Another FedEx Worker Misclassification Case Settled for $227 million

Another FedEx Worker Misclassification Case Settled for $227 million

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MAY 9TH, 2017 | KIMBALL NORUP

Last week FedEx announced that it had reached a $227 million joint settlement of independent contractor misclassification class action lawsuits across 19 states. The District Court for the Northern District of Indiana granted final approval of the settlements, with payments to the 12,627 driver-plaintiffs residing in Indiana and 18 other states ranging from $250 to more than $116,000. This settlement follows a $226 million dollar settlement in June 2015, for a California class action. Both settlements resolve claims that FedEx misclassified its Ground and Home Delivery drivers as independent contractors, with the drivers alleging they were undercompensated and should have been classified as employees under applicable laws.

Background on the FedEx Case

The legal trouble for FedEx began in 2005, when a group of FedEx drivers filed the first of many misclassification lawsuits against the company. The Ninth Circuit Court of Appeals in San Francisco handed down a blockbuster decision on August 27, 2014, concluding that FedEx had misclassified its Home Delivery and Ground Division drivers as independent contractors. That decision was quickly followed by a similar decision from the Supreme Court of Kansas, and the Kansas decision was then adopted in July 2015 by the Seventh Circuit Court of Appeals in Chicago. All three of those decisions reached the same conclusion: FedEx had in fact established an employment relationship with its delivery drivers, despite classifying and treating the workers as independent contractors.

The courts largely based their decisions on the FedEx independent contractor agreement, which FedEx had drafted itself and used across all its Ground Division drivers. The Kansas Supreme Court wrote a harsh critique of the contract, stating that FedEx’s independent contractor agreement was a “‘brilliantly drafted contract creating the constraints of an employment relationship with [the drivers] in the guise of an independent contractor model—because FedEx not only has the right to control, but has close to absolute actual control over [the drivers] based upon interpretation and obfuscation.’”

Following those three decisions, FedEx changed legal course and decided to stop fighting and settle, resulting in these settlements totaling $453 million.

Is It Too Risky to Engage Independent Contractors?

With the combined $453 million that FedEx has paid in settlements of worker misclassification lawsuits, companies that use independent contractors may be wondering if it is too risky to engage independent contractors.

Should companies stop engaging independent contractors entirely?

The short answer is an emphatic “no”.

If you improperly vet, document, structure, and manage your working relationship with ICs you are exposing the organization to risk of fines, penalties, lawsuits, and reclassification. These negative outcomes could easily be avoided by implementing an IC compliance and engagement program.

Classifying workers as independent contractors is a perfectly legal and acceptable form of worker classification, so long as you do it correctly. An Independent Contractor Compliance and Engagement expert, like TalentWave, can build a comprehensive IC engagement program which enables your organization to gain business flexibility in uncertain times, and attract and retain talent (including independent contractors), all while mitigating the risks and streamlining the process.

Lessons for Businesses That Engage Independent Contractors

These monumental FedEx Ground settlements offer two clear lessons to businesses that use independent contractors:

First and foremost, it demonstrates the legal principle that contract law does not supersede employment law. Just because the contracts stated an IC relationship, and both FedEx and the drivers signed it, did not make it so. The best protection for companies using independent contractors is to structure, document, and manage the independent contractor relationship in a manner that is consistent with the laws in the states in which the business operates.
Second, while the laws surrounding independent contractor classification vary significantly across states, most have a common element: direction and control. Specifically, the less direction and control over the workers in question, the better protection the organization has against a misclassified independent contractor.
There is good news for businesses that want to engage independent contractors and mitigate the risks of doing it incorrectly. TalentWave’s IC Compliance and Engagement solutions offer enterprise clients a turn-key solution that dramatically reduces the risk of a misclassified independent contractor, while offering an efficient and cost-effective engagement solution.

Extra – State-by-state Details on the Settlements

In case you were wondering what drivers actually will receive from these settlements, following are the settlement distributions by state:

— Indiana: 791 drivers will divide a settlement of $33.95 million. Average recovery per class member will be $29,520. Settlements per driver may range from $250 to $116,028.

— Alabama: 375 drivers will share a settlement of $3.2 million. Average recovery per class member will be $5,620. Settlements per driver may range from $250 to $20,100.

— Arizona: 380 drivers will share a settlement of $4.95 million. Average recovery per class member will be $8,699. Settlements per driver may range from $250 to $28,149.

— Georgia: 867 drivers will share a settlement of $4.94 million. Average recovery per class member will be $3,785. Settlements per driver may range from $250 to $13,711.

— Louisiana: 315 drivers will share a settlement of $5.25 million. Average recovery per class member will be $11,061. Settlements per driver may range from $250 to $39,743.

— Maryland: 533 drivers will share a settlement of $9.4 million. Average recovery per class member will be $12,047. Settlements per driver may range from $250 to $29,455.

— Minnesota: 455 drivers will share a settlement of $8.3 million. The average recovery per class member will be $12,312. Settlements per driver may range from $250 to $44,701.

— New Jersey: 901 drivers will share a settlement of $25.5 million. Average recovery per class member will be $19,301. Settlements per driver may range from $250 to $71,194.

— New York: 1,602 drivers will share a settlement of $42.9 million. Average recovery per class member will be $18,421. Settlements per driver may range from $250 to $68,880.

— North Carolina: 707 drivers will share a settlement of $20 million. Average recovery per class member will be $19,250. Settlements per driver may range from $250 to $53,440.

— Ohio: 878 drivers will share a settlement of $8.35 million. Average recovery per class member will be $6,363. Settlements per driver may range from $250 to $20,611.

— Pennsylvania: 1,265 drivers will share a settlement of $23 million. Average recovery per class member will be $12,442. Settlements per driver may range from $250 to $45,647.

— Rhode Island: 125 drivers will share a settlement of $1.6 million. Average recovery per class member will be $7,352. Settlements per driver may range from $250 to $20,332.

— South Carolina: 274 drivers will share a settlement of $3.1 million. Average recovery per class member will be $7,405. Settlements per driver may range from $250 to $19,682.

— Tennessee: 762 drivers will share a settlement of $12.25 million. Average recovery per class member will be $10,863. Settlements per driver may range from $250 to $39,838.

— Texas: 1,515 drivers will share a settlement of $8.9 million. Average recovery per class member will be $3,938. Settlements per driver may range from $250 to $13,880.

— Utah: 171 drivers will share a settlement of $2.4 million. Average recovery per class member will be $9,130. Settlements per driver may range from $250 to $28,886.

— West Virginia: 107 drivers will share a settlement of $3.75 million. Average recovery per class member will be $22,306. Settlements per driver may range from $250 to $76,456.

— Wisconsin: 604 drivers will share a settlement of $5.5 million. Average recovery per class member will be $6,126. Settlements per driver may range from $250 to $21,842.

The settlements were based on rates of payment for each week a driver worked in excess of 35 hours, plus a separate, lower payment rate for each week a driver worked fewer hours. These amounts vary according to compromises reached through mediation based on the laws of each state. Additionally, the court awarded plaintiffs’ legal fees and costs, at least in part, in each of the suits. Fees awarded in some cases reached 30 percent of the total settlement.