In two separate decisions, the Federal Ninth Circuit Court of Appeals court ruled that FedEx misclassified more than 3,000 delivery drivers in California and Oregon as independent contractors rather than employees. According to the court, this could “substantially unravel[ ] FedEx’s business model,” which uses a network of independent contractors to deliver packages throughout the country, and may have far-reaching effects for employers who use independent contractors.
FedEx Drivers Allege Misclassification
In both the California and Oregon cases, the drivers claimed that, between 1999 and 2009, FedEx forced drivers to purchase company-approved trucks, uniforms and other equipment as if they were independent contractors, while controlling minute details of their appearance and behavior.
FedEx argued that its contract with its drivers, called an “operating agreement,” offered entrepreneurial opportunities beyond those available to employees, and said that it controlled the drivers only to a point. In particular, FedEx noted that the contract did not require them to follow specific routes or deliver packages in order.
A lower court initially ruled in favor of FedEx, finding that the drivers were indeed independent contractors. This court emphasized that drivers could “own and operate distinct businesses, own multiple routes, and profit accordingly.”
Ninth Circuit Finds Drivers to be “Employees” under State Law
The Ninth Circuit reversed and ruled that the drivers were employees, not contractors. The appeals court applied the “right-to-control” test, which analyzes whether the company has the “right to control the manner and means of accomplishing the result desired.”
The key element was the operating agreement between FedEx and the drivers. The court observed that this agreement gave FedEx significant control over the drivers’ employment, as shown by the following provisions:
- The appearance of the drivers – “[FedEx] requires drivers to be ‘clean shaven, hair neat and trimmed, [and] free of body odor.’”
- The appearance of the trucks – “FedEx requires drivers to paint their vehicles a specific shade of white, mark them with the . . . FedEx logo” and to keep their vehicles clean. FedEx also “dictates the vehicles’ dimensions . . . and the materials from which the shelves are made.”
- The times drivers can work – “FedEx structures drivers’ workloads so that they have to work 9.5 to 11 hours every working day.” And, while drivers can hire third-party helpers, “managers may adjust drivers’ workloads to ensure that they never have more or less work than can be done in 9.5 to 11 hours.”
- How and when drivers deliver packages – FedEx “assigns each driver a specific service area, which it ‘may, in its sole discretion, reconfigure. It tells drivers what packages they must deliver and when.”
While FedEx’s control of the drivers was not “absolute,” the court concluded control to that degree was not required, and that “employee status may still be found where a certain amount of freedom is inherent in the work.” The fact that FedEx did not exercise any of these was deemed irrelevant because, according to the court, “what matters is that the right exists.”
Another key factor was the court’s rejection of the “entrepreneurial opportunities” test to evaluate possible employee status. Courts in other jurisdictions have found workers to be independent contractors where they have “significant entrepreneurial opportunity for gain or loss.” However, the Ninth Circuit found such decisions irrelevant to their assessment of California and Oregon state law.
The court also found that certain “secondary indicia,” of employee status, such as the right to terminate at will and the provision of tools and equipment, insufficient to overcome the right-to-control test’s finding that FedEx’s drivers were employees under California and Oregon law.
While the Ninth Circuit’s decision directly affects only those employers in California and Oregon, the decision will likely be cited in other jurisdictions where workers seek to claim that they have been misclassified as independent contractors.
In particular, delivery companies in Minnesota and all over the United States should review their arrangements with drivers to determine if they are at risk for being held to have misclassified these workers in the same manner as FedEx.