A settlement in the case filed in U.S. District Court on behalf of the workers, Alexander v. FedEx Ground, means the company will pay $277 million to resolve the claims of FedEx Ground and FedEx Home Delivery workers who were victims of worker misclassification since the year 2000. These are workers FedEx classified as “independent contractors” but treated largely as if they were on the company payroll.
We first wrote about this last August, when the 9th U.S. Circuit Court of Appeals ruled that FedEx’s employees (in California and Oregon, and likely many states with similar employee-protection laws) are, in fact, “employees as a matter of law” – not independent businesspeople who had the level of control over their jobs that a self-employed person would expect to have.
“The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx’s appearance standards,” the ruling said. “FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx’s consent.”
According to the Economic Policy Institute, worker misclassification is an increasingly common problem, “a business model for unscrupulous employers who use it to avoid employment-related obligations and save on labor and administrative costs.”
EPI says independent contractor misclassification occurs “when a worker who should be considered a direct employee of a business is treated as a self-employed contractor.” Françoise Carré, in his June 8, 2015 report for EPI titled “(In)dependent Contractor Misclassification,” workers who are misclassified are “ineligible for unemployment insurance, workers’ compensation, minimum wage, and overtime, and are forced to pay the full FICA tax and purchase their own health insurance.” Misclassification also “undermines their bargaining power and leaves workers more vulnerable to wage theft.”
Carré also wrote that misclassification leads to the federal and state governments losing revenue from necessary income taxes, while unemployment insurance, workers compensation and disability insurance systems are “adversely affected.”
The report points out that worker misclassification is most common in professions where “work is performed in isolation,” which FedEx drivers exemplify.
The ruling found that the company owes its drivers “for illegally shifting to them the costs of such things as the FedEx branded trucks, FedEx branded uniforms, and FedEx scanners, as well as missed meal and rest period pay, overtime compensation, and penalties.” Drivers were required to pay out of pocket for the trucks, uniforms, and scanners, and even the wages of other employees the company asked the drivers to hire.
After the settlement, the 2,000 workers were granted the rights and benefits entitled to employees under California’s laws. FedEx Ground’s independent contractor model was deemed unlawful, and the settlement is considered as one of the largest in recent history – showing that mislabeling workers can be economically catastrophic to a business.
That doesn’t mean that FedEx isn’t still trying to game the system so it doesn’t have to treat its workers as workers. The company has since 2011 implemented a new system in which delivery drivers are employees of a subcontractor to FedEx, and the trade publication Transport Topics quoted a FedEx spokesperson as saying that the company would “complete the transition to a new independent service provider agreement later this year.”
After Friday’s settlement, FedEx did tweet that new job openings were available. We’ll see if FedEx has learned its lesson about worker misclassification – or if the company is absolutely, positively delivering new ways to scam its workers.
This blog was originally posted on Our Future on June 16, 2015. Reprinted with permission.
About the Author: The author’s name is Emily Foster. Emily Foster is a regular contributor to Our Future.