Alert: Court Finds FedEx Drivers Are Employees Rather Than Independent Contractors

August 22, 2007

On August 13, 2007, the California Court of Appeal for the Second District (Los Angeles) held that FedEx needed to reimburse expenses to drivers that FedEx had classified as independent contractors.  The court concluded that the drivers were actually employees, not independent contractors, for the purposes of determining their right to recover reimbursements.  Because the case was brought as a class action, the resulting liability is substantial.

Labor Code § 2802 provides that an employer must indemnify his or her employees for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.  FedEx argued that Section 2802 did not apply to the subject drivers because they were independent contractors as expressly set forth in an Operating Agreement signed by each driver.  The Operating Agreement provided that the drivers held sole discretion in determining the manner and means to satisfy the objectives of the contract, i.e. package delivery and pick up.  Yet, the court found that because FedEx actually exercised control over the details of the drivers' job they were properly considered employees. 

The Court of Appeal relied upon the following as indicia of employment control.  FedEx regulated the driver's hairstyles, uniforms, and sock color.  Drivers had to use specific scanners and forms, which FedEx disbursed and which were marked with the FedEx logo.  Drivers obtained larger items, such as trucks and scanners through FedEx approved providers, and FedEx usually helped finance purchases of these items through employee loans.  These loans were repaid through paycheck deductions.  FedEx required the drivers to work full time on regular schedules and regular routes.  FedEx's terminal managers had the authority to unilaterally reconfigure the drivers' routes without regard to the drivers' loss of income.  Drivers had to be at FedEx terminals at regular times for sorting and mandatory meetings.  The drivers were also paid weekly and not by each job they completed.  The drivers did have the ability to earn an increased profit by delivering a higher number of packages per day, but such an opportunity was considered nominal because the terminal managers could control each driver's schedule and routes in order to evenly distribute the number of packages amongst all drivers.  The driver's relationship to FedEx was also defined by a number of sources including a Ground Manual and an Operations Management Handbook, in spite of a merger clause which said that the operating agreement was the sole document regulating the relationship of the parties.

Businesses should continue to be cautious in classifying and treating individual workers as independent contractors.  Unless the workers are truly acting independent of management direction, they may be viewed as employees with all of the attaching obligations.  Those latent employment obligations may include break time requirements, expense reimbursement, overtime payment, payroll withholdings and taxes, workers' compensation insurance and benefits paid to other employees.  Businesses should consider seeking legal advice before treating a worker as an independent contractor.