By: Claire Jabbour
In Alexander v. FedEx Ground Package Sys.,[1] the 9th Circuit in a three judge panel held Federal Express (FedEx) delivery workers that were designated as independent contractors under their contract were employees of FedEx. The concurrence, written by Judge Trott and joined by Judge Goodwin, summarized the court’s ruling stating “[labeling] the drivers as ‘independent contractors’ in FedEx’s Operating Agreement does not conclusively make them so.”[2]
Alexander and other FedEx drivers filed suit in the California Superior Court for missing wages and for claims under the Family and Medical Leave Act.[3] Plaintiffs alleged that, despite their contract stating they were independent contractors, they were treated as employees.[4] A Judicial Panel on Multidistrict Litigation held that the FedEx drivers constituted a class and were independent contractors, thereby granting summary judgment to FedEx.[5]
California law dictates that disputes between whether individuals are independent contractors or employees are determined through the weighing of multiple factors under a right-to-control test.[6] The right to control test is “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired;” and considers a balancing of secondary factors such as the right to terminate at will, whether or not the job is done under the direction of a supervisor, the level of skill required for the job, who supplied the tools for the job (such as trucks), how the individual’s paycheck is determined, if the work is regular work of the employer or specialized, and the initial beliefs of the contracting parties.[7]
Under the right-to-control test, the court held that the FedEx drivers were employees of FedEx, despite their contracts stating that they were independent contractors.[8] First, payment to drivers did not favor either FedEx or the Drivers because of the complicated nature of the payment plan which included both an hourly calculation and payment per job.[9] Second, multiple factors favor FedEx, even if only slightly. The employment contract between FedEx and the drivers stated that the drivers were hired as independent contractors.[10] Additionally, the drivers are required to purchase or provide their own trucks and equipment, even though they must meet FedEx’s standards; and, FedEx does not have an unlimited right to terminate at will.[11] The following five out of nine factors favor the drivers’ claims as employees. The deliveries are completely part of and essential to FedEx’s business model, drivers are closely monitored by supervisors, the only skill required is the ability to drive, and drivers are under a renewable but typically infinite contract.[12]
In this case, the 9th Circuit’s analysis was consistent with the established law in California. The 9th Circuit spells out that the actions of the employers speak louder than the words of the contract. In the future, employers in the 9th Circuit must treat their workers as employees or independent contractors and assign these individuals with the rights attributed to them to avoid the 9th Circuit declaring significant portions of contracts. However, the 9th Circuit has now created a circuit split, as the D.C. Circuit uses the entrepreneurial opportunities test which has led the D.C. Circuit to previously hold that FedEx drivers were independent contractors.[13] The circuit split proves difficult for national companies to be consistent in their hiring contracts because the two tests have had different outcomes. Therefore, national companies are no longer obligated to the same law for their employment contracts.
By classifying FedEx Ground drivers as independent contractors, FedEx was able to save money on worker’s compensation, and state and payroll taxes for example.[14] In the 9th Circuit, FedEx could have continued to reap these benefits if they treated their drivers less like employees. First, FedEx could lessen the monitoring of drivers by supervisors; giving drivers more freedom to make decisions weighs in favor of independent contractor status. Second, the driving contracts should be limited in time rather than essentially renewable, each contract should end within a specified year span, after which drivers would need to reapply or petition for a new contract. Independent contractors are not hired indefinitely, but typically have a time limit contract or job limit contract; once the job or time period are completed, the contract terminates. Therefore, if companies that specify they hire independent contractors have 5 or more factors out of the nine factor test weighing in their favor, the independent contractor contract will most likely be upheld.
The 9th Circuit’s decision most likely will produce a chilling effect in FedEx’s hiring process. By declaring FedEx’s drivers as employees, the drivers now cost the company more money through increased taxes, paid overtime and many other amenities afforded to employees that are not given to independent contractors. FedEx will most likely be looking to cut costs by hiring fewer drivers. Other companies who hire independent contractors under a similar business model as FedEx may also look to cut the number of “independent contractors” they hire for fear they will be deemed employees and cost the company more than planned in the long run.
As more courts throughout the country decide on this case, the Supreme Court may take up this issue in the 2015 term. Currently, Kansas, the 9th Circuit have decided that FedEx drivers are employees, despite employment contracts dictating otherwise.[15] However, the D.C. Circuit considers FedEx drivers to be independent contractors. Therefore, companies like FedEx are forced to write different contracts for states bound by different decisions, or move out of unfavorable states. Until the Supreme Court can settle the circuit split, it is likely some businesses will see a slowing down of the hiring process and a change in their new employment contracts.
[1] 765 F.3d 981 (9th Cir. 2014).
[2] Id. at 998.
[3] Id. at 987.
[4] Id.
[5] Id.
[6] Id. at 988–89.
[7] Id. at 989 (citing Borello v. Dep’t of Indus. Relations, 769 P.2d 399, 404 (Cal. 1989)).
[8] Id. at 997.
[9] Id. at 996.
[10] Id. at 996–97.
[11] Id. at 994–95.
[12] Id. at 995–96.
[13] Id. at 993 (citing FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009)).
[14] Josh Eidelson, FedEx Ground Says its Drivers Aren’t Employees. The Courts Will Decide, Bloomberg Businessweek (Oct. 16, 2014), https://www.businessweek.com/articles/2014-10-16/fedex-ground-says-its-drivers-arent-employees-dot-the-courts-will-decide.
[15] Id.
