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In 2004, a class action lawsuit was filed against FedEx in King County Superior Court alleging that FedEx misclassified 320 pick-up and delivery drivers as independent contractors.  These drivers worked for the FedEx Home Delivery and FedEx Ground divisions between December 2001 and December 2004.  After a four week trial in March, 2009, the jury returned a verdict for FedEx, finding that the drivers were independent contractors.  The drivers appealed and, on December 20, 2010, the Court of Appeals issued a 40-page decision reversing the judgment against the drivers and remanding the case back to the trial court for further proceedings.  The Appeals Court found that several of the key jury instructions were legally wrong.

Specifically, the Court held that the Fair Labor Standards Act (FLSA) ”economic realities” test applies because the Washington MWA is modeled on the FLSA.  The specific “economic realities” test that the Court of Appeals used is the 6-factor test used by the majority of federal circuits, which includes the degree of the alleged employer’s “right of control” over the alleged employee as merely one of the 6 factors, not the most important factor. 

The Court expressly rejected the use of Washington tort law for purposes of determining whether someone is an “employee” under Washington’s MWA.  It stated that ”the purpose of the distinction between an employee and an independent contractor is … substantially different in these two areas of law.  While the common law ‘right to control’ test was developed to define an employer’s liability for injuries caused by his employee, the purpose of the MWA is to provide remedial protections to workers.”

The Court also addressed several other instructional issues, including how one proves liability to a class under the Washington MWA, and whether the commonality standard used at the class certification has any remaining relevance at the trial phase.  In short, FedEx’s victory was reversed and the case is being remanded for a new trial.  The entire decision can be read here:  http://case.lawmemo.com/wa/anfinson.pdf 

The correct classification of independent contractors has become an increasingly hot topic in the employment law arena.  In Washington State, we have seen an increased interest in the issue from Labor & Industries.  It seems they have found a new pipeline for income with investigations, and resulting fines, into classification issues.  Many employers classify workers as independent contractors without realizing that there are certain characteristics neccessary to such a classification.  These employers are also unclear on the costs (read: fines) associated with misclassification. 

A recent blog post in Forbes on-line magazine aptly illustrates the host of issues involved as well as some of the political fall out.  Robert Wood, a tax lawyer with Wood & Porter in San Francisco, writes:

“Employers have big incentives to treat workers as independent contractors: avoid income tax withholding, Social Security taxes, workers compensation, unemployment insurance, even liabilities to third-parties.  Plus, you can steer clear of liability for tax-favored pension and fringe benefit plans and a whole pile of federal and state labor and employment laws.  Many companies go out of their way to classify workers as independent contractors, but such arrangements can be scrutinized and lines often blur.  Classically, employees go to work at set hours while independent con­tractors determine their own. 

Employees follow orders, while independent contractors work in the manner they prefer.  Employees receive regular paychecks while independent contractors are paid by the job.  Employees work year-round, while independent contractors are temporary. Employers have control over the actions of employees, while the method, manner, and means of production are left to independent contractors. 

Of course, these are archetypes.  Real-life fact patterns are rarely so clear and therefore require analysis.  The IRS and a variety of state and federal agencies make these determin­ations.  In fact, a worker can be an employee for one purpose and an independ­ent contractor for another.”

For more on Wood’s article, including a good list of additional articles on the issues, go to http://blogs.forbes.com/robertwood/2010/09/17/white-house-on-contractor-vs-employee-there-will-be-blood/ . 

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