Calling a Dog's Tail a Leg Does not Make it a Leg

Wednesday, September 17, 2014 | 0

Through the years, we've devoted a few dozen posts about the issue of FedEx and its drivers. Here's the issue in a nutshell: FedEx thinks its ground drivers are independent contractors and the drivers generally disagree.

For the 11 years we've been blogging, this issue has been wending its way through state courts, with a win for the company here, a win for the drivers there. On Aug. 27, FedEx suffered a massive one-two punch at the hands of the 9th U.S. Circuit Court of Appeals in San Francisco, who overturned a lower court's decision in Alexander v. FedEx, ruling that 2,300 drivers were indeed employees. Within a few days, the same court ruled that some 360 Oregon drivers were also employees (Slayman v. FedEx). In making the ruling, the court found that when the rubber hit the road, the lower court had overstated the entrepreneurial opportunities factor that benefited the so-called independent contractors. It apparently wasn't enough of a benefit to sway the court.

To paraphrase our illustrious VP, "...this is a big effing deal."

Contractors and small businesses are being chased down aggressively by state authorities (and rightly so, we think) to make them shoulder responsibility for employment obligations that other businesses carry. But in the land of the giant employers, many use independent contractor and subcontractor mechanisms to shield themselves from workers' comp, Social Security, unemployment insurance, the provision of benefits like health care and paid vacation, and the obligation to protect workers in a variety of ways.

For your further edification on this important issue, we defer to business and legal experts. We've gathered opinions and analyses from a variety of sources and offer excerpts.

What Court Rulings against FedEx Mean for Workers

"It seems likely FedEx will want to appeal the 9th Circuit decisions to the Supreme Court. But it may face some difficulty in doing so, because – even though made at the federal level – the two decisions concern matters of state law rather than federal. Their reach is similarly limited; they apply only to FedEx drivers in California and Oregon. But there's a decent chance the 9th Circuit's decisions will influence future decisions in other jurisdictions. At the very least, they are shining more light on corporations' maddening reluctance to take responsibility for the folks who represent them most directly to the public."

FedEx Latest Company Slammed Over 'Independent' Employees

"What the 9th Circuit did was to apply the more traditional measure. Judge Stephen Trott, a Reagan appointee in a concurring opinion, quoted Abraham Lincoln: 'If you call a dog's tail a leg, how many legs does a dog have?' His answer was, 'Four. Calling a dog's tail a leg does not make it a leg.'" Trott also admonished FedEx for presenting some information out of context and told the company's lawyers that they "would be well advised not to elide the truth, the whole truth and nothing but the truth."

Reagan Appointee 'Unravels FedEx's Business Model' in Court Ruling

"FedEx is largely credited with having pioneered the 'independent contractor' work model in the logistics industry. Under this system, workers function as self-employed drivers with their own routes, covering the costs of their own trucks, gasoline, uniforms and so forth.

While corporations claim the contractor system gives drivers flexibility and strong incentives as 'small businesses,' critics say it's simply a way to shift the costs of employment onto workers and avoid payroll taxes and workers' compensation costs.

The basic question in lawsuits involving the independent contractor model is whether or not a company like FedEx still maintains control over the work itself. In Wednesday's ruling, the judges asserted that it does."

Employment Law Summer Recap 2014: Part 1 of 11 - FedEx Sings Nico & Vinz's "Am I Wrong?"...to Classify Our Drivers as Independent Contractors?

"The decision will likely upend FedEx's driver business model in part because it makes it more expensive for FedEx to operate its business – an added expense that we can expect it will pass along to us, the consumers. Why more expensive? Because, among other things, FedEx will now have to (i) make the required employer contributions on behalf of these individuals (i.e. to Social Security and unemployment benefit funds); (ii) take out new insurance policies (i.e. for workers' compensation insurance); (iii) offer them health insurance and (possibly) pension benefits along with other benefits like paid vacation; (iv) incur the administrative and operational costs associated with treating these individuals as employees (i.e., additional training and development, compliance, etc.); and (v) potentially pay them back for millions in lost wages. Further, these individuals can now sue FedEx under many of the employment laws that did not previously cover them (i.e., Title VII) – yet another potential expense for FedEx."

Who's the Boss?

"It has become harder and harder for workers to tell who their employer is. Companies have engaged in vertical disintegration as franchised businesses have become increasingly prominent and contracting out of operations by traditional firms has increased. The expanded reach of private equity funds as owners of Main Street companies has also undermined the traditional employment relationship.

In both cases, a complex web of legally distinct entities has been put in place whose aim is to separate a business's actual owners and managers from responsibility for the effects of their decisions on workers."

'Seismic' 9th Cir. Rulings nix FedEx Claim its Drivers aren't Employees, Could Cost Company Millions

"By retaining independent contractors to perform work instead of employees, companies can potentially save a lot of money that would go toward overtime pay and other benefits such as social security. FedEx also has reportedly required its drivers to pay for their own uniforms and trucks. But if companies are determined to have misclassified employees as independent contractors, they can wind up paying not only the original employee costs they avoided but substantial penalties, as an earlier ABAJournal.com post about the FedEx litigation details."

Is this the End of the Independent Contractor as We Know it?

"This case also confirms that if you exercise any control over how workers perform services for you, it is likely that they should be classified as employees, not independent contractors. This distinction is important, because, unlike contractors, employee are subject to a host of employment laws, including the anti-discrimination laws, workers' comp laws and wage-and-hour (minimum wage and overtime) laws.

While this case only covers employers governed by California law in the 9th Circuit, I would expect the filing of copycat lawsuits under the laws of different states in different courts. In other words, this case is not the final word on this issue. Thus, to answer the specific question I posed in the title to this post, while this case does not necessarily spell the end of the independent contractor, it very well could be the beginning of trend of cases leading down this path."

FedEx Refuses to Treat your Friendly Delivery Guy like a Real Employee and an Important New Court Ruling Could Change That

"This is a classic example of employee misclassification, but such employer malfeasance is not limited to FedEx. It's a nationwide problem that shifts significant costs to workers, eliminates employment-related protections, deprives the government of billions of dollars in revenue and prevents workers from unionizing. On Wednesday, labor earned a big victory when the 9th Circuit Court of Appeals ruled in two cases that the shipping company misclassified the employment status of 2,300 California drivers and 363 Oregon drivers. It's an important, if limited, step towards rectifying this widespread problem."

Court Rejects FedEx Ground's Driver Business Model

"Ross said that FedEx now requires its contractors based in California to hire a secondary workforce of FedEx drivers, who do the same work as the plaintiffs under the same contract. She said the Alexander decision 'calls into question FedEx's strategy of making plaintiffs the middle men' between the secondary workforce of drivers and FedEx.

"We have heard of many instances where the secondary drivers are earning such low wages that they have to rely on public assistance to make ends meet."

Julie Ferguson is a marketing consultant for Lynch Ryan & Associates. This column was reprinted with the firm's permission from its Workers' Comp Insider blog.