Reversal by 9th Circuit in FedEx Overtime Case

(CN) - FedEx misclassified more than 3,000 delivery drivers in California and Oregon as independent contractors rather than employees, the 9th Circuit ruled Wednesday.

The decision upends a finding from a multidistrict litigation court in Indiana against three separate class actions on behalf of 2,300 California-based drivers for FedEx Ground and FedEx Home Delivery and 363 in Oregon that were consolidated with similar complaints from 40 states.

In both the California and Oregon cases, the drivers claimed that, between about 1999 and 2009, FedEx forced drivers to purchase company-approved trucks, uniforms and other equipment as if they were independent contractors, while controlling minute details of their appearance and behavior, right down to their body odor.

FedEx argued that the operating agreement at issue offered drivers entrepreneurial opportunities beyond those available to employees, and said that it controlled the drivers only to a point - noting that, among other things, it did not require them to follow specific routes or deliver packages in order.

The Multidistrict Litigation (MDL) court granted FedEx summary judgment in most of the cases, including those from California and Oregon. It found that the drivers were independent contractors as a matter law because of their "class-wide ability to own and operate distinct businesses, own multiple routes, and profit accordingly."

Reversing the MDL court in separate opinions Wednesday, a three-judge panel with the 9th Circuit returned the two cases to their respective district courts for summary judgment in the drivers' favor.

FedEx's operating agreement, which controlled "drivers' clothing from their hats down to their shoes and socks" and required that they be "clean shaven, hair neat and trimmed, [and] free of body odor," failed the "right-of-control" test in both states, the unanimous panel found.

"The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx's appearance standards," Judge William Fletcher wrote in both rulings. "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."

"Viewing the evidence in the light most favorable to FedEx, the OA grants FedEx a broad right to control the manner in which its drivers' perform their work," Fletcher added. "The most important factor of the right-to-control test thus strongly favors employee status."

FedEx said Wednesday that it no longer uses the same operating agreement at issue in the cases.

"Since 2011, FedEx Ground has only contracted with incorporated businesses, which treat their drivers as their employees," the company said in a statement.

FedEx added that it plans to "transition to new independent service provider agreements in the states of California, Oregon, Washington, and Nevada."

Nevertheless, the company will file a petition for review of the ruling by a full, 11-judge panel of the appellate court, FedEx said.

"We fundamentally disagree with these rulings, which run counter to more than 100 state and federal findings ... upholding our contractual relationships with thousands of independent businesses," said Cary Blancett, FedEx Ground's senior vice president and general counsel, in a statement. "The operating agreement on which these rulings are based has been significantly strengthened in recent years, and we look forward to continuing to work with service providers across our network to provide customers the industry's most reliable service."

The drivers' attorney, Beth Ross of Leonard Carder, said in statement that "FedEx Ground built its business on the backs of individuals it labeled as independent contractors, promising them the entrepreneurial American Dream."

"Nationally, thousands of FedEx Ground drivers must pay for the privilege of working for FedEx 55 hours a week, 52 weeks a year," Ross added. "Today, these workers were granted rights and benefits entitled to employees under California law. To be clear, the Ninth Circuit exposed FedEx Ground's independent contractor model as unlawful."

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