Home > business > Businesses: Consequences To Mislabeling Independent Contractors – Court of Appeals Rules Against FedEx – Could Cost Millions.

Businesses: Consequences To Mislabeling Independent Contractors – Court of Appeals Rules Against FedEx – Could Cost Millions.

Businesses: misclassifying your  workers as independent contractors v.s employees (“IC” vs “EE”) could cost you serious money.


As reported by the ABAJournal, The 9th Circuit Court of Appeals, provided a victory for FedEx Truck Drivers classified, by their employer FedEx, as “independent contractors”  – reversing  “a finding in multidistrict litigation in Indiana and held that nearly 2,700 plaintiffs in California and Oregon are in fact employees.”  See the ABAJournal article here


Different Tests 

States, Federal Government agencies, and Courts all have their own standards of how to distinguish independent contractors from employees.


Look at the Code of Federal Register, as provided by Cornell Law School,  for the definition of Employee and you will get one definition; go to the IRS website and you will find another extensive resource on the subject, see that resource here.  States have their own rules, statutory and case law, as well.


One of the reasons for the lack of uniformity, is that the distinction between IC/EE matters for different reasons – from the federal government’s perspective, it matters, among other things,  from a Federal tax stand point- or whether or not an EEOC , or fair labor standards act claim is at issue.  From a state law perspective, the distinction  can matter regarding unemployment/workers compensation taxes and claims.

Under Michigan law, 3 conditions must be met in order to find an individual is an employee for purposes of Workers Disability Compensation Act Claims, MCL 418.11(1)(d) –  employee means every person performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury, provided the person in relation to this service does not maintain a separate business, does not hold himself or herself out to and render service to the public, and is not an employer… McCaul v Modern Tile and Carpet, Inc 284, Mich App 610, 616 ( 2001)


The Fed Ex Case

As reported by the ABAJournal:

Under a “right to control” test that applies in both states (California and Oregon), the FedEx drivers are clearly employees, not independent contractors, a three-judge appellate panel held.”

“The drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx’s appearance standards,” wrote Judge William Fletcher in both opinions. “FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx’s consent.”

The fact that FedEx called the drivers independent contractors in an operating agreement did not change their actual status as employees, the court said.”



Take Away: 

This last point made by the 9th Circuit Court of Appeals cannot be under stated- how you decide to label your workers is not going to determine their true status as either IC or EE.  How are your workers  actually operating? E.G. – Do you truly have control over their duties to the extent that they are effectively employees?


Definitely a conversation you may want to have with  your legal and tax counsel.


email: Jeshua@dwlawpc.com






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