Conflicting Decisions on Proper Classification of Contractors Could Wind Up in Supreme Court

This story appears in the Oct. 13 print edition of Transport Topics.

Conflicting appeals and state court and National Labor Relations Board decisions on when independent contractors should be reclassified as employees ultimately could help persuade the U.S. Supreme Court to review the controversial issue that some carriers say threatens the contractor business model.

The widespread use of independent contractors continues to be a hot-button industry issue as FedEx Corp. continues to be the primary target in legal battles nationwide over its longtime business model.

The decisions have been mixed, including a decision last week by the Kansas Supreme Court holding that full-time drivers at FedEx Ground Package System Inc. are employees, while the carrier’s contractors and their hired drivers are not.

“Viewing the factors as a whole leads to the conclusion that FedEx has established an employment

relationship with its delivery drivers but dressed that relationship in independent-contractor clothing,” the Kansas high court said.

The Kansas decision came in the lead case of a nationwide class action lawsuit consolidated in an Indiana federal court.

Earlier this month, NLRB defied an appeals court decision, ruling that FedEx Home Delivery drivers at a small Connecticut terminal likewise are employees.

“In our view, the board should give weight to actual, but not merely theoretical, entrepreneurial opportunity, and it should necessarily evaluate the constraints imposed by a company on the individual’s ability to pursue the opportunity.” the NLRB said in its decision.

Appellate court rulings involving FedEx Ground lawsuits filed in California and Oregon, and a Massachusetts express courier lawsuit, offered opposing interpretations of whether a federal pre-emption clause exempts motor carriers from state laws that require some independent contractors to be reclassified as employees.

The conflicting legal opinions in the circuit courts heighten the possibility that the Supreme Court could step in eventually and resolve the conflict, said Richard Pianka, deputy general counsel for American Trucking Associations.

“The same statute should mean the same thing in California as it does in Massachusetts,” Pianka said.

In the California and Oregon cases, FedEx Ground on Sept. 24 asked the full 9th U.S. Circuit Court of Appeals to rehear a three-judge panel’s decision that held FedEx contractors should be reclassified because they fit the legal definition of employees under the state laws.

In the Massachusetts case, filed by courier company Xpressman Trucking & Courier Inc. and the state courier association, the 1st U.S. Circuit Court of Appeals ruled last week that Xpressman was protected by the federal pre-emption law because the reclassification of the company’s 58 independent couriers as employees “would change the routes offered to customers, would preclude on-demand delivery services and would drastically increase Xpressman’s costs and thus its prices.”

The appeals court said that Xpressman provided evidence that routes would change because couriers treated as employees would have to drive to and from Xpressman’s facility, would have less flexibility to accept short routes and could not drive the long routes without a mandatory break.

The company also contended that it no longer would be able to provide on-demand services with employees if it were required to reclassify the contractors as employees.

ATA’s Pianka agreed with that decision.

“We think it’s a very well-reasoned opinion, faithfully applying the relevant Supreme Court precedents, and highlighting once again how out of step the 9th Circuit continues to be on FAAAA preemption issues,” Pianka said.

FAAAA is the abbreviation for the Federal Aviation Administration Authorization Act, which contains the pre-emption clause that exempts motor carriers from state laws affecting their “prices, routes or services.”

A spokesman for the Massachusetts Attorney General’s Office declined comment on the decision.

Jonathan Hacker, a Washington, D.C., attorney representing FedEx, said he could not comment on the case, nor would the company.

But FedEx delivery drivers in the Oregon lawsuit were represented by Portland, Oregon, attorney Mark Friel, who said: “I think there’s finally some acknowledgment by the 9th Circuit that yes, in fact, what happened was that FedEx essentially was shifting its expenses to its workforce, and it wanted to save those expenses by calling them independent contractors, but at the same time treating them like employees. The 9th circuit said, essentially, ‘You can’t do that.’ ”

FedEx argued in its request for a 9th Circuit rehearing that the appellate court panel’s decision will “foster uncertainty over the rules governing independent contractor models, rather than providing the clarity California businesses need and deserve.”

It said, “Courts sometimes get the law wrong. But some errors matter more than others.”

FedEx said the panel decision misconstrues the standards governing independent contractor relationships in California, which will “not only eviscerate hundreds of profitable independent businesses run by FedEx Ground contractors throughout the state but also will threaten disruption of countless other businesses operating under independent contractor models.”

FedEx said its contractors operate as independent businesses that have exclusive geographic control of their service areas, the right to hire drivers and helpers and to make key financial decisions and cannot be terminated at will.

“The importance of these issues — and the panel’s decision’s erroneous treatment of them — for businesses operating in California cannot be overstated,” FedEx said.