Courts Find FedEx Misclassified Drivers As Independent Contractors

The classification of workers as independent contractors is a technique that companies use to reduce overhead costs, but a misclassification can deny workers overtime wages.

FedEx is the only delivery company to classify drivers as independent contractors rather than employees. The difference in work classification means that drivers do not receive normal employment benefits such health care coverage or employer-provided 401(k) plans. The employer does not withhold payroll taxes and avoids FICA contributions.

In addition, an independent contractor does not receive overtime when he or she works more than 40 hours in a workweek. Receiving pay on a 1099 also places a higher tax burden on the worker, who must pay self-employment taxes.

Denied overtime wages

In a recent case from the Kansas Supreme Court, the court held that FedEx had misclassified hundreds of drivers as independent contractors rather than employees. The decision echoes the holding in another recent case brought by drivers in Oregon and California.

Current and former FedEx drivers across the country have sought damages through class action claims for costs incurred during employment and overtime wages that they did not receive because of their designation as independent contractors. They alleged that the level of control exercised by the company was closer to that of an employee relationship. The company had defended its practice of hiring independent contractors, arguing drivers have independence in setting their own delivery routes.

The Kansas court in its decision stated, "FedEx has established an employment relationship with its delivery drivers but dressed that relationship in independent contractor clothing." The court expressed concerns that FedEx labeled drivers as independent contractors to gain a competitive advantage.

Improving worker classification detection

The U.S. Department of Labor recently announced that for the first time it has awarded grants totaling $10.2 million to 19 states, including Texas, which will help the states detect worker misclassification. In the last couple of years, the DOL has stepped up its prosecution of companies that have misclassified employees as independent contractors.

The competitive grants will help states develop programs (i.e. employer audits) to identify employers who fail to report worker wages or misclassify employees as independent contractors. Texas received an additional grant because it had a record of "high performance or most improved performance in detecting incidents of worker misclassification."

IRS factors provide a good reference point

You may wonder whether you should be receiving overtime pay. The Internal Revenue Service uses three factors to differentiate between employees and independent contractors. It is often a good place to start.

Under the behavioral control factor, ask whether you have control to decide how and when work is completed. Close control of the workday and little autonomy are common for employees. Financial control relates to whether you stand to make a profit or loss. The last factor is the relationship of the parties. A written contract and temporary project would lean toward an independent contractor relationship.

When questions arise about your correct employment status, contact an experienced employment attorney. You may be entitled to past overtime wages if your employer misclassified you as an independent contractor rather than an employee.