The federal judge presiding over the FedEx Ground Package System Inc. (“FedEx Ground”) multidistrict litigation (“MDL”) ruled this week that classes of FedEx Ground drivers in numerous states are independent contractors, not employees. In re MDL-1700 FedEx Ground Package Sys. Inc., Employment Practices Litig., No. 3:05-MD-527 RM (MDL 1700) (N.D. Ind. Dec. 13, 2010) (“Dec. 13, 2010 Order”).
The court’s decision comes on the heels of its August 11, 2010 ruling that a class of Kansas drivers are independent contractors, not employees, under the Kansas Wage Payment Act. See In re MDL-1700 FedEx Ground Ground Package Sys. Inc., Employment Practices Litig., No. 3:05-MD-527 RM (MDL 1700), 2010 WL 3239363 (N.D. Ind. Aug. 11, 2010) (“August 11, 2010 Order”). Following that ruling, the Court instructed the parties to file supplemental briefing explaining whether the Court should reach the same result – on claims under the laws of other relevant States relating to overtime, business expense deductions from wages, late payment of wages, meal-and-rest breaks, and similar wage-related statutory and breach-of-contract claims – in the MDL’s many other collected cases in which similar summary judgment motions regarding drivers’ employee-vs.-independent-contractor status were awaiting decision.
The MDL consists of numerous class action cases filed by drivers against FedEx Ground in courts around the country that were combined for coordinated pre-trial proceedings in the U.S. District Court for the Northern District of Indiana in 2005. In general, the cases allege that FedEx Ground drivers were improperly misclassified as independent contractors, and that the drivers were therefore covered by state and federal laws applicable to employees. Some of the cases also alleged violations of federal law, including the FLSA and the FMLA, and common law causes of action for breach of contract. Eventually, at least 56 separate putative class actions from 40 states were transferred to the Northern District of Indiana as part of the MDL. In 2008 and 2009, the MDL court certified some of the cases as class actions and declined to certify others. The parties then proceeded to file summary judgment motions on the issue of the drivers’ employee-vs.-independent-contractor status. The Court’s ruling this week represents the latest stage of the litigation.
In its August ruling in the Kansas case, the Court summarized its conclusion that drivers were independent contractors as follows:
The plaintiffs have all signed Operating Agreements labeling themselves as independent contractors, they can hire others to perform their assigned work and go work for another delivery company, and they can sell their routes to other qualified drivers; yet, they contend they are employees. The court sees it differently. Upon review of the evidence in the light most favorable to the plaintiffs, the only reasonable inference is that FedEx hasn’t retained the right to direct the manner in which drivers perform their work. FedEx supervises the drivers’ work and offers numerous suggestions and best practices for performance of assigned tasks, but the evidence doesn’t suggest that FedEx has the authority under the Operating Agreement to require compliance with its suggestions. Further, other factors strongly weigh in favor of independent contractor status; in particular, the parties intended to create an independent contractor arrangement, the drivers have the ability to hire helpers and replacement drivers, they are responsible for acquiring a vehicle and can use the vehicle for other commercial purposes, they can sell their routes to other qualified drivers, and FedEx doesn’t have the right to terminate contracts at-will. Although some facts weigh in favor of employee status, after considering all the relevant factors, the court finds that the plaintiffs are independent contractors as a matter of law.
See Aug. 11, 2010 Ruling at 3. In this week’s decision, the court repeated this same passage (beginning with “Upon review of the evidence…”). See Dec. 13, 2010 Ruling at 11-12 (quoting Aug. 11, 2010 Ruling at 3).
In the vast majority of states involved (AL, AZ, AR, CA, FL, GA, IN, KY, LA, MD, MN, NH, NJ, NY, NC, OH, OR, PA, RI, SC, TN, TX, UT, WV, WI, in addition to KS), the MDL court this week ruled that drivers were independent contractors under each respective state’s legal test. The Court’s detailed reasoning, state by state, is set forth on pages 18-176 of the decision.
The Court noted (at 4-5) that in arriving at both the Kansas decision and this week’s decision, it “has considered evidence common to the drivers’ relationships with FedEx on a nationwide basis: the Operating Agreement [lease] and generally applicable Policies and Procedures. As a condition of class certification, the court excluded particularized evidence of actual control between FedEx and the drivers. …These cases might or might not come out differently under a different procedural posture allowing wider scope for review of extrinsic and particularized evidence, but that situation is not before the court today.”
The Court denied the plaintiffs’ request to give preclusive effect – that is, to treat as already having decided the issue – the California Court of Appeal’s decision in Estrada v. FedEx Ground Package System, Inc., 64 Cal. Rptr. 3d 327 (Cal. Ct. App. 2007) that a FedEx Ground Single Work Area (“SWA”) class of drivers were employees. The Court stated (at 8): “The facts before the Estrada court and those before this court are dissimilar insofar as the facts available to this court don’t go beyond the Operating Agreement and generally applicable Policies and Procedures…. Also, the SWA class in Estrada was markedly different from the classes before this court because the MDL classes lump together SWA and MWA drivers. Thus, though the parties litigated a right to control issue in Estrada, the issue decided in Estrada, isn’t identical to issue before this court.”
The Court also rejected the plaintiffs’ assertion that it viewed as dispositive the Operating Agreement’s indication that the parties intended to create an independent-contractor relationship. The Court said (at 10) that “the intent factor weighed ‘strongly’ because the intent expressed in the contracts was so clear, not because the intent factor had special status or carried dispositive weight.”
The Court went on to declare (at 10-11, citations omitted) that “Most important in Kansas – and the most important under the common law and Restatement tests generally – is the right to control, which typically is the weightiest factor…. This court held that there was no reasonable inference that FedEx retained the right to control the methods and means of the drivers’ work on a class-wide basis. This finding came in light of the distinction between control of means and control of results. In most states, control of results doesn’t indicate employee status; control of means used to achieve contracted-for results does indicate employee status. Drawing the line between means and results is a challenging, highly contextual and fact-specific task. Bright-line rules prove elusive here. This court held that the controls reserved to FedEx were results-oriented: FedEx provides work to and pays contractor-drivers to provide the specific result of timely and safely-delivered packages to FedEx customers. The totality of the circumstances and review of all the relevant facts and factors led to this results-oriented conclusion.”
The Court further explained (at 11) that it “found the drivers’ entrepreneurial opportunities to be highly probative of independent contractor status.”
The drivers are expected to appeal the court’s ruling.