With a huge settlement in California, FedEx provides further proof that misclassifying workers as independent contractors poses a significant business risk.
Fedex announced last Friday that they have agreed to pay $228 million to settle litigation claiming the company misclassified workers by improperly labeling them as independent contractors and then short-changed them on pay and benefits.
The case revolved around claims that Fedex has improperly misclassified 2,300 FedEx Ground and FedEx Home Delivery drivers working in California from 2000 to 2007 as independent contractors. A federal appeals court had ruled in August that the drivers were employees, not independent contractors, and were therefore entitled to overtime and other benefits. Company officials had contended that the drivers, who worked for a branch called FedEx Ground Package Systems, were independent contractors unprotected by California labor laws. A lower court initially agreed with FedEx, but a three judge appeals court panel overturned the ruling.
FedEx appealed the ruling, but in a surprise move agreed to settle the case Friday.
“The $227 million settlement, one of the largest employment law settlements in recent memory, sends a powerful message to employers in California and elsewhere that the cost of independent contractor misclassification can be financially punishing, if not catastrophic, to a business,” said Beth Ross, who represented the workers in the class action lawsuit.
The settlement money is intended to compensate the drivers for work-related expenses they incurred as a result of the misclassification. These expenses include everything from the uniforms they were required to wear to the standardized trucks they were required to buy. It includes unpaid overtime.
The case has also been widely followed by tech entrepreneurs and lawyers because of the obvious potential negative implications for “sharing economy” business models, which provide services ranging from on-demand transportation to food delivery, maid service, grocery shopping and errand running.
Uber, Lyft, Instacart, Homejoy, Taskrabbit and similar businesses, many of which are headquartered in California’s San Francisco Bay Area, have grown rapidly by leveraging a low-cost labor force consisting mostly of independent contractors. The huge settlement by a well-established corporate giant such as Fedex shows the legal and operational challenges these newer technology-driven companies will likely face in potential and current class-action lawsuits by their workers across the country.