Lessons From The Recent Fedex Settlement For Misclassifying Drivers

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Lessons From The Recent Fedex Settlement For Misclassifying Drivers

By: Carl Larson

FedEx will be paying a total of $467 million to settle claims in a California lawsuit and a multi-district suit in Indiana, that its delivery drivers were improperly classified as independent contractors (“IC”). ICs generally have less legal protections, rights, and benefits as compared to those workers classified as employees. If a court finds that workers were misclassified, employers are often on the hook for a great deal of back pay of overtime wages among other damages and penalties.

The Department of Labor issued guidance recently that states that most workers are considered employees as opposed to ICs pursuant to the expansive definition of “employment” under the Fair Labor Standards Act. The guidance references six “economic reality” factors which employers can use to evaluate whether a worker is actually an IC:

1) The extent to which the work performed is integral to the employer’s business.
The more integral, the more likely the worker is an employee.

2) Whether the worker’s managerial skills affect the worker’s ability to earn a profit or loss.
The more a worker’s individual managerial skill affects their final compensation, the more likely the worker is a contractor (i.e. if a worker’s skill in delegation of work to subcontractors could determine whether they make a profit or a loss, this worker is likely a contractor).

3) The relative investments in facilities by the worker and the employer.
The bigger the investment by the employer as compared to the employee, the more likely the worker is an employee.

4) The worker’s skill and initiative.
The more a worker exercises independent business judgment and initiative, the more likely the worker is an IC.

5) The permanency of the workers relationship with the employer.
The longer the relationship between the two parties, the more likely the worker is an employee.

6) The nature and degree of control by the employer.
The more freedom the worker has in deciding how to accomplish a task and to set their own fees/pay and hire other workers or assistances, the more likely the worker is an IC.

Complicating the matter for California Employers, various California and Federal agencies including the Labor Commissioner, the Internal Revenue service, California franchise Tax Board, and the Employment Development Department, all use differing versions of the above test. Because these versions are not exactly the same, it complicates a company’s ability to determine if a worker is an employee or independent contractor.

Even when employers are able to settle misclassification suits, playing fast and loose with workers’ exemption statuses can leave employers with huge exposure for legal bills. This is particularly true since misclassification can result in not only wage and hour lawsuits, but compliance issues with state and federal tax authorities, worker’s compensation, and unemployment insurance. These types of cases are fact intensive and are not going away anytime soon, as evidenced by multiple other high-profile misclassification lawsuits currently pending against Lyft and Uber, among others.


Employers should periodically reevaluate their relationships with any ICs, as well as the job duties and salary levels of employees who are supposedly exempt from overtime. When it comes to IC classification: the key test is control – the more an employer dictates exactly how a person does their job, the more likely the worker is an employee rather than an IC. The experts at The Saqui Law Group are only a phone call away to help manage your relationships with your workers in order to avoid liability.


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