In an August 27, 2014 decision, the Ninth Circuit U.S. Court of Appeals ruled that FedEx Ground misclassified approximately 2,300 California package delivery drivers as independent contractors from 2000 to 2007, resulting in the failure to pay certain wages and reimbursements for business-related expenses. For businesses that make use of independent contractors as part of their regular workforce, the decision, Alexander v. FedEx Ground Package System, Inc., furnishes current guidance into how courts in the Ninth Circuit can be expected to apply California’s “right to control” test in determining whether workers are appropriately classified.

Alexander began as one of numerous similar actions that were filed against FedEx Ground across the country and subsequently consolidated for multidistrict litigation proceedings in the Northern District of Indiana. There, FedEx Ground moved for summary judgment against plaintiffs, arguing that it had properly classified its California package delivery drivers as independent contractors. The district court agreed and plaintiffs appealed.

On appeal, the Ninth Circuit reversed the district court’s decision and ruled that plaintiffs were FedEx Ground employees. In reaching this conclusion, the court relied primarily upon the California Supreme Court’s decision in Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d. 341 (1989), which holds that the principal test of an employment relationship is whether the entity for whom a service is rendered has the right to control the manner and means of accomplishing the result desired. Applying this test, the Alexander court focused on the following factors as evidence of the company’s right to control its package delivery drivers, noting that FedEx Ground:

  • Maintained standards for drivers’ appearance, including what clothes they were required to wear and certain grooming requirements.
  • Enforced standards for drivers’ vehicles, including requirements regarding paint colors and the dimensions of interior shelving systems.
  • Effectively dictated the time of day that drivers worked, regularly giving them assignments that would require 9.5 to 11 hours of work per day and requiring drivers to return to FedEx Ground locations by a certain time.
  • Controlled the geographic areas in which drivers provided their services, including the ability to narrow or augment the service areas at its discretion.

At the same time, the court gave short shrift to FedEx Ground’s argument that the drivers were properly classified as independent contractors because they had the ability to pursue entrepreneurial opportunities (e.g., take on multiple routes per day and sub-contract work to third-parties) while working for FedEx Ground. Nor did the court find persuasive the fact that the Operating Agreement that governed the parties’ relationship stated that the drivers were entering into an independent contractor relationship. Citing California precedent, the Ninth Circuit held that the label the parties placed on their relationship is not dispositive, “[w]hat matters is what the contract, in actual effect, allows or requires.”

The court went on to consider several “secondary indicia of the nature of a service relationship” in its analysis, including, for example, who was responsible for furnishing the tools and instrumentalities for the work being done, the method of payment of wages, and whether the services provided by the drivers required discernible skills. While noting that a few of the factors weighed in favor of FedEx Ground’s characterization of the drivers as independent contractors, the court ultimately concluded that none of the secondary factors was strong enough to outweigh the “powerful evidence of FedEx’s right to control” the manner in which the drivers performed their work. For this reason, the court held the drivers were improperly classified as independent contractors.

Implications

In Alexander, the Ninth Circuit reinforced the primacy of the “right-to-control” test as set out in the California Supreme Court’s Borello decision. In so doing, the court declined to give significant weight to the contractor’s entrepreneurial opportunity for gain or loss, a factor that has played an increasingly prominent role in recent decisions in jurisdictions outside of California. While this focus on entrepreneurial opportunity may continue to gain importance in other contexts and other jurisdictions, in the wake of Alexander, it is unlikely to do so in federal courts applying California law in the Ninth Circuit.

For more information, please contact any attorney in Schiff Hardin’s Labor and Employment Group.