Misclassification lawsuits have been on the rise in recent years, with everyone from exotic dancers to Uber drivers filing lawsuits against their employers for incorrectly identifying them as independent contractors rather than employees. While there are certain state mandated benefits that must be offered to official employees depending on which state they work in, independent contractors are not guaranteed anything, not even a steady paycheck.
By classifying their employees as independent contractors, companies can save millions in taxes and benefits, to the detriment of their dedicated staff.
While misclassification lawsuits have been making headlines recently, FedEx has been dealing with the blow back from misclassifying their employees for the past 11 years. However, it seems they may have finally put those problems to rest. After a decade of legal battles spanning nearly 40 states, FedEx announced in mid-June that they would pay $240 million to settle the remaining lawsuits in 20 different states.
“We are pleased to put this matter behind us as it relates to a contract that has not been in use for a number of years,” FedEx said in its statement. “FedEx Ground has made enhancements to its business in anticipation of rapidly changing competitive, legal, and regulatory conditions. We continue to strengthen our contractual relationships with service providers to deliver industry leading service to our customers.”
The case against FedEx began back in 2005, when truck operators filed a lawsuit claiming that FedEx had wrongly classified them as independent contractors when they functioned like employees. According to the truck operators, since FedEx required them to use company-branded trucks, uniforms and scanners, under federal and state laws they would be considered employees. That lawsuit started a chain reaction across the country with groups of FedEx drivers joining forces to take the giant to court to pay what they owed.
Up until 2011, FedEx hired drivers directly and classified them as independent contractors. By doing this, they were saving untold millions in taxes, fringe benefits, health care costs, pensions and other worker costs they’d be required to pay if they had classified their drivers as employees. However, in 2011, amid mounting lawsuits, FedEx decided it would be wise to change their hiring practices, doing away with hiring drivers directly and instead opting to sign contracts with companies that employ drivers.
Drivers suing the company sought class-wide damages for unreimbursed employment expenses, illegal wage deductions, failure to provide meal and rest periods, unpaid overtime for drivers of trucks weighing less than 10,001 pounds, interest, civil penalties and attorneys’ fees and costs. In June of 2015, FedEx announced that they would be settling with the 2,300 California-based FedEx drivers for FedEx Ground and FedEx Home Delivery that worked for the company between 2000 and 2007 for $228 million. This announcement followed the August 2014 ruling from the federal 9th Circuit Court of Appeals stating that FedEx drivers should have been classified as employees.
Other suits were consolidated in multi district litigation and certified as class action lawsuits. The 20 consolidated cases were litigated in an Indiana federal court between 2005 and 2010 before moving on to the Seventh Circuit between 2011 and 2016. After years of battling for their fair share, the drivers behind the class action lawsuit decided the best course of action for both parties would be to settle out of court.
“If the litigation were to continue … a final resolution would be several years away, and would require significant time and expense to resolve the complex liability and damages issues presented,” the drivers said in court filings on June 15.
In March of this year, FedEx disclosed that they had reached agreements in principle to settle 19 cases for a net loss of $204 million, which rose to $240 million once their Kansas case was settled. Some of the memoranda went into the specifics of the settlement, saying FedEx would be paying approximately $43 million to New York, $34 million to Indiana and $23 million for Pennsylvania. The court filings also estimated that up to 30 percent of those amounts would end up going to attorneys’ fees for the decade long battle.
According to a company spokesman, the $240 million settlement will affect roughly 13,000 drivers. Though FedEx has reached an agreed upon number to settle the remaining cases and put this legal battle in their rear view mirror, the settlement still requires court approval from a federal judge in Indiana where the cases were consolidated. Thankfully, the years-long battle has influenced FedEx to change their hiring practices to ensure that drivers will not be misclassified in the future. For now, both parties can rest easy knowing that the battle finally has an end in sight.