Court rejects FedEx Ground’s driver business model

Aug. 28, 2014
A federal appeals court decision yesterday came down hard on FedEx Ground, ruling that the package-delivery firm had misclassified 2,300 drivers as independent contractors instead of employees

A federal appeals court decision yesterday came down hard on FedEx Ground, ruling that the package-delivery firm had misclassified 2,300 drivers as independent contractors instead of employees. The case, known as Alexander v. FedEx Ground, covers employees in California from 2000-2007

The ruling by a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit in Portland, OR, reverses the finding of a multidistrict litigation court in Indiana against three separate class-action suits brought on behalf of 2,300 California-based drivers for FedEx Ground and FedEx Home Delivery and 363 in Oregon, which were consolidated with similar complaints from 40 states, per a news report posted by Courthouse News Service.

The panel of judges, writing in separate opinions, returned the two cases involved to their respective district courts for summary judgment in the drivers' favor.

The judges held that “the plaintiff FedEx drivers were employees as matter of law under California’s right-to-control test. Judge Stephen Trott , joined by Judge Alfred Goodwin, concurred— with Trott writing that “FedEx’s labeling of the drivers as ‘independent contractors’ in its Operating Agreement did not conclusively make them so.”

"The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx's appearance standards," Judge William Fletcher remarked in his opinion. "FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx's consent."

For its part, FedEx Ground firmly denounced the court’s decision: “The court held that those independent contractors operating in California from 2000-2007 and Oregon from 1999-2009 were employees, according to the panel’s interpretation of state laws. The model that the court reviewed is no longer in use. Since 2011, FedEx Ground has only contracted with incorporated businesses, which treat their drivers as their employees. FedEx Ground will seek review of these decisions, including review by the entire Ninth Circuit.”

"FedEx Ground built its business on the backs of individuals it labeled as independent contractors, promising them the entrepreneurial American Dream," said the plaintiffs’ attorney, Beth Ross of San Francisco-based Leonard Carver, who specializes in representing employees who regard themselves as mischaracterized as independent contractors.  

“However, as Judge Trott said in his concurring opinion, not all that glitters is gold,” Ross continued. “Nationally, thousands of FedEx Ground drivers must pay for the privilege of working for FedEx 55 hours a week, 52 weeks a year… [yesterday] these workers were granted rights and benefits entitled to employees under California law. To be clear, the Ninth Circuit exposed FedEx Ground’s independent contractor model as unlawful.”

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.”

According to the Leonard Carver law firm, as a result of the appellate court’s ruling, “FedEx may owe its workforce of drivers hundreds of millions of dollars for illegally shifting to them the costs of such things as FedEx-branded trucks, FedEx-branded uniforms and FedEx scanners as well as missed-meal and rest-period pay, overtime compensation and penalties.”

“This ruling will have seismic impact on this industry and the lives of FedEx Ground drivers in California,” Attorney Ross advised. Asked to elaborate on her reference to “this industry,” Ross told FleetOwner her definition takes in “package delivery, couriers, newspaper delivery, appliance installers and furniture delivery.”

FedEx Ground senior vp & general counsel Cary Blancett said in a statement that the company “fundamentally disagrees with these rulings, which run counter to more than 100 state and federal findings – including the U.S. Court of Appeals for the D.C. Circuit – upholding our contractual relationships with thousands of independent businesses.

“The operating agreement on which these rulings are based has been significantly strengthened in recent years, and we look forward to continuing to work with service providers across our network to provide customers the industry’s most reliable service,” Blancett continued.

In its statement, FedEx Ground pointed out that “in light of legal and regulatory developments in several states, FedEx Ground…has taken a number of steps in recent years to enhance its operating agreements with the independent businesses that contract with the company to provide transportation services. As the latest step in this ongoing effort, FedEx Ground will transition to new independent service provider (ISP) agreements in the states of California, Oregon, Washington, and Nevada.”

The company said it currently contracts with more than 550 businesses that provide P&D service in California. “Those businesses averaged nearly $500,000 in revenue last year, with nearly 50 of them topping $1 million or more in earnings,” stated FedEx Ground. “In Oregon, more than 100 independent businesses provide services for FedEx Ground. More than one-third of the businesses in these two states are minority or female-owned.”

“Small businesses are the foundation and growth engine of the U.S. economy, and we are proud of our long-standing contractual relationship with these service providers– each of which agrees to treat their personnel as employees and to comply with all applicable federal and state laws,” added FedEx Ground vp of  Contractor Relations Sean O’Connor.

“We remain committed to maintaining a business model that has been proven successful for our customers, service providers, and shareowners,” he added.

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