FedEx Case Shows Perils of Erroneous Independent Contractor Classification
The California Supreme Court upheld a lower court ruling that 209 FedEx drivers are employees and not independent contractors. As a result, the company must pay a total of $17.4 million in reimbursements, costs and attorneys’ fees.
As discussed in a recent Questions of the Week, true independent contractors are relatively rare. The test for independent contractor status is ambiguous and confusing and is different in workers’ comp, tax and other contexts. Indeed, the IRS test used to be called the “Twenty Factor Test.” Not long ago, it was “shortened” to the “Four Factor Test” each of which, unfortunately, contains five criteria each.
Generally speaking, all of the tests come down to this: Does the company control the person or is s/he truly an independent agent serving more than one company?
The court in the FedEx case found that “FedEx’s control over every exquisite detail of the drivers’ performance, including the color of their socks and the style of their hair, supports the trial court’s conclusion that the drivers are employees, not independent contractors.” In addition, the drivers were required to wear a FedEx uniform, work rigid schedules set by FedEx, buy or lease a truck meeting FedEx specifications and generally subjected to strict oversight in performing their duties.
The lesson? Misclassifying employees as independent contractors can be hazardous to your company’s health. The rule of thumb: If an employer has behavioral or financial control over a person, that person ain’t an independent contractor.
