"Calling a dog's tail a leg does not make it a leg": FedEx improperly classified drivers as independent contractors

The Ninth Circuit Court of Appeals ruled on August 27, 2014, that FedEx misclassified full-time delivery drivers in California as independent contractors. Decided under California's Labor Code as opposed to the federal Fair Labor Standards Act, the Ninth Circuit's opinion reverses an earlier dismissal of a class action lawsuit filed by approximately 2300 drivers and exposes FedEx to significant claims for employment expenses and unpaid wages under California law. FedEx's relationship with its drivers is controlled by an Operating Agreement under which, the manner and means of reaching [FedEx's desired] results are within the discretion of the [driver].

The Operating Agreement also provides that FedEx officers do not have the authority to direct the manner or means employed by the driver, prescribe hours of work or break times, or define the driver's route or other details of performance. Unfortunately for FedEx, the label used by the parties to describe their relationship is not controlling and despite the language of the Operating Agreement, the Court found that in practice both [t]he OA and FedEx's policies and procedures unambiguously allow FedEx to exercise a great deal of control over the manner in which its drivers do their jobs. As cited by one of the concurring judges and reportedly attributed to Abraham Lincoln: If you call a dog's tail a leg, how many legs does a dog have? Four. Calling a dog's tail a leg does not make it a leg. Under California's right-to-control test, the principal focus is on whether FedEx has the right to control the manner and means of accomplishing a desired result. A variety of secondary factors for example, who supplies the instrumentalities and tools, the method of payment, whether the work is part of the regular business of the principal, etc. are also considered in determining whether an individual is properly classified as an employee or independent contractor. It should be noted that had this case been brought under the FLSA, the court would have employed the Ninth Circuit's four factor economic reality test although California courts have noted that it would be surprising to find that the respective laws are ever divided on the question whether a particular worker in an independent contractor or employee. In deciding that FedEx drivers were employees, the Ninth Circuit focused on FedEx's:

 control of drivers' dress and grooming from their hats down to their shoes and socks;

 control of drivers' vehicles which includes detailed requirements regarding paint color (Sherwin Williams FedEx white), vehicle dimensions, and shelving dimensions and materials;

substantial constraint of driver hours by structuring workloads so that drivers are required to work 9.5 to 11 hours per day;

control over when and how packages are delivered.

Although FedEx was able to point to certain aspects of the drivers' jobs that it did not control, absolute control is not required and the certain freedoms accorded to drivers e.g. the ability to design their own routes and deliver packages in an order of their choosing did not counteract the extensive control [FedEx] does exercise. The Court rejected FedEx's reliance on a D.C. Circuit opinion which found that the drivers' entrepreneurial opportunities made their independent contractor classification appropriate as California has not abandoned the traditional right-to-control test in favor of the D.C. Circuit's entrepreneurial opportunities approach.

A concurring opinion emphasized that even though the decision 'substantially unravels FedEx's business model, FedEx was not free to contract around California labor law. The distinction between employees and independent contractors is relevant across a wide swath of employment law. While that distinction is largely fact-intensive and often nuanced, as FedEx learned, sometimes it's as easy as applying the looks like, walks like, swims like, and quacks like a duck test. A statement issued by FedEx notes that, 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. Also, FedEx initially indicated it would seek further review of this panel's decision. 

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.