years, with federal and state governments and putative class litigants alleging that drivers, in many instances, are misclassified and should be considered employees under applicable law. The challenge for all parties in these disputes is that the standards for determining whether someone is a contractor or an employee is different under federal tax law, federal wage and hour law, federal benefits law, and federal anti-discrimination law, and varies even more greatly from state to state, with individual states often applying multiple tests within the same state, depending on whether the analysis is for purposes of unemployment law, workers compensation law, wage and hour law, or other state employment statutes. Because of the matrix of tests, the same relationship can be classified in different ways under different laws and in different states.

In the mid-2000s, FedEx drivers filed a rash of class and collective actions around the country, alleging that FedEx had misclassified them as independent contractors, and that they should instead have been deemed employees. The lawsuits alleged a hodgepodge of mostly state law claims, including under state wage and hour laws, wage payment laws, leave laws, and various other claims.

Many of these lawsuits were consolidated into multi-district litigation in the Northern District of Indiana (the “MDL Court”). In December 2010, the MDL Court issued the mother of all summary judgment opinions, evaluating the standards for independent contractor misclassification under multiple laws across 26 states. In a 95-page opinion, the company came out mostly ahead, with the MDL Court ruling that drivers were independent contractors in 23 of the states, and employees in three.

But then came the appeals, and the tide now turns.

The Ninth Circuit’s Decision

On August 27, 2014, the Ninth Circuit issued a pair of opinions that reverse the MDL Court’s decision as to FedEx drivers in California and Oregon. The Ninth Circuit ruled that under the various California and Oregon tests, the drivers were in fact employees.

These decisions are significant, but not because they create new law or new standards.  They don’t. The Ninth Circuit in these cases considered the same facts reviewed by the MDL Court and applied legal tests that had been well-established. California continues to apply the multi-factor S.G. Borello test with its primary right-to-control factors and its list of secondary indicia that may also be considered. Oregon continues to apply its state law version of the right-to-control test for illegal wage deduction claims and a separate economic-realities test for unpaid overtime claims.

Rather, these cases are significant because the Ninth Circuit reached a different conclusion – and for employers in California and Oregon, what the Ninth Circuit thinks is far more important than how an MDL Court in Indiana interprets California and Oregon law.

The Ninth Circuit placed 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 their vehicles when not delivering FedEx packages; the drivers’ workloads; and the reconfiguration of drivers’ territories.

The Court 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.

The Ninth Circuit conceded that various secondary factors were either neutral or weighed in favor of independent contractor status, such as the requirement for drivers to purchase their own tools and vehicles, the inability of FedEx to terminate drivers except for cause, and the contractual language defining the parties’ expectations that the relationship was an independent contractor relationship.

Overall, however, the Court determined that under both California and Oregon law, the rights that the company retained to control multiple aspects of the drivers’ work were sufficient to render the drivers employees under the applicable California and Oregon tests. Many of these rights were retained by the company, in writing, in the parties’ Operating Agreement.

The Court expressly acknowledged the business impact of its decision.  In the California case, Judge Trott (who agreed with the panel’s opinion) wrote separately to note that “our decision substantially unravels FedEx’s business model.”

FedEx, however, in a statement released shortly after the decision, noted that it has substantially changed its Operating Agreement since the version that was considered in these cases and that it presently contracts only with incorporated businesses that treat their drivers as employees. It is also seeking en banc review of the decision.

The Bottom Line: Companies who treat drivers as independent contractors should be prepared for continued challenges to the relationship on the grounds that the drivers are actually employees. It is becoming harder and harder for companies to withstand these challenges, with the Ninth Circuit applying an especially pro-employee interpretation of the law.

Answers: Footsteps, a clock, silence.

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.

© BakerHostetler | Attorney Advertising

Written by:

BakerHostetler
Contact
more
less

BakerHostetler on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.