Misclassification of Employees as Independent Contractors: Change in Business Model

The Ninth Circuit Court of Appeals issued two major decisions recently on employee misclassification. Both cases involved independent contractors who served as delivery drivers for FedEx.

In Slayman v. FedEx Ground Package System, Inc. (9th Cir. 2014), the Ninth Circuit applied Oregon law to determine whether 363 delivery drivers were properly classified as independent contractors. In Alexander v. FedEx Ground Package System, Inc. (9th Cir. 2014), the court applied California law to ascertain whether nearly 2,300 delivery drivers were independent contractors or employees.

In both cases, the court held that the delivery drivers were misclassified as independent contractors because they were subject to FedEx’s direction and control. FedEx required drivers to wear FedEx uniforms, drive FedEx-approved vehicles, hire third-party assistance only with approval from FedEx, attend FedEx training, allow FedEx managers to ride along on deliveries, and accept FedEx’s reassignment of delivery areas.

In addition to overtime or minimum wage claims, FedEx will likely face unpaid unemployment insurance premiums claims from the respective state unemployment departments. While monetary liabilities can prove detrimental to a business, these cases highlight a greater concern for employers who rely heavily on independent contractors. FedEx changed its business model to no longer use independent contractors because of these cases and other litigation. Many employers would not be able to withstand a shift in their business model from independent contractors to employees.

Employers should be aware that worker classification laws vary between federal and state agencies. Assessing workers’ status under all applicable laws is imperative for employers using independent contractors. See our FYI: Independent Contractors Overview for more information. And contact MSEC for assistance in determining whether your workers are classified properly.