Employee or Independent Contractor? A Change in the Ground Rules at FedEx Ground

shutterstock_146730020I’ll bet you assume that the hard-working driver who delivers your packages and letters shipped by Federal Express is a FedEx employee. After all, he or she wears a FedEx uniform, drives a FedEx truck, uses a FedEx handheld computer, and operates on a FedEx schedule. So it may surprise you to learn that those drivers are considered by the company to be not employees, but independent contractors. For years now, groups of FedEx drivers have brought lawsuits arguing that under the laws of the various states where they work, they should be treated as employees, and therefore should receive the various rights and benefits that go with employee status, such as overtime pay, health insurance, a retirement plan, and the right to bargain collectively. Those claims have been largely unsuccessful. In 2010, a federal district court in Indiana, considering cases from 40 states that had been consolidated by the Judicial Panel on Multidistrict Litigation, held that under the laws of most states the drivers were properly treated as independent contractors.

Groups of drivers in California and Oregon, whose cases had been included in the consolidated group, appealed to the U.S. Court of Appeals for the Ninth Circuit. In two decisions announced August 27, 2014, the Court of Appeals reversed the district court, holding that the drivers are employees under the applicable legal standards in those states. These decisions have been described as an “earthquake in the independent contractor misclassification field.” It remains to be seen what impact they may have in Connecticut.

The Court of Appeals begins both opinions as follows:

“As a central part of its business, FedEx Ground Package System, Inc. (“FedEx”) contracts with drivers to deliver packages to its customers. The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx’s appearance standards. FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx’s consent.”

Not surprisingly after that introduction, the Court goes on to find that FedEx exercises, or has the right to exercise, a degree of control over the drivers that is not consistent with independent contractor status. California law focuses primarily on the employer’s right to control the manner and means of accomplishing the desired result, and also considers other indicia of an employer-employee relationship such as the right to terminate at will, whether the worker is engaged in a distinct occupation or business, the length of time for which services are to be performed, whether payment is based on time, and other facts and circumstances. Oregon uses a similar (although not identical) right-to-control test for certain of the drivers’ claims, but uses an “economic realities” test to determine whether workers are employees for purposes of overtime eligibility. The “economic realities” test is broader than the right-to-control test, covering situations where the worker “as a matter of economic reality, depends on the employer” even if the worker is not directed or controlled by the employer. The Court found that under all of these legal standards, the FedEx Ground drivers should properly have been classified as employees. FedEx controls the details of its drivers’ appearance, the appearance and specifications of their vehicles, the times they work, their workloads, and their territories. It deals directly with the customers. It requires the drivers to comply with “standards of service” set by the company. Drivers have no real “entrepreneurial opportunities” of the type that would be expect in a genuine independent contractor relationship.

In Connecticut law, whether a worker is properly considered an employee or an independent contractor for purposes of unemployment compensation is determined under a statutory definition that has come to be known as the “ABC” test. See Conn.Gen.Stat. § 31-222(B). The test examines: (A) whether the worker is free from direction and control in the performance of the service, both under the contract of hire and in fact; (B) whether the worker’s services are performed either outside the usual course of the employer’s business or outside all of the employer’s places of business; and (C) whether the worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service being provided. Only if all three of these prongs are met will the worker be an independent contractor.

Connecticut courts have developed a somewhat more flexible test used, for example, in deciding whether an injured worker should have been classified as an employee entitled to worker’s compensation insurance. Like California’s test, the Connecticut common law standard focuses on the right to control the means and methods of work, but looks at all the facts and circumstances including, e.g., whether the worker is paid on a time basis or by the job, whether the worker supplies her own tools, and whether the worker holds himself out and engages in an independent business with multiple clients. You can draw your own conclusions whether FedEx drivers would be considered employees or independent contractors under either the statutory or the common-law standard in Connecticut.

Stay tuned for further developments on this subject. If you want to read the 9th Circuit opinions, you can find the California case here and the Oregon case here.