This past week a referee appointed by the Los Angeles Superior Court recommended that the court award FedEx drivers in California $14.4 million for unreimbursed job-related expenses and accrued interest. This is the latest in a long-running nationwide battle between FedEx and its drivers over how they should be classified for employment law purposes. Other employers should learn from FedEx’s experience. For information on this and other cases against FedEx, visit FedEx Drivers Lawsuit.
Last year, the California Court of Appeal had affirmed the trial court ruling that the drivers were employees, and not independent contractors. It explained that the test for determining employee status is “whether the principal has the right to control the manner and means by which the worker accomplishes the work.” Even though FedEx’s written agreements with its drivers stated that they were independent contractors, “FedEx’s control over every exquisite detail of the drivers’ performance, including the color of their socks and the style of their hair, supports the trial court’s conclusion that the drivers are employees, not independent contractors.” The full text of the decision is available here.
Some employers think it is as simple as choosing between IRS Form 1099reporting, and IRS Form W-2 Reporting. As the IRS explains in its “Independent Contractor or Employee …” publication, the nature of the relationship, not the form, determines whether or not a person is an employee. Making the wrong choice can lead to serious consequences, such as liability for unreimbursed expenses as in the FedEx case, for overtime obligations, for employee benefits, for workers compensation premiums and penalties, and unpaid taxes.
What should an employer do to avoid difficulties like those encountered by FedEx? Begin with the assumption that any worker who is a regular part of your business is an employee. If you are convinced that the worker may have sufficient independence to qualify as an independent contractor, then conduct a thorough analysis. To assist you in that analysis, the California Employment Development Department publishes the Employment Determination Guide, which contains a thorough explanation of the subject, and a series of yes or no questions that explore the determinative factors.
If you determine after your analysis that the worker is indeed an independent contractor, document the relationship in a written contract. You can find some sample contracts through the Employment Forms page at FindLaw.