$226.5 Million Settlement in Independent Contractor Case Proceeds

Apr 22 2016 - Independent Contractor - Gail Cecchettini Whaley

DeliveringIn a closely watched case, a California federal court conditionally approved a $226.5 million settlement with FedEx drivers in a class action lawsuit filed in federal court in California. The lawsuit alleged that the drivers were improperly classified as independent contractors.

The settlement is a result of a 2014 Ninth Circuit decision which rejected FedEx’s classification of its drivers as independent contractors because FedEx exercised significant control over the drivers (Alexander v. FedEx Ground Package System, Inc., 765 F.3d 981 (9th Cir. 2014)). The settlement resolves claims dating back to 2000, and the company no longer operates the same classification model for drivers.

The settlement involves over 2,000 drivers. The approval of the settlement is conditional because only about 77 percent of the class has already submitted claim forms. The court is asking the drivers’ counsel to reach out to other class members who have not yet submitted claim forms.

California generally applies the “right to control” test to determine if the worker is an employee or an independent contractor. If your company controls the details and the worker does not have meaningful discretion in how he/she completes work, it is likely the worker will be found to be an employee and not an independent contractor.

In this case, indicators of control included:

  • regular schedules, restricting the times during which the drivers could provide services and loading and unloading packages at FedEx terminals every day
  • assigned service areas
  • lack of control over which packages were delivered
  • packages only delivered to FedEx customers at FedEx rates
  • requiring them to wear FedEx uniforms
  • requiring vehicles be painted a specific shade of white and marked with the FedEx logo

The court found “powerful evidence” of FedEx’s right to control the manner in which the drivers performed their work and held that the drivers were employees as a matter of law.

Class action lawsuits claiming improper misclassification of workers as independent contractors continue to vex California employers, including several pending lawsuits against companies in the “gig” or on-demand economy — an environment characterized by short term engagements where labor is generally supplied by workers classified as independent contractors. But many workers are challenging this classification.

A study by Intuit estimated that 7.6 million Americans will be regularly working as providers in the on-demand economy by 2020, more than doubling the 2015 total of 3.2 million.

Gail Cecchettini Whaley, CalChamber Employment Law Counsel/Content

HRCalifornia members can read more about the Right to Control Test for Independent Contractors in the HR Library. Not a member? See how HRCalifornia can help you.

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