Kansas FedEx Drivers Are Employees, 7th Cir. Says

The HR & Payroll Resource Center is your integrated, comprehensive source for HR and Payroll information that merges news, analysis, and guidance – including custom answers,...

By Lisa Nagele-Piazza

July 9 — A class of about 479 FedEx Ground Package Systems Inc. delivery drivers in Kansas who claimed they were misclassified as independent contractors were actually employees under state law, the U.S. Court of Appeals for the Seventh Circuit ruled July 8 in the first of many cases against the company.

The Seventh Circuit reversed a district court's ruling that the drivers were independent contractors. The appeals court certified questions to the Kansas Supreme Court in 2012 asking whether the drivers were employees as a matter of law under the Kansas Wage Payment Act. And the state court responded that they were.

After providing the parties an opportunity to brief their positions in light of the state court's answer, the Seventh Circuit remanded the case to the district court with instructions to enter judgment for the drivers that they were FedEx employees. The case is part of multidistrict litigation proceedings pending before the U.S. District Court for the Northern District of Indiana that include similar cases brought by FedEx drivers in about 40 states.

“The Seventh Circuit, like every other Circuit Court that has scrutinized FedEx's independent contractor model, has found the drivers to be employees,” Robert I. Harwood of Harwood Feffer LLP in New York, an attorney for the drivers, told Bloomberg BNA July 9. “We have been fighting for the rights of the FedEx drivers for 10 years and expect that this battle will yield significant fruit.”

“The decision applies to those contractors operating in Kansas from 1998-2007 under a model that no longer is in use,” a spokesperson for FedEx said in a July 9 e-mail. “Since 2011, FedEx Ground has contracted only with incorporated businesses, which treat their drivers as their employees. We fundamentally disagree with this ruling and are exploring our legal options.”

Multidistrict Litigation Pending for 10 Years

According to the case record, multiple class actions were filed in federal courts by current and former FedEx delivery drivers who alleged the company violated the Employee Retirement Income Security Act and the wage and hour laws of their respective states by misclassifying them as independent contractors.

The drivers signed an operating agreement that designated them as independent contractors, but they argued that FedEx retained the right to control their work. The company directed drivers to appear clean-shaven with trimmed hair, assigned them service areas and work schedules, and required them to paint their trucks a certain shade of white, the drivers said.

They claimed they were due overtime wages, expense reimbursement and other benefits that are generally afforded to employees but not to independent contractors.

The cases were consolidated in 2005 and transferred to the U.S. District Court for the Northern District of Indiana. And in the case at hand, Craig v. FedEx, the district court in 2010 found the drivers were independent contractors.

The operating agreement showed the parties' intent to have an independent-contractor relationship, the district court said. It found that other factors also weighed in favor of independent-contractor status, including that the drivers supplied most of their equipment and had the right to hire replacement drivers or helpers.

The district court then ruled for FedEx in the other cases. The Seventh Circuit said 21 cases are pending appeal that present substantially the same issue but arise under different states' wage and hour laws. The court agreed to first address the Craig appeal and suspended briefing in the other cases.

In June, a group of about 2,300 drivers in California reached a $228 million settlement to resolve their claims that they were misclassified as independent contractors and were owed wages and other benefits under state law.

Drivers Are Employees, Kansas High Court Said

In the present case, the Seventh Circuit certified two questions to the Kansas Supreme Court:

• Given the undisputed facts presented to the district court in this case, are the drivers employees of FedEx as a matter of law under the Kansas Wage Payment Act?

• Is the answer to the preceding question different for drivers who have more than one service area?

The state high court answered “yes” to the first question and “no” to the second. The Kansas court explained that it applied its 20-factor test for employee status that considers the economic reality of the relationship while primarily focusing on the employer’s right to control.

Arguing that the “Justices drew adverse inferences from the record against FedEx,” the company urged the Seventh Circuit not to follow the state court's decision.

But the Kansas court was required to “conduct a purely legal analysis,” the appeals court said. “Certification would be a pointless exercise unless the state court’s answers are regarded as an authoritative and binding statement of state law,” it added.

The appeals court also rejected FedEx's argument that the state court's decision rested on whether FedEx exercised “actual control” over the drivers.

“The Kansas court’s decision does not mandate an evidentiary inquiry into actual control,” the appeals court said. Actual control isn't even included in the 20 factors used to determine employment status under the KWPA, it added.

By Lisa Nagele-Piazza

To contact the reporter on this story: Lisa Nagele-Piazza in Washington at lnagele@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Text of the opinion is available at http://www.bloomberglaw.com/public/document/In_re_Fedex_Ground_Package_Sys_No_103115_2015_BL_218809_7th_Cir_J.