FedEx Appeals Court Loss – The Implications

On July 8, 2015, the United States Court of Appeals for the Seventh Circuit ruled in favor of FedEx drivers who claimed the Company’s treatment of them as independent contractors violated the Kansas Wage Payment Act.  (In Re: Fedex Ground Package System, Inc. Employment Practices Litigation, Carlene M. Craig, et al., v. Fedex Ground Package System, Inc., No. 10-3115) The procedural posture of the case was that a “multidistrict litigation” court, a lower federal court which hears similar subject matter cases arising in multiple jurisdictions, ruled that the drivers were independent contractors and granted judgment to FedEx.  The drivers appealed that decision to the Seventh Circuit.  Because the Kansas Wage Payment Act applied in the case, the Seventh Circuit court asked the Kansas Supreme Court two questions to determine if the multidistrict court had reached the correct conclusion.  Because of the answers to the questions asked of the Kansas Supreme Court, the Seventh Circuit determined that the Kansas Supreme Court had decided the FedEx drivers were employees of the Company.  The federal appeals court reversed the “multidistrict litigation” court and sent the case back to it for “further proceedings” and, perhaps, ultimately, a determination of damages.

Although FedEx reportedly stopped using a business model of treating its drivers as independent contractors years ago (reportedly now using businesses which employ drivers, e.g. “subcontractors”), the Kansas case, and others similar to it pending in other jurisdictions, have implications for FedEx’s bottom line as well as “sharing economy” companies such as Uber Technologies Inc.  It was reported that in June, 2015, FedEx settled a similar case with drivers for $228 million.  The cases still pending involve a number of different states’ laws pertaining to the status of the FedEx drivers as independent contractors rather than employees.

As for the implications to the “sharing economy”, the Seventh Circuit court stated as follows in referring to the Kansas Supreme Court’s determination of the drivers’ status as employees:

 

“In responding to the questions, the [Kansas] court restated the twenty factors from Crawford v. Kansas Dep’t of Human Resources, 845 P.2d 703 (1989), used to determine whether an employer-employee relationship exists. 335 P.3d at 74, 76. The court explained that the twenty-factor test “includes economic reality considerations, while maintaining the primary focus on an employer’s right to control” and held that the test “is the tool to be used in Kansas to determine whether an employer/employee relationship exists under the [Kansas Wage Payment Act].” Id. at 76.”

A multiple factor test referred to in the preceding quote is widely used to determine the status of workers as independent contractors or employees.  The Internal Revenue Service employs such similar multiple factors in determining worker status for purposes of payroll and other relevant taxes.  Multiple factors also play a part in U.S. Department of Labor determinations as to worker status.  In the case of the Kansas litigation, the focus amongst the factors was upon “control” but also includes “economic reality considerations”.

Whether “sharing economy” businesses will be able to refute the “economic reality considerations” referred to by the Kansas Supreme Court remains to be seen.  Such a consideration may not be relevant in other states.  However, the trend seems to be for courts to reach the conclusion that the “independent contractor” model is not one that many states, as well as the federal government, are eager to embrace.

PK Law’s Employment and Labor attorneys have extensive experience in the application and interpretation of wage and hour laws for employers.  To contact an attorney in PK Law’s Worker Misclassification and Wage and Hour Law Group click here.  For additional information contact information@pklaw.com.

 

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