DO YOU THINK YOU HAVE NO LIABILITY FOR SOMEONE WHO IS YOUR “INDEPENDENT CONTRACTOR”? THINK AGAIN

A U.S. Ninth Circuit decision, along with administrative positions taken by the United States Department of Labor and the National Labor Relations Board, may change the way you look at whether a person is your “employee” or “independent contractor.” Determination of whether a person is a company’s employee can have a dramatic impact on the company’s liability in employment disputes, franchisor-franchisee relations, and vicarious liability in tort.

In Alexander v. FedEx Ground Package System, Inc., 765 F.3d 981 (9th Cir. 2014), the U.S. Ninth Circuit Court of Appeals reversed a summary judgment in favor of defendant FedEx Ground Package System, Inc. (“FedEx”) in a class action by FedEx delivery drivers. The Court held thousands of FedEx delivery drivers were, as a matter of law, employees of FedEx―not its independent contractors. These drivers owned their own trucks, were paid per delivery, had to buy their own fuel and maintain their trucks, and had contracts with FedEx that defined their relationship as an independent contractor to FedEx, using standard contract language that provided:

          No officer, agent, or employee of FedEx . . . shall have the authority to direct the [plaintiff-          driver] as to the manner and means employed [by driver]. . . . The manner and means
of [driver] reaching [his] results are within the discretion of the [driver].

Based upon the provisions of the contract, and policy and procedures of FedEx, the district court ruled that FedEx drivers were independent contractors based primarily upon the “entrepreneurial opportunities” FedEx afforded to the FedEx drivers, and the “. . . drivers’ class-wide ability to own and operate distinct businesses, own multiple routes and profit accordingly.”

The Ninth Circuit reached the opposite conclusion based on the same undisputed facts and held that FedEx was the employer of all of its delivery drivers in the litigation.

In its ruling, the FedEx court applied the California test for independent contractor status, a test similar to that in most states. The test looks to the right of the principal, FedEx, to control the manner and means of persons in accomplishing the result desired, along with several other factors. FedEx, 765 F.3d at 988. FedEx and the class of delivery drivers agreed that the standard contract between them and FedEx’s policies and procedures were undisputed facts governing the details of the delivery drivers’ performance of their jobs. The Ninth Circuit placed little weight on the standard contract provision about FedEx lacking the right to control the drivers and found FedEx had a “great deal of control over the manner in which the drivers do their job . . . ,” based on the following policies and procedures:

• FedEx controlled the details of the appearance of the delivery drivers and that of each delivery truck;
• FedEx controlled the time its drivers could work, and how and when the packages were delivered; and
• FedEx had absolute discretion whether to grant or withhold its consent for the FedEx delivery drivers to do any work other than for FedEx.

Id. at 989-90. After comparing the FedEx drivers to “sharecroppers,” the Court rejected the argument by FedEx that its delivery drivers were independent contractors because they had “entrepreneurial opportunities” to operate their own delivery services (as the D.C. Circuit had ruled in favor of FedEx, in FedEx Home Delivery v. National Labor Relations Board, 563 F.3d 492 (D.C. Cir. 2009)).

One can write-off the recent FedEx decision to the liberal tendencies of the U.S. Ninth Circuit. But, the reality is that the majority of federal court judges on nine of thirteen U.S. Courts of Appeal have been appointed by Democratic administrations. See “Building Legacy, Obama Reshapes Appellate Bench,” New York Times, September 13, 2014. These more liberal federal court judges may follow the analysis in the FedEx decision to treat “independent contractors” as employees under the law of your state.

To compound matters, the Obama Administration and the National Labor Relations Board have challenged franchisors, like McDonalds, on “independent contractor” status, and argued that a franchisor has “joint responsibility” with the franchisee for the franchisor’s employees if the “industrial realities” are that the franchisor and franchisee are essentially the same company. See “Who’s the Boss,” The Economist, September 6, 2014, p. 33.

Companies relying on “independent contractor” status in labor, franchisor-franchisee, and litigation matters would be wise to re-examine their contracts and policies and procedures involved in these relationships in light of the FedEx decision and the “new wave” of administrative decisions on who is an “employee.” Changes in contracts and policies and procedures may be needed to avoid your “independent contractors” becoming “employees” for whom you are liable.