When Michael Griffin, Diane Gordon and Clarence Kelly became contract drivers for FedEx, they were looking for some independence. They didn't find it.
Although the company classified them as independent contractors and not employees, FedEx controlled a great deal of their time, decisions and finances. It required them to buy FedEx uniforms and trucks with their own funds, told them they couldn't use those trucks for any purpose other than delivering FedEx packages, chose where and when the contractors had those trucks serviced and insured, and dictated when and how they were to deliver packages on their routes.
Worse yet, FedEx prevented them from working for anyone else, despite the fact that they received no benefits as employees--they had to carry the full burden of all the taxes on their wages, received no health insurance, weren't paid overtime, and were ineligible for workers compensation or unemployment.
The drivers decided to fight back April 20, filing a lawsuit against FedEx Ground in a Chicago federal court. The drivers want the case to go forward as a class action and hope to represent more than 1,000 Illinois drivers who worked as independent contractors for the company between April 1999 and April 2005. They seek back wages and benefits, damages for out of pocket expenses they incurred, a declaration that FedEx's policies regarding independent contractors are illegal, and attorney's fees.
"They're seeking exactly what the employees received, no more no less," says Michael Johnson, of counsel with Halunen Associates in Chicago who represents
No Way Out
Johnson says the FedEx system of independent contractor drivers has landed many people in financial trouble and locked them into a cycle where they can't leave the company even though the contractor position doesn't provide the freedom they expected.
"Most of the drivers are not in a position to pay for a giant truck up front," he says. "After they take out loans to buy the truck, they have to keep working for FedEx. It's impossible to sell that truck. The routes are longer than expected and they've sunk hundreds of dollars into other things."
Whether those drivers will recoup some of those costs turns not on how FedEx classified them or what their contracts say, but whether their jobs fall under the common law definition of an employee. Johnson believes it won't be difficult to prove that the drivers were employees.
"An independent contractor is just what the name says it is," he says. "An independent contractor can say, 'I'm taking my kids to Disney World, see you next week.' Independent contractors can decide when and how to work. But these drivers had no discretion about anything. If they took time off, they would lose their routes completely."
Judith Bendich, a partner with Bendich, Stobaugh & Strong in Seattle, won the landmark case in this area of the law in 1997--Vizcaino v. Microsoft. A California court found Microsoft improperly classified "freelance" software testers who worked alongside regular employees as independent contractors and awarded them back pay and employee benefits. (The case eventually settled in 2001 for $97 million.) Bendich agrees it appears FedEx treated the drivers as employees.
"The advantages of being an independent contractor are setting your own hours, having several clients and negotiating your own pay," she says. "An independent contractor is totally responsible for the job and doesn't report to the company. Here, it looks like FedEx was calling the shots."
A California court recently agreed with her assessment.
In a July 26, 2004, ruling, Los Angeles County Superior Court Judge Howard J. Schwab held that 80 FedEx Ground drivers were not functioning as contractors but rather employees and awarded them back pay and benefits. That decision, although currently on appeal, doesn't bode well for the Illinois case, in which identical questions are at issue.
"Courts have held over the years that these guys are employees," Johnson says. "Not one thing shows they're independent contractors. FedEx argues that since they could quit at any time they were contractors. But an employee can quit too."
FedEx Ground declined requests for interviews for this story, but the company has a lot at stake if the suit is successful--FedEx could end up owing the contractors millions of dollars.
By Any Other Name
The issue of determining who is an employee and who is a contractor is putting a lot of companies at risk for lawsuits. Using contractors might seem like a good cost-saving measure, but regulators are watching the practice with increasingly critical eyes.
The California FedEx case, for example, set off an investigation in May by the Employment Development Department, a California state department agency, into the growing practice of classifying--or misclassifying--workers as independent contractors to avoid paying taxes and benefits.
But avoiding the liabilities associated with misclassifying employees is often as simple as turning to the IRS classifications, which clearly delineate who employers must count as their employees for tax purposes. Courts often refer to these guidelines to determine a worker's status.
The IRS offers eight factors that show whether a worker is an independent contractor: The worker hires, supervises and pays her assistants; the worker is free to work when and for whom she wants; the work is done on the worker's premises; the worker is paid by the job or on commission; the worker has the risk of profit or loss; the worker does work for several businesses at one time; the worker's services are available to the general public; the worker can't be terminated early except for breach of contract.
FedEx may have trouble showing that the drivers fit that description.
"Call them what you want, you still have to treat employees as employees," Johnson says. "FedEx has avoided paying hundreds of millions of benefits. And it's not appropriate."