Fedex has agreed to pay $228 million to settle litigation claiming the company short-changed its drivers on pay and benefits by improperly labeling them as independent contractors. The settlement disclosed on Friday is directly related to a decision against the Memphis, Tennessee based package delivery company in August, when a federal appeals court in Oakland found that Fedex misclassified 2,300 Fedex Ground and Fedex Home Delivery drivers working in California from 2000 to 2007 as independent contractors. After that ruling, Fedex immediately sought a judicial review. Fedex independent contractors have claimed for years that they should be considered employees and not independent contractors. Under California law the employer / employee relationship is determined largely by the extent of power the employer has over the employee in the performance of their duties. In the case of the Fedex contractors they were required to work overtime and provide replacement drivers, at their own expense, to fill in for their own sick and vacation time. Lawyers for the plaintiffs said FedEx shifted hundreds of millions of dollars in costs to the workers, including obtaining and operating Fedex branded trucks, Fedex branded uniforms and Fedex scanners. The attorneys also said the company didn't pay for missed meal and rest periods and overtime compensation. The 9th U.S. Circuit Court of Appeals in Oakland ruled that the workers weren't independent contractors because Fedex controlled the manner in which drivers do their jobs, including scheduling, appearance and equipment requirements. The Ninth Circuit's decision reversed earlier court rulings in favor of Fedex in Indiana.
“The $228 million settlement, one of the largest employment law settlements in recent memory, sends a powerful message to employers in California and elsewhere that the cost of independent contractor misclassification can be financially punishing, if not catastrophic, to a business,” said plaintiffs' co-lead attorney Beth Ross of the Oakland-based Leonard Carder law firm.
This court ruling may have far reaching effects. The use of independent contractors is very common, to some degree by most all U.S. Trucking companies, to provide service to areas they don't typically serve. Some carriers, in fact, are staffed purely, by independent contractors. It doesn't end with the trucking industry. The case was widely followed by tech entrepreneurs and lawyers because of implications for companies operating in the so-called "sharing economy," which provide services ranging from on demand transportation to food delivery, maid service, grocery shopping and errand running. Uber, Lyft, Instacart, Homejoy, Taskrabbit and many similar businesses, most headquartered in the San Francisco Bay Area, and subject to California law, have become household names and have prospered by using a low-cost labor force staffed by hundreds of thousands of independent contractors. The startling amount of the settlement and capitulation by a well established corporate giant such as Fedex shows the legal and operational challenges these newer smartphone app driven companies may face in potential and current class action lawsuits by their workers across the country.