FedEx Settles Contractor Case
This story appears in the June 22 print edition of Transport Topics.
FedEx Corp.’s decision to settle a California driver-status case for $228 million likely will trigger more attacks on the independent contractor model nationwide, experts predicted.
FedEx said June 12 it has agreed in principle to settle a 2005 case involving 2,375 drivers, who alleged that they were employees, rather than contractors, because of the extent of the company’s control over their activities.
“While we disagree . . . we are pleased to put this matter behind us,” FedEx spokesman Jess Bunn told Transport Topics.
Executive Vice President Christine Richards said on a June 17 conference call the company will “continue to defend ourselves against these claims,” noting that FedEx has prevailed in more than 100 challenges to its contractor model.
Although she said the settlement won’t be an accurate measure for other states because California law imposes by far the most penalties and damages, others projected more suits will follow.
“If I was a plaintiff’s attorney, this case would excite me,” said Sean Mack, an attorney who has represented fleets and workers. “It probably will encourage more of these types of actions. The amount of money involved will surely pique some peoples’ interest.”
Mack told TT the decision to settle by FedEx, which has been aggressive in defending its contractor model, certainly will be cited by plaintiffs’ lawyers outside California and prompt lawsuits against other fleets.
“Employers who are dealing with independent contractors will have to look at how they are operating and see if they will be caught up in the same kind of case,” said Phil Mortensen, a New York attorney who represents employers in classification cases.
“If plaintiffs’ attorneys feel they have an independent contractor driver who is really a driver by another name, why not go after it?” Mortensen said. “They could get big fees. It’s a gamble, but it is a reasonable gamble.”
FedEx, which changed the structure of its contractor agreement in 2011, already faces 25 certified class-action suits involving FedEx Ground as well as other suits and administrative proceedings on the issue. Previously, FedEx defeated classification change efforts in 20 states during multidistrict cases heard in Indiana.
Attorney Greg Stefflre, who is CEO of Southern California drayage carrier Rail Delivery Services, told TT, “I don’t think the FedEx ruling will do that much” to change drayage driver status. “I don’t know any [drayage carrier] who has exercised that much control over their drivers.”
Stefflre explained that FedEx needed to exert a much higher level of control over its Ground unit’s operations and the professional appearance standards of workers to operate successfully.
FedEx is “highly distinguishable from other carriers,” Stefflre said, by exerting extensive control over Ground operations through industrial engineering to enable package tracking and other customer-friendly services.
However, Beth Ross, lead plaintiffs’ attorney in the Fed-Ex case, said it was “a historic settlement.”
“It will absolutely be a precedent for other employment cases in the state,” she told TT, particularly in port trucking, where 85% of drivers are contractors. “If I were a small trucking company, I’d have my lawyer on the phone right away.”
Ross said smaller fleets without FedEx’s resources could be prompted to switch drivers to employee status to avoid litigation. She was referring to Teamsters efforts to switch drivers to employee status, making them eligible for union organizing.
Another employment attorney, Nicholas Woodfield, also said the Ground settlement will promote more cases, but with a smaller dollar amount.
Stefflre said the settlement might have more effect on other package carriers and less-than-truckload fleets that exercise greater control over their drivers than drayage carriers.
FedEx’s 2011 agreement changed the relationships so that the company contracted with businesses that employed the Ground workers.
American Trucking Associations has no comment on the settlement because it hasn’t yet been filed with the court, General Counsel Prasad Sharma told TT.
“This certainly will have the most impact in California,” Mack said June 16. “The application could be a bit limited because of the ways each state applies laws.”
Stefflre also said that the Ninth District ruling further damages the separation between contractor and employee status, creating uncertainty about the value of contracts.
The Rail Delivery Services executive said the FedEx contract that was the subject of the settled case was carefully crafted and “goes to extremes to say what is allowable” in the contractor’s relationship with a worker, he said.
“There is a trend among judges to ignore contracts,” Stefflre said. “If you ignore written contracts as unenforceable, then you are undermining business.”
FedEx made a one-time charge against earnings of $133 million in its fiscal fourth quarter ended May 31 in connection with the settlement.
Because the plaintiffs worked for varying periods, there is no fixed amount each plaintiff could receive, Ross said. On average, the settlement awards about $95,000 per driver.
