Co-authored by Lorie E. Almon and Gerald L. Maatman, Jr.

A white hot area of focus for the plaintiffs’ class action bar continues to be on alleged improper classification of workers as independent contractors. Hefty damages follow in these types of actions if plaintiffs can prove that they are, in effect, employees as should have been paid overtime.

On December 13, 2010, FedEx Ground Package secured a huge win in perhaps the largest independent contract multi-district litigation in the country involving 42 consolidated class actions known as In Re FedEx Ground Package System Inc. Employment Practices Litigation, Case No. 05-MD-527 (N.D. Ind. Dec. 13, 2010). FedEx won a key ruling defeating over 20 consolidated class actions asserting that its current and former drivers were misclassified as independent contractors. The 182 page ruling by Judge Robert Miller of the U.S. District Court for the Northern District of Indiana threw out claims of drivers in 20 class actions in California, New York, New Jersey, and other states alleging the company misclassified their employment status and owed them back pay, overtime, and other damages. The Court also found that the drivers are independent contractors in 20 of the 28 remaining group lawsuits, and ruled in favor of FedEx on some claims in the other eight other class action cases. In three cases, the court ruled against FedEx on at least one claim.

The December 13 ruling follows an earlier decision last Fall when Judge Miller found that FedEx drivers in Kansas were independent contractors. Judge Miller ruled on December 13 that like Kansas law, most states view the right to control the methods and means by which drivers do their work as the central issue in determining whether they are employees or independent contractors. Basing its ruling on the FedEx operating agreement and company policies, the Court found that FedEx’s control over the results of the work did not equate to control over the means by which its drivers achieved those results sufficient to defeat their classification as independent contractors. 

The December 13 ruling culminates months of procedural and substantive motion practice in a massive proceeding. While it is expected that Judge Miller will remand the cases back to the referring courts via remand back to the Judicial Panel on Multi-District Litigation, Plaintiffs are also expected to appeal the decision to the Seventh Circuit.

The misclassification of workers is also becoming an area of intense scrutiny by federal and state regulators as recovery of lost tax revenues are all important in the present economic environment. While employers use independent contractors to supplement their workforces, provide flexibility, and enhance their competitiveness, the perils of misclassification can have enormous financial consequences – back pay for unpaid overtime, payroll tax contributions, Social Security contributions, insurance premiums, unemployment insurance, employee benefits, and penalties and interest.